Zijin Shares Drop After Closing Smelter on Leakage

By Bloomberg News
(c) 2010 Bloomberg News
Tuesday, July 13, 2010; 12:00 AM

July 13 (Bloomberg) -- Zijin Mining Group Co., China's largest gold producer, fell to a 17-month low in Shanghai trading after it was forced to shut a copper smelter following the leakage of acidic water at Zijinshan mine.

The plant, which produces 12,800 metric tons of copper a year, will only be reopened after checks by local environmental authorities, spokesman Zhao Jugang said by phone today in an interview. The company will likely have to pay a penalty and compensate local fisheries after the river was polluted, he said.

The leakage comes as China, the world's largest metal consumer, is seeking to impose higher environmental standards and the government may make an example of Zijin, Bank of America Corp.'s Merrill Lynch said. Zijin in May said it took corrective measures on plants and mines after a clampdown.

"Today's tumble further reflects investor concerns about Zijin's attitude toward social responsibility issues such as the environment," Helen Lau, a Hong Kong-based analyst at UOB-Kay Hian Ltd., said today.

The shares dropped as much as 8 percent to 5.50 yuan, the lowest level since February 2009, in Shanghai. They traded down 5.2 percent to 5.67 yuan at 1:00 p.m. local time. In Hong Kong, the stock fell 8.4 percent to HK$5.11.

"We expect the plant suspension to last two months," Heng Kun, an analyst at Essence Securities Co., said by phone from Shanghai. Earnings may decline 1.8 percent based on that assumption, he said.

Waste water containing acidic copper seeped into the Ting River in Fujian province on July 3, the company said in a filing to the Hong Kong exchange yesterday. Heavy rainfall led to the leakage, according to initial investigations, Zijin said.

The company has carried out emergency measures to address the leakage, it said. The effect on drinking water is "limited" and the local water supply normalized a few days after the incident, Zhao said from Shanhang city, Fujian province.

The incident "could put Zijin in the cross-hairs as it would give the government an opportunity to highlight a more serious stance towards environmental issues," Merrill Lynch's Timothy Bush and Liying Du wrote in a July 12 note.

The government has issued new environmental standards for commodity producers including steelmakers and lead plants in the past year, threatening closures if they weren't met. Thousands of children were poisoned by lead, zinc and manganese plants in Yunnan, Henan, Shaanxi and Hunan provinces last year.

Environmental authorities ordered the closure of the Five Dragon Gold Mine in Dandong city, Liaoning province, owned by Zhongjin Gold Corp. in July 2008, after tailings polluted the drinking water of 210,000 people in a nearby city, Xinhua News Agency said then.

In 2005, the nation's environmental protection chief resigned after an explosion at a PetroChina Co. plant spilled toxic chemicals into the Songhua River, poisoning the drinking water of 3 million people.

The Shanhang county government mobilized soldiers, civil servants and villagers to help net the dead fish, Xinhua said yesterday. Villagers want Zijin to compensate them for their losses, the news agency said.

The total compensation may be about 5 million yuan ($738,000), Zijin's Zhao said. The government had asked the government to pay villagers 3 yuan for each kilogram of dead fish, he said.

"We estimate for each month of production disruption, Zijin's FY10 copper output would be affected by 1.7 percent and earnings to be affected by 0.9 percent," Trina Chen, an analyst at Credit Suisse Group AG, wrote in a note today.

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