NFC Challenges CHINALCO for DNC; NFC Extends Its Industrial Chain

NFC Challenges CHINALCO for DNC; NFC Extends Its Industrial Chain

NFC will support Daye Nonferrous Metals Co.Ltd.(DNC) to grow into a first-class global copper enterprise with annual sales revenue of more than RMB 100 billion as soon as possible.Zhang Lin,Chairman of DNC,said in the signing ceremony held later in January 2011,the group would take the opportunity of increasing capital and share,use advanced management philosophy and excellent resources development platform of NFC for reference,implement “going out” strategy,actively participate in development of overseas resources,constantly change operational mechanism,accelerate the transformation of the mode of economic growth and enhance core competitiveness.

In 2010,DNC produced 300,000 tons of copper cathodes with sales revenue of more than RMB 32 billion,respectively 2 times and 5 times of those at the end of the 10th Five-Year Plan Period.So far,DNC enjoys a high copper smelting capacity of up to 400,000 tons,and its output of copper cathode ranking the fourth and the sales revenue ranking the third amongst all countrywide copper enterprises of the industry.Currently,DNC is one of the 5 key copper material bases of China.

Restricted by the shortage of copper resources,copper is the only metal with demand exceeding supply amongst the key metals of China.A few years ago,CHINALCO hoped to join the industry through acquiring DNC Metals Company,the predecessor of DNC.

On October 12,2004,the Hubei government and CHINALCO signed a contract in Wuhan,according to which,Hubei transferred 87% net assets of DNC Metals Company to CHINALCO,and DNC Metals Company became a subsidiary of CHINALCO.But the contract did not bind the two parties due to various reasons.Ultimately,CHINALCO failed to acquireDNC,but chose to reorganize the Yunnan Copper Group that ranks the third in the industry.

Before cooperating with NFC,DNC established strategic cooperation relationship with China Yangtze Power Co.,Ltd.(CYPC) in 2008.The both parties agreed to make investment in the affiliated Daye Special Steel Limited Co.,Ltd through increase of capital and share.CYPC planned to invest RMB 2 billion through its affiliated Beijing CYPC Innovation& Investment Company in Daye Special Steel Limited Co.,Ltd,and the first phase of investment of RMB 1 billion has been in place.After the investment,DNC will continue to maintain its controlling status on Daye Special Steel Limited Co.,Ltd by holding 45.61% of the latter’s shares.

However,except for capital,CYPC does not own resources in nonferrous metals industry that is complementary to DNC.China encourages consolidation among nonferrous metals enterprises.Although DNC enjoys a high rank in the copper industry,it still lags far behind Jiangxi Copper Corporation,Tongling Nonferrous Metals Group and Yunnan Copper Group that rank the first 3 places respectively.At present,Jiangxi Copper Corporation has a smelting capacity of up to 900,000 tons.

Lack of copper resources seriously restricts the long-term development of DNC.In 2009,amongst DNC’s raw materials for copper smelting,10% was produced by its own,while in the first 3 quarters in 2010,only 6.71% was produced by its own.

Currently,most copper concentrates of NFC come from Zambian Chambishi Copper Mine operated by NFC Arica Mining Limited Liability Company,which is under absolute control of NFC.The copper mine is the first overseas nonferrous metals mine approved by National Development and Reform Commission of China.Chambishi Copper Mine was completed and went into production on July 28,2003.

NFC also owns a copper mine in China.In 2006,Fushun Hongtoushan Copper Mine,which has abundant copper resources,was incorporated into NFC.As of the end of 2009,the available ore reserves of Hongtoushan Copper Mine stood at 9,520,000 tons,containing 376,100 tons of copper and 510,400 tons of zinc.

According to a notes collection specification of 2010,NFC’s resources contain 5,350,000 tons of copper,1,700,000 tons of zinc,700,000 tons of nickel,240,000 tons of lead,150,000 tons of cobalt,100 tons of gold and approximately 160,000,000 tons of bauxite; the current projects contain approximately 27,500,000 tons of copper,45,000,000 tons of lead and zinc and approximately 500 tons of gold.

After acquiring large quantities of resources,NFC began to make plans for extension of the industrial chain.In September 2009,NFC reorganized Obote Copper Aluminum Co.,Ltd.–the largest copper material processing enterprise of Shandong province,which may produce high-precision air conditioner refrigeration copper tube and large high-precision copper alloy sheets and strips.Shandong province has transferred 80% of property rights of Obote to NFC for free.

Compared with large-scale enterprises directly under the central government such as CHINALCO and Minmetals,etc.,NFC is small and needs to develop and grow rapidly.Otherwise,it is likely to be incorporated by other largescale enterprises directly under the central government.Last year,NFC’ assets and operating revenues exceeded RMB 50 billion and RMB 45 billion respectively for the first time.After successful acquiring DNC,NFC will increase billions of sales revenue and have the entire copper industrial chain open to it.

NFC indicated that it listed Hubei as one of key areas for investment during the 12th Five-Year Plan Period and planned to further increase the investment,build comprehensive production base of nonferrous metals including copper as well as rare and precious metals,further extend the industrial chain,develop deep-processing industry and recycled resources industry,and enhance added value and technological elements of product.