Cash-tight copper smelter Nanguo receives financing from Minmetals

Guangxi Nanguo, who recently had to suspend its newly constructed 300,000 tonne per year copper smelter due to a lack of funds, has entered into procurement financing agreements with state-owned conglomerate Minmetals, sources with direct knowledge told Fastmarkets.

As part of the agreements, Minmetals will secure letters of credit (LCs) for Nanguo, enabling the smelter to buy the copper concentrates it uses as raw material feed. LCs are banking guarantees that a buyer’s payment to a seller will be received on time and for the agreed amount; without one, most suppliers will not deliver.

The smelter was previously said to be struggling to open LCs when buying overseas copper concentrates. Nanguo’s previous LCs were jointly issued by multiple banks, a sign that the smelter found it challenging to prove its financial reliability for large sums.

Copper smelting in China is expanding at an unprecedented rate, but slim margins for processing copper and a weak credit environment for industrial companies in the country have caused private smelters there to suffer difficulties in obtaining feed.

Still, with larger companies willing to foot the bill for smaller competitors, an expected future consolidation in the Chinese market could be further off than anticipated.

Several other conglomerates and trading houses were interested in supplying financial help to Nanguo, sources with direct knowledge told Fastmarkets.

At today’s London Metal Exchange cash copper price of $5,790 per tonne, a standard 10,000 dry metric tonne parcel of 26% purity copper concentrates would cost a smelter approximately $13.6 million accounting for treatment and refining charges (TC/RCs) of $55 per tonne /5.5 cents per lb and not including additional payments for precious metals.

While Minmetals has helped Nanguo in tackling an imminent challenge in raw materials sourcing, Minmetals will also purchase part of Nanguo’s copper cathodes output, Fastmarkets understands.

Guangxi Nanguo’s 300,000 tpy new copper capacity went against headwinds to come online in April, a time when copper TCs were on the decline and copper cathode premiums stayed soft.

Only one month after commencement, the operations were suddenly halted, with the company citing a technical problem in the production procedures while many sources cited also a lack of financial resources.

It resumed operations at the end of June, yet since then it has found it hard to open LCs, and thus to secure raw materials feed.

Furthermore, as a newcomer to the market without long-term concentrate supply agreements signed at benchmark-related rates (this year the market is following $80.8/8.08 cents), Nanguang was forced to buy on the spot market and now is not a good time for buyers.

On tight concentrates availability, Fastmarkets’ copper concentrates TC/RC index is now at $49.6 per tonne/ 4.96 cents per lb, the lowest since the index launch in 2013.

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