Deal Success Has China Metal Miner Seeking More Overseas Targets

Aug 18, 2014 11:33 pm ET

Aug. 19 (Bloomberg) -- China Molybdenum Co., the nation’s biggest producer by market value, is seeking more acquisitions after the success of its $820 million purchase of a Rio Tinto Group copper mine in Australia.

“We’ll prefer mining assets in developed countries or regions with stable political conditions,” Li Chaochun, chairman of the Luoyang, Henan province-based company, said in a phone interview. “We are bullish on copper over the long run. It is one of our investment priorities. We’re also studying other metals.”

Buying the Northparkes mine, it’s first overseas copper acquisition, helped the Chinese producer diversify into precious and base metals, as it seeks to become a global mining company. China Molybdenum, which started a team looking for overseas assets in 2008, last week reported a 66 percent jump in first- half profit as Northparkes added to production.

“Diversification will help the company achieve stable growth by avoiding price risks on a single metal,” said Wang Min, a rare-metal analyst with Beijing Antaike Information Development Co.

China Molybdenum has climbed 59 percent this year in Hong Kong, outstripping the 7.1 percent increase in the benchmark Hang Seng Index.

Tougher Steel

Molybdenum is mainly used to make specialty steel tougher and resistant to rust. Demand for that application may continue to expand at the 10 percent growth rate of the first half as China seeks to shift its production mix to more valuable steel grades, Li said in the Aug. 15 interview.

“Higher specialty steel grades require more molybdenum,” he said. “China’s increasing demand for high-strength alloys, used from offshore drilling platforms to oil pipelines, and molybdenum chemicals used in refining catalysts, will push up the metal consumption over the long run.”

While molybdenum mines are opening up, smaller and inefficient mines are set to be closed, restraining the supply increase together with government measures to raise environmental standards against processors, Li said.

“The room for molybdenum prices to rise is much bigger than the room to drop,” Li said. The company mines minerals and turns them into products including molybdenum oxide and ferromolybdenum. It also produces tungsten, copper and other metal products.

Average prices for molybdenum oxide on the international market gained 6.3 percent in the first half from a year ago, while ferromolybdenum in China dropped 12.6 percent in the same period, China Molybdenum said last week in its earnings report.

China may gradually remove its export quotas on tungsten and molybdenum by early-to-mid next year, Li said, after a World Trade Organization panel determined in March that the country didn’t adequately justify its restrictions.