China to purchase overseas copper miners

By William Bi and Xiao Yu
Bloomberg News Service
via International Herald Tribune, Paris
Sunday, October 21, 2007

http://www.iht.com/articles/2007/10/21/business/sxchinalco.php

Aluminum of China, the parent of the nation's biggest producer of the metal, plans to buy more overseas copper mining companies to meet rising domestic demand and help diversify earnings.

The company plans to "make moves on several firms listed on overseas markets" and may make an announcement this month, Xiao Yaqing, the chairman of the state-owned company, also known as Chinalco, said Thursday. Chinalco bought Peru Copper for $860 million in August.

Mining companies in China are likely to buy metal deposits and oilfields in Africa, Latin America and Australia to feed demand, Citigroup said this month. The nation needs more commodities to fuel growth and almost doubled copper imports in the first nine months of this year.

"China wants a large state-owned metal and mining firm to secure supplies to meet its surging demand," Heng Kun, an analyst at Essence Securities, said in Beijing. "Xiao's ambition is to fulfill that role and overseas acquisitions are obviously the quickest way."

Peru Copper, based in Vancouver, owns Peru's third-largest deposit of the metal used to make wires and pipes. Chinalco also agreed this year to buy a 49 percent stake in Yunnan Copper, which owns China's third-biggest producer.

"We hope to acquire more copper resources because this is where China is short," Xiao said.

The Chinese government wants to build up strategic reserves of minerals, and has urged companies including Chinalco's publicly traded unit, Aluminum of China, or Chalco, to secure raw materials overseas to ensure the nation's metal needs are met.

China Minmetals, the nation's biggest metals trader, plans to buy more copper resources overseas, a company executive said Sept. 6. Anshan Iron & Steel, China's third-largest steel maker, this year agreed to a 1.8 billion Australian dollar, or $1.6 billion, joint venture with Gindalbie Metals of Australia to develop two iron ore projects.

There are no immediate plans to buy more copper companies in China, Xiao said. The increased size of overseas mining companies may make an acquisition "difficult," he said.

Copper prices have rallied 24 percent this year, partly as demand from China helped shrink reserves.

London Metal Exchange copper for delivery in three months was little changed Friday at $7,875.50 a metric ton, after falling as much as 1.9 percent Thursday.

The price next year may exceed the record $8,800 a ton reached last May due to Chinese demand, Oxiana, an Australian miner of copper, said Friday.

Chalco, China's largest producer of aluminum, the light metal used in packaging and aircraft parts, posted its first profit decline in five years in August.

Full-year profit is "under a lot of pressure," because of the rising costs of electricity and the raw material bauxite, and it will be "difficult" to exceed last year's income, Xiao said. The company in April said full-year profit may fall 1.8 percent to 11.1 billion yuan, or $ 1.47 billion, this year.

Chinalco, which spends most of its budget on aluminum production, plans to allocate more than half of future expenditure to copper production to diversify away from aluminum, Xiao said. He did not specify when that would happen.

It is also increasing exploration spending for other minerals including titanium and magnesium, he said.

Aluminum will rise 30 percent by 2009 because China, the world's largest consumer and producer of the metal, will become a net importer of the commodity, Sanford C. Bernstein said.

Metal for immediate delivery will average $3,266 a metric ton in 2009, an analyst, Andrew Keen, who has covered the metals industry since 1990, said Friday in a report. The contract closed Thursday at $2,503 a ton on the London Metal Exchange.

"China will retreat from its position as a net exporter by 2009 on economic and environmental grounds, leading to a cyclical upswing in aluminum prices," Keen said.

Aluminum trailed copper, lead and tin this year as the metal price has declined 9.1 percent. Keen estimates that demand of the metal will beat supply by 71,000 tons next year, rising to 593,000 tons in 2009.

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