China Widens State Commodity Overhaul as Metals Firms Merge

Updated on
  • Minmetals, China Metallurgical sales about $96 billion in 2013
  • New, listed company planned after takeover is complete

China widened the overhaul of its bloated state sector as China Minmetals Corp., its biggest metals trader, agreed to buy a government-owned engineering and mining group, combining two state enterprises with about $96 billion in sales.

China Metallurgical Group will be folded into Minmetals as a wholly-owned subsidiary, according to a statement by China’s State-owned Assets Supervision and Administration Commission on Tuesday. A new, listed company will be created afterward, according to a person with knowledge of the situation.

President Xi Jinping pledged last month to accelerate reform of state-owned enterprises, which control $17 trillion in assets and employ millions of people. The combined revenues of Minmetals and China Metallurgical amounted to about 614 billion yuan ($96 billion) in 2013, the last year for which figures for both companies are available, according to data compiled by Bloomberg. The world’s largest miner, BHP Billiton Ltd., had sales of almost $66 billion in the same year.

“China Minmetals will increase its reserves for metal ores including copper, zinc and nickel, and gain market share in the steel market,” after the acquisition, Bloomberg Intelligence analyst Yi Zhu wrote in a note Wednesday. The company may also reorganize units to cut overlap, with subsidiary MMG Ltd. potentially injecting metal assets into China Metallurgical’s Hong Kong-listed unit, Metallurgical Corp. of China Ltd., to gain access to overseas markets, Yi said.

MMG Rises

Shares in Hong Kong-listed MMG rose 4 percent to HK$1.55 by 9:55 a.m. The increase came despite the company saying it expects to take a charge of as much as $800 million after reviewing its operations, which could have a significant impact on 2015 profit. Metallurgical Corp. of China fell 13.6 percent to HK$2.47. The shares had been suspended since August and had missed losses incurred on the wider stock market.

China is expanding at the slowest rate in a quarter century, weakening global markets for raw materials and sending prices to multi-year lows. Its metals industry has been hammered by the slowdown and is a target for reforms that would boost efficiency and strip out overcapacity. China’s state-owned resources companies also typically serve the national interest by ensuring stable supplies of commodities.

Supply Security

“Resources supply security is still very important to China” given its reliance on raw materials imports, said Qi Ding, a Beijing-based analyst at Essence Securities Co. “The country also needs giants that are competitive in the global market as most resources are controlled by these majors.”

Minmetals, based in Beijing, owns 74 percent of MMG, which has zinc and copper mines in Australia and which acquired the Las Bambas copper project in Peru from Glencore Plc in 2014. The company has imported industrial raw materials to China since 1950, shortly after the founding of the People’s Republic, and remains the nation’s leading global and domestic trader of metals.

China Metallurgical, traditionally a steel plant builder, gets 85 percent of its revenues from engineering and construction projects, including everything from redeveloping shanty towns to building highways and exhibition centers. Its resource business is relatively small, including the loss-making Ramu nickel mine in Papua New Guinea. In 2007, MCC won the rights to develop the Aynak copper belt in Afghanistan, a project that has stalled amid disputes with the government in Kabul.

Listed Firm

SASAC’s statement didn’t give any details about the parent companies’ deal. He Jinglin, a manager at Minmetals media department, said no further information was available and that updates would be posted to the company’s website. Alex Wei, an official in charge of media liaison at China Metallurgical, confirmed the planned merger and declined to give further details.

China Metallurgical has urged senior employees to buy shares of a listed firm that will be created after the takeover by Minmetals, said the person with knowledge of the matter, who asked not to be identified because the information is private. Employees were encouraged at a Dec. 4 meeting to buy a minimum of 50,000 yuan worth of shares, with the goal of having them own 20% of the new company, the person said.

Minmetals revenue in 2013 was 412 billion yuan, while China Metallurgical posted revenue of 201 billion yuan.

— With assistance by Martin Ritchie

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