Minmetals chief executive Andrew Michelmore with China Minmetals president Zhou Zhongshu.
Minmetals Resources Ltd., HKG:1208 the Hong Kong listed upstream diversified base metals company has been upgraded to a strong buy today by HCM, Shayne Heffernan has set a 2012 price target of $4.50 on Minmetals.
Minmetals Resources Limited (“Minmetals Resources” or the “Company”) (Stock Code: 1208) has its shares listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).
The Company together with its subsidiaries and jointly controlled companies (collectively as the “Group”) are principally engaged in the manufacturing and sales of alumina, aluminium products, copper products and plica tubes. The Group also offers port logistics services and participates in other industrial operations. The Group is one of the largest importers and suppliers of alumina in China.
The Company’s ultimate controlling shareholder is China Minmetals Corporation (“China Minmetals”), which was founded in 1950. China Minmetals is a sizable international conglomerate principally engaged in development, production, trading and integration services of metals and minerals. It is also engaged in finance, real estate and logistics businesses. In 1992, China Minmetals was one of the groups appointed by the State Council in the first batch of 55 pilot state-owned enterprises. In 1999, China Minmetals was classified among the 39 key enterprises under the direct supervision of the Central Government. China Minmetals was ranked Class AA state-owned enterprise by the State-owned Assets Supervision and Administration Commission of the State Council in 2009. China Minmetals achieved a revenue of US$24.96 billion in 2009 and was ranked no. 332 among in the year 2010 of Fortune Global 500.
China Minmetals Non-ferrous Metals Company Limited (“CMN”), founded in 2001, is the Company’s immediate holding company. Its main products include Copper, Aluminum, Tungsten, Zinc, Antimony, Rare Earth, Tin, Tantalum-Niobium and other metals. CMN is a dominant player for its products in domestic market and also plays a significant role in international market. Strategies are to provide related products and professional services through effective development of non-ferrous metal resources with an aim to become international resources-based enterprise with sustainable development capacity. Through a highly effective operation, CMN has been undergoing rapid development and has become a key player in non-ferrous metals industry in China.
History of the Company
Minmetals Resources (previously known as Oriental Metals (Holdings) Company Limited) was incorporated in Hong Kong on 29 July 1988 and its shares have been listed on the Main Board of the Stock Exchange since 15 December 1994. The Company has been engaged in the trading and manufacturing of non-ferrous metals, ores and metallic finished products since its incorporation.
The Company completed its debts and capital restructuring on 12 January 2004 and China Minmetals became the ultimate controlling shareholder of the Company. On 4 August 2005, the Company changed its name to Minmetals Resources Limited. On 6 October 2005, the Company completed the acquisition of alumina and aluminium-related businesses from China Minmetals (the “Acquisition”). The Acquisition provided the Company with a solid base to expand and further diversify its operations, both vertically enlarging the scale of alumina and aluminium businesses and further integration along aluminium supply chain, and horizontally into other non-ferrous metals and resources businesses.
On 31 December 2010, MMR completed the acquisition of MMG which holds a large portfolio of international mining assets. The enlarged MMR comprises existing MMR operations in addition to MMG’s mining operations in Australia and the Lao PDR, as well as its suite of development and exploration projects throughout Australia, Asia, and Canada.
Growth for Minmetals Resources Ltd
Strategy
The enlarged MMR will pursue strategies that are designed to deliver sustainable growth in long-term shareholder value, which may include the development, restructuring or divestiture of existing assets, acquisition of new assets, and exploration.
The strategy of the enlarged MMR is to maintain and expand its position as a leading internationally diversified base metals group with exposure to multiple commodities across various jurisdictions. It will pursue its strategy and enhance its competitive position across a range of base metals by pursuing organic growth initiatives and value-enhancing acquisition opportunities, as well as capitalising on its status as a member of the China Minmetals group of companies. The enlarged MMR pursues a number of initiatives to achieve its strategy, including: (i) Pursuing available organic growth opportunities; (ii) Targeted value-focused acquisitions; (iii) Continuing to leverage on the expertise, experience and relationships of the Group’s principal shareholder, China Minmetals; (iv) Commit to best practice in corporate governance, production standards, safety, operational excellence and environmental protection; and (v) Continue strong commitment to supporting local economies and Communities.
Business Operations of the Group
The Group’s business consists of the following business segments:
MMG MMG is a significant producer of zinc, copper, lead, gold and silver. MMG currently operates four mines: (i) the Sepon copper and gold operations located in Laos; (ii) Centruy, one of the world’s larges zinc mines, located in Queensland, Australia, also producing lead and silver; (iii) Golden Grove, a zinc, copper, lead and precious metals mine located in Western Australia; and (iv) Rosebery, a zinc, lead, copper and precious metals mine located in Tasmania, Australia. In addition, MMG owns the Avebury nickel mine in Tasmania, Australia (which is currently on care and maintenance) and has several other development projects and an active minerals exploration programme in Australia, Indonesia and Canada.
Trading Business Alumina is a main product in trading business. The Group’s trading business mainly conducted through Minmetals Aluminium Company Limited (“Minmetals Aluminium”). Minmetals Aluminium is a wholly-owned subsidiary of the Company. It primarily sources alumina and primary aluminium from domestic and international markets and supplies those to aluminium smelters and fabrication plants in China. Minmetals Aluminium is one of the largest importers and suppliers of alumina in China market. It has long-established business relationship with all major aluminium smelters in China.
The Group secured a long term alumina sourcing arrangement with Alcoa since 1997. Alcoa will provide the Group with 400,000 tonnes of alumina per annum till 2027 at price which correlates to Alcoa’s production costs as if the Group were an alumina refiner with its own production facilities. Through the Alcoa contract, the Group has locked in low cost alumina supplies and a degree of vertical integration, enabling it to enjoy similar economic benefits as an owner of a bauxite mine and alumina refinery. Minmetals Aluminium also has well established long-standing relationship with the world’s largest refineries of alumina which provide the Group with a stable supply of alumina. The Group sources alumina from Australia, Jamaica, India, the United Stated of America, Brazil, Venezuela and Greece. The Group completed the acquisition of a 33% equity interest in Guangxi Huayin Aluminium Company Limited (“Guangxi Huayin”) in April 2008. Guangxi Huayin has 4 production lines and is one of the largest and the most advanced alumina plants in the China. It provides additional source approximately 600,000 tonnes of alumina per annum to the Group.
Fabrication Business The Group operates its aluminium fabrication business through its 72.8%-owned subsidiary, North China Aluminium Company Limited (“North China Aluminium”). North China Aluminium, founded in 1978, is located in Zhuozhou City, Hebei province, and is 60 kilometers away from Beijing City. This joint venture is co-owned by the Group, Aluminium Corporation of China and Government of Hebei Province. North China Aluminium is engaged in the production and sale of aluminium and aluminium casting roll, cold-rolled aluminium sheet, aluminium strip, aluminium coil, aluminium foil, hydrophilic aluminium foil, PS plate and other aluminium products. Its products are mainly used in packaging, transportation, construction, home appliances and printing sectors. This fully integrated aluminium fabrication plant equips with annual production capacity of 80,000-100,000 tonnes per annum. The construction of new “1850mm Super-thin, Wide and Compound Aluminium Foil Production Line Project” had been completed and was in commercial operation in 2010. This added extra annual production capacity of approximately 25,000 tonnes of aluminium foil.
The Group’s 36.3%-owned jointly-controlled company, Changzhou Jinyuan Copper Company Limited (“Changzhou Jinyuan”), is engaged in production of copper rods and wires. Changzhou Jinyuan is located in the south east economic and technology development zone of Changzhou. Shareholders of which include Minmetals Resources and JX Holdings, Inc. Changzhou Jinyuan’s total sales volume of copper rods and copper wires amounted to 190,000 tonnes in 2009. To further improve the quality of products and expand the market share, Changzhou Jinyuan had completed the construction of an advanced copper rod production line with a 300,000-tonne annual production capacity. Total investment cost of the project is approximately RMB200 million. New facilities were in production in 2010.
Aluminium Resources Exploration and Operation Integration Business In April 2008, the Group completed the acquisition of a 33% equity interest in Guangxi Huayin from CMN. Guangxi Huayin is owned by the Group, Guangxi Investment Group Co., Ltd. and Aluminum Corporation of China Limited. It is located in Debao County at Guangxi. Total investment is approximately RMB8.5 billion. It is one of a few integrated alumina plants with its own bauxite mine and is among the lowest-cost alumina refinery plants in China. Its four production lines with total annual production capacity of 1,600,000 tonnes of alumina had commenced operation in June 2008. This is a major step for the Group in integration of up-stream bauxite operation with aluminium supply chain. The shareholders of Guangxi Huayin injected additional share capital of a total of approximately RMB300 million in 2009 and early 2010. The additional funding would be used to finance construction of infrastructure and a technology enhancement project driving improvements in energy-saving, wastage reduction and production efficiency. The technology improvement project has been completed by September 2010 and construction of proprietary rail extension has been finished by 2010. The efficiency and production capabilities of Guangxi Huayin have been further strengthened. The Group, through its 51%-owned Mincenco Limited, has been formulating a project for exploration of bauxite and establishment of an alumina refinery facility in Jamaica. Further project optimization studies and planning are underway to extend exploration work of the first phrase of feasibility study for the purpose of developing a blueprint for future development.
Other Investments and Businesses
Yingkou Orienmet Plica Tube Co. Ltd. (“Yingkou Orienmet”) Yingkou Orienmet is a Sino-foreign equity joint venture owned as to 51% by the Group, engaging in the production and sales of plica tubes (flexible metals conduits), which are mainly used in construction, infrastructure, machinery enginerring, power network.
Minmetals Non-ferrous Lianyungang Company Limited (“Minmetals Lianyungang”) Minmetals Lianyungang is a wholly-owned subsidiary of the Group providing port logistic services for the Group’s alumina and aluminium business in Lianyungang port. Services include customs clearance, unload and packaging, processing of alumina spot trading and collection of market information.
Sino Nickel Pty Ltd (“Sino Nickel”) Sino Nickel is an Australian company owned as to 40% by the Group. It sources nickel concentrate primarily from the Kimberly region in Western Australia for export to China.
Qingdao M.C. Packaging Limited (“Qingdao Packaging”) Qingdao Packaging is a Sino-foreign equity joint venture owned as to 20% by the Group and is engaged in the manufacturing and sale of various kind of aluminium cans in China.
Shayne Heffernan
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