Mobius Sees Chalco Benefit as China Seeks to Cut Capacity

Investor Mark Mobius said Aluminum Corp. of China Ltd. is a “good long-term bet” as one of the few producers of the metal set to benefit from the government’s plans to reduce overcapacity.

China ordered more than 1,400 companies in 19 industries including aluminum to ease oversupply, according to a July 25 statement from the Ministry of Industry and Information Technology. While Chalco, China’s biggest aluminum maker, will be able to raise the capital it needs as the government begins to “winnow out” smaller producers, other companies will “fall by the wayside,” Mobius said.

“Chalco will be the one left standing,” Mobius, who manages $53 billion as the executive chairman of Templeton Emerging Markets Group, said in an interview in Bangkok yesterday. “The government doesn’t want to see this excess capacity in the country.”

Chalco’s American depositary receipts fell 2.7 percent to $8.16 in New York, extending this year’s drop to 31 percent. The ADRs traded 0.3 percent below the Hong Kong shares. Each ADR equals 25 underlying shares in the Beijing-based company.

Units of Franklin Resources Inc., Templeton’s parent company, have a combined stake of about 31 percent in Chalco, according to data compiled by Bloomberg.

Project Rules

China’s industry and information ministry raised the minimum output requirement on alumina projects using imported bauxite to 800,000 tons, up from 600,000 tons in rules set in 2007, in new industry guidelines released last week. Producers must use their own money to fund at least 40 percent of their projects and are encouraged to have integrated hydro-power or coal-fired power plants.

Chalco’s coal-powered plants are helping the company become “vertically diversified,” he said.

Chalco reported a net loss of 975 million yuan ($158 million) in the three months ended March 31 while sales rose 1.9 percent to 34.2 billion yuan. The company’s loss may narrow to 5.8 billion yuan this year, from 8.2 billion yuan in 2012, according to the average estimate of 11 analysts surveyed by Bloomberg.

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