Zijin Shares Drop After Closing Plant on Waste Leaks

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 the lowest level in more than 15 months in Hong Kong trading after it was forced to shut a copper smelter that leaked acidic water and killed fish.

The plant, which produces 12,800 metric tons of copper a year at Zijinshan mine, will only be reopened after checks by local environmental authorities, spokesman Zhao Jugang said today in an interview. About 1.89 million kilograms of fish in the Mianhuatan reservoir in Fujian province were found dead or poisoned, Xinhua News Agency said yesterday.

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 12.2 percent to HK$4.90, the lowest level since March 2009, In Shanghai trading, the stock closed 3.7 percent lower at 5.76 yuan.

"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. Copper production at the mine accounts for 15 percent of Zijin's total annual output, Guotai Junan Securities Co. said yesterday.

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 water supply normalized a few days after the incident, Zhao said from Shanghang city.

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.

Zijin will likely have to pay a penalty, and compensation for local fisheries may reach about 5 million yuan ($738,000), Zhao said. The government had asked the company to pay villagers 3 yuan for each kilogram of dead fish, he said. Zhao said the number of fishes affected were still been counted.

"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.

The Shanghang county government mobilized soldiers, civil servants and villagers to help net the dead fish, Xinhua said yesterday. Calls to the Shanhang county government communications office were not answered.

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.

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