The MIIT Again Urged to Set Up Large Rare Earth Groups

According to the “Economic Operation of The Rare Earth Industry in 2013” public notice published by the Ministry of Industry and Information Technology, speeding up the establishment of large rare earth enterprise group was placed at conspicuous position.Recently, the Department of Raw Materials,Ministry of Industry and Information Technology, published public notice on the“Economic Operation of The Rare Earth Industry in 2013”. The public notice said, in 2013 the nationwide rare earth total exploitation quantity control index was 93,800 tonnes (based on rare earth oxides, the same below), smelting separation product plan was 90,400 tonnes. Whole year actual exploitation quantity is 80,400 tonnes, production output of smelting separation products is 83,300 tonnes,which are respectively 85.7% and 92.1% of the plan, some rare earth mines of Jiangxi Province and China Minmetals China Minmetals adjusted and reduced production because of environmental protection upgrading and prevention of price decline. Rare earth total export quota is 24,000 tonnes (converted into physical quantity 31,000 tonnes). Whole year actual export rare earth quota product physical quantity is 22,900 tonnes, up by 36.3% on Y-o-Y basis, the export amount is USD 603 million.

According to relevant data, in 2013 rare earth industry recorded business income of 76.9 billion yuan, up by 7.9% on Y-o-Y basis, and fulfilled profit of 7.74 billion yuan, down by 28.1% on Y-o-Y basis. The main reason of profit reduction is the drop in rare earth price.In addition to summarizing the rare earth industry condition in 2013, the above public notice also gave outlook on the rare earth industry work in 2014, apart from intensifying efforts to crack down on illegal and rulebreaking behaviors, the task of speeding up the establishment of large rare earth enterprise groups was placed at conspicuous position. In early January 2014, the Ministry of Industry and Information Technology joined related departments to convene a special topic meeting for establishing large rare earth enterprise groups in Beijing. According to this Meeting,based on market rule of survival of the fittest,up till now it has basically developed the industry development pattern dominated by 6 enterprises including Baotou Steel Group,China Minmetals, CHALCO, Guangdong rare earth, Ganzhou Rare Earth and Xiamen Tungsten. In the next step, it is necessary to follow the trend, focus on supporting these 6 enterprises to respectively take the lead to further promote M&A and restructuring, and establish large rare earth enterprise groups. The Ministry of Industry and Information Technology emphasized to fully bring out the decisive role of market in resource allocation,by regarding enterprise as entity, ensure diversified investment, marketized operation,promote M&A and restructuring to transform from “let me restructure” to “I want to restructure”.

In the public notice of the Ministry of Industry and Information Technology published on February 21, speeding up the establishment of large rare earth enterprise group was placed at conspicuous position. The public notice urged to consolidate and expand the already existing M&A and restructuring pattern based on 6 major rare earth enterprises including China Minmetals, CHALCO, Baotou Steel Rare Earth, Ganzhou Rare Earth, Guangdong Rare Earth, and Xiamen Tungsten, integrate domestic rare earth mines and smelting &separation enterprises, in this process shut down a batch of illegal enterprises, switch a batch of enterprises to other production, and restructure a batch of enterprises, significantly reduce the number of rare earth smelting &separation enterprises, dissolve surplus production capacity. Adhere to government guidance, enterprise domination, diversified investment, and marketized operation principles, bring out the decisive role of market in resource allocation, comprehensively use economic, technological, legal and necessary administrative means, eliminate obstacles in system and mechanism, prudently guide and promote M&A and restructuring, and develop the pattern of rare earth industry development dominated by large rare earth enterprise groups as soon as possible. At present, after acceleration in the pace of integration spanning several years, South China rare earth industry has basically developed the pattern of regional enterprises and state-owned key enterprises coexisting side by side. Regional enterprises such as Baotou Steel Rare Earth, Guangsheng Nonferrous Metals, Ganzhou Rare Earth,Xiamen Tungsten carried out group-based integration due to control of resources as the linking tie, whereas China Minmetals and CHALCO gradually penetrated to upstream through M&A and restructuring of downstream smelting & separation and deep processing industries, and use ”penetration route“ to obtain upstream control power. In the face of whether or not there will be competition in future integration, some industry insiders pointed out that at present there are both competition and cooperation between state-owned key enterprises and regional enterprises.Nevertheless, what’s doubtless is that competition in rare earth integration in South China will become increasingly fierce in the future.

In the evening of February 28, GRINM published a public notice alleging that it would join hands with CHALCO’s subsidiary China Rare Metals and Rare Earth Co., Ltd (Rare Metals and Rare Earth), Leshan Shenghe Rare Earth Co., Ltd (Shenghe Rare Earth) and Sichuan Hanxing Mining Development Co.,Ltd (Hanxing Mining), to integrate rare earth enterprises and resources in Sichuan Province.On March 3, reporters of the Securities Daily verified this matter with CHALCO, the company answered that its subsidiary Rare Metals and Rare Earth Co., Ltd would formally join force with the above-mentioned multiple companies to integrate rare earth in Sichuan Province, but “the details should be found in the public notice of GRINM”.

According to GRINM’s public notice, Party A of this time’s union is the Rare Metal and Rare Earth Company, Party B is Shenghe Rare Earth. The above companies are willing to carry out strategic cooperation in aspects of rare earth industry integration, rare earth ore development, and smelting and separation, the detailed cooperation method is: Guided by“Work Guidance on Establishment of Large Rare Earth Enterprise Group”, Party A is the controlling shareholder, Party B is the second largest shareholder, both sides will jointly set up joint venture as integration platform, and follow marketization principle to integrate rare earth mines and smelting & separation enterprises in Sichuan Province.

“Previously CHALCO has been scrambling for Guangxi’s rare earth resources, but based on the info revealed in this public notice, this time the Rare Metals and Rare Earth company will serve as the integration main body, in other words, CHALCO ‘s participation into the integration of Sichuan Province’s rare earth industry through cooperation would become a reality.” Some analysts said, detailed integration thinking approach and form would have to depend on the intention of CHALCO and three other companies.

In this public notice, the reporter noticed that in order to speed up cooperation progress, all sides and other related rare earth enterprises agree to first set up joint venture company in the form of cash, then in the late stage inject assets including related rare earth mining rights into the joint venture company, and gradually integrate other rare earth enterprises in Sichuan Province.

Based on the contents of the public notice,apart from matters on adherence to the “Work Guidance on Establishment of Large Rare Earth Enterprise Group” and setting up joint venture company, it also included issues that all sides are willing to carry out cooperation on aspects of rare earth ore development, smelting and separation, and application of national special funds, share industry and market info;all sides would set up work team as soon as possible, establish regular work routine meeting mechanism, study how to carry out exact cooperation matters, coordinate with promotion and cooperation work; detailed cooperation matters and plans would be finalized in the separately signed formal documents with legal binding force after all sides have performed decision-making and approval procedures.

As cooperation partner, since the beginning of this year, Shenghe Resources and GRINM have considerably intensified efforts in making investment and deployment in rare earth industry. On February 27, Shenghe Resources invested 240 million yuan to acquire 40%equity of Integral Materials Investment Limited, overseas rare earth processing enterprise, with which it hoped to improve its rare earth industrial chain; whereas GRINM previously also announced to, with GRINM Rare Earth as platform, invest 400 million yuan to construct GRINM Rare Earth Yanjiao New Base. It can be expected that as this time’s cooperation makes further progress, the two companies in the future will also further “get a share” in Sichuan’s rare earth integration process.

“Judging from the existing rare earth integration trends in all regions, although Baotou Steel Rare Earth has showed relatively fast integration progress, due to limitation in capital and other aspects, it is not making progress according to schedule. This time CHALCO and other three companies wanted to integrate rare earth enterprises in Sichuan Province, they should learn from the experience of Baotou Steel Rare Earth, try everything to improve integration methods, in order to smoothly push forward the integration of rare earth enterprises and resources in Sichuan Province.” said one industry insider.

According to public notice previously announced by Baotou Steel Rare Earth, the company’s controlling shareholder Baotou Steel Group signed “Integration &Restructuring Agreement” in Baotou City with 9 rare earth upstream enterprises and shareholders in the Inner Mongolia Autonomous Region. According to the terms of the “Integration Restructuring Agreement”,Baotou Steel Group would follow relevant policies on rare earth exclusive franchise and exclusive franchise, incorporate the 9 companies into Inner Mongolia Autonomous Region’s rare earth exclusive franchise system.The company signed “Framework Agreement on Integration and Restructuring of Rare Earth Upstream Enterprises” at the end of 2012, the agreement stipulated 12 rare earth upstream enterprises in the Inner Mongolia Autonomous Region and their shareholders agree to transfer 51% equity of their respective enterprises to Baotou Steel Rare Earth, in order to obtain qualification to be included into rare earth franchise system. This time’s “Integration &Restructuring Agreement” is the extension of the agreement at the end of 2012, since 3 enterprises have exited the integration, the number of participating enterprises decreased from 12 to 9. The 9 enterprises joining the integration are all rare earth smelting and separation enterprises, Baotou Steel Rare Earth is now conducting due diligence investigation on these enterprises, it is expected the integration will make further progress in this year.