Chinalco to Take Majority Stake in Jiangxi Rare Earth SOE

Source: 21 Century News Group

September 29, Aluminum Corp. of China Ltd. (Chinalco), China’s largest aluminum producer, said Monday the company had concluded an agreement with Jiangxi Provincial Government to take a majority stake in Jiangxi Rare Earth and Rare Metals Tungsten Group (JXTC).

State-owned Chinalco, which is seeking to diversify its portfolio to reduce risk from its core business, will invest as much as RMB 10 billion to help JXTC develop rare earth resources in the next three to five years, the company said in a statement on its website.

Nanchang-based JXTC is China's largest tungsten producer and maintains rare earth resource deposits of more than three million tons. In 2009, JXTC booked revenue of RMB 8.94 billion and had net assets RMB 11.14 billion.

China supplies more than 95% of global rare earth oxide output and sits on half of the world’s reserves.

Inner Mongolia, Guangxi, Guangdong, Hunan, Fujian and Sichuan are the country’s other main producing regions.

The central government has indicated that it wants big companies to spearhead the consolidation of the nation's rare earth sector, which has been largely undervalued by over-exploitation and poor management.

Market watchers said the central government's plan to keep most of China’s rare earth mining under the control of state-owned enterprises is in line with Chinalco’s plan to diversify away from its core business.

In the first half of 2010, Chinalco’s Hong Kong listed arm, Aluminum Cop. Of China Ltd., (2600.HK 601600.SH) reported a net loss of RMB 96 million due to over-capacity and fluctuating aluminum prices.

In July, Chinalco received approval from the central government to move into mining resource exploration, non-ferrous metal processing and related trade and engineering technology services.

"Rare earth accounts for a small proportion of Chinalco's business. The move to gain rare earth mines is a strategic plan and in line with the government’s thinking," Huatai Securities analyst Liu Minda told the official China Daily in August.

Chinalco has also approached the State-owned Assets Supervision and Administration Commission of Guangxi province to discuss developing rare earth mines with local companies and participating in processing projects.