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China Vanadium Plans Iron Ore Acquisitions in Sichuan

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Aug. 25 (Bloomberg) -- China Vanadium Titano-Magnetite Mining Co., the largest non state-owned iron ore producer in Sichuan province, said it will focus on takeovers in the region as local demand for ore may rise 18 million metric tons by 2012.

Sichuan province, which borders Tibet, will add 10 million tons of steel production capacity by 2012, translating into an additional iron ore demand of 18 million tons, Chairman Jiang Zhongping said in an interview.

“Eighteen million tons is small to China, but to Sichuan miners, it’s attractive,” Jiang said, “The Panxi region, where we are located, have abundant resources for acquisitions. Local expansions are our priority in the next few years.”

China’s moves to improve infrastructure and employment in its western provinces and rebuild areas damaged in the 2008 earthquake are adding to steel demand in Sichuan. China Vanadium’s profit surged 75 percent to 233.6 million yuan ($34 million) in the first half on higher production and prices.

The company may spend 1.3 billion yuan this year on acquisitions and capacity expansion, Kong Chi Mo, chief financial officer of China Vanadium, said during the same interview, declining to give a forecast for the next year.

The company would have at least 600 million yuan in operating cash flow every year, Mo said. It had 300 million yuan of bank loans by the end of June, he said.

Outlook

“Iron ore deposits controlled by the company will increase rapidly over the next three years,” Luo Rongjin, a Beijing-based analyst of Bocom International Holdings Ltd., a unit of Bank of Communications Co., said in a Aug. 24 report. Luo maintained a “buy” on the stock.

The shares fell 1.4 percent to HK$2.85 at the 4:00 p.m. close in Hong Kong, taking a decline to 19 percent since its debut on Oct. 8.

Analysts see gains in the stock for the next 12 months, with a Bloomberg survey of 4 analysts indicating the shares may rise by 53 percent within a year to HK$4.35. China Vanadium may increase profit by 53 percent to 503 million yuan this year and another 25 percent to 631 million yuan in 2011, according to the mean estimate of 6 analysts compiled by Bloomberg.

Ore containing 63.5 percent-iron arriving at Chinese major ports has risen 79 percent in the past year to $157 a ton in the week of Aug. 20, according to researcher Metal Bulletin, as China, the world’s biggest steelmaker, increased production of the alloy by 18 percent in the first seven months to 375 million tons.

Expansion and Prices

The company may produce up to 1.95 million tons of iron ore concentrates with about 55 percent iron content this year, Jiang said. It is building a 300,000-ton production line to raise its total capacity to 2.6 million tons of concentrate. It’s also building a 1.5 million-ton line of pellets to raise capacity to as much as 1.86 million tons.

China Vanadium may also add another 250,000 tons of concentrate capacity next year should it complete the purchase of the Maoling mine in Wenchuan, Sichuan, from its majority shareholder, Jiang said.

China Vanadium sold iron concentrate at 665 yuan a ton on average in the first half, Jiang said. That’s a 29 percent gain from a year ago, Bocom’s Luo said. Production cost for a ton of concentrate was 266 yuan in the first half, Jiang said.

“Iron ore prices in Sichuan are much more stable than eastern regions” because of more difficult access to imports, Jiang said. Prices will mirror the trend of China’s broader spot market, but with less volatility, he said, without giving a forecast for the second half.

About 60 percent of its concentrates are processed into pellets, also used in steelmaking, at its plants, Jiang said. The company sells the products to steelmaker Weiyuan Iron & Steel Co., a sister company, and the rest to traders.

To contact the Bloomberg News staff on this story: Helen Yuan in Shanghai at hyuan@bloomberg.net

To contact the editor responsible for this story: Tan Hwee Ann at hatan@bloomberg.net;

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