JCC eyes boost from acquisition deal

First Quantum buyout to give copper processor access to more overseas resources

The earning strength and capital management ability of Jiangxi Copper Corp is expected to surge once it complete the acquisition of part of shares in Canada-based First Quantum Minerals Ltd in the coming months, analysts said.

Jiangxi Copper is China's largest copper processing manufacturer by sales revenue.

The analyst remarks came after JCC announced late on Monday that its subsidiary Jiangxi Copper (Hong Kong) Investment Co Ltd has entered into an agreement to purchase the entire equity interest in PIM Cupric Holdings Ltd, or PCH, from Pangaea Investment Management Ltd.

According to the company's filing at the Hong Kong stock exchange, PCH has direct ownership of 124.2 million common shares of the Toronto Stock Exchange-listed First Quantum. The firm, which is headquartered in Vancouver, developed and operates nine copper mines in eight countries such as Zambia, Panama and Peru.

The filing said the targeted firm held over 18 percent of First Quantum's issued share capital as of Dec 9. Jiangxi Copper said the deal is in line with its global strategy. The company is engaged mainly in the mining, smelting and copper processing business.

Jiangxi Copper has raised $1.12 billion for the deal, and the transaction is expected to close on or before Dec 31.

The stock purchase could provide Jiangxi Copper more leverage in getting access to the assets of First Quantum and secure quality copper mine resources in overseas markets, especially since the metal is an important ingredient used in low-carbon technologies, said Zhou Mi, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation.

There has been a growing supply strain involving copper concentrates on the global market in recent years, and this has caused a steady decline in the treatment and refining charges companies can charge for the processing of copper concentrates, he said.

Supported by over 1,800 employees, First Quantum to date controls around 49.25 billion metric tons of copper resources around the world. Its total copper and gold production jumped 27 percent and 56 percent to 192,510 tons and 70,120 ounces, respectively, in the third quarter this year.

Chen Sijie, the chief nonferrous researcher at Tianfeng Future Research Institute, said the acquisition is beneficial for Jiangxi Copper because as the largest copper smelter in China, the company has a large annual demand for copper concentrates.

In recent years there is a growing strain in the global supply chain for copper concentrates. As a result, most of the profits of the copper smelting industry have been stripped away by upstream firms that provide raw materials for the business. Chen noted that the China Smelters Purchase Team (CSPT) formed by most of the country's top smelters has run into difficulties in completing long-term deal negotiations.

The deal ignited a rally in shares of Jiangxi Copper in Shanghai. The company's stock closed on Tuesday at 15.09 yuan ($2.14), up 4.07 percent for the session. It was the highest close for Jiangxi Copper in almost three months, having ended at 15.18 yuan on Sept 16.