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Tongling Nonferrous Metals:A much more compelling resource play in the making

发布时间:2011-05-20    研究机构:中信证券

Clear expectations of asset injections; resource reserves likely increase substantially. Its parentcompany Tongling Nonferrous Metals Group Holdings has stepped up efforts to acquire resourcesboth inside and outside Anhui Province, as well as overseas assets over the past few years, achievinga quantum leap. Given increasingly mature conditions, mine assets held by the parent company areexpected to be injected into the listed company as a general trend. In addition, as the company’sexisting mines including Tongguanshan, Tongshan, and Fenghhuangshan have seen desirable deepexploration results, we expect the company to add reserves by more than 500,000 tonnes. Thecompany’s resource reserves will likely experience sharp growth over the coming years.

Production capacity of mines owned by its parent company will likely reach more than 100,000 tonnesover the next few years. The company’s own copper production reached 47, 400 tonnes in 2010 andwill likely climb to nearly 50,000 tonnes in 2011. As Tongling Nonferrous Metals Group’s newproduction capacity including Shaxi Copper Mine and Guowei Mining get online, in combination withfurther capacity expansion at Tongshan Copper Mine and copper mines in Dongguashan and Anqing,the parent company’s annual copper production capacity will likely exceed 110,000 tonnes, up morethan 130% from 2010.

Smelting capacity will likely exceed 1.2 million tonnes. Following the completion of its 400,000-tonneFlash Smelting & Flash Converting Project in Jinchang, we expect the company’s production capacityof refined copper to reach more than 1.2 million tonnes in 2012, smelting capacity to reach more than800,000 tonnes, and scrap copper processing capacity to reach more than 400,000 tonnes. Thecompany boasts very significant geographical advantages relative to other major domestic coppersmelting enterprises, with transportation cost savings reaching up to Rmb400 / tonne. Its directmanufacturing costs are also the lowest in the industry.

Both the industry and copper prices have outperformed market expectations. Given the uncertaintyaround the economic growth, concerns about metal consumption growth, a rebound in the U.S. dollarindex, panic selling triggered by silver price plunge, and other factors, copper prices declined about15% at one point and market expectations of copper price became very pessimistic, in particular.

Nevertheless, the sector’s performance has turned out better than expected. Expectations of coppershortage in 2011 remain intact. In particular, there are growing signs that the domestic copper industryis picking up. For instance, the domestic spot market has seen premium again and domesticinventories have fallen rapidly.

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