GRNM Likely to Spearhead Reshuffle of Guangdong Rare Earth Industry

“Guangdong intends to build a rare earth platform named Guangdong Rare Earth Group, and the plan has been probably approved recently.”An insider of local government said, “although there is no final conclusion, but the Guangdong’s intention to build a general platform of rare earth is clear.” Since Guangdong Rising Nonferrous Metals Group Co., Ltd. (GRNM) is the only local state-owned enterprise leading rare earth development, therefore, once the platform is launched, GRNM is expected to take an important role.

Different from light rare earth resources in north China, medium and heavy rare earth resources in southern provinces such as Guangdong and Jiangxi, etc. are unique and extremely rare. After Inner Mongolia has rapidly consolidated rare earth resources in north China and launched its protection strategy, Guangdong also wants to follow suit. The insider considers that it is urgent for Guangdong to consolidate its rare earth resources, he/she said “once the consolidation starts, local state-owned enterprises will surely spearhead the plan.”

In June 2011, Guangdong government officially transferred 50.02% of the share rights held by GRNM to Guangdong Rising Assets Management Co, Ltd. (hereinafter referred to as Rising Company). The transfer was deemed at that time a critical step for Guangdong Stateowned Assets Supervision and Administration Commission to strengthen control of rare earth resources. Through share transfer, GRNM will be upgraded from a level-2 holding subsidiary of Rising Company to a level-1 holding subsidiary of the company.

According to the insider, “if the Commission of State-owned Assets starts to build the general rare earth platform, financing is naturally an important issue, and listed company will undoubtedly a key platform for financing and operation.”

According to the abovementioned announcement of GRNM, Rising Company is speeding up to consolidate nonferrous metals resources in Guangdong, and gradually expanding to other provinces of China. Rising Company will, by many means, consolidate the nonferrous metals resources of its own and of the whole Guangdong province, thereby realizing orderly development and comprehensive utilization of resources. Share transfer may also help Rising Company to fully utilize resources allocation function of capital market to raise money for development, promote sustainable development of the nonferrous metals industry of Rising Company, and meanwhile, drive growth of main business income directly and increase the overall profitability of listed company through effective integration of quality resources.

In the current rare earth market, local rare earth resources in Guangdong are being challenged by outside competitors. For example, China Minmetals Corporation signed a strategic cooperation agreement with the government of Heyuan city in March 2011 aiming to jointly explore local rare earth. This made it urgent for Guangdong to build a general rare earth platform.

GRNM mainly deals in rare earth and tungsten business. It is inevitable to consolidate resources in Guangdong and implement the strategy of “going out”. Previously, GRNM intended to enhance rare earth development and processing in Ganzhou of Jiangxi. GRNM established Jiangxi Rising Rare Earth Co., Ltd.and holds 65% shares of the latter, which mainly engages in mining and separation of rare earth as well as production and selling of lighting-use tricolor phosphor powder, energysaving light, LED light, rare earth metals and functional materials. According to a report of China Securities Co., Ltd., GRNM at present mainly deals in rare earth dressing, separation and selling, so it intends to extend its industrial chain downwards and is expected to launch a rare earth deep processing project in 2013.GRNM mainly produces lighting-use tricolor phosphor powder and LED phosphor powder,etc. Upon completion of the industrial chain,the gross profit margin of the rare earth business will be improved.

Rare earth price fluctuated dramatically and increased by 5～10 times in the first half of 2011. And the net profit assigned to GRNM shareholders soared by 763% on a y-o-y basis;the rare earth price dropped by approximately 50% in the second half of 2011. However, under the precondition of increasing governmental regulation of rare earth, rare earth product price is expected to show a shock rise tendency in 2012.