(Metalscrp.com.cn)
Updated: 2007-11-02 09:39

Aluminum Corp of China (Chinalco) paid 7.5 billion yuan ($1 billion) in cash for a controlling stake in Yunnan Copper Group Co in the biggest acquisition in the country's metals industry this year.

Aluminum Corp bought 49 percent of China's third-largest copper producer to diversify its business, Lu Youqing, vice president at the Beijing-based company, said yesterday by phone. Both Chinalco, as China's largest aluminum maker is known, and Yunnan Copper Group are unlisted, state-linked companies.

The acquisition, announced in August, was formally agreed at a signing ceremony yesterday and follows Chinalco's purchase the same month of a stake in Peru Copper Inc. for $860 million. Yunnan Copper Group holds 34.5 percent of the listed Yunnan Copper Industry Co., which is valued at 100 billion yuan.

"The government is counting on Chinalco as a leader for consolidation," Lin Haoxiang, a Shanghai-based analyst with Guotai Junan Securities Co, said by phone today. "China will be short of copper for many years to come."

Yunnan Copper Industry, the publicly traded unit, has soared since the plan was announced in August on optimism that Chinalco may inject assets into the company. The stock declined 0.6 percent to 79.51 yuan today at 3:00 pm close.

Acquisitions Plan

"We are aiming to become a diversified metals producer," Lu said today in a telephone interview. "We will focus on copper business development and acquisitions in the next few years, and we hope to make the copper assets publicly traded eventually," he said, without giving a timeframe.

Chinalco Chairman Xiao Yaqing said October 19 that Chinalco plans to buy more overseas copper-mining companies to meet rising demand. Peru Copper Inc., based in Vancouver, owned the South American nation's third-largest deposit of the metal.

"Xiao is ambitious and very capable in management," said Lin at Guotai Junan Securities. "Chinalco is strong in financing, and there is a chance for them to make copper a big business."

Chinalco will invest a further 2 billion yuan or more after the Yunnan Copper acquisition, to build plants to make high-grade copper products such as sheets that China now imports, Chinalco's Lu said.

In the copper industry, Chinalco already owns entire or controlling stakes in Daye Nonferrous Metals Co, Chinalco Luoyang Copper and Shanghai Nonferrous Metals Group.

Chinalco had sales of 106 billion yuan and profit of 22.5 billion yuan in 2006. Yunnan Copper Group had sales of 32.7 billion yuan and profit of 3.75 billion yuan last year, according to the companies' Web sites.

Copper Rally

Copper prices have rallied 23 percent this year, partly as demand from China helped shrink stockpiles. London Metal Exchange copper futures, which touched a record $8,800 a metric ton last year, traded at $7,750 a ton today.

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

Aluminum Corp of China Ltd, the listed unit of Chinalco, fell 2.9 percent to HK$22.10 in Hong Kong today, declining for a second day after posting a lower-than-expected profit on Oct. 29.

Chalco has alumina and aluminum businesses, while parent Chinalco owns copper, molybdenum, tin and rare-earth assets.