UPDATE 2-Trafigura to buy 30 pct of Jinchuan copper smelter in China

Fri Feb 21, 2014 2:39am EST

* Deal could help Trafigura boost China business

* Agreement includes concentrate supply and metal off-take

* Smelter has designed capacity of 400,000 tonnes a year (Adds comment, detail)

By Polly Yam

HONG KONG, Feb 21 (Reuters) - Global commodity trader Trafigura said it would buy 30 percent of Jinchuan Group's copper smelter in southern China, the first time a foreign firm has taken a major stake in such a facility in the world's top consumer of refined copper.

The deal, for an undisclosed amount, comes as the Switzerland-based company looks to get a leg up on international rivals such as Glencore Xstrata and Louis Dreyfus Commodities in doing business in the world's No.2 economy.

The move includes an agreement that traders estimate could secure Trafigura annual sales to the smelter of up to half a million tonnes of copper concentrate, as well as the purchase of 120,000 tonnes of refined metal that it could sell in China or export to Asia.

That would increase Trafigura's sales of copper concentrate to China by a third from about 1.5 million tonnes a year currently, they said.

"Trafigura would benefit a lot from the deal because it could boost its copper concentrate selling and help it get a hold of metal to sell in China," said a trader at an international trading firm that competes with Trafigura in selling concentrate to China. He declined to be named.

"I don't think a lot of international traders could follow suit given the size of financing that was probably involved."

Both Trafigura and Jinchuan, China's third-largest copper producer and top maker of refined nickel, declined to comment on the size of the deal, which is subject to regulatory approval.

The 400,000 tonnes a year smelter is part of a 30 billion yuan ($4.9 billion) complex being built by Jinchuan, the parent of Hong Kong-listed Jinchuan International, in Fangchengang in the southwestern region of Guangxi.

It is expected to house total annual capacity of 600,000 tonnes of copper and 110,000 tonnes of nickel, according to a local government website (www.fcgs.gov.cn).

Trafigura in December signed a deal to secure supplies of copper concentrate from the massive Oyu Tolgoi mine in Mongolia, but the mine's distance from Guangxi could make it too expensive to transport material to Fangchengang.

TRIAL PRODUCTION

A source in China familiar with operations at the smelter said that prices in the multi-year so-called supply and off-take arrangement would be set in reference to market prices.

He added that despite access to China's markets, Trafigura might also ship a lot of refined copper from the smelter to Asia.

The smelter was still in trial production and was expected to start normal output after June 2014, he said. It is slated to produce about 200,000 tonnes of refined copper in 2014.

But the smelter was unlikely to boost Jinchuan's production in 2014 as it has already closed 300,000 tonnes of copper capacity in the northwestern province of Gansu, home of Jinchuan, the source said.

The Gansu facilities are now expected to churn out less than 400,000 tonnes of refined copper this year, compared to more than 500,000 tonnes in 2013, he added.

($1 = 6.0834 Chinese yuan) (Editing by Joseph Radford)

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