Jiangxi Copper Co Ltd said on Wednesday it has set up a Cayman Islands-based fund that will buy mining projects as the Chinese state-owned copper producer sets its eyes on potential bargains as the commodities cycle bottoms.
As China’s largest copper producer reported a 37.9 percent drop in profits due to weak metals prices, it said it had allocated $100 million through its subsidiaries to establish Valuestone Global Resources Fund I in the Cayman Islands with CCB International Asset Management Ltd, part of China Construction Bank Corp.
By Aug. 4, the fund had $150 million in initial funding and was now open to domestic and foreign institutional investors. The aim is to get $300 million in total investment.
Jiangxi didn’t identify what projects it was targeting, but said the fund will capture opportunities arising from low metals prices.
While it is not unusual for banks and hedge funds to use investment arms to buy into mining projects, it is an unusual move for a Chinese government-owned producer and reflects the company’s global ambitions.
“The focus is not to secure supply, it is rather how to make a profit at the bottom of this industry cycle,” analyst Helen Lau of Argonaut Securities in Hong Kong said.
“Eventually Jiangxi Copper may participate in operating and investing… but they may ask the (private equity) fund to just flip it.”
The fund may be able to cast its net wider than traditional private equity units, said Lau.
Private equity funds have been on the hunt for deals for the past few years but have largely held back on purchases.
However, Jiangxi’s fund could have greater capacity to develop projects since it is a major producer as well as a stakeholder offering operational know-how and could pay for the offtake, said Lau.
Jiangxi Copper sources only 20 percent of its supply from its own mines. It has said its next step will be to focus on international acquisitions and Lau said the fund will help Jiangxi bolster its international M&A experience.
Jiangxi has had limited success overseas with projects in Afghanistan and Peru, unlike peers such as China Moly and Minmetals.
The Afghani project has been delayed after insurgent attacks that have also hampered nearby infrastructure builds.
London Metal Exchange copper prices have fallen by more than quarter since May 2015 amid concerns about slowing demand from China, the world’s top commodities consumer, and are languishing at around $4,700 per tonne.