ChinalcoStraightened Out Copper Assets, and Delegated Stock Equity of Yunnan Copper

Immediately after the news that Chinalco transferred 58% stock equity of Yunnan Copper Group to its wholly-owned subsidiary China Copper Corporation Limited free of charge was disclosed on July 9, many individual investors couldn’t help but to think: Does it mean China Copper Corporation Limited will assemble assets for overall listing? At present, among main copper business companies under China Copper Corporation Limited, Yunnan Copper (000878.SZ) which is subordinate to Yunnan Copper Group is a major listed company, whereas Yunnan Copper has sustained loss for two consecutive years, and was facing the “Label-removing risk”, against the background of dropping prices of main products such as electrolytic copper, and the backstopping of upper layer of ore deposit of its old mine has basically finished, and it would soon enter the depth of the mine, which would further increase mining cost, capital injection might well be a good solution to reverse the condition of its copper business.

Through the free transfer agreement, China Copper Corporation Limited obtained 58% stock equity of Yunnan Copper Group from parent company Chinalco, thus becoming the direct controlling shareholder of Yunnan Copper Group. As far as Yunnan Copper Group is concerned, this is a major change in the recent period.

According to Wei Qining, researcher specializing in metallurgy industry of China Investment Consulting, “Chinalco must hope to adjust the Group’s internal structure, and optimize businesses through this measure.”

After this time’s stock equity transfer, the copper assets and businesses under China Copper Corporation Limited became more concentrated.

It has been learned that, major copper companies under China Copper Corporation Limited include Yunnan Copper Group, Chinalco Luoyang Copper Co., Ltd, Chinalco Shanghai Copper Co., Ltd, ChinalcoHuazhong Copper Co., Ltd, Chinalco Peru Mining Company, Chinalco Kunming Copper Co., Ltd which are engaged in copper smelting, and copper processing.

Analyst Wang Yu also acknowledged this viewpoint. He told the reporter, “For this time Chinalco’s transfer of stock equity, the bigger significance lies in copper asset restructuring, although Chinalco is actual controller, it still focuses its business emphasis on aluminum industry, after transferring China Copper Corporation Limited, its subsidiary is responsible for managing the copper business, which is a more professional approach.”

It has been learned that China Copper Corporation Limited is a company with copper metal as investment core, based in international financial center Hong Kong, and oriented toward domestic and overseas nonferrous metal industry, it regards prospecting, mining, processing, and scientific research of nonferrous metals as main body of investment and operation, and adopts parallel development of multiple industries including import/export trade, finance, power, coal chemical industry, petroleum, real estate, bio technology as its company strategy.

At present, China Copper Corporation Limited has 18 wholly-owned or equity controlled enterprises, 33 equity participation enterprises, total asset tops 100 billion yuan, it also plans to increase market percentage of high purity cathode copper to 17% by 2015.

Nevertheless, although China Copper Corporation Limited incorporated Chinalco’s major copper business assets, there are still uncertain factors in its plan of overall listing.

According to analysis by industry insiders, “among listed companies with copper business, in addition to Yunnan Copper, there is also Chinalco Mining Corporation International (03668.HK), this company is listed in Hong Kong, and owns shares of Chinalco Peru Toromocho Copper Mine project, whether or not it will choose Yunnan Copper Co., Ltd to go public still remains to be seen.”

Although analysts are cautious, investors are very excited.

The fact that China Copper Corporation Limited became controller of Yunnan Copper Group made investors of Yunnan Copper Co., Ltd extraordinarily active, in online stock chatting forums, one frequently would find postings that reflected investor’s confidence toward soaring share price after Yunnan Copper Co., Ltd resumed trading after suspension.

These investors one after another said, China Copper Corporation Limited was awarded 58% stock equity of Yunnan Copper Group, which is very clear evidence of asset restructuring, and choosing Yunnan Copper for public listing, also last month there were suggestive “signs”.

In June, Yunnan Copper published public notice to announce the controlling shareholder Yunnan Copper Group indicated it would kick off work to inject Liangshan Mining stock equity owned by Yunnan Copper Group into Yunnan Copper in this year, and within one year since the date of capital injection completion, kick off work to inject Diqing Nonferrous stock equity owned by Yunnan Copper Group into Yunnan Copper. Meanwhile, Yunnan Copper Group guaranteed to, within five years since the date of finishing injecting Liangshan Mining into Yunnan Copper, kick off the work to inject stock equity of subsidiaries owned by Yunnan Copper Group into Yunnan Copper.

According to public info, Liangshan Mining is one of the most highlighted mining enterprises in the group. Liangshan Mining’s subsidiary Lala Copper Mine has a reserve of 800,000 tonnes, copper concentrate output is about 30000 tonnes, at preset the Company’s stock equity accounts for about 20%, Yunnan Copper Group accounts for about 40% of equity. According to financial data, in 2013 Liangshan Mining recorded net profit of 67.7961 million yuan.

This means a big chunk of premium assets for Yunnan Copper, let’s compare Yunnan Copper’s performance in the first half of this year: according to performance forecast of the first half of 2014 published by Yunnan Copper on July 11, net profit attributable to shareholders of listed company is only 10 million -15 million yuan, in the first half of the last year its loss exceeded 810 million yuan.

On the other hand, China Copper Corporation Limited also owns Peru Toromocho Copper Mine, this mine has copper metal resource volume equivalent to about 12 million tonnes, the project’s designed annual output of copper concentrate containing copper content of 220,000 tonnes, accounting for about 18% of China’s domestic self production output, after China Copper Corporation Limited becomes direct shareholder, it will be more convenient for asset allocation. This will further help Yunnan Copper to reduce cost. In fact, this is also exactly what Yunnan Copper urgently needs.

According to industry insiders, Yunnan Copper’s cost of mining is facing technological increase, currently the backstopping of upper layer of ore deposit of Yunnan Copper’s old mine has basically finished, the mining is shifting to the depth of the mine, and is confronted with a series of problems including great variation in existing condition of orebody, rock burst triggered by high ground pressure, underground water infiltration and high temperature, which posed great difficulty to excavation method, shoring technology, water blocking, ventilation cooing and energy saving for reduction of energy consumption.

According to insiders: “Its new copper mine has not reached the stage of completion and start of production, in fact, Yuxi Mining Dahongshan Copper Mine’s 30000 t/a Quantity of Copper in Copper Concentrate - Western Mine Section Mining Project, which is invested by its wholly-owned subsidiary Yuxi Mining, total investment amount is about 1.04 billion yuan, up till now more than 600 million has been invested, but it’s not finished, it won’t be finished before 2015, During this period it needs continual investment.”.

According to public info, in 2013, total profit of Yunnan Copper (combined) is about minus 1.388 billion yuan, down by 605.12% compared with the same period last year, net profit attributed to parent company is about minus 1.496 billion yuan, down by 6111.63% compared with the same period last year. The main reason is nonferrous metal prices declined during the period, whereas gross profit margin of main product electrolytic copper is only 0.84%, down by 2.58%.

According to Wei Qining, Yunnan Copper has been suspended from trading for nearly two months, which to a great extent is related to capital injection commitment of the majority shareholder, and asset restructuring, change in stock equity, the aim of trading suspension is perhaps to solve this problem, and help Yunnan Copper find solution of stopping loss as soon as possible. Chinalco’s transfer of stock equity seems to have no deep meaning, but if businesses under Yunnan Copper Group and businesses of China Copper Corporation Limited can implement effective linkup and immediate adjustment, then the listed company will benefit greatly.