Jiangxi Copper (358, JCC) announced to issue 290mn A shares to raise RMB4.0bn. Half of the proceeds will be used to increase production capacity of existing copper mines through expansion and technology renovation. JCC will also use RMB1,785mn to acquire parent’s six assets. The largest one will be Chengmenshan Copper Mine with a consideration of RMB1,442mn. Net profit of the copper mine for 1H06 was RMB96.7mn, represented 5% of JCC’s earnings. Chengmenshan Copper Mine possesses 1.53mn tonnes of copper reserves that should boost copper reserve of JCC by 19% to 9.49mn tonnes in the long run. We upgrade JCC from hold to BUY because : 1) the asset injection will enhance EPS growth ; 2) copper future price has rebounded 25% from the trough of US$2.425/lb in early February; 3) year-to-date average copper price was only 7% below 2006’s average, versus market consensus for a 10% drop in 2007. Our target price of $10.0 implies valuation at 6.8x 2007 PER.
Jiangxi Copper (358) (hold) reported its net profit for 3Q fell 16.1% to 1.25B yuan, hit by high material costs. During the period, turnover up 52.2% to 11.26B yuan but operating profit margin down to 13.4% from 24.7%. Nine month net profit down 8.7% to 3.25B yuan, as turnover up 59.3% to 28.56B yuan. Looking ahead, a further squeeze on profit margin is expected due to tight global supply of the raw material copper concentrate. It’s self sufficiency ratio will fall to below 25% next year from 29% this year as it expand its annual smelting capacity to 700,000 tonnes from 500,000 tonnes.
"Die neuen, geringeren Preisvereinbarungen der Konkurrenten Jiangxi Copper und Freeport-McMoRan für Schmelz- und Raffinierlöhne im Jahr 2017 hätten zwar keine direkten Auswirkungen auf die Hamburger Kupferhütte, so der Analyst in einer heute veröffentlichten Studie. Sie dürften jedoch dessen Verhandlungen erschweren."