Chongqing Private Company -Bosai Purchases Ghana Bauxite

Chongqing Bosai Minerals Group, the first private company to produce alumina in China, has finally gained a foothold in Ghana. Recently, a project has been approved in which Bosai acquired 80% of stock rights in a Ghanaian bauxite company of Rio Tinto. It is the first time for a Chinese business to successfully invest in bauxite in Africa.

According to Zhang Yonghua, Assistant Director of Bosai’s administrative office, Bosai will invest RMB2.2 billion to strengthen its aluminum business, a sum equal to the total investment of the past 15 years.

Once it has expanded successfully, Bosai’s alumina production capacity will reach nearly 1.2 million tons, overtaking CHINALCO’s design production capacity of 0.8 million tons in Chongqing. This will result in comprehensive changes to the trends of Chongqing’s alumina industry.“Once the bauxite is shipped to Chongqing, the third phase of Pioneer Alumina’s production capacity expansion will be realized during the second half of this year,”Zhang Yonghua said.

Reserves of high grade bauxite in Nanchuan,Chongqing amount to over 0.1 billion tons, and Chongqing, Henan, Guangxi and several other provinces are together known as China’s Top 7 aluminum reserve areas. Total reserves of bauxite across southern Chongqing and northern Guizhou is in excess of 1 billion tons. In 1994, Nanchuan Mineral Exploitation Co.,Ltd., Bosai’s predecessor, was established in this area, along with Jinquan Bauxite Mine and Shuijiang Jinquan Bauxite. Following the first and second phases of construction, its alumina production capacity reached 0.2 million tons.

In spring 2006, CHINALCO’s 0.8 million ton alumina project was established in the town of Shuijiang in Nanchuan with a total investment of RMB5 billion. At the time, it was the largest industrial project to have been founded since Chongqing fell directly under the jurisdiction of the central government. In addition to alumina, the project includes a mineral separation plant with an annual concentrated ore yield of 1.55 million tons, a mine with an annual bauxite yield of 1.65 million tons, and a thermal power plant. Through cooperation with Chongqing Municipal Government, CHINALCO ensures an exploitation priority over the mines. According to the agreements between the two parties, CHINALCO will be in charge of the unified management and planning of the local bauxite resources.

Another alumina producer, Dingtai Tuoyuan, is active in the area, CHINALCO planned to acquire the two companies, but was refused permission. Thus, Chongqing’s alumina market has acquired a shape defined by the “One Large, Two Small” concept.“In China, alumina is a scarce resource which commands a high price, and no company wants to be acquired by CHINALCO,” an insider at Bosai said. Bosai once was minded to move to Guizhou, but failed in its attempt.

Bosai had to turn to foreign markets. At the end of 2006, Yuan Zhilun, Bosai’s chairman, flew over the Atlantic to acquire Guyana OBMI for USD60 million. The company has a high quality bauxite reserve of 0.186 billion tons, accounting for almost 1/5 of bauxite reserves verified in China. Bosai became the largest bauxite clinker and brown adamantine spar producer in the world in just one attempt.

On 2 February this year, Yuan Zhilun acquired 80% of the stocks of a Ghanaian bauxite company for USD30 million, the designed bauxite production capacity of which is 1 million tons“The Guyanan bauxite mine we have acquired is the world’s best bauxite mine in terms of its fire resistance class, while the Ghanaian mine is a metallurgic class bauxite mine”, Yuan Zhilun said during his interview.

Zhang Yonghua explained that the output ratio of bauxite to alumina in China is 2:1, but the grade of the Ghanaian bauxite is high, i.e., 1.5 tons could yield 1 ton of alumina. “In terms of cost, the relevant authorities will offer subsidies to foreign natural resources shipped into China. With regards mileage, signing long-term contracts with shipping companies with give us a relationship of cooperation and will minimize our mileage,” he said.

From now on, Bosai will implement two initiatives. One is the third phase of constructing the alumina project, resulting in an expansion from 0.2 million tons to 0.6 million tons, the other being the acquisition of Dingtai Tuoyuan,yielding 0.62 million tons of alumina annually through technological improvement. Should the plan progress as planned, the production capacity expansion target will be realized within one or two years.

Zhang Yonghua explained that, in any event,the Ghanian mine is an important supporter.Once the mine goes into production, bauxite shipped back from Ghana will completely meet our production demand.

However, Dingtai Tuoyuan’s future has become key for Bosai and CHINALCO.

At the end of February, Zhou Liangquan, Sales Manager of Dingtai Tuoyuan, disclosed that the company yields about 0.1 million tons of alumina annually, and suspended production last September. Currently, the price of alumina is RMB2600/ton and remains stable, but compared to the price prior to the financial crisis,there is a very large difference. As far as the reasons for the suspension in production, Mr.Jiang, Director of Dingtai Tuoyuan’s administration office, said that the suspension had occurred due to technological improvements, and was not clear on when the company would recommence production. Dingtai Tuoyuan was established in July 2002 and mainly produces metallurgic class alumina. The company was initially formed jointly by Chongqing Dingtai Energy Group, Chongqing Tuoyuan Industrial Co., Ltd. and Chongqing Construction Investment Corporation, and after the electricity reforms, became a subsidiary of the Yuneng Group with investment from the Chongqing Electricity Power Corporation.

However, in a new round of asset diversification in electricity investment, Dingtai Tuoyuan has changed hands again. Last year, in accordance with reforms from the Separation of Diversified Utilities, the Yuneng Group, which engaged in diversified utilities, was split with all of its mining assets including Dingtai Tuoyuan, Chongqing Tiantai Aluminum Co.,Ltd. and Chongqing Tuoyuan Huaguan Carbon Co., Ltd. sold to China Power Investment Corporation.

Although production at Dingtai Tuoyuan is currently suspended, it will be no simpler for Bosai to acquire the company. An insider said that as one of the five largest power groups, China Power Investment Corporation has regarded the aluminum industry as one of its main businesses. Last year, sales volumes across China Power Investment Corporation’s three main businesses, ie. electricity, coal and aluminum,exceeded industry averages, among which,electrolytic aluminum yield reached 1.1 million tons and increased by 147% over the same period the previous year. It is therefore possible that China Power Investment Corporation will be unwilling to let Dingtai Tuoyuan go.

However, in the view of Bosai, China Power Investment Corporation has strategic advantages in electrolytic aluminum, and if it engages in alumina production, bauxite resources will become a constraint, and divesting Dingtai Tuoyuan will become a necessity. Meanwhile,private companies have their own advantages,including strictly controlled costs, and an efficiency focus. It was reported that over the last few years, Bosai’s asset-liability ratio has yet to exceed 50%, and fell to 47% last year.

“Regardless of the eventual outcome, Bosai will not change its strategy of enlargening and strengthening,, and plans to be listed after one to two years,” Zhang Yonghua said. Last year,Bosai achieved a sales income of over RMB4 billion and turned losses into gains during the financial crisis. According to Bosai’s five-year development plan, its yield will reach RMB2 million for alumina and 1 million tons for electrolytic aluminum, with a total output value in excess of RMB20 billion.

From the perspective of the Chongqing Municipal Government, regardless of which company is the largest, the competition between CHINALCO and Bosai will further its interests in becoming the top city for aluminium processing in China.