CHINALCO Invests RMB60 Billion in CHICOCO, Totally Integrating Domestic Copper Industry

CHINALCO has put forth an ambitious development target for CHICOCO (China Copper Corporation) - to be No.1 in China at least in terms of scale and efficiency, to achieve an asset scale of RMB60 billion, and realize profits of RMB1 billion.

CHICOCO has carried out a series of operations. The company is carrying out acquisition negotiations with Anhui Tongling Non-ferrous Metals Group, the second largest player in the copper industry, and has shown interest in cooperating with Jiangxi Copper Corporation, the largest organization in the copper industry. For the Mongolia OT copper mine project Rio Tinto has actively engaged in, CHINALCO has not excluded the possibility of a future partnership with Rio Tinto.

CHICOCO, established two years ago, has recently begun to create its organizational structure and departments, and formally start operations.

As CHINALCO has specified previously,among the top seven platforms, “CHINALCO will emphasise and give priority to the development of copper operations.”

It is reported that CHICOCO’s asset scale is approximately RMB60 billion, including Yunnan Copper, Peru Copper, Shanghai Copper,Central China Copper, Luoyang Copper and Kunming Copper under CHINALCO. The corporation plans to realize profits of RMB1 billion this year.

In terms of senior staffing, Liu Caiming (Vice General Manager of CHINALCO and Chairman of Yunnan Copper) is the President of CHICOCO, whjie Gao Lidong (Chief Financial Officer and Board Secretary of Yunnan Copper) is the Chief Financial Officer.

Although CHICOCO has started operations, it still currently located in CHINALCO’s office building, and has only established a finance department, human resources department and company management department. It currently still shares certain functions, such as administration, with CHINALCO.

On March 16, Mao Yiqiang, Secretary of Yunnan Copper Industry Group under CHINALCO, and Yang Chao, General Manager of Yunnan Copper Industry Group, went to CHINALCO to participate in a discussion about CHINALCO’s organizational structure and operations.

According to an insider, the reason that CHINALCO started copper operations two years later was to wait for the opportunity to start up a copper company. Since last year, Yunnan Copper Industry Group’s operation have generally improved, with a sales income of RMB19.6 billion achieved and a profit of RMB0.8 billion in 2009. This is provided a chance for CHINALCO to vigorously expand its copper operations.

At the moment, achieving a profit of RMB1 billion, CHICOCO would be heavily reliant on Yunnan Copper, because others are all copper processing companies, and according to the market, they may suffer losses.

The aforementioned insider suggested that CHICOCO has completed its layout of the copper industry chain, with Yunnan Copper mainly responsible for mines and smelting, Peru Copper responsible for overseas mineral resource operation, and other parties in charge of copper processing .

A source from Yunnan Copper says that when Yunnan Copper Industry Group’s operations improved last year, CHINALCO immediately appointed staff to Yunnan Copper Industry Group. It was then said at the Trade Union Congress that Yunnan Copper Industry Group will be a core company of CHINALCO in terms of its copper platform.

“However, it seems that in terms of enhancing morale and motivating staff,” the source said,that CHINALCO has not confirmed to “take Yunan Copper Industry Group to its core” in any formal document. Moreover, since CHINALCO owned 49% of the stocks of the Yunnan Copper Industry Group, CHINALCO has always been negotiating on a controlling position with the Yunnan Provincial Government.“There are statements, but no action”.

Any company that is taken to the core of the business will be the priority candidate for an injection of copper resources from CHINALCO. When CHINALCO acquired the Yunnan Copper Industry Group, CHINALCO said, “the Yunnan Copper Industry Group will have the priority to obtain an injection of copper resources from CHINALCO”. However,according to an insider, the copper injection is yet to come into fruition, and will be implemented through market conduct.

According to reports, since last year, CHINALCO has sent personnel to Anhui Tongling Non-ferrous Metals Group to lay out its acquisition intentions, a company that is ranked second in the copper industry.

An official at CHINALCO confirmed, “we have discussed with Anhui Tongling Nonferrous Metals, which is in terms of the revitalization of national industrial development,mainly because Tongling Non-ferrous Metals’degree of dependence on outside resources is up to 95% and CHINALCO’s low cost can well make up for the weakness.The official said that the reason CHINALCO has discussed this with Tongling Non-ferrous Metals is that the invitation of the Anhui Provincial Government, and the Anhui Provincial Government has brought CHINALCO, MINMETALS and some other central companies to inspect and cooperate with resources inside the province.

In addition to the discussions with Tongling Non-ferrous Metals, CHINALCO has also shown an interest in Jiangxi Copper.

On 13 March, CHINALCO and the Jiangxi Provincial Government signed a strategic cooperation framework agreement, and will jointly develop Jiangxi’s rare metals industry.

According to the agreement, Jiangxi Tungsten Holdings Group will be the first time the two parties have worked together, with CHINALCO acquiring the holding position of Jiangxi Tungsten. Insiders said, this will help CHINALCO to contact with Jiangxi Copper.the largest copper smelter in China.

On 18 March, a source at CHINALCO told us,that CHINALCO wants to cooperate with Jiangxi Copper, “after all, Jiangxi Copper’s selfsupply rate is fairly high. However, currently,Jiangxi Copper’s operational, cost control and asset scale are fairly good, which makes CHINALCO worry about the acquisition and penetrating through project cooperation.

Jiangxi Copper has predicted a refined copper yield of 0.9 million tons this year, and Jiangxi Copper is also actively investing in overseas mines, and engaging in M&A activities with domestic copper companies.

For objects of M&As, CHINALCO’s copper resources and central company policy advantages are very attractive. CHINALCO’s Canada Copper and Peru Copper have a total copper resource reserve of 12 million tons, 19% of copper resource reserves in China. Moreover,CHINALCO is working with Mongolia on the Mongolia OT copper mine project, which is said to be even larger than the Peru Copper, at up to 35 million tons.