Jiaozuo Wanfang to Investment 1 Billion Yuan in Chalco Xinjiang for a Coal-fired

On March 16, Jiaozuo Wanfang Aluminum Co., Ltd. announced that the company together with its controlling shareholder Aluminum Corporation of China (Chalco) will jointly inject 2,848 million yuan into Chinalco Xinjiang Aluminum & Power (“Chalco Xinjiang” for short) for the latter's coal-fired electricity aluminum integrated project in Shanshan of Xinjiang.

Under the project, Jiaozuo Wanfang will contribute 1,014 million yuan, taking up a 35%stake in Chalco Xinjiang, and Chalco will invest 1,884 million yuan, holdling a 65% stake in Chalco Xinjiang. As Chalco is the largest shareholder of Jiaozuo Wanfang, holding a 24% stake in the latter, the cooperation constitutes related-party relationship.

According to the announcement, Chalco Xinjiang was set up on August 5, 2011, with a registered capital of 50 million yuan. At present, it is a wholly-owned subsidiary of Chalco, engaged in selling products of bauxite, other minerals, metallurgical products, carbon products and also involved in the power generation. It has not started business of production operation so far. The capital injection will boost Chalco Xinjiang's registered capital to about 2.9 billion yuan. Financial data show that in 2011 the company had total assets of 49,948,300 yuan,with operating revenue of 0 and net profit of -51,700 yuan. The capital injection will boost Chalco Xinjiang's registered capital to about 2,898 million yuan.

In Jiaozuo Wanfang’s announcement made on March 16, Chalco Xinjiang’s coal-fired electricity aluminum integrated project in Shanshan of Xinjiang has attracted remarkable attention.Prior to that, a few research institutions had released research reports, pointing out that due to high electric power cost, coal-fired electricity aluminum integration is key to improving Jiaozuo Wanfang’s profitability.

The announcement also points out that electric power cost accounts for more than 40% in aluminum which is its main business, and coal price is the crucial determinant of electric power cost. Shanshan enjoys rich coal resources, which is a boon for developing a competitive coal-fired electricity aluminum integrated project. Therefore, this is “conducive to achieving new profit growth and sustainable development”.

In fact, Jiaozuo Wanfang has been pursuing the strategy of coal-fired electricity aluminum integration for years. At the end of 2008, it acquired the whole stake held by the foreign side in Jiaozuo AES Wanfang Power Co., Ltd., turning it into a wholly-owned subsidiary. At the end of 2009, it successfully acquired a 30%stake in Jiaozuo Coal Group Zhaogu (in Xinxiang City) Energy Co., Ltd. It has built a complete industry chain for coal-fired electricity aluminum integration.

Jiaozuo Wanfang’s announcement mentioned that after the completion of the transaction, the company can appoint two members of Chalco Xinjiang’s board of directors, taking up two fifths of the total. Although Jiaozuo Wanfang does not have control over Chalco Xinjiang, it has major influence on the latter.