① In order to expand the smelting capacity of non-ferrous metals, Zhuye Group plans to use 1,271 billion yuan to collect 100% of the shares in Minmetals Copper. ② In recent years, production and sales in the Minmetals Copper Industry have been booming, but as future copper concentrate supply may show a trend of tightening and tightening, the corresponding smelting and processing costs may fall back. ③ A reporter from the Financial Association News Agency learned from industry interviews that at present, Minmetals Copper has “stable sales channels, and products are not worried about selling.”
Financial News Agency, November 30 (Reporter Liang Xiangcai) In order to expand the smelting capacity of non-ferrous metals, Zhuye Group (600961.SH) plans to use 1,271 billion yuan to include 100% of the shares in the Minmetals Copper Industry.
In recent years, production and sales in the Minmetals Copper Industry have been booming, but as future copper concentrate supply may show a trend of tightening and tightening, the corresponding smelting and processing costs may fall back. A reporter from the Financial Association News Agency learned from industry interviews that at present, Minmetals Copper has “stable sales channels, and products are not worried about selling.”
Acquisition of Minmetals Copper for 1,271 billion yuan “stable channels, no worries about sales”
“Due to the limited number of copper smelters around South China, the local market has been in a tight balance for a long time. Minmetals Copper has stable sales channels in the region, and its products are not worried about selling.” A senior member of the South China copper industry chain said this to a reporter from the Financial Association.
On the evening of November 29, Zhuye Group announced that it intends to purchase 100% of its shares in Minmetals Copper from Shuikoushan Group by means of cash payment. The transaction price is 1,271 million yuan. Compared with net book assets of 961 million yuan, the value added is 311 million yuan, with a value-added rate of 32.35%. After the transaction is completed, Minmetals Copper will become a wholly-owned subsidiary of the company.
According to public information, Shuikoushan Group is a wholly-owned subsidiary of China Minmetals Co., Ltd., and is also the controlling shareholder of Zhuye Group, with a shareholding ratio of 29.93%. The transaction involved major asset restructuring (not constituting a restructuring and listing) and related transactions.
A person familiar with the matter told the Finance Association reporter, “Previously, Minmetals Copper was plagued by unstable quality, but in recent years it has been greatly improved and recognized by the market. Currently, several major downstream customers are listed copper companies.”
In fact, in recent years, the Minmetals and Copper Industry has indeed experienced two booming production and sales. According to relevant announcements disclosed by Zhuye Group, Minmetals Copper has a design production capacity of 100,000 tons/year, and the capacity utilization rates of 2021, 2022, and January to May 2023 (hereinafter: within the reporting period) continued to rise to 114.61%, 126.36%, and 126.92%, respectively, while almost all products were sold during the same period.
Screenshot source: Zhuye Group announcement
It should be noted that in the relevant announcement, Zhuye Group warned about the high risk of the target company's related transactions: during the reporting period, Minmetals Copper's revenue ratio from related parties was 36.47%, 19.94%, and 44.90%, respectively, and procurement from related parties accounted for 68.01%, 71.13%, and 76.79% of operating costs, respectively.
Furthermore, the company also mentioned that the asset evaluation report subject to this transaction has not yet completed the state-owned assets evaluation filing process, and that the final valuation value and transaction price will be determined after the relevant procedures are completed.
There is a risk that profits on the smelting side will expand or fall back
The main business of Minmetals Copper is copper concentrate smelting. The profit model was also explained in the relevant announcement of Zhuye Group: the company is in the midstream smelting chain. Through upstream procurement of copper concentrate, it produces cathode copper and by-products and sells them abroad through rough refining and refining processes. The company's profit mainly comes from copper concentrate processing fees (TC/RC). The level of processing fees directly affects the profit level of cathode copper products.
According to reports, under normal circumstances, copper smelting and processing costs are higher when the supply of copper concentrate is sufficient, and copper smelting and processing costs are lower when supply is tight. Generally, changes in TC/RC can be viewed as a barometer of copper concentrate supply and demand. According to an announcement from Zhuye Group, in recent years, due to the relatively large number of mines put into operation, the supply of copper concentrate has been sufficient, copper smelting and processing costs have gradually increased, and smelter profits have improved.
According to Choice data, overall copper concentrate smelting and processing fees have continued to rise since 2021, and recently reached a historic high of 94 US dollars/ton. This “bull market” in the industry is also reflected in the performance of Minmetals Copper. According to an announcement from Zhuye Group, Minmetals Copper's revenue during the reporting period was 8.33 billion yuan, 8.867 billion yuan, and 3,914 billion yuan, respectively. The net profit for the same period was 131 million yuan, 160 million yuan, and 85 million yuan, respectively.
The average price of TC/RC copper concentrate in the Yangtze River Nonferrous Metals Market is USD/ton (data source: Choice)
It should be noted that as the future supply of copper concentrate may show a pattern of tightening and tightening, the corresponding smelting and processing costs may fall back.
The COFCO Futures research report on October 31 mentioned that next year's copper concentrate supply and demand pattern will shift from this year's slight shortage to an excess of 170,000 tons. The easing of copper ore supply and demand has continued, but the excess amount is relatively limited. Under this forecast, it is expected that the copper concentrate TC will not fall sharply to a low level in 2024, but it is still necessary to refer to the long-term order negotiations at the end of the year.
At the 2023 SMM 12th Metal Industry Conference - SMM Copper Forum held a few days ago, SMM Copper senior analyst Wu Yifan said that this year is the most relaxed supply and demand balance for copper concentrates in the world. It is expected that next year will show a weak balance. It is expected that next year will show a weak balance. It is expected that the supply and demand balance results will be structurally reversed until 2025, or there will be a shortage of supply. The demand gap is expected to reach nearly 600,000 tons of metal.
Wu Yifan believes that the above expectation that copper concentrate is in short supply will cause long-term orders and spot copper concentrate processing fees to continue to drop sharply in terms of prices, posing a major challenge to the raw material procurement side of smelters. Furthermore, there are two possible outcomes. First, the operating rate of domestic copper smelters is generally insufficient, and large-scale production cannot be achieved at full capacity; second, domestic smelters can go overseas and take on the market share and raw material share of overseas copper smelters.