Jiangxi Copper, the mainland's largest integrated copper producer, said it plans to raise its capital expenditure for 2008 to 4.3 billion yuan from 3.2 billion yuan a year before to boost its resources base and acquisitions.
Jiangxi Copper posted lower-than-expected earnings for last year as declining processing fees and higher costs for smelting eroded its profit. Its total turnover surged 67.6 percent to 41.2 billion yuan in 2007 but net profit fell 12.8 percent to 4.2 billion yuan.
Analysts said low processing fees, a higher effective tax rate and dependence on other firms for copper concentrates could be the reason for lower earnings.
Li Yihuang, chairman of Jiangxi Copper, said the company will increase its efforts to expand the production capacity at existing mines and intensify overseas projects.
"On the mainland, we will seek stake investment in order to raise the capacity," Li said. But he refused to elaborate on overseas acquisition plans.
He told Reuters that the company will raise its stake in an Afghanistan copper project to 25 percent from 20 percent. The scale of the project will expand to 200,000 to 300,000 tons a year from the previously planned 200,000.
Li said the company will also strengthen exploration at existing mines as "enhancing the utilization of the mines can help lower costs".
The company hopes to raise the copper concentrate self-sufficiency ratio further. "We are confident of raising the ratio to 50 percent in three to five years," he said. The current ratio is about 30 percent.
ABN-AMRO said in a research note that the company's plan to issue convertible bonds of no less than 6.8 billion yuan in 2008 and attached warrants to raise another 6.8 billion yuan in 2010 would result in potential savings on interest expenses of 200 to 300 million yuan, but that would not offset the impact of the rising corporate tax rate.
By the end of 2007, the average three-month copper futures and spot prices on London Metal Exchange increased by 6.3 and 5.9 percent respectively.
Li expects copper prices to stay high on the back of strong domestic demand, which is likely to surge by 10 to 15 percent.
"The uncertainty about a US recession and subprime woes may drag down global prices but it can be offset by strong domestic demand and limited inventory," he said.
(China Daily March 27, 2008)
