China’s rare-earth stocks surged in Shanghai trading after Hunan Corun New Energy Co.’s plan to acquire Yiyang Hongyuan Rare Earth Co. fueled expectations of industry consolidation and improved profits.
Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., China’s biggest producer, surged as much as 7.5 percent to 37 yuan, the highest intraday level since Aug. 24. Rising Nonferrous Metals Share Co. surged 10 percent, the daily limit, to 47.55 yuan.
Hunan Corun New Energy, a maker of batteries for hybrid cars, plans to buy Yiyang Hongyuan Rare Earth Co., with an estimated value of 1.22 billion yuan ($196 million), from controller Cao Youmin through share placements, according to an exchange filing today. China, supplier of 90 percent of the world’s rare earths, is encouraging value-added production rather than the exports of the minerals to help conserve resources and protect the environment.
“The planned purchase revives expectations of consolidation through the industry chain,” said Zhang Fang, a Beijing-based analyst with China Securities Co. “The market is bullish on rare earth stocks.”
Rare earths are a group of 17 chemically similar elements used in helicopter blades, wind turbines and hybrid cars.
Hunan Corun will supply a nickel-hydride battery plant in Kanagawa Prefecture, south of Tokyo, with rare earths mined by Yiyang Hongyuan, the statement said. Hunan Corun bought the plant in 2011 from Panasonic Corp., it said.
“Our Japan factory has been weaker than our competitors’ in terms of production costs,” Hunan Corun said. “Rare earths are an important material for nickel-hydride batteries. There’s been a supply shortage in Japan in recent years.”
China’s export controls on rare earths have soured ties with the world’s major users, including the U.S. and Japan. The World Trade Organization agreed in July to probe China’s export limits and tariffs on the metals amid complaints that the curbs break global commerce rules.
Hunan Corun plans to issue about 48 million shares to Cao for his 80 percent interest in Yiyang Hongyuan, according to the statement. It would also sell shares to as many as 10 investors to raise no more than 325 million yuan. Of that, 244 million yuan would be used to buy the remaining 20 percent of the target company from Cao, it said.
Hunan Corun surged by 10 percent, the daily limit, to 20.5 yuan in Shanghai, taking its gain to 29 percent in the past 12 months. The benchmark Shanghai Composite Index rose 0.7 percent. Xiamen Tungsten Co., which also has rare-earth assets, advanced 2.7 percent to 36.81 yuan.