TNMG: 7 Mines To Be Injected

A fact that cannot be neglected is that with copper concentrate self-sufficiency rate of 20%～25%, China-made copper concentrate is far from satisfying the domestic demand for smelting capacity, and the insufficiency can only be solved by means of import. TNMG faces the similar problems.

According to the Q3 report, TNMG’s business income is RMB 5,200,000,000 in the current period, up by 39% on a y-o-y basis. The growth benefits mainly from the rising momentum of both volume and price. The investment income in the current period is RMB 7,860,000, a significant growth over the same period of the previous year, during which RMB 2,590,000 was lost. The growth mainly benefits from the remarkable growth of income from investment of its subsidiary Zhangjiagang Copper Company in Baise Rongda Copper Co., Ltd. over the same period of the previous year.

According to relevant statistics, TNMG’s selfsufficiency rate of resource stood at merely 5.83% in the previous year, far below the industrial average. Under the circumstance of short supply of copper mine and high frequency of negative value between the inside and the outside, lack of copper resources has become a major bottleneck restricting development of the group.

Thus, TNMG announced that it has put forward a resource control and development strategy,namely, acquire, consolidate and restructure mines and enterprises with favorable resource condition and promising prospect at home and abroad through various forms of share controlling and equity participation, etc., Meanwhile,TNMG will actively consolidate nonferrous metals resources of Anhui, and make the best use of the existing mine to increase the output of self-made copper concentrate.

TNMG’s reserve of main mines (including Dongguashan copper mine, Anqing copper mine, Tongshan copper mine, Xianrenqiao copper mine, Yueshan copper mine, Fenghuangshan copper mine and Jinkouling copper mine, etc.) stands at approximately 2,000,000 tons.

Shanxi Securities (002500) indicates in its research report on TNMG at the beginning of the month, although TNMG’s copper reserve has grown to some extent after acquiring Tongshan, Xianrenqiao, Fenghuangshan and Jinkouling mines, these newly-acquired mines feature small reserves and scale. Currently,TNMG’s mining and dressing of copper concentrate mainly rely on Dongguashan copper mine and Anqing copper mine.

Dongguashan copper mine is capable of processing 10,000 tons of copper concentrate per day and producing 32,000 tons of copper concentrate per year. Since it is necessary to increase recovery rate of ore, the reconstruction and extension projects of Dongguashan copper mine are expected to complete and go into operation this year, and annual output of copper concentrate of the mine will increase to 34,000 tons.

Anqing copper mine is capable of producing only 8,000 tons of copper ore annually, but production capacity of iron ore concentrate stands at 500,000 tons, a major contributor to TNMG’s iron ore concentrate sales.

The production capacities of all other existing copper concentrate mines are small. For example, Tongshan copper mine yields approximately 2,000 tons of copper concentrate annually. Its reconstruction & extension projects are expected to complete and go into operation in 2013, and the annual output of copper concentrate will reach 5,000 tons after the mine achieved its designed yield.

Jurong Xianrenqiao mine remains in the phase of pilot production and the output of copper concentrate stands at 400 tons this year. After it achieves the designed yield, the mine is expected to produce 2000-3000 tons per year.Moreover, as a multi-metal mine of copper,gold, silver, iron and molybdenum, it will achieve the highest profitability and return on assets in the future.

Anqing Yueshan copper mine is an exception.Currently, the company owns exploration right of 300,000 tons of copper reserves. However,there are 10,000,000 tons of iron ores at the bottom where it joins Anqing copper mine, and the group is planning to acquire exploration right of the iron deposit.

Fenghuangshan mine and Jinkouling mine are of small scale. The 2 mines, together with Tongshan copper mine, yield approximately 5,000 tons of copper concentrate.

The group’s gross profit ratio of secondary products including sulfuric acid, iron ore concentrate and gold stands at more than 20%. Sulfuric acid is mainly produced through crude copper smelting. The technical improvement of Jinchang mine of the group will be completed and put into operation at the end of the next year, and the production capacity of Jinjian Mine will rise to 200,000 tons in the future.

Zhang Fang, an analyst of Donghai Securities,believes that the group’s total copper smelting capacity now stands at 850,000 tons, and the figure will rise as a result of increasing capacity of the self-financed project under construction, which is expected to go into operation at the end of 2012 and increase the capacity by 400,000 tons. At that time, the company’s smelting production capacity will reach 1,250,000 tons, up by 47%.

Tongling Nonferrous Metals Group Holding Co., Ltd., a major shareholder of the group,boasts rich mineral resources of copper and molybdenum. Since the group has ever promised to avoid horizontal competition with the listed company, it decides to inject its resources gradually to the following companies as long as they are qualified for formal production:

Inner Mongolia Chifeng Guowei Mine: the mine is held at a ratio of 51% by TNMG and now has reserves of 1,500,000 tons of copper and 320,000 tons of molybdenum and exploration right of an area of 24 square km. At present, TNMG is designing an investment plan by taking grade of ore into account. It is estimated that the annual production capacity of the copper mine will reach 15,000-20,000 tons.Anhui Lujiang Shaxi copper mine: with a reserve of 700,000 tons of copper and a perspective reserve of 1,500,000 tons copper, the mine has not been constructed yet, nevertheless, its annual production capacity is expected to reach 15,000 tons.

Anhui Yaojialing Cu-Pb-Zn mine: it now has the reserves of 160,000 tons of copper,1,550,000 tons of copper, lead and zinc as well as 50 tons of gold. The mine is negotiating on transfer price. However, little progress has been made negotiation since the geological team of another shareholder asks for a high price.

In addition, Anhui Lu’an Jinzhai molybdenum mine (with mineable yield of 1,300,000 tons),Anhui Tongling County Huangshilao Copper Mine (with mineable yield of 10 tons) and Anhui Wuhu Nanling copper mine are being prospected.In addition, Tongguanyehua, which is affiliated to the group, is capable of making 1,800,000 tons of acid with smelting smoke, while Dongguashan can produce 1,000,000 tons of sulfur concentrate each year for Tongguanyehua to make sulfuric acid, thus creating horizontal competition. It is estimated that Tongguanyehua will be injected into the listed company.

The group is exploring copper resources aggressively overseas. Recently, the group and CRCC (601186) have acquired Corriente Resources copper mine in the southeast of Ecuador. When the Phase I has been constructed and put into operation in 2013, the production capacity may reach 150,000 tons/year and raw materials will be supplied to TNMG preferentially. In addition, the perspective reserve of the mine is equivalent to that of the whole China.

Along with continuous investment of major shareholders’ mineral resources and expansion of production scale of existing copper mines,TNMG will solve the bottleneck of copper resource insufficiency, realize growth in both output and reserves, and increase its performance by leaps and bounds.