China Molybdenum takes direct ownership of IXM in $495mln fund buyout, details profits

China Molybdenum Co will take direct control of metals trader IXM in a $495-million buyout of a fund it set up to originally purchase the firm from Louis Dreyfus, according to a notice issued on the Hong Kong Stock Exchange on Tuesday December 4.

The deal exceeds the $466 million paid by the China Molybdenum-backed NCCL Natural Resources Investment Fund in May after initial agreements were signed last December, with the difference made up by IXM’s net profits after tax in 2018 of $30.95 million, the company said.

It will mean that IXM will become a direct subsidiary of China Molybdenum and comes after NCCL Natural Resources Investment Fund was hit by rising US interest rates and nascent Chinese policies to restrict outward investment from the country, the release said. No mention was made of any changes to IXM’s day-to-day business as a result.

But the release did include IXM profits for the last three years, shedding light on the business value of the world’s third-largest metals trader hitherto unseen due to the company’s ownership by the privately owned Louis Dreyfus Group.

These show how IXM massively grew earnings in 2017, the year of its eventual sale to NCCL Natural Resources Investment Fund and one in which metals divisions at fellow mega-traders, such as Trafigura, also banked profits after recovering base metal exchange prices exposed gaps and inefficiencies in the value chain from mines to finished products.

Spectacular growth in takeover year
IXM made consolidated net profits of $92.267 million in 2017, more than double the $39.814 million made in 2016, audited records released by China Molybdenum show.

Profits for 2018 have since declined to $30.95 million, unaudited accounting figures for this year indicate.

Still, IXM has grown net assets from $378,397,000 as at 30 September 2017 to the $449,775,000 as at 30 September 2018. The amount China Molybdenum are paying for IXM reflects this higher book value plus profits, it said.

IXM, which until this year had been a Louis Dreyfus unit since the agricultural trading giant acquired the copper concentrates book of Mitsui & Co in 2006, did not respond to a request for comment from Fastmarkets on December 4.

China Molybdenum, one of the five largest molybdenum miners in the world, was a relative unknown amongst base metal circles until a multi-billion dollar deal to buy the Tenke Fungurume copper-cobalt mega-mine from Freeport McMoRan and Lundin.

“The proposed acquisition is expected to transform the company into a more recognized and competitive player and enhance the company’s reputation and competitiveness in the global resources industry,” China Molybdenum said.

IXM’s trading business will also give China Molybdenum flexibility to hedge against the “negative effects of the business cycle”, it added.

Fund flight

IXM’s original buyers NCCL Natural Resources Investment Fund was set up and managed by New China Capital Legend but owned jointly by China Molybdenum and Shenzhen-based firm AXAM Asset Management through holding company New Silk Road Commodities.

But the structure of the acquisition started to bear strain early on, with new Chinese policies restricting the outflow of capital from the country to large foreign investments such as IXM, the release states.

“The Fund is facing increasing global challenges in providing timely and sufficient financing supports under the global macro-economic and [Chinese] regulatory environment in the second half of 2018,” China Molybdenum said.

Initial payment of $297 million is due to be paid before December 20, the company added.

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