These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and future developments, as well as other factors we believe are appropriate in particular circumstances. However, whether actual results and developments will meet our expectations and predictions depends on a number of risks and uncertainties, which could cause actual results to differ materially from our expectations. These risks are more fully described in the section headed "Item 3. Key Information - D. Risk Factors". |
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Consequently, all of the forward-looking statements made in this annual report are qualified by these cautionary statements. We cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or operations. |
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1 |
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Certain Terms and Conventions |
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"Chalco", "the Company", "the Group", "our company", "we", "our"and "us" refer to Aluminum Corporation of China Limited and its subsidiaries and, where appropriate, to its predecessors; |
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"A Shares"and"domestic shares"refer to our domestic ordinary shares, with a par value of RMB1.00 each, which are listed on the Shanghai Stock Exchange; |
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"alumina-to-silica ratio" refers to the ratio of alumina to silica in bauxite by weight; |
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"aluminum fabrication"refers to the process of converting primary aluminum or recycled aluminum materials into plates, strips, bars, tubes and other fabricated products; |
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"AUD"or"Australian dollars"refers to the lawful currency of the Commonwealth of Australia; |
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"Baotou Aluminum"refers to Baotou Aluminum Limited, our wholly-owned subsidiary established under PRC Law; |
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"Baotou Group"refers to Baotou Aluminum (Group) Co., Ltd., one of our shareholders; |
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"bauxite"refers to a mineral ore that is principally composed of aluminum; |
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"Bayer process"refers to a refining process that employs a strong solution of caustic soda at an elevated temperature to extract alumina from ground bauxite; |
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"Board"refers to our board of directors; |
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"Chalco Hong Kong"refers to Chalco Hong Kong Limited, our wholly-owned subsidiary established under Hong Kong Law; |
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"Chalco Mining"refers to Chalco Mining Co., Ltd., our wholly-owned subsidiary established under PRC law; |
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"Chalco Nanhai"refers to Chalco Nanhai Alloy Company, our subsidiary established under PRC law; |
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"Chalco Qingdao"refers to Chalco Qingdao Light Metal Company Limited, our subsidiary established under PRC Law; |
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"Chalco Ruimin"refers to Chalco Ruimin Company Limited, 92.18% of the equity interest of which is owned by us; |
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"Chalco Southwest Aluminum"refers to Chalco Southwest Aluminum Company Limited, 60% of the equity interest of which is owned by us; |
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"Chalco Southwest Aluminum Cold Rolling"refers to Chalco Southwest Aluminum Cold Rolling Company Limited, our wholly-owned subsidiary established under PRC Law; |
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"Chalco Xing Xian"refers to the construction of Bayer process production system and ancillary facilities at Xing Xian, Lvliang City of Shanxi Province with designed capacity of 800,000 tonnes of metallurgical grade alumina per year; |
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"China"and the"PRC"refers to the People's Republic of China, excluding for purposes of this annual report, Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan; |
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"China Nonferrous Metals Technology"refers to China Nonferrous Metals Processing Technology Co., Ltd.; |
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"Chinalco"and"Chinalco Group"refer to our controlling shareholder, Aluminum Corporation of China and its subsidiaries (other than Chalco and its subsidiaries) and, where appropriate, to its predecessors; |
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"CICL"refers to China Aluminum International Construction Limited, 5% of the equity interest of which was owned by CIT and 95% of the equity interest of which was owned by Chinalco before December 20, 2010, and which has become a wholly-owned subsidiary of Chinalco since December 20, 2010; |
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"Chalco Trading"or"CIT"refers to China Aluminum International Trading Co., Ltd., 90.5% of the equity interest of which is owned by us; |
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"CSRC"refers to China Securities Regulatory Commission; |
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"Energy-Saving and Emission Reduction Goals"refer to the energy-saving and emission reduction goals set out in China's 11th Five-Year Plan for National Economic and Social Development laid out in 2006, by which China expects to cut its per unit GDP energy consumption by 20 percent compared with the 2005 level by the end of 2010; |
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"Exchange Act"refers to the U.S. Securities Exchange Act of 1934, as amended; |
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"Euros"or"EUR"refers to the lawful currency of the Euro zone; |
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"Fushun Aluminum"refers to Fushun Aluminum Company Limited, our wholly-owned subsidiary established under PRC law; |
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"Gansu Hualu"refers to Gansu Hualu Aluminum Company Limited, 51% of the equity interest of which is owned by us; |
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"Guan Lv"refers to Shanxi Guan Lv Company Limited; |
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"Guangxi Huayin"refers to Guangxi Huayin Aluminum Company Limited, 33% of the equity interest of which is owned by us; |
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"Guangxi Investment"refers to Guangxi Investment (Group) Co., Ltd., formerly known as Guangxi Development and Investment Co., Ltd., a PRC state-owned enterprise and one of our promoters and shareholders; |
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"Guizhou Development"refers to Guizhou Provincial Materials Development and Investment Corporation, a PRC state-owned enterprise and one of our promoters and shareholders; |
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"H Shares"refers to overseas listed foreign shares with a par value RMB1.00 each, which are listed on the Hong Kong Stock Exchange; |
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"Henan Aluminum"refers to Chinalco Henan Aluminum Company Limited, 90.03% of the equity interest of which is owned by us; |
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"HK$"and"HK dollars"refers to Hong Kong dollars, the lawful currency of the Hong Kong Special Administrative Region of the PRC; |
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"Hong Kong Stock Exchange"refers to The Stock Exchange of Hong Kong Limited; |
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"Hongrui Chemical"refers to Jiaozuo Hongrui Chemical Company Limited, which we acquired in October 2009 and subsequently ceased its existence as an independent legal person and became part of our Zhongzhou branch; |
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"Huasheng Jiangquan"refers to Huasheng Jiangquan Group Co., Ltd.; |
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"Huaxi Aluminum"refers to Huaxi Aluminum Company Limited, 56.86% of the equity interest of which is owned by us; |
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"series Bayer-sintering process", "parallel Bayer-sintering process" and "hybrid Bayer-sintering process" refer to the three methods of refining process developed in China which involve the combined application of the Bayer process and the sintering process to extract alumina from bauxite; |
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"Japanese Yen"refers to the lawful currency of Japan; |
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"Jiaozuo Wanfang"refers to Jiaozuo Wanfang Aluminum Manufacturing Co. Ltd., 24.002% of the equity interest of which is owned by us as of December 31, 2010. Jiaozuo Wanfang has been our subsidiary since January 1, 2008 after we established de facto control over it; |
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"Ka"refers to kiloamperes, a unit for measuring the strength of an electric current, with one kiloampere equalling to 1,000 amperes; |
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"kWh"refers to kilowatt hours, a unit of electrical power, meaning one kilowatt of power for one hour; |
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"Lanzhou Aluminum"refers to Lanzhou Aluminum Co., Ltd.; |
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"Liancheng branch"refers to our wholly-owned branch, which was formerly known as Lanzhou Liancheng Longxing Aluminum Company Limited, before we acquired 100% of its equity interest; |
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"Listing Rules"and"Hong Kong Listing Rules"refers to the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange, as amended; |
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"LME"refers to the London Metal Exchange Limited; |
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"Longmen Aluminum"refers to Shanxi Longmen Aluminum Co., Ltd., 55% of its equity interests is owned by us; |
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3 |
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"Luxin Company" refers to Jiexiu Luxin Coal Gasification Company Limited; |
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"Nanping Aluminum"refers to Fujian Nanping Aluminum Company Limited; |
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"NDRC"refers to China National Development and Reform Commission; |
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"Northwest Aluminum"refers to Northwest Aluminum Fabrication Plant, our wholly-owned branch; |
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"NYSE"or"New York Stock Exchange"refers to the New York Stock Exchange Inc.; |
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"ore-dressing Bayer process"refers to a refining process we developed to increase the alumina-to-silica ratio of bauxite; |
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"Pingguo Aluminum"refers to Pingguo Aluminum Company; |
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"refining"refers to the chemical process used to produce alumina from bauxite; |
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"Research Institute"refers to Zhengzhou Research Institute, our wholly-owned branch mainly providing research and development services; |
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"Rio Tinto"refers to Rio Tinto plc, a company incorporated in England and Wales, the shares of which are listed on the London Stock Exchange and the New York Stock Exchange; |
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"Rio Tinto Atlantic"refers to Rio Tinto Ore Atlantic Limited, a limited company incorporated in England and Wales and an affiliate of Rio Tinto; |
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"RMB"or "Renminbi"refers to the lawful currency of the PRC; |
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"SASAC"refers to State-owned Assets Supervision and Administration Commission of the State Council of China; |
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"SEC"refers to the U.S. Securities and Exchange Commission; |
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"Securities Act"refers to the U.S. Securities Act of 1933, as amended; |
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"Shandong Aluminum"refers to Shandong Aluminum Industry Co., Limited; |
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"Shanxi Jiexiu"refers to Shanxi Jiexiu Xinyugou Coal Industry (Group) Corporation; |
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"Shanxi Huasheng" refers to Shanxi Huasheng Aluminum Company Limited, 51% of the equity interest of which is owned by us; |
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"Shandong Huayu"refers to Shandong Huayu Aluminum and Power Company Limited, 55% of the equity interest of which is owned by us; |
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"Shanxi Huaze"refers to Shanxi Huaze Aluminum and Power Co., Limited, 60% of the equity interest of which is owned by us; |
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"Shanxi Other Mines"refers to the seven of our jointly-operated mines in Shanxi Province that became our new own mines in 2010; |
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"SHFE"refers to the Shanghai Futures Exchange; |
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"Simandou Project"refers to the project to develop and operate the Simandou iron ore mine located in Guinea in west Africa as further described in the Simandou joint development agreement dated July 29, 2010 entered into amongst Rio Tinto, Rio Tinto Atlantic and us for the purpose of development of the Simandou Project; |
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"sintering process"refers to a refining process employed to extract alumina from bauxite by mixing ground bauxite with supplemental materials and burning the mixture in a coal-fired kiln; |
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"smelting"refers to the electrolytic process used to produce molten aluminum from alumina; |
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"tonne"refers to the metric ton, a unit of weight, that is equivalent to 1,000 kilograms or 2,204.6 pounds; |
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"US$","dollars"or"U.S. dollars"refers to the legal currency of the United States; |
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"Xinan Aluminum"refers to Xinan Aluminum (Group) Company Limited; |
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"Xincheng"refers to Henan Xincheng Construction Supervisory Services Company Limited, a subsidiary that we acquired in October 2009; |
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"Yichuan Power"refers to Yichuan Power Industries Group Company; |
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"Zhangze Electric Power"refers to Shanxi Zhangze Electric Power Co., Ltd.; |
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"Zhongzhou Aluminum"refers to Henan Zhongzhou Aluminum Construction Company Limited, a subsidiary that we acquired in October 2009; |
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"Zunyi Alumina"refers to Chalco Zunyi Alumina Co., Ltd, 67% of the equity interest of which is owned by us; and |
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"Zunyi Aluminum"refers to Zunyi Aluminum Co., Ltd., our subsidiary established under PRC law. |
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Translations of amounts in this annual report from Renminbi to U.S. dollars and vice versa have been made at the rate of RMB6.6000 to US$1.00, the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board for December 31, 2010. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. See "Item 3. Key Information - Selected Financial Data - Exchange Rate Information" for historical exchange rates between the Renminbi and the U.S. dollar. |
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Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding. |
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5 |
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PART I |
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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
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Not applicable. |
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ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE |
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Not applicable. |
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ITEM 3. KEY INFORMATION |
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A. SELECTED FINANCIAL DATA |
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Historical Financial Information |
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The following tables present selected comprehensive income data and cash flow data for the years ended December 31, 2008, 2009 and 2010 and selected statement of financial position data as of December 31, 2008, 2009 and 2010 that were prepared under International Financial Reporting Standards, or IFRS, which includes all International Accounting Standards and Interpretations, as issued by the International Accounting Standards Board, or the IASB. The selected financial information has been derived from, and should be read in conjunction with, the audited consolidated financial statements and their notes included elsewhere in this annual report. Financial information presented in the following tables as of and for the years ended December 31, 2006 and 2007 has been prepared in accordance with Hong Kong Financial Reporting Standards, or HKFRS, and has not been restated. The selected financial data also includes certain items for the years ended December 31, 2006 and 2007 in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP. |
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Our consolidated financial statements as of December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 included in this annual report on Form 20-F have been prepared in accordance with IFRS. We make an explicit and unreserved statement of compliance with IFRS with respect to our consolidated financial statements as of December 31, 2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 included in this annual report. PricewaterhouseCoopers, our independent registered public accounting firm, has issued an unqualified auditor's report on these consolidated financial statements. |
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On October 29, 2009, we acquired the entire equity interest of Zhongzhou Aluminum, Hongrui Chemical, Xincheng and a limestone mining business from two subsidiaries of Chinalco. On May 30, 2008, we acquired six companies from Chinalco and China Nonferrous Metals Technology, an entity controlled by Chinalco. On October 1, 2008, we acquired an aluminum alloy business from Pingguo Aluminum, another entity controlled by Chinalco. As our Company and all the foregoing companies and businesses were under the common control of Chinalco immediately before and after the acquisitions, these transactions were accounted for as business combinations under common control using the merger accounting method as if the acquisition had been consummated since the inception of common control. |
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Electricity is the principal production cost in our primary aluminum operations. During 2010, our average cost per kilowatt-hour, or kWh, of electricity increased by 12.3% from the prior year primarily due to the increase in the price of coal and the electricity price adjustment under state policy. We expect the PRC economy to continue its strong growth and as a result, we expect demand for and prices of electricity to increase accordingly. If we are unable to pass on increases in energy costs to our customers, our operating margin, financial condition and results of operations could be materially adversely affected. |
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Losses caused by disruptions in the supply of power could materially and adversely affect our business, financial condition, results of operations and cash flows. |
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The production of primary aluminum requires a substantial and continuous supply of electricity. Interruptions in the supply of power can result in costly production shutdowns, increased costs associated with restarting production and the waste of production in progress. A sudden loss of power, if prolonged, can cause damage to or the destruction of production equipment and facilities. In such an event, we may need to expend significant capital and resources to repair or replace the affected production equipment to restore our production capacity. Various regions across China have experienced shortages and disruptions in electrical power, especially during peak demand in the summer or during severe weather conditions. Our operations in Guizhou Province were disrupted due to power blackouts resulting from severe winter conditions in early 2008, and these disruptions damaged some production equipment and temporarily reduced our production capacity. |
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Our operations consume substantial amounts of coal, and our operations may be adversely affected if we are not able to procure sufficient coal or if coal prices rise significantly. |
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We rely heavily on coal as our energy and fuel source in our production of alumina. As we increase our refining capacity, our consumption of coal will increase accordingly. If our coal suppliers are not able to supply the amount of coal needed for our production due to a shortage of coal, constraints on coal transportation or any other reason, we may be forced to reduce our production output or suspend our refining operations, which could materially adversely affect our financial condition and results of operations. Although our average price of coal per unit tonne increased by 21.1% from 2009 to 2010, we expect the price of coal to increase as the PRC economy continues its rapid growth. If we are unable to pass on increases in coal prices to our customers or offset price increases through productivity improvements, our operating margin, financial condition and results of operations could be adversely affected. |
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We may be unable to continue competing successfully in the markets in which we operate. |
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We face competition from both domestic and international primary aluminum producers. Our principal competitors are domestic smelters, some of which are consolidating and expanding their production capacities. These smelters compete with our primary aluminum operations on the basis of cost, quality and pricing. We also face increasing competition from international alumina and primary aluminum suppliers since the elimination of tariffs on imports of primary aluminum and alumina into China. Increasing competition in our markets may reduce our selling prices or sales volumes, which will have a material adverse effect on our financial condition and results of operations. If we are unable to price our products competitively, maintain or increase our current share of China's alumina and primary aluminum markets or otherwise maintain our competitiveness, our financial condition, results of operations and profitability could be materially and adversely affected. |
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Our overseas expansion exposes us to political and economic risks, commercial instability and events beyond our control in the countries in which we plan to operate. |
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We are currently undertaking a number of overseas projects, including our aluminium and power joint venture project in Saudi Arabia, the aluminium plant project in Malaysia, the iron ore mining joint venture project in Guinea in West Africa and Aurukun Project in Australia, which require significant capital investment. See "Item 4. Information on the Company - A. History and Development of the Company- Overseas Development". As we are new to these overseas markets, we cannot assure you that our overseas expansion or investments will be successful or that we will not suffer foreign exchange losses in connection with our overseas investment. In addition, our overseas business is subject to the risk of political and economic instability associated with these countries. |
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Our profitability and operations could be adversely affected if we are unable to obtain a steady supply of raw materials at competitive prices. |
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Historically, the price for bauxite, our most important raw material for alumina production, has been volatile. We obtain bauxite for our operations from three major sources, including mines that we own or jointly operate and external suppliers. See "Item 4. Information on the Company - B. Business Overview - Raw Materials - Alumina - Supply". The extent to which we procure bauxite from each of these sources affect the security of our supply or cost of bauxite. Our results of operations will be affected by increases in the cost of other raw materials and other key inputs such as energy. If we cannot obtain a steady supply of key raw materials at competitive prices, our financial condition and results of operations could be materially adversely affected. |
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Transportation interruptions may affect our shipment of raw material and delivery of products. |
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Our operations require the reliable transportation of raw materials and supplies to our refining, smelting and fabrication sites and the delivery of finished products to our customers. Our alumina products are mainly transported by rail or truck, and our primary aluminum products are delivered to our customers primarily by rail. In 2008, our deliveries were affected by a snow storm in the first quarter and severe earthquakes in Sichuan Province in May. If we are unable to make timely deliveries due to logistical and transportation disruptions, our production, reputation and results of operations may be adversely affected. |
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We may not successfully develop and implement new methods and processes. |
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A main objective of our research and development is to develop new methods and processes to improve the efficiency of our alumina refineries to production increase yield from bauxite with low alumina-to-silica ratio. If the supply of high quality bauxite with a high alumina-to-silica ratio in China declines, our failure to develop such methods and processes and incorporate them into our production could impede our efforts to reduce unit costs and diminish our competiveness. |
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The bauxite reserve data in this annual report are only estimates, which may prove to be inaccurate. |
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The bauxite reserve data on which we base our production, revenue and expenditure plans are estimates that we have developed internally and may prove inaccurate. There are numerous uncertainties inherent in estimating quantities of reserves, including many factors beyond our control. If these estimates are inaccurate or the indicated tonnages are not recovered, our business, financial condition, and results of operations may be materially and adversely affected. |
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Our significant indebtedness could adversely affect our business, financial condition and results of operations. |
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We require a significant amount of cash to meet our capital requirements, including the expansion and upgrade of our production capacity, as well as to fund our existing operations. As of December 31, 2010, we had approximately RMB41.7 billion (US$6.3 billion) in outstanding short-term bonds and short-term bank borrowings (including the current portion of long-term bank and other borrowings) and RMB27.7 billion (US$4.2 billion) in outstanding long and medium-term bonds and long-term bank and other borrowings (excluding the current portion of these borrowings). This level of debt could have significant consequences on our operations, including: |
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Our ability to meet our payment and other obligations under our outstanding debt depends on our ability to generate cash flow in the future or to refinance such debt. We cannot assure you that our business will generate sufficient cash flow from operations to satisfy our obligations under our outstanding debt and to fund other liquidity needs. If we are not able to generate sufficient cash flow to meet such obligations, we may need to refinance or restructure our debt, reduce or delay capital investments, or seek additional equity or debt financing. The sale of additional equity securities could result in dilution to our ADS holders. A shortage of financing could in turn impose limitations on our ability to plan for, or react effectively to, changing market conditions or to expand through organic and acquisitive growth, thereby reducing our competitiveness. We cannot assure you that future financing will be available in amounts or on terms acceptable to us, if at all. |
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We may not realize the economic benefits of our expansion and vertical integration plans. |
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Cost savings and other economic benefits expected from our expansion and vertical integration plans may not materialize as a result of project delays, cost overruns, or changes in market conditions. Failure to obtain the intended economic benefits from these projects could adversely affect our business, financial condition and results of operations. We may also experience mixed results from our expansion and vertical integration plans in the short term. In 2008, we acquired five aluminum fabrication plants, which significantly increased our annual aluminum fabrication production capacity and increased our total revenues. However, the change in our product mix resulted in a decrease in our average profit margin as the profit margins of aluminum fabrication products are generally lower than those of our other products. |
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The interests of our controlling shareholder, who exerts significant influence over us, may conflict with ours. |
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Our largest shareholder, Chinalco, directly owned 38.56% of our issued share capital and indirectly owned an additional 3.26% of our issued share capital through its controlled entities. The interests of Chinalco may conflict or even compete with our interests and those of our public shareholders. Chinalco may take actions that are in the interest of its subsidiaries, associates and other related entities to our detriment. For example, Chinalco may seek to influence our decision as to the amount of dividends we declare and distribute. Any increase in our dividend payout would reduce funds otherwise available for reinvestment in our businesses and thus may adversely affect our future prospects and financial condition. |
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In addition, Chinalco and a number of its subsidiaries and associates provide a range of services to us, including engineering and construction services, social services, land and property leasing as well as the supply of raw and supplemental materials. It would be difficult to find an alternative source for some services, such as educational and medical care services, that we receive from Chinalco. Our cost of operations may increase if Chinalco, its subsidiaries and associates are unable to continue providing such services to us. |
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We are subject to, and incur costs to comply with, environmental laws and regulations. |
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Because we produce air emissions, discharge waste water, and handle hazardous substances at our bauxite mines, alumina smelters, aluminum smelters and fabrication plants we are subject to, and incur costs to comply with, environmental laws and regulations. Each of our production plants has implemented a system to control emissions and ensure compliance with PRC environmental regulations. We may incur significant additional costs if relevant laws and regulations change or enforcement of existing laws and regulations become more rigorous. Further, although all of our overseas expansion projects are at the early stage of preparing feasibility report and have not started operation, these projects are subject to foreign environmental laws and regulations that may materially adversely affect our future operations. Failure to comply with environmental laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements and the issuance of orders enjoining future operations, all of which may affect our business operations. |
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We are subject to administrative policies and orders relating to China's Energy-Saving and Emission Reduction Goals that could adversely affect our production capacity and output. |
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We are subject to administrative energy-saving and emission reduction policies and orders carried out by the central and provincial governments in accordance with China's Energy-Saving and Emission Reduction Goals. In the second half of 2010, some of our primary aluminum production facilities were subject to power rationing carried out by some provincial governments to fulfill the Energy-Saving and Emission Reduction Goals, which reduced our primary aluminum production by approximately 1.65%. Although power rationing only slightly reduced our primary aluminum production and the PRC central government has denounced it as an improper means to fulfill the Energy-Saving and Emission Reduction Goals, some or all of our primary aluminum production facilities may be subject to power rationing or other similar policies and orders from time to time in the future, which may adversely affect our production capacity and output. |
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13 |
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Our business is subject to unplanned business interruptions that may adversely affect our performance. |
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We may experience accidents in the course of our operations, which may cause significant property damage and personal injuries. Significant accidents and natural disasters may cause interruptions to our operations or result in property or environmental damage, an increase in operating expenses or loss of revenues. The occurrence of accidents, natural disasters and the resulting consequences may not be covered adequately, or at all, by the insurance policies we carry. In accordance with customary practice in China, we do not carry any business interruption insurance or third-party liability insurance for personal injury or environmental damage arising from accidents on our property or relating to our operations other than for our automobiles. Losses or payments incurred by us as a result of major accidents or natural disasters may have a material adverse effect on our results of operations if such losses or payments are not fully insured. |
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We are operating a number of mines without a valid permit. |
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Our permits to mine bauxite in some of our bauxite mines have expired and lapsed. While we are seeking to renew those expired licenses, we may be subject to administrative fines for operating mines without a valid license, or we may be ordered to cease our mining operations at such mines until we obtain the renewed licenses. The failure to renew those expired mining licenses may adversely affect our financial condition and results of operations. |
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We may be subject to product liability claims. |
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Some of the products we sell or manufacture may expose us to product liability claims relating to property damage or personal injury. The successful assertion of product liability claims against us could result in significant damage payments and harm to our reputation. A successful product liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations. |
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Our H Shares may not be able to maintain its status as a constituent stock of the Hang Seng Index. |
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Our H Shares is a constituent stock of the Hang Seng Index and, as a result, may attract the interest of tracker funds that maintain investment portfolios that track the performance of the Hang Seng Index. We have no control over the selection of the Hang Seng Index constituent stocks and may not be able to maintain our H Shares as a constituent stock. If our H Shares are removed from the Hang Seng Index, tracker funds may cease investing in our H Shares and our share price may decline. |
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The interests of the shareholders of Jiaozuo Wanfang may conflict with our interests. |
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The interests of non-controlling shareholders of Jiaozuo Wanfang, whose A Shares are listed on the Shenzhen Stock Exchange, may be inconsistent with our interests in certain circumstances. Jiaozuo Wanfang must comply with a number of PRC regulations designed to protect the interests of non-controlling shareholders. According to the relevant PRC laws, when shareholders of Jiaozuo Wanfang vote by poll on connected transactions, connected parties such as us must abstain from voting. If we are unable to obtain approval of connected transactions from the non-controlling shareholders of Jiaozuo Wanfang, such transactions cannot be implemented, which may affect our overall operational efficiency. Furthermore, we may be subject to legal proceedings initiated by the non-controlling shareholders of Jiaozuo Wanfang challenging our actions as its controlling shareholder. Such legal proceedings could result in significant damage awards payable by us and disruption to our businesses, which in turn could have an adverse effect on our business and financial condition. |
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Our operations are affected by a number of risks relating to conducting business in the PRC. |
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As a significant majority of our assets and operations are located in the PRC, we are subject to a number of risks relating to conducting business in the PRC, including the following: |
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ITEM 4. INFORMATION ON THE COMPANY |
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A. HISTORY AND DEVELOPMENT OF THE COMPANY |
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We were incorporated as a joint stock limited company under the Company Law of the PRC on September 10, 2001 under the corporate name Aluminum Corporation of China Limited. Our principal executive and registered office is located in the People's Republic of China at No. 62 North Xizhimen Street, Haidian District, Beijing, China 100082, and our telephone number is (86) 10 8229 8103. |
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Pursuant to a reorganization agreement entered into among Chinalco, Guangxi Investment and Guizhou Development in 2001, substantially all of Chinalco's alumina and primary aluminum production operations, as well as a research institute and other related assets and liabilities, were transferred to us upon our formation. We acquired our bauxite mining operations and associated mining rights from Chinalco in a separate mining rights agreement. |
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We are a vertically integrated aluminum producer with operations in bauxite mining, alumina refining, primary aluminum smelting and aluminum fabrication. We also produce ancillary products and services derived from or related to our aluminum operations. In addition, we are engaged in trading of alumina, primary aluminum, aluminum fabrication products, other non-ferrous metal products and raw and ancillary materials in bulk domestically and internationally. In 2010, we expanded our business activities into the areas of iron ore mining and coal mining. |
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We have substantially increased the size and scope of our operations through organic growth as well as selective acquisitions and joint ventures. Our key operating assets include three subsidiaries mainly engaged in bauxite mining; four integrated alumina and primary aluminum production plants; six stand-alone alumina refineries, including our jointly-controlled entity, Guangxi Huayin, and one research institute; thirteen stand-alone primary aluminum smelters, including our research institute; eight aluminum fabrication plants; and one carbon production plant. In addition, as of December 31, 2010, we were constructing a bauxite mining facility, one alumina refinery and two aluminum smelters. All of our production facilities are operated in accordance with ISO14001 standards. |
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Acquisitions and Joint Ventures |
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In May 2008, we acquired five aluminum fabrication plants and a primary aluminum smelter from Chinalco and China Nonferrous Metals Technology for a total consideration of RMB4, 181.0 million (US$633.5 million) to achieve greater vertical integration. These acquisitions significantly increased our aluminum fabrication production capacity and enhanced our offering of aluminum fabrication products. In October 2008, we also acquired the aluminum alloy business of Pingguo Aluminum for RMB69.0 million (US$10.5 million). |
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In October 2009, we acquired Zhongzhou Aluminum, Hongrui Chemical, Xincheng and the limestone mining business of Zhongzhou Aluminum Fengying Company Ltd. from two wholly-owned subsidiaries of Chinalco for a total cash consideration of RMB35.0 million (US$5.3 million), which was subsequently adjusted to RMB37.0 million (US$5.6 million) pursuant to a valuation adjustment provision in the equity transfer agreement for these acquisitions. Zhongzhou Aluminum and Hongrui Chemical are principally engaged in the provision of construction and engineering services and supply of chemical products and accessory supplies, respectively, for the mining industry. Xincheng is principally engaged in the provision of supervisory services for construction projects. |
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In October 2010, we entered into a joint venture contract with Luxin Company, Shanxi Aluminum Plant, a subsidiary of Chinalco, and natural person shareholders, for the establishment of Shanxi Jiexiu. We and Shanxi Aluminum Plant hold approximately 34% and 16% of the equity interest of Shanxi Jiexiu, respectively. The remaining equity interest is held by Luxin Company and the other investors, who are independent of and not related to us. Shanxi Jiexiu engages in integration of coal resources in Shanxi Province by investing in and reorganizing five coal mining companies in the Jiexiu area, Shanxi Province, with total retained reserves of approximately 300 million tonnes. As of the date of this annual report, Shanxi Jiexiu is in construction in progress. |
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Construction Projects |
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In December 2009, we completed the construction of production facilities at Chalco Nanhai, which increased our annual aluminum fabrication capacity by approximately 110,000 tonnes. |
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We invested approximately RMB8.5 billion (US$1.3 billion) on infrastructure construction and facility upgrades in 2010 and expect to increase our capital expenditure for the foregoing purposes to RMB15.8 billion (US$2.4 billion) in 2011. As of the date of this annual report, we have undertaken a number of facility expansion projects in China, each of which is expected to be completed in 2011. See "- D. Property, Plants and Equipment - Our Expansion". |
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Overseas Development |
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On March 23, 2007, we entered into a development agreement with the Queensland State Government of Australia (Queensland Government) to develop a bauxite and alumina project, the Aurukun Project. We were issued a bauxite exploration permit in September 2007 by the Queensland Government. However, the market conditions of global aluminum industries incurred substantial negative changes after we executed the development agreement and the Aurukun Project could no longer continue under the original framework. We engaged in active negotiations with the Queensland Government on this and both parties agreed that the development agreement would not be renewed after its term expired on June 30, 2010. However, subsequent to the termination, we have engaged a new round of discussions with the Queensland State Government. In December 2010, the Queensland State Government offered a revised development agreement to us for further discussion. Refer to Note 8 to the consolidated financial statements for details. |
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On November 24, 2007, we entered into a framework agreement to jointly construct a one million tonne primary aluminum plant in Saudi Arabia with Malaysia Mining Company ("MMC") and Saudi Arabia Binladin Group ("SBG") and received the permit for the project from the Saudi Arabia General Investment Authority. On May 9, 2008, we entered into a joint venture arrangement with MMC and SBG, which provides for the establishment of a joint venture that will develop and operate the primary aluminum plant with an annual capacity of approximately one million tonnes, as well as an adjoining power plant. We have finished the initial draft of the feasibility report for this project. |
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On February 9, 2010, we entered into a framework agreement with GIIG Holding Sdn Bhd ("GIIG") to develop, own and operate a primary aluminum plant in Sarawak, Malaysia with an annual capacity of approximately 330,000 tonnes. Smelter Asia Sdn Bhd, a wholly-owned subsidiary of GIIG will be reorganized as a joint venture to oversee the development and operation of the primary aluminum plant project. The total investment of this project is estimated to be US$1.0 billion, and we will contribute between US$350 million and US$400 million for 35% to 40% of the equity interests in the joint venture. We are currently preparing the feasibility report for this project. |
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On July 29, 2010, we entered into a joint development agreement with Rio Tinto and Rio Tinto Atlantic, an affiliate of Rio Tinto for the development and operation of the Simandou Project, a premium open-pit iron ore mine located in Guinea, West Africa. Pursuant to the agreement, we (via our subsidiary) will acquire by stages up to a 47% equity interest in a joint-venture company to be incorporated by Rio Tinto, to which Rio Tinto will transfer its entire 95% equity interest in the Simandou Project. The total consideration of US$1.35 billion (equivalent to approximately RMB9.17 billion) for the acquisition will be paid in instalments by us fulfilling the sole funding obligation for the development of the Simandou Project over a period of approximately 3 to 5 years. The joint development agreement shall become effective upon prior satisfaction or prior waiver of each of (i) the condition that the approval of the transaction by the competent authorities of the PRC is obtained and (ii) certain competition law conditions. Such project is in active progress. |
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Proposed non-public Offering of A Shares |
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On June 30, 2009, we passed the resolutions of proposed non-public offering of A Shares to no more than ten target subscribers. According to the resolutions, not more than RMB10.0 billion (US$1.5 billion) denominated ordinary shares (A Shares) would be issued. The issue price of A Shares to be offered would be not less than 90% of the average trading price of our A Shares in twenty trading days immediately preceding the pricing determination date. We intended to apply proceeds from this non-public offering to finance part of the 800,000 tonne alumina project at our Chongqing branch and Zunyi Aluminum and to supplement our working capital. The implementation of the proposal was approved by our shareholders at the extraordinary general meeting, A Share class meeting and H Share class meeting held on August 24, 2009. The period of validity of the resolutions was 12 months from the date of the resolutions passed at the extraordinary general meeting, A Share class meeting and H Share class meeting. The non-public offering of A Shares was also approved by CSRC on April 12, 2010, with a valid period of six months starting from the approval date. On August 23, 2010, the extraordinary general meeting, A Share class meeting and H Share class meeting passed a special resolution to approve the extension of the period of validity of the resolutions in respect of the non-public offering of A Shares by us and the related authorizations for a 12-month period to expire on August 23, 2011. Except for the period of validity, the original plan and the authorization scope for issuance of A Shares remained unchanged. |
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As approvals of CSRC and the relevant government authorities for such A Share issue have expired and as a result of changes in our capital requirements which require changes to be made to the use of proceeds and the proposed adjustments in the issue price, our Board approved a new issue plan on January 30, 2011. Under the new plan, we will issue up to one billion A Shares, with a nominal value of RMB1.00 each, by way of non-public issuance for expected proceeds not exceeding RMB9 billion (US$1.4 billion). The authorization given by the resolutions are valid for 12 months from the date of passage. We will issue the A Shares to no more than ten specific target subscribers within six months from obtaining the approval of CSRC. We intend to apply proceeds from this private placement to finance Chalco Xing Xian alumina project, Chalco Zhonghzhou Ore-dressing Bayer Process expansion construction project, and to supplement working capital. On April 14, 2011, the extraordinary general meeting, A Share class meeting and H Share class meeting passed special resolutions in relation to the new plan of issue of A Shares. We will apply to CSRC for approval upon passing the special resolutions. |
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Proposed Issuance of H Shares |
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On June 22, 2010, the shareholders of the 2009 annual general meeting passed special resolutions, which are valid until the earliest of the end of 12 months from the date of passage, the conclusion of our next annual general meeting or the date on which the authority set out in these resolutions or varied by a special resolution in a general meeting. The resolutions authorize us to issue up to 20% of the total nominal value of H Shares in issue as of the resolution date. Our Board is authorized to determine the use of the proceeds. The proposed issuance is subject to the approval by the CSRC and/or other relevant PRC government authorities. |
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B. BUSINESS OVERVIEW |
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Our Principal Products |
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Chalco is China's largest producer of alumina, primary aluminum and aluminum fabrication products in terms of production volume. We have benefited from the strong growth of the PRC aluminum market, one of the world's fastest growing major aluminum markets. Based on 2010 production volume, we were the world's second largest producer of alumina and third largest producer of primary aluminum. Our aluminum operations span the aluminum market value and industry chain from bauxite mining to aluminum fabrication. Bauxite is refined into alumina, which is then smelted into primary aluminum. Primary aluminum, in turn, is a widely used metal and the key raw material in aluminum fabrication. Aluminum fabrication products have applications in the construction, transportation, power generation, automobile, packaging, machinery and durable goods industries. In addition to alumina, primary aluminum and aluminum fabrication products, we also produce and sell a comparatively small amount of alumina chemical products (alumina hydrate and alumina-based industrial chemical products), carbon products (carbon anodes and cathodes) and gallium. We organize and manage our operations according to our three principal products: alumina, primary aluminum and aluminum fabrication products. Revenues attributable to our alumina, primary aluminum and aluminum fabrication segments accounted for approximately 1.8%, 21.8% and 8.5%, respectively, of our total revenues in 2010. We also engage in the trading of alumina, primary aluminum, aluminum fabrication products, relevant metal products and raw and ancillary materials in bulk both manufactured by us and sourced from external suppliers domestically and abroad. Revenues attributed to our trading segment accounted for approximately 67.8% of our total revenues in 2010. The remainder of our revenues were derived from research and development activities and other products and services. |
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Our alumina segment includes the mining and purchasing of bauxite and other raw materials, and production and sale of alumina as well as alumina-related products, such as alumina hydrate, alumina-based chemical products and gallium. Alumina accounted for approximately 93.1% of the total production volume for this segment in 2010. Alumina chemical products are used in the production of chemical, pharmaceutical, ceramic and construction materials. In the process of refining bauxite into alumina, we produce a small amount of gallium as a by-product. Gallium is a rare, high value metal with applications in the electronics and telecommunication industries. |
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Our primary aluminum segment includes the production and sale of primary aluminum and aluminum-related products, such as carbon products. Our principal primary aluminum product is ingots, which accounted for approximately 85% of our total production volume for this segment in 2010. Our standard 20 kilogram remelt ingots are used for general aluminum fabrication in the construction, power generation, automobile, packaging, machinery and durable goods industries. We internally produce substantially all the carbon products used at our smelters and sell a portion of our remaining carbon products to external customers. |
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Our aluminum fabrication segment includes the production and sale of aluminum fabrication products, including casts, planks, screens, extrusions, forges, powder and die castings, which are widely used in the construction, power generation, automobile, packaging, machinery and durable goods industries. We use recycled aluminum materials at Chalco Qingdao and Chalco Nanhai, two of our aluminum fabrication plants, to produce aluminum fabrication products. |
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Our trading segment includes sales of alumina, primary aluminum, aluminum fabrication products, relevant metal products and raw and ancillary materials in bulk both manufactured by us and sourced from external suppliers domestically and abroad. We established our trading business as a separate segment in July 2010, as a result of the implementation of our operational structural exercise. |
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Our Production Capacity |
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Our alumina production capacity has increased rapidly in the past few years, from approximately 5.4 million tonnes in 2002 to approximately 12.9 million tonnes in 2010. During the same period, our annual primary aluminum production capacity increased from approximately 750,000 tonnes to approximately 4.0 million tonnes. Our alumina and primary aluminum represented approximately 35.0% and 24.5%, respectively, of China's production in 2010. Since 2008, we have significantly expanded our aluminum fabrication operations. Our annual aluminum fabrication production capacity increased from approximately 1.3 million tonnes as of December 31, 2009 to approximately 1.7 million tonnes as of December 31, 2010. Our aluminium fabrication represented approximately 3% of China's production in 2010. |
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The following table sets forth the production capacity of each of our principal production facilities by business segment as of the indicated date: |
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Delivery |
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We rely on rail shipping and trucking for the delivery of products within China. Our alumina is transported by rail or truck, and transportation costs are generally borne by the customer and excluded from our sales price. For long-distance deliveries, we maintain spur lines connecting our plants to the national railway routes. The price of rail shipping on the PRC national railway system is fixed by the government. |
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Most of our primary aluminum products are transported by rail. In view of the substantial distance between our smelters and aluminum fabrication plants, most of which are concentrated in southern and eastern China, we maintain subsidiaries (often with warehousing capacity leased from third parties) in major cities in eastern and southern China to facilitate and coordinate deliveries. |
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Our customers are generally responsible for arranging and bear the associated costs with transporting aluminum fabrication products from our production facilities. |
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Principal Facilities |
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Our principal facilities include 27 principal production plants and our Research Institute. Set forth below is a description of our principal production plants. Our production is organized and managed according to our three business segments: alumina, primary aluminum and aluminum fabrication. |
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Guangxi Branch |
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The Guangxi branch commenced operations in 1994 and is located in the Guangxi Zhuang Autonomous Region in southwestern China, an area rich in bauxite reserves. The Guangxi branch receives bauxite delivered via highway from the Pingguo mine, one of our wholly-owned mines, located less than 17 kilometers from the Guangxi branch. |
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The Pingguo mine contains large, easily exploitable bauxite reserves with high alumina-to-silica ratios. The Guangxi branch is our only principal refinery that uses the Bayer process exclusively. With technology and production equipment imported from Europe, the Guangxi refinery features a high level of automation and energy efficiency. Since its inception, we have continually increased the designed production capacity at this branch by removing production bottlenecks and investing in capacity expansions. As of December 31, 2010, the Guangxi branch had an annual production capacity of 1,730,000 tonnes of alumina. In 2010, the Guangxi branch produced approximately 1,990,200 tonnes of alumina, exceeding its production capacity due to the high quality bauxite ore in its proximity, along with approximately 102,200 tonnes of alumina chemical products. Most of the alumina output at the Guangxi branch is used in the primary aluminum smelter at the same branch and the remainder is sold to third-party smelters. |
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Our Guangxi branch also uses advanced 160 kA and 320 kA pre-bake reduction pot-lines developed by us in its smelting operations. As of December 31, 2010, the branch's primary aluminum production capacity reached 139,500 tonnes per annum. In 2010, our Guangxi branch produced approximately 114,600 tonnes of primary aluminum. |
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Guizhou Branch |
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The Guizhou branch commenced its smelting operations in 1966 and was subsequently expanded to include a refining operations in 1978. Our refinery at this branch is one of the most advanced alumina refineries in China, having imported many of its key technologies and equipment. The Guizhou refinery uses the hybrid Bayer-sintering process to refine bauxite supplied from our own mines as well as external suppliers into alumina. Bauxite from our own mines is delivered by trucks and train. The alumina produced at the Guizhou branch is mostly used in the smelting operations at the same plant and the remainder is sold to third-party smelters. Our Guizhou branch uses 160 kA, 186kA and 230 kA pre-bake reduction pot-lines in its primary aluminum production. As a result of technological innovations and overhauls since its inception, our Guizhou smelter is among the most technologically advanced smelters in China. As of December 31, 2010, the annual production capacity for alumina at our Guizhou branch was approximately 1,200,000 tonnes of alumina and 403,700 tonnes for primary aluminum. In 2010, our Guizhou branch produced approximately 1,078,300 tonnes of alumina, 69,600 tonnes of alumina chemical products and 432,300 tonnes of primary aluminum. |
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Our Guizhou branch also contains a modern carbon production facility, which produces carbon cathodes in addition to carbon anodes. As the Guizhou branch is our only facility that produces carbon cathodes, it supplies carbon cathodes to seven of our facilities and our Research Institute. Its carbon cathodes are also sold to external customers throughout China. |
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Henan Branch |
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The Henan branch commenced its refining and smelting operations in 1966 and 1967, respectively, in Henan Province, a province rich in bauxite reserves. Bauxite is delivered to our Henan branch via railway and highway from the following mines: Xiaoguan mine located in Zhengzhou, Luoyang mine in Luoyang, Mianchi mine in Mianchi, Xuchang mine in Zhengzhou, Sanmenxia mine in Sanmenxia and Jiaozuo mine in Jiaozuo. Our Henan branch was the first refinery in China to develop the hybrid Bayer-sintering process. We also have alumina production line that uses the ore-dressing Bayer process, which we developed to refine low alumina-to-silica ratio bauxite. Since its inception, the Henan branch's production facilities have undergone substantial technological upgrades, based on equipment imported from Germany and Denmark. The refinery has also benefited from its access to high alumina-to-silica ratio bauxite from our own mines and through purchases on the market. Its alumina output is first used to satisfy its primary aluminum production, and the remainder is sold to our other smelters and external customers. The designed annual production capacity of alumina of our Henan branch was 2,050,000 tonnes as of December 31, 2010. In 2010, our Henan branch produced approximately 1,921,500 tonnes of alumina and 32,900 tonnes of alumina chemical products. |
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We have upgraded a portion of the primary aluminum facilities at this branch, which now utilizes 85 kA pre-bake reduction pot-lines. Its carbon plant produces high quality carbon products for sales to external customers in China as well as for export, after meeting the needs of our various smelting operations. As of December 31, 2010, Henan branch's annual primary aluminum production capacity reached 56,000 tonnes. In 2010, our Henan branch did not produce any primary aluminum. |
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Shandong Branch |
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The Shandong branch commenced operations in 1954 and has the capacity to produce both alumina and primary aluminum. Bauxite is delivered to our Shandong branch via railway and highway from the Yangquan mine in Yangquan, Shanxi Province. Its alumina refinery was China's first production facility for alumina. It produces the majority of its alumina through the parallel Bayer-sintering process, but has an ore-dressing sintering operation. The Shandong branch purchases the majority of the bauxite required for its production from small third-party mines in Henan and Shanxi Provinces. Its alumina output is first used to satisfy its primary aluminum production, and the remainder is sold to our other smelters as well as external customers. As of December 31, 2010, the annual capacity of our Shandong branch reached 1,500,000 tonnes of alumina and it produced approximately 1,599,200 tonnes of alumina in 2010. |
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In addition, our Shandong branch produces substantial amounts of alumina chemical products and produced approximately 682,500 tonnes of alumina chemical products in 2010. It is the largest and most technologically advanced alumina chemical products production facility in China with the ability to produce the widest variety of alumina chemical products. Alumina chemical products produced by our Shandong branch are used domestically and internationally in the pharmaceutical, ceramics, construction materials and other industries. |
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Our Shandong branch's primary aluminum operations have undergone technological and equipment upgrades. As of December 31, 2010, our Shandong branch's primary aluminum production capacity reached 75,000 tonnes per annum and it produced approximately 58,300 tonnes of primary aluminum in 2010. |
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Qinghai Branch |
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Located in Qinghai Province, our Qinghai branch is a stand-alone primary aluminum production facility. This branch commenced operations in 1987 and is one of the most technologically advanced primary aluminum smelters in China. It operates 160 kA and 200kA automated pre-bake anode reduction pot-lines that were developed domestically. It benefits from relatively low electricity costs in Qinghai Province due to the hydroelectric power stations in the region. The Qinghai Branch supplies alumina from our Shanxi, Shandong, Henan and Zhongzhou branches, but incurs higher transportation costs for both raw materials and its primary aluminum products than our other branches. The Qinghai branch produced approximately 384,300 tonnes of primary aluminum in 2010, slightly exceeding its designed annual production capacity of 367,000 tonnes as of December 31, 2010. |
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Shanxi Branch |
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Our Shanxi branch commenced operations in 1987 and is located in Shanxi Province, a province rich in bauxite deposits. Bauxite is transported to our Shanxi branch via railway and highway from the Xiaoyi mine in Shanxi Province. Our Shanxi branch is a stand-alone alumina plant and is currently China's largest alumina refinery in terms of production capacity, with a capacity of 2,217,000 tonnes as of December 31, 2010. Our Shanxi branch produced approximately 1,775,100 tonnes of alumina and 19,800 tonnes of alumina chemical products in 2010. |
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Our Shanxi branch's production facilities are primarily imported. Shanxi branch relies on bauxite from our own mines as well as external suppliers. Due to its proximity to large coal mines and substantial water resources, it currently has the largest power generation capacity among our alumina manufacturing facilities. |
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Zhongzhou Branch |
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Located in Henan Province, our Zhongzhou branch is a stand-alone alumina plant, located near abundant bauxite, coal and water supplies. It commenced operations in 1993 and is equipped with imported and self-developed technology and has undergone various improvements and upgrades, in particular to its parallel Bayer-sintering process. We purchase bauxite supplies from Henan Province and Shanxi Province. |
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Its production capacity reached 2,030,000 tonnes of alumina per annum as of December 31, 2010. Our Zhongzhou branch produced approximately 1,692,800 tonnes of alumina and approximately 266,700 tonnes of alumina chemical products in 2010. |
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Zunyi Alumina |
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Zunyi Alumina is located in Zunyi, Guizhou Province. In April 2006, we entered into a joint venture agreement with Guizhou Wujiang Hydroelectric Co., Ltd, to establish a joint venture company, Zunyi Alumina. We hold 67% of the equity interests in Zunyi Alumina. Zunyi Alumina completed the construction of alumina facilities and commenced operations in 2010. Its annual alumina production capacity reached 800,000 tonnes as of December 31, 2010. Zunyi Alumina produced approximately 74,300 tonnes of alumina in 2010. |
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Chongqing Branch |
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Our Chongqing branch is located in Chongqing. Chongqing branch completed the construction of alumina facilities in 2010 and its an annual alumina production capacity reached 800,000 tonnes as of December 31, 2010. Chongqing branch launched test operation in December 2010. |
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Lanzhou Branch |
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Located in Lanzhou city in Gansu Province, our Lanzhou branch is a stand-alone primary aluminum plant. It was part of Lanzhou Aluminum before July 2007 and acquired by us through share exchange in April 2007. In July 2007, Lanzhou Aluminum was divided into two wholly-owned entities: Lanzhou branch and Northwest Aluminum. Our Lanzhou branch owns a primary aluminum smelting plant with a designed annual production capacity of approximately 388,000 tonnes as of December 31, 2010. It produced approximately 429,300 tonnes of primary aluminum in 2010. |
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Jiaozuo Wanfang |
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Jiaozuo Wanfang is situated in Jiaozuo city in Henan Province and is a stand-alone primary aluminum plant. Jiaozuo Wanfang was established in 1993. In May 2006, we acquired 29% of the issued share capital and thus became its largest shareholder. In 2010, we partially disposed our equity in Jiaozuo Wanfang. As of December 31, 2010, we held 24.002% equity interest of Jiaozuo Wanfang. In 2008, we obtained de facto control over Jiaozuo Wanfang and accordingly, it became our subsidiary. Jiaozuo Wanfang had an annual production capacity of 412,000 tonnes of primary aluminum as of December 31, 2010 and produced approximately 408,900 tonnes of primary aluminum in 2010. |
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Shanxi Huaze |
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Shanxi Huaze is situated in Shanxi Province. In March 2003, we established the joint venture company, Shanxi Huaze, with Zhangze Electric Power to commence the construction of a primary aluminum production facility. Following the completion of its capacity expansion in June 2008, Shanxi Huaze's designed annual production capacity of primary aluminum reached 350,000 tonnes as of December 31, 2010 and it produced approximately 341,500 tonnes of primary aluminum in 2010. We currently hold 60% of the equity interest of Shanxi Huaze. |
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Shanxi Huasheng |
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Shanxi Huasheng is situated in Shanxi Province. In December 2005, we entered into a joint venture agreement with Guan Lv, to establish a joint venture company, Shanxi Huasheng. The joint venture company commenced operations in March 2006. Its designed annual production capacity of primary aluminum reached approximately 220,000 tonnes as of December 31, 2010. In 2010, Shanxi Huasheng produced 223,200 tonnes of primary aluminum. We currently hold a 51% equity interest in Shanxi Huasheng. |
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Zunyi Aluminum |
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Zunyi Aluminum is situated in Guizhou Province. In June 2006, we entered into a share purchase agreement with Guizhou Wujiang Hydropower Development Co., Ltd. and eight other companies, which were the shareholders of Zunyi Aluminum, to purchase part of the equity interest from Guizhou Wujiang Hydropower Development Co., Ltd. and all the equity interest held by the other eight companies. We have completed our purchase and currently hold 62.1% of the equity interest in Zunyi Aluminum. Zunyi Aluminum's primary aluminum annual production capacity reached 235,000 tonnes as of December 31, 2010 and it produced approximately 190,800 tonnes of primary aluminum in 2010. |
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Fushun Aluminum |
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Fushun Aluminum is situated in Liaoning Province, and is a stand-alone primary aluminum plant. In March 2006, we entered into a share transfer agreement with Liaoning Fushun Aluminum Plant to acquire 100% of the equity interests in Fushun Aluminum for a consideration of RMB500 million (US$75.8 million). Fushun Aluminum's primary business is the production of primary aluminum and carbon products. With the partial completion of a new primary aluminum project at the end of 2008 which increased the primary aluminum production capacity of Fushun Aluminum by 100,000 tonnes, Fushun Aluminum's annual primary aluminum production capacity reached 240,000 tonnes as of December 31, 2010. Fushun Aluminum produced approximately 205,800 tonnes of primary aluminum in 2010. |
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Shandong Huayu |
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Shandong Huayu is situated in Shandong Province and is a stand-alone primary aluminum plant. In July 2006, we entered into a share transfer agreement with Shandong Huasheng Jiangquan Group to acquire 55% of the equity interest of Shandong Huayu, a subsidiary of Shandong Huasheng Jiangquan Group. After the completion of its expansion plan in 2008, Shandong Huayu's annual primary aluminum production capacity reached 200,000 tonnes as of December 31, 2010. It also has supporting facilities and coal-fired generators. In 2010, Shandong Huayu produced approximately 215,700 tonnes of primary aluminum. |
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Gansu Hualu |
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Gansu Hualu is situated in Gansu Province, and is a stand-alone primary aluminum plant. In August 2006, we entered into a share transfer agreement with Baiyin Nonferrous Metal (Group) Co., Ltd. ("Baiyin Nonferrous") and Baiyin Ibis Aluminum Co., Ltd. ("Baiyin Ibis"). Baiyin Nonferrous contributed 127,000 tonnes of primary aluminum smelting and supporting facilities owned by Baiyin Ibis as capital contribution and holds a 49% equity interest in Gansu Hualu, a subsidiary of Baiyin Ibis, and we hold 51% of the equity interest in Gansu Hualu. In 2010, we have completed the expansion project of the Gansu Hualu's primary aluminum smelters, which increased its annual production capacity from 160,000 tonnes to 230,000 tonnes of primary aluminum as of December 31, 2010. Gansu Hualu produced approximately 165,000 tonnes of primary aluminum in 2010. |
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Baotou Aluminum |
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Baotou Aluminum is located in Inner Mongolia Autonomous Region, and is a stand-alone primary aluminum plant. On December 28, 2007, through A Shares issuance and exchange for Baotou Aluminum shares, we acquired 100% of the equity interest of Baotou Aluminum. Baotou Aluminum had a designed annual production capacity of 388,000 tonnes as of December 31, 2010. In 2010, it produced approximately 412,000 tonnes of primary aluminum. |
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Liancheng branch |
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Liancheng branch is located in Gansu Province. In late May, 2008, we acquired 100% of the equity interest of Liancheng Longxing Aluminum Company Limited from Chinalco on the China Beijing Equity Exchange and subsequently turned it into our Liancheng branch which specializes in producing primary aluminum. As of December 31, 2010, Liancheng branch had an annual primary aluminum production capacity of 225,000 tonnes and produced approximately 230,400 tonnes of primary aluminum in 2010. |
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Chalco Qingdao |
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Located in Qingdao, Shandong Province, Chalco Qingdao specializes in using recycled aluminum materials to produce aluminum fabrication products. As of December 31, 2010, Chalco Qingdao had an annual production capacity of 120,000 tonnes and produced 25,000 tonnes of aluminum fabrication products in 2010. |
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Longmen Aluminum |
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Located in Shanxi Province, Longmen Aluminum is established in1991. We hold 55% of its equity interests. It specializes in producing primary aluminum. As of December 31, 2010, Longmen Aluminum had an annual primary aluminum production capacity of 17,000 tonnes and produced 11,800 tonnes of primary aluminum in 2010. |
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Northwest Aluminum |
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Northwest Aluminum is situated in Lanzhou city in Gansu Province and is an aluminum fabrication plant. It was part of Lanzhou Aluminum before July 2007 which we acquired through share exchange in April 2007, whose A Shares were listed on Shanghai Stock Exchange until April 24, 2007, when we acquired Lanzhou Aluminum through share exchange. In July 2007, Lanzhou Aluminum was divided into two wholly-owned entities: Lanzhou branch and Northwest Aluminum. Northwest Aluminum has an annual production capacity for aluminum fabrication products of approximately120,000 tonnes as of December 31, 2010 and produced approximately 62,000 tonnes of aluminum fabrication products in 2010. Northwest Aluminum has undertaken an expansion plan which is expected to be completed in 2011 and we expect the completion of this project to increase Northwest Aluminum's aluminum fabrication capacity by 35,000 tonnes. |
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Chalco Ruimin |
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Located in Fujian, Chalco Ruimin commenced production in 1996 and specializes in aluminum fabrication. In late May 2008, we purchased 75% of the equity interest of Chalco Ruimin from Chinalco on the China Beijing Equity Exchange. Chalco Ruimin completed a RMB2.87 billion (US$0.4 billion) expansion plan in 2010, which increased Chalco Ruimin's annual aluminum fabrication capacity to approximately 370,000 tonnes as of December 31, 2010. Chalco Ruimin produced approximately 131,000 tonnes of aluminum fabrication products in 2010. We currently hold a 92.18% equity interest in Chalco Ruimin. |
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Huaxi Aluminum |
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Located in Chengdu, Sichuan Province, Huaxi Aluminum commenced production in 1997 and specializes in aluminum fabrication. In late May 2008, we purchased 56.86% of the equity interest of Huaxi Aluminum from Chinalco on the China Beijing Equity Exchange. As of December 31, 2010, Huaxi Aluminum had an annual aluminum fabrication production capacity of 22,000 tonnes and it produced approximately 25,000 tonnes of aluminum fabrication products in 2010. |
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Chalco Southwest Aluminum |
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Established in September 2004 and located in Chongqing, Chalco Southwest Aluminum specializes in aluminum fabrication. On May 30, 2008, we purchased 60% of the equity interest of Chalco Southwest Aluminum from Chinalco on the China Beijing Equity Exchange. As of December 31, 2010, Chalco Southwest Aluminum had an annual aluminum fabrication production capacity of 350,000 tonnes and produced approximately 234,000 tonnes of aluminum fabrication products in 2010. |
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Chalco Southwest Aluminum Cold Rolling |
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Established in March 2006 and located in Chongqing, Chalco Southwest Aluminum Cold Rolling specializes in rolling aluminum and aluminum alloy processing, development of high precision aluminum strip production technology and import and export activities on goods and technology. On May 30, 2008, we acquired 100% of the equity interests of Chalco Southwest Aluminum Cold Rolling from Chinalco. In 2010 we completed the construction of production facilities of Chalco Southwest Aluminum Cold Rolling. As of December 31, 2010, Chalco Southwest Aluminum Cold Rolling had an annual aluminum fabrication production capacity of 250,000 tonnes. It has commenced production in 2010. |
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Henan Aluminum |
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Established in August 2005 and located in Luoyang, Henan Province, Henan Aluminum specializes in aluminum fabrication. In late May 2008, we acquired 84.02% of the equity interest of Henan Aluminum from Chinalco and China Nonferrous Metals Technology on the China Beijing Equity Exchange. As of December 31, 2010, Henan Aluminum had an annual aluminum fabrication production capacity of 355,000 tonnes and produced approximately 111,000 tonnes of aluminum fabrication products in 2010. We currently hold 90.03% of the equity interest in Henan Aluminum. |
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Chalco Nanhai |
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Established in June 2007 and located in Foshan, Chalco Nanhai specializes in aluminum fabrication. Chalco Nanhai had an annual aluminum fabrication capacity of 110,000 tonnes. Chalco Nanhai launched test operation in December 2010. |
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Research Institute |
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Established in August 1965 and located in Zhengzhou, Henan Province, the Research Institute specializes in the research and development of technology for smelting aluminum. It is the only research institute in China dedicated to light metals research and has played a key role in bringing about technological innovations in China's aluminum industry. The Research Institute is central to our research and development efforts. The Research Institute operates test facilities, which produce alumina chemical products and primary aluminum. The Research Institute was approved by the Ministry of Science and Technology of the PRC in 2003 to establish the National Research Center of Aluminum Refinery Technologies and Engineering. Our Research Institute has a limited alumina and primary aluminum production capacity, which it uses in connection with its research and development efforts. |
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Competition |
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Alumina |
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As the largest producer of alumina in China, we believe that we will not face significant competition from domestic alumina producers in the short-term for the following reasons: |
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Aluminum Fabrication Products |
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We derived 87% of our aluminum fabrication products revenues from sales in China in 2010. Our competitors include other domestic and international producers of aluminum fabrication products that sell aluminum fabrication products in China. There are approximately 750 aluminum fabrication producers in China with an aggregate annual capacity of approximately 24.0 million tonnes as of the end of 2010. In 2010, the aluminum fabrication producers in China produced approximately 19.5 million tonnes of aluminum fabrication products. |
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The tariff rate for alumina and primary aluminum imports was reduced to nil on January 1, 2008 and August 1, 2007, respectively. In 2010, China imported approximately 4.31 million tonnes of alumina, representing a 16.3% decrease from 2009. China had net import of approximately 0.30 million tonnes of primary aluminum in 2010, which represented a significant decrease from 2009. Competition from international suppliers of alumina and primary aluminum is expected to increase. Such competitors are likely to be large international companies. Some competitors may also consider establishing joint venture companies with local producers in China to gain access to the resources in China and to lower transportation costs. However, we expect to continue benefitting from certain PRC governmental policies that promote the growth of large domestic smelters. |
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Research and Development |
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Our research and development efforts over the years have facilitated the expansion of our production capacity and reduced our unit costs. We have successfully commercialized our previous research and development results in various technologies. We completed 63 technological projects, including 32 technology development projects, 23 industrialization, promotion and application of advanced technologies projects and 8 basic application projects. We filed a total of 176 patent applications in 2010. |
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As of December 31, 2010, we owned 1043 patents, which were primarily related to technologies and know-how, equipment and new products. Once registered, a patent in China for a new invention is valid for 20 years and for a new function or a new design, 10 years from the date of the patent application. |
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As of December 31, 2010, we owned 36 trademarks, which have a term of 10 years. We have entered into a trademarks license agreement with Chinalco for the non-exclusive use by Chinalco of two of our trademarks relating to aluminum fabrication. |
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We do not regard any single patent, license, or trademark to be material to our sales and operations as a whole. We have no material patents, licenses, or trademarks, the duration of which cannot, in the judgment of our management, be extended as necessary. We are neither involved in any material intellectual property disputes against us nor are we pursuing any legislation relating to intellectual property rights against any party. |
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Environmental Protection |
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Our operations are subject to a wide variety of PRC national and local environmental laws and regulations, including those governing waste discharge, generation, treatment and disposal of hazardous materials, land reclamation, air and water emissions and mining matters. For example, the PRC government has set discharge standards for emissions to air and water. To enforce these standards, national environmental protection authorities have imposed discharge fees that increase for each incremental amount of discharge up to the limit set by the regulation. The relevant PRC government agencies are authorized to order any operations that exceed discharge limits to take remediation measures, which are subject to the relevant agency's approval, or order the closure of any operations that fail to comply with applicable regulations. In February 6, 2010, the State Council of China issued "Notice on Further Strengthening the Elimination of Obsolete Production Capacities", which requires all pre-bake reduction pot-lines below 100kA must be closed by the end of 2011. Some of our primary aluminum utilities with a total capacity of 163,000 tonnes have been shut down in compliance with the notice. |
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The pollutants discharged from our alumina refining process include red mud, waste water and gas emissions and dust. Our primary aluminum production process generates fluorides, pitch fume and dust. It is illegal to release these pollutants untreated, and even after treatment, the discharge of these pollutants must comply with national and local discharge limits. |
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Each of our alumina refineries and primary aluminum smelters has its own waste treatment facilities onsite or has developed other methods to dispose of industrial waste in compliance with applicable environmental laws and regulations. We were granted ISO 14001 accreditations issued by China Quality Certification Center and the International Certification Network in 2004. In 2010, we passed the review and the accreditations were renewed. |
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We have increased our energy-efficiency by implementing new production techniques and technologies, upgrading our production facilities, optimizing our production process and enhancing our logistics and operations management. Through these efficiency initiatives, we estimate that we conserved the energy equivalent of 460,000 tonnes of standard coal in 2010. We have incorporated clean technology and processes into our operations with a view to promoting the concept of "zero emission" plants. In 2010, we invested a total of RMB65.0 million (US$9.8 million) on completing 8 waste water treatment projects and have nearly achieved our target of zero waste water emission. |
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Our total expenditures for maintaining compliance with environmental laws and regulations were RMB629.0 million, RMB1,395.0 million and RMB1,151.0 million (US$174.4 million) for the years ended December 31, 2008, 2009 and 2010 respectively. We believe that our operations are substantially in compliance with currently applicable national and provincial environmental regulations. |
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Insurance |
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We maintain insurance coverage on our property, plant and equipment, in particular for our transportation vehicles and assets that we consider to be subject to significant operating risks. We also have limited coverage for natural disaster such as typhoons, tornados, floods, landslides and lighting. However, there are certain types of losses, such as losses from war, acts of terrorism and natural disasters, for which we cannot obtain insurance at a reasonable cost or at all. |
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We are covered under the injury and accidental death insurance provided by the local government labour departments and do not separately maintain coverage for such risks. Consistent with what we believe to be the customary practice in China, we generally do not carry any third-party liability insurance to cover personal injury, environmental damage arising from accidents arising from property or related to our operations (other than our automobiles) or business interruption insurance. More extensive insurance is either unavailable in China or would impose a cost on our operations that would reduce our competitiveness. |
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We paid a total of RMB68.6 million, RMB81.4 million and RMB79.5 million (US$12.0 million) in insurance premiums in 2008, 2009 and 2010, respectively. |
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Seasonality |
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Our business is not subject to seasonality. |
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Regulatory Overview |
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Producers of alumina and primary aluminum are subject to national industrial policies and relevant laws and regulations in areas of environmental protection, import and export, land use, foreign investment regulation and taxation. We are also subject to regulations relating to activities such as mining. |
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We are principally subject to governmental supervision and regulation by two agencies of the PRC government: |
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The following is a brief summary of the principal laws, regulations, policies and administrative directives to which we are subject. |
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Requirements for Capital Investments |
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Any capital markets financing activities by an enterprise or company incorporated in the PRC, for example, those to finance capital projects, are subject to approval by securities regulatory authorities and other relevant authorities in China, regardless of whether the funds are raised in China or on the international capital markets. An issuer incorporated in the PRC must obtain prior approval from the CSRC for issuance of equity securities or equity-linked securities. Offerings of bonds in the PRC by a listed company PRC-incorporated are subject to approval from the CSRC, while offering of bonds in the PRC by other enterprises are subject to approval from the People's Bank of China, as well as the NDRC, or their competent local authorities. Offering of bonds outside the PRC are subject to approval from the NDRC and/or the State Administration of Foreign Exchange. For all international financing activities through issuance of bonds, the issuer must register with the administrative authorities of foreign exchange. Foreign investment in the exploring and mining of alumina and primary aluminum is permitted by the PRC government. |
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Entrance Conditions for Aluminum Industry |
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"Entrance Conditions for Alumina Industry" provides that, (i) all new bauxite projects must be approved by relevant authorities at the provincial governments, with an exception for those projects with a total investment over RMB500 million (US$75.8 million), for which the approval from the competent authority under the State Council of China is required. In addition, all new bauxite projects should have an annual production capacity of not less than 300,000 tonnes with a service period of over 15 years; (ii) all new alumina projects must obtain approval from the State Council of China. Alumina projects which consume domestic bauxite mines must have an annual production capacity of over 800,000 tonnes and service duration of bauxite mines must exceed 30 years. Alumina projects which consume imported bauxite mines must have an annual production capacity of over 600,000 tonnes and have reliable bauxite supply. Raw materials supplied under long-term purchase agreements with terms of over five years must exceed 60% of the total raw material demand; (iii) all new aluminum projects must be approved by the State Council of China. In near future, approval will only be granted to environmental protection upgrade projects and those projects under state plan to replace out-of-date equipments. All update or replacement project must have reliable alumina supply, power supply and transportation access. |
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Pricing |
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The PRC government does not impose any limitations with respect to the pricing of alumina, primary aluminum and related products. Thus, alumina and primary aluminum producers are free to set prices for their products. All the raw materials, supplemental materials and other supplies that we purchase are based on market prices. Freight transportation on the national railway system is subject to government mandated pricing. |
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Electricity Supply and Price |
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The State Electricity Regulatory Commission of China is responsible for the supervision and administration of the power industry in China. The NDRC and local governments regulate electricity pricing. Electricity suppliers may not change their electricity prices without governmental authorization. |
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The Electric Power Law of China and related rules and regulations govern electricity supply and distribution. Currently, China's state-owned power companies, through their respective local subsidiaries, operate all the regional power grids in China from which we obtain most of our electricity requirements. In October 2007, Chinese government issued "Notice on Further Solutions of the Difference in Electricity Rates", according to which the preferential electricity prices originally enjoyed by Chinese primary aluminum enterprises have been gradually abolished. In May 2010, Chinese government issued "Notice of Eliminating Preferential Electricity Rate for High Energy Consuming Enterprises and Related Matters", which further eliminated the preferential electricity price arrangement enjoyed by Chinese primary aluminum enterprises. |
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Regulations Concerning Imports and Exports of Alumina and Primary Aluminum |
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Import taxes on alumina and primary aluminum have been eliminated. The export tax rate for certain primary aluminum products has been 15% since August 1, 2007. |
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Environmental Protection Laws and Regulations |
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The Ministry of Environmental Protection of China is responsible for uniform supervision and control of environmental protection in China. It formulates national environmental quality and discharge standards and monitors China's environmental system. Environmental protection bureaus at the county level or above are responsible for environmental protection within their respective jurisdictions. |
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Environmental regulations require companies to file an environmental impact report with the relevant environmental bureau for approval before undertaking the construction of a new production facility or any major expansion or renovation of an existing production facility. New facilities built pursuant to this approval are not permitted to operate until the relevant environmental bureau has performed an inspection and is satisfied that the facilities are in compliance with environmental standards. |
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The Environmental Protection Law requires any facility that produces pollutants or other hazards to incorporate environmental protection measures in its operations and establish an environmental protection responsibility system. Such system includes adoption of effective measures to control and properly dispose of waste gases, waste water, waste residue, dust or other waste materials. Any entity that discharges pollution must register with the relevant environmental protection authority. |
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Penalties for breaches of the Environmental Protection Law include a warning, payment of damages and imposition of a fine. Any entity undertaking a construction project that fails to install pollution prevention and control facilities in compliance with environmental standards for a construction project may be ordered to suspend production or operations and may be fined. Criminal liability may be imposed for a material violation of environmental laws and regulations that causes loss of property or personal injuries or death. |
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Mineral Resources Laws and Regulations |
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All mineral resources in China are owned by the state under the current Mineral Resources Law. Exploration, exploitation and mining operations must comply with the relevant provisions of the Mineral Resources Law and are under the supervision of the Ministry of Land and Resources. Exploration and exploitation of mineral resources are also subject to examination and approval by the Ministry of Land and Resources and relevant local authorities. Upon approval, a mining permit or exploitation permit is issued by the relevant administrative authorities, which are responsible for supervision and inspection of mining exploitation in their jurisdiction. Annual reports are required to be filed by the holders of mining rights with the relevant administrative authorities. |
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The PRC government permits mine operators of collectively owned mines to exploit mineral resources in designated areas and individuals to mine scattered mineral resources. Such mine operators and individuals are subject to government regulation. Mining activities by individuals are restricted. Individuals are not permitted to exploit mineral reserves allocated for exploitation by a mining enterprise or company, or specified minerals prescribed by the state for protective mining. Indiscriminate mining that damages mineral resources is prohibited. |
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If mining activities result in damage to arable land, grassland or afforested area, the mining operator must take measures to return the land to an arable state within the prescribed time frame. Any entity or individual which fails to fulfill its remediation obligations may be fined and denied application for land use rights for new land by the relevant land and natural resources authorities. |
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It is unlawful for an entity or individual to conduct mining operations in areas designated for other legal mining operators. A mining operator whose exploitation causes harm to others in terms of production or in terms of living standards is liable for compensation and is required to take necessary remedial measures. When a mine is closed, a mine closure report and information concerning the mining facilities, hidden dangers, remediation and environmental protection must be submitted for examination and approval in accordance with the relevant PRC law and regulations. |
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The mineral products illegally extracted and the income derived from such activities may be confiscated and may result in fines, revocation of the mining permit and, in serious circumstances, criminal liability. |
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Tax Laws and Regulation |
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In March 2007, the PRC government promulgated the Enterprise Income Tax Law which became effective from January 1, 2008. The Enterprise Income Tax Law imposes a single income tax rate of 25% on both domestic and foreign invested enterprises. Certain branches and subsidiaries of us located in special regions of the PRC were granted tax concessions including preferential tax rates of 15%. On December 6, 2007, PRC government promulgated the Enterprise Income Tax Law Implementation Rules which also became effective on January 1, 2008. |
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C. ORGANIZATIONAL STRUCTURE |
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Below is a summary of our corporate structure and principal subsidiaries as of December 31, 2010: |
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Critical Accounting Policies |
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We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB, which requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the accounting policies. The areas in our financial reporting involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4 to our consolidated financial statements. We have established procedures and processes to facilitate the making of such judgments in the preparation of our consolidated financial statements. Management has used the best information available but actual performance may differ from our management's estimates and future changes in key variables could change future reported amounts in our financial statements. |
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Property, Plant and Equipment- recoverable amount |
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Each asset or cash generating unit is evaluated every reporting period to determine whether there are any indications of impairment. If any such indication exists, an estimate of recoverable amount is performed and an impairment loss recognized to the extent that the carrying amount exceeds the recoverable amount. The recoverable amount of an asset or cash generating group of assets is measured at the higher of fair value less costs to sell and value in use. |
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Fair value is determined as the amount that would be obtained from the sale of the asset in an arm's length transaction between knowledgeable and willing parties and is generally determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset, and its eventual disposal. |
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Value in use is also generally determined as the present value of the estimated future cash flows, but only those expected to arise from the continued use of the asset in its present form and its eventual disposal. Present values are determined using a risk-adjusted pre-tax discount rate appropriate to the risks inherent in the asset. Future cash flow estimates are based on expected production and sales volumes, commodity prices (considering current and historical prices, price trends and related factors) and operating costs. This policy requires management to make these estimates and assumptions which are subject to risk and uncertainty; hence there is a possibility that changes in circumstances will alter these projections, which may impact the recoverable amount of the assets. In such circumstances, some or all of the carrying value of the assets may be impaired and the impairment would be charged against the statement of comprehensive income. |
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Property, plant and equipment and intangible assets - estimated useful lives and residual values |
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Our management determines the estimated useful lives and residual values (if applicable) and consequently related depreciation/amortization charges for our property, plant and equipment and intangible assets. These estimates are based on the historical experience of the actual useful lives of property, plant and equipment of similar nature and functions, or based on value-in-use calculations or market valuations according to the estimated periods that we intend to derive future economic benefits from the use of intangible assets. Management will increase the depreciation/amortization charge where useful lives are less than previously estimated lives, and it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold. |
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Actual economic lives may differ from estimated useful lives; and actual residual values may differ from estimated residual values. Periodic review could result in a change in depreciable lives and residual values and therefore depreciation/amortization expense in future periods. |
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Goodwill |
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Goodwill is allocated to our operating segment as it represents the lowest level of us at which the goodwill is monitored for internal management purposes and is tested for impairment annually by preparing a formal estimate of the recoverable amount. The recoverable amount is estimated as the value in use of the operating segment. Similar considerations to those described above in respect of assessing the recoverable amount of property, plant and equipment apply to goodwill. |
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Inventories |
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Our management tests whether inventory suffered any impairment based on estimates of the net realizable value of the inventory. For different types of inventories, it requires the exercise of accounting estimates on selling price, costs of conversion, selling expenses and related tax expense to calculate its net realizable value. For inventories held for executed sales contracts, the management estimates net realizable value based on the contracted price; for other inventories, the management estimates realizable future price based on the actual prices during the period from the balance sheet date to the date these financial statements were approved for issue by our Board and takes into account the nature and balance of inventories and future estimated price trends. For raw materials and work-in-progress, the management has established a model in estimating the net realized value at which the inventories can be realized in the normal course of business after considering our manufacturing cycles, production capacity and forecasts, estimated future conversion costs and selling prices. The management also takes into account the price or cost fluctuations and other related matters occurring after the balance sheet date which reflect conditions that existed as of the balance sheet date. |
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It is reasonably possible that if there is a significant change in circumstances including our business and the external environment, outcomes within the next financial year may be significantly affected. |
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Income Tax |
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We estimate our income tax provision and deferred income taxation in accordance with the prevailing tax rules and regulations, taking into account any special approvals obtained from relevant tax authorities and any preferential tax treatment to which we are entitled in each location or jurisdiction in which we operate. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. We recognize liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred income tax provisions in the period in which such determination is made. |
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For temporary differences which give rise to deferred income tax assets, we have assessed the likelihood that the deferred income tax assets could be recovered. Major deferred income tax assets relate to deductible tax losses and provision for impairment of assets and accruals of expenses not yet deductible for tax purposes. Due to the effects of these temporary differences on income tax, we recorded deferred income tax assets of approximately RMB1,536 million (US$232.7 million) as of December 31, 2010, compared with approximately RMB1,818 million as of December 31, 2009. Deferred income tax assets are recognized based on our estimates and assumptions that they will be recovered from taxable income arising from continuing operations in the foreseeable future. |
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We believe we have recorded adequate current tax provision and deferred income taxes based on the prevailing tax rules and regulations and our current best estimates and assumptions. In the event that future tax rules and regulations or related circumstances change, adjustments to current and deferred income taxation may be necessary which would impact the our results or financial position. |
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New IFRS Pronouncements |
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For a detailed discussion of new accounting pronouncements, please see Note 2 to our audited consolidated financial statements. |
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Factors Affecting Our Results of Operations |
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We believe that the following factors which impact our various revenue and expense items (as described below) have had, and will continue to have, a significant effect on the development of our business, financial position and results of operation. |
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General Economic Conditions in China and the World and Demand for, and Mix of, Our Self-produced Products. |
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We are engaged principally in alumina refining, primary aluminum smelting, aluminum fabrication products manufacturing and sales of these products and trading of non-ferrous metal products. As the major aluminum products market is globalized, demand for and prices of our products are highly correlated with general economic conditions in China and the world, the performance of major aluminum and related product markets. During late 2008 and early 2009, China's economy experienced a downturn, exacerbated by the global financial crisis. The downturn had a substantial impact on China's alumina, primary aluminum and aluminum fabrication product market and resulted in significant decreases in the sales volumes and average selling prices of our major aluminum products. As a result, we incurred net loss of RMB4,679.6 million for the year ended December 31, 2009, compared with a net profit of RMB168.6 million for the year ended December 31, 2008. In response to the downturn, the PRC government implemented a series of fiscal measures to encourage economic growth, and China's economy stabilized and began to grew again in late 2009. In 2010, China's GDP growth rate reached 10.3% per annum. Industries' sentiment recovered significantly, resulting in a general recovery of the alumina, primary aluminum and aluminum fabrication product markets in China. In addition, as global economy continued to recover and grow starting from second half of 2009, global demand for aluminum products continued to increase in 2010. We generated a net profit of RMB969.1 million (US$146.8 million) in 2010, compared with a net loss of RMB4,679.6 million in 2009. We expect China's and global demand for and market prices of alumina, primary aluminum and aluminum fabrication products to continue to increase in 2011. |
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Demand for alumina manufactured by us is primarily affected by the output and consumption on the global and domestic market. The global output of alumina for 2010 was approximately 82.01 million tonnes, representing a year-on-year increase of 12.9%. The global alumina consumption reached approximately 82.86 million tonnes, representing a year-on-year increase of 14.5%. In response to the economic recovery, most global alumina manufacturers resumed their production in 2010. As of the end of December 2010, approximately 85.0% of the global alumina manufacturers resumed their production, while in China, approximately 82.2% of the alumina manufacturers resumed their production. In 2010, the domestic output of alumina products reached approximately 28.94 million tonnes, representing a year-on-year increase of 21.4%. The domestic consumption of alumina was approximately 31.50 million tonnes, representing a year-on-year increase of 19.2%. In 2010, alumina imported into the PRC amounted to approximately 4.31 million tonnes, representing a year-on-year decrease of 16.1%. |
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Demand for primary aluminum manufactured by us is primarily affected by the output and consumption on the global and domestic market. In 2010, the global output of primary aluminum reached approximately 41.90 million tonnes, representing an increase of 11.2% from 2009. The global consumption of aluminum reached approximately 41.00 million tonnes, representing an increase of 19.6% from 2009. Domestic consumption of primary aluminum in China increased by 19.5% and reached approximately 16.50 million tonnes in 2010 from the prior year, compared with an increase of 20.5% of the domestic output to reach approximately 15.65 million tonnes of the primary aluminum in the same period. In 2010, China imported approximately 229,000 tonnes primary aluminum. |
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Demand for aluminum fabrication products manufactured by us is primarily affected by the output and consumption on specific industrial end-user markets as different aluminum fabrication products are tailored for different industrial use. In the current domestic and global market, the industries consume the substantial portion of aluminum fabrication products are construction industry, real estate industry and automobile manufacturing industry, the performance of which is highly correlated with China's and the global economy. |
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Pricing and Sales of Our Self-produced Products. |
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We sell our self-produced products by both spot sales and contractual sales. We fix sales volume in the contractual sales and price the products by reference to spot prices quoted in relevant markets. As a result, price fluctuations in relevant market can affect our prices under these contracts, and the effect of such fluctuations may become more pronounced as we gradually increase the proportion of our contractual sales. |
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We sell a substantial majority of our self-produced alumina by contractual sales. The terms of the sales contracts for alumina typically range from three to five years. We price our self-produced alumina by generally taking into account the SHFE and LME prices for primary aluminum. In 2010, the international and domestic spot prices of alumina fluctuated significantly. The spot price of alumina in the international market reached a high of approximately US$390 per tonne and bottomed out at approximately US$300 per tonne. The spot price of alumina in the domestic market similarly reached a high of RMB3,000 (US$454.5) per tonne and bottomed out at RMB2,400 (US$363.6) per tonne. In 2010, our average selling price of alumina was RMB2,765 (US$418.9) per tonne, representing a year-on-year increase of 21.9%, compared to the average import price of alumina of US$338 per tonne, which represented a year-on-year increase of 25%. |
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We sell our self-produced primary aluminum by both spot sales and contractual sales. Terms of the sales contracts for primary aluminum are typically one year. Like most primary aluminum producers in China, we price our primary aluminum products by reference to the SHFE spot prices. SHFE primary aluminum spot prices generally reflect LME primary aluminum spot prices, but also account for international transportation costs, import tariffs, value-added tax and other import-related costs. Fluctuations in the SHFE spot prices, and LME spot prices by extension, have a significant effect on our operating results. Primary aluminum prices on the SHFE and LME tend to be cyclical and volatile. The following table sets out the average three-month primary aluminum futures price on the LME and SHFE in the periods indicated: |
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During 2010, the international and domestic prices of primary aluminum fluctuated significantly as a result of the European financial crisis, introduction of policies regarding real estate industry and energy saving and emission reduction policies and the electricity supply shortage in Europe. In April 2010, the spot price of aluminum on the LME and SHFE reached an annual low of US$1,844 per tonne and RMB14,580 (US$2,209) per tonne respectively. However, since November 2010, the prices of aluminum have increased due to the excess liquidity and the depreciation of U.S. dollar as a result of the loose monetary policy adopted by the U.S., and the decrease in aluminium supply as a result of the introduction of China's energy saving and emission reduction policy. Therefore, the spot price of primary aluminum on the LME and SHFE reached a high of US$2,477 per tonne and RMB18,470 (US$2,798) per tonne, respectively in 2010. In 2010, our average selling prices of primary aluminum increased by 14.4% from 2009, compared to the increase in the average spot price of aluminum on the LME and the SHFE, of 34.5% and 20.3%, respectively, for the same period. |
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We sell aluminum fabrication products under contracts, terms of which are typically no longer than one year. We price our aluminum fabrication products pursuant primarily to the market price of primary aluminum, and to a lesser extent, the processing charge. The price of primary aluminum generally reflects the SHFE and LME primary aluminum spot prices. Since the price of primary aluminum comprises a substantial portion of our cost in producing aluminum fabrication products, fluctuations in the SHFE and LME spot prices have a significant effect on our operating results. The processing fee is generally affected by the client-based requirement for a specific product and our proprietary technology and know-how. Different client-based requirement will result in significantly different processing charges. |
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Price Volatility of Non-ferrous Metal Products. |
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Since late 2009, as a result of the implementation of our operational structural adjustment, we have been engaged substantially in the trading of non-ferrous metal products to optimize the profit margin. Although the profit margin of non-ferrous metal products trading is typically lower than the profit margin of our self-produced products, we generated substantial revenues from trading of non-ferrous metal products in 2010 due to our significant trading volumes. We use futures contracts and option contracts in addition to the simple buy-low-sell-high trading model to hedge against price fluctuations in non-ferrous metal product market. However, short-term price volatility of non-ferrous metal products remains a key factor affecting our operation result, as we need to make the correct prediction of the price volatility of the non-ferrous metal products on the markets to ensure substantial revenues through large trading volume. If the price fluctuation on the market does not match our prediction, we may be forced to sell non-ferrous metal product at low price or to purchase non-ferrous metal product at high prices, and this may adversely affect gross margins and profitability. |
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Manufacturing Costs. |
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Our cost of revenues consists primarily of the costs of the raw materials, overhead cost and the electric power cost which is our principal energy cost. |
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Our principal raw material is bauxite. For the years ended December 31, 2008, 2009 and 2010, bauxite produced by us accounted for 30.9%, 61.3% and 49.4% of our total bauxite used in the production of alumina. The unit cost of bauxite produced by us are generally lower than the unit cost of bauxite procured from external suppliers. However, unit cost of bauxite produced by us may exceed the unit cost of outsourced bauxite if the domestic and global bauxite prices decrease. To mitigate such risk, we also purchase a substantial amount of bauxite from external suppliers. This practice allows us flexibility to control our production cost. For example, beginning in the fourth quarter 2008 and continuing through the second quarter 2009, the cost of alumina purchased from certain of our refinery exceeded the prices of alumina available from other sources. In response, we increased our external purchases of alumina in late 2008 and early 2009 and correspondingly reduced our internal production, which decreased our utilization of certain alumina refineries and reduce our overall cost as a result. |
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Given our high proportion of fixed costs, we must generate sufficient sales to absorb our fixed costs to maintain or increase our operating margins. Our acquisitions and production expansion in recent years have significantly increased our costs that are relatively fixed nature such as leases and depreciation of property, plant and equipment and employee benefit expenses. If we are able to maintain satisfactory facility utilization rates and productivity, our production capacity expansion will enable us to reduce our unit costs through economies of scale and recover associated increased costs through higher output. |
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Primary aluminum is one of our major aluminum products and is produced by smelting operations. Smelting operations require a substantial and continuous supply of electricity. Electricity cost is the most significant component of our primary aluminum production cost and accounted for approximately 41.7% of our unit production cost for primary aluminum in 2010. The availability and price of electricity are key considerations in our primary aluminum operations. Interruptions of electricity supply can result in lengthy production shutdowns, increased costs associated with restarting production and waste of production in progress, and prolonged interruptions can cause damage to or the destruction of production equipment and facilities. The preferential electricity prices formerly enjoyed by Chinese primary aluminum enterprises in 2007 were gradually reduced during 2008 and completely eliminated in 2009. The implementation of this policy has increased the operating costs of primary aluminum producers in China. However, our average annual electricity price decreased by 5.4% in 2009 due to effect of diminished industrial demand for electricity caused by the international financial crisis and global financial crisis from the fourth quarter of 2008 to early 2009, which negatively affected the demand for electricity in China. As China's economy recovers since late 2009, our average annual electricity price increased by 12.7% in 2010 from the prior year. Nine of our primary aluminum smelters were selected to participate in a direct electricity purchase program, which allows those smelters to purchase electricity supply directly from power generation enterprises at prices slightly lower than market rates. As of March 31, 2011, two of our primary aluminum smelters with an annual production capacity of approximately 640,000 tonnes, representing approximately 16.1% of our primary aluminum capacity, have entered into direct electricity supply agreements under this program. The remaining seven primary aluminium smelters are still in the process of seeking the approvals from the relevant authority. In addition, we have implemented energy conservation measures at a number of our production facilities, mainly by streamlining the production process and improving our product portfolio. The total energy consumption of our primary aluminum segment in 2010 decreased by 1.3% from 2009 despite a 11.3% increase in output and a 12.7% increase in our average annual electricity price during the same period. |
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PRC Regulation Affecting the Aluminum and Other Non-ferrous Metal Products Industries. |
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The central and local PRC government continues to exercise a substantial degree of control and influence over the aluminum and other non-ferrous metal product industry in China and shape the structure and development of the industry through the imposition of industry policies governing major project approvals, preferential tax treatment and safety, environmental and quality regulations, including but not limited to the "Aluminum Industry Development Policy", "Notice on Guiding Opinions for Accelerating Aluminum Industrial Restructuring", "Environmental Protection Guide for Developing Circular Economy in Aluminum Industry", "Notice of the State Council of China on Further Strengthening the Elimination of Obsolete Production Capacities" and "Non-ferrous Metals Industry Restructuring and Revitalization Planning", etc. Certain existing laws and regulations involve barriers to entry, production quotas, setting, amending or abolishing import tariffs and limitations and duties on the export of aluminum and certain non-ferrous metals and related products. If PRC government changes its current policies or the interpretation of those policies that are currently beneficial to us, we may face pressure on profit margins and significant constraints on our ability to expand our business operations. |
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Selected Statement of Operation Items |
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Revenues |
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Historically, Chalco Trading mainly generate revenues by selling self-produced products procured from our alumina, primary aluminum and aluminum fabrication plants. Commencing in late 2009, as a result of the implementation of our operational structural adjustment, we have been engaged substantially in the trading of outsourced non-ferrous metal products through Chalco Trading to optimize the profit margin. We also significantly increased external sales through Chalco Trading of self-produced alumina and primary aluminum in 2010 from the prior year, to integrate our sales channel of self-produced alumina and primary aluminum, expand our market share and the ability to better coordinating sales efforts among us and better manage sales demands as a whole and gain more flexibility to respond to the market variations. However, we significantly reduced external sales through Chalco Trading of aluminum fabrication products manufactured by us in 2010 from the prior year, primarily because we believe individual sales by each of our own aluminum fabrication plants are more efficient than integrated sales through Chalco Trading as specific aluminum fabrication products are tailored for specific customers. In 2010, revenues generated from alumina, primary aluminum, aluminum fabrication products and trading segment (before elimination of inter-segment sales) accounted for 14.8%, 29.4%, 5.8% and 49.8% of our consolidated total revenues before elimination of inter-segment sales, respectively. Revenues generated from alumina, primary aluminum, aluminum fabrication products and trading segment (after elimination of inter-segment sales) accounted for 1.8%, 21.8%, 8.5% and 67.8% of our consolidated total revenues after elimination of inter-segment sales, respectively, for the same period. |
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Cost of Sales |
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Our cost of sales consists primarily of the cost of the raw materials, the fix cost and the electric power cost which is our principal energy cost. For years ended December 31, 2008, 2009 and 2010, our costs of sales were RMB70,960.7 million, RMB69,079.4 million and RMB113,349.9 million (US$17,174.2 million), and accounted for 92.5%, 98.3% and 93.7% of the total consolidated revenues, respectively. |
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Operating Expenses |
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General and Administrative Expenses.Our general and administrative expenses consist primarily of employee benefit expenses for directors and officers and employees in administrative department, taxes other than income tax expense, depreciation of non-production property, plant and equipment, travelling and entertainment, operating lease rental expenses and, to a lesser extent, amortization of land use rights and leasehold land, amortization of intangible assets, utilities and office supplies, pollutants discharge fees, repairs and maintenance, insurance expense, auditors' remuneration, legal and other professional fees, and others. General and administrative expenses accounted for 63.7%, 66.2% and 61.8% of our total operating expenses for the years ended December 31, 2008, 2009 and 2010, respectively. Employee benefit expenses, including salaries and bonus, housing fund, staff welfare and other expenses, employment expense in relation to early retirement schemes, and retirement benefit cost-defined contribution schemes, comprise the largest component of our general and administrative expenses, accounting for 25.3%, 34.7% and 32.0% of our total general and administrative expenses for the years ended December 31, 2008, 2009 and 2010, respectively. Our taxes other than income tax expense, consisting primarily of land use tax, property tax and stamp duty, comprise the second largest component of our general and administrative expenses, accounting for 22.9%, 18.5% and 23.4% of our total our general and administrative expenses for the years ended 2008, 2009 and 2010, respectively. |
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Selling and Distribution Expenses.Our selling and distribution expenses consist primarily of transportation and loading expenses, packaging expense and, to a lesser extent, port expenses, employee benefit expenses for employees in selling and distribution department, sales commissions and other handling fees, warehouse and other storage fees, marketing and advertising expenses, depreciation of non-production property, plant and equipment, and others. Selling and distribution expenses accounted for 39.7%, 28.3% and 37.1% of our total operating expenses for the years ended December 31, 2008, 2009 and 2010, respectively. |
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Research and Development Expenses.Our research and development expenses accounted for 4.5%, 4.0% and 3.9% of our total operating expenses for the years ended December 31, 2008, 2009 and 2010, respectively. |
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Impairment charge/write-off of property, plant and equipment.Our impairment charge/write-off of property, plant and equipment accounted for 0.03%, 14.0% and 16.5% of our total operating expenses for the years ended December 31, 2008, 2009 and 2010, respectively. |
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Other Income.Our other income represented government grants. |
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Other Gains, net.Our other gains, net consist primarily of realized and unrealized gain on future and option contracts, and gain on disposal of available-for-sale financial assets and, to a lesser extent, gain/loss on disposal of property, plant and equipment, and others. |
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Finance Costs |
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Our financing costs consist primarily of interest expense on our borrowings, which we have incurred mainly to fund our capital expenditures. Interest rates on loans related to capital expenditures and working capital set by banks generally follow guidelines issued by the People's Bank of China. The People's Bank of China regulates the interest rates for commercial loans chargeable by state-owned banks from time to time as part of the PRC government's efforts to regulate the PRC economy. Such interest rates increased from the beginning of 2008 until the fourth quarter of 2008 when they decreased, but they further increased in 2010. In 2010, we incurred interest expense of RMB2,575.7 million (US$390.3 million) on our borrowings including interest expense of RMB645.0 million (US$97.7 million) on our borrowings attributable to the construction of property, plant and equipment was capitalized in property, plant and equipment, representing an increase of 12.0% from 2009. Such increase was primarily due to an increase in the outstanding principal amount on bank loans and other borrowings, including short-term and long-term bonds and medium-term notes. |
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Consolidated results of operations |
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The following table sets forth certain income and expense items as a percentage of our revenues from our consolidated statements of comprehensive income for the periods indicated: |
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No customer individually accounted for more than 10% of our total sales or any of our segment sales for the year ended December 31, 2010. Sales to Chinalco and its subsidiaries, jointly-controlled entities, associates and other related parties accounted for approximately 10.9%, 9.7% and 9.0% of consolidated revenues for the years ended December 31, 2008, 2009 and 2010, respectively. For information on related party transactions, see "Item 7 - Major Shareholders and Related Party Transactions - Related Party Transactions" and Note 35 to our audited consolidated financial statements. |
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Year Ended December 31, 2010 Compared with Year Ended December 31, 2009 |
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Revenues |
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Our revenues increased by 72.2% from RMB70,268.0 million for the year ended December 31, 2009 to RMB120,994.8 million (US$18,332.5 million) for the year ended December 31, 2010, primarily due to the increase in the selling prices and sales volume of products manufactured by us and the increase in the trading volume. Our average selling prices of alumina and primary aluminium increased by 21.9% and 14.4% respectively, in 2010 from the prior year. The aggregate sales volume of our self-produced products also increased, reflecting the increased demand for these products as a result of the recovery of the PRC and global economy. Increase in revenues generated from trading of outsourced products also contributed to the revenues growth in 2010 from the prior year as we significantly increased the trading volume commencing in late 2009. Our sales of products manufactured by us in the trading segment for 2010 was approximately RMB34,444 million (US$5,219 million), representing an increase of RMB17,709 million (US$2,714 million) or 105.8% from approximately RMB16,735 million for the preceding year. Our sales of products sourced from external suppliers in the trading segment for 2010 was approximately RMB55,697 million (US$8,439 million), representing an increase of RMB33,981 million (US$5,149 million) or 156.5% from approximately RMB21,716 million for the preceding year. |
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Cost of Sales |
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Our cost of sales increased by 64.1% from RMB69,079.4 million for the year ended December 31, 2009 to RMB113,349.9 million (US$17,174.2 million) for the year ended December 31, 2010, primarily due to the increase in the prices of raw materials, the sales volume of products manufactured by us and the trading volume of non-ferrous metal products. Our gross profit margin increased from 1.7% for the year ended December 31, 2009 to 7.5% for the year ended December 31, 2010, primarily due to the relatively larger increase of our average selling price than the increase of the prices of raw materials. |
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General and Administrative Expenses |
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Our general and administrative expenses decreased by 11.3% from RMB2,956.4 million for the year ended December 31, 2009 to RMB2,623.8 million (US$397.5 million) for the year ended December 31, 2010, primarily due to the decrease of RMB216 million (US$32.7 million) in the retirement benefit expenses as a result of our early retirement schemes adopted in 2009 and 2010. These early retirement benefit schemes allow qualified employees to early retire on a voluntary basis. In addition, we have applied strict control to daily administrative expenses and have adopted proactive measures to constrain all controllable expenses, resulting in a decrease of approximately RMB123 million (US$18.6 million) in our administrative expenses. |
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Selling and Distribution Expenses |
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Our selling and distribution expenses increased by 24.4% from RMB1,264.9 million for the year ended December 31, 2009 to RMB1,573.3 million (US$238.4 million) for the year ended December 31, 2010, primarily due to the increase of transportation, loading and packaging expenses in association with the increase of our external sales of major products. |
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Research and Development Expenses |
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Our research and development expenses decreased slightly by 7.6% from RMB177.8 million for the year ended December 31, 2009 to RMB164.2 million (US$24.9 million) for the year ended December 31, 2010. |
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Impairment Charge/write-off of Property, Plant and Equipment |
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Our impairment charge/write-off of property, plant and equipment increased by 12.5% from RMB623.8 million for the year ended December 31, 2009 to RMB701.8 million (US$106.3 million) for the year ended December 31, 2010, primarily due to the partial write-off of the expenditure on Aurukun Project. See Note 8 to our audited consolidated financial statements for detailed information. In addition, as part of our ongoing effort to optimize operations, we have discontinued the use of certain production equipment and reduced the carrying amount of these pieces of equipment to our estimated net proceeds, or recoverable amount, from their disposal. |
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Other Income |
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Other income increased by 117.7% from RMB151.1 million for the year ended December 31, 2009 to RMB328.9 million (US$49.8 million) for the year ended December 31, 2010, primarily due to an increase in government grants of RMB178 million (US$27.0 million). |
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Other Gains, Net |
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Our net other gains increased by 21.6% from RMB403.8 million for the year ended December 31, 2009 to RMB491.0 million (US$74.4 million) for the year ended December 31, 2010, primarily due to an increase in gain on disposal of available-for-sale financial assets of RMB150.3 million (US$22.8 million) relating to the sales of our investment in China Aluminum International Engineering Corporation Limited, partly offset by a decrease in net realized/unrealized gain on future and option contracts. |
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Operating Profit |
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As a result of the foregoing, we incurred operating profit of RMB3,401.7 million (US$515.4 million) for the year ended December 31, 2010, compared with an operating loss of RMB3,279.4 million for the year ended December 31, 2009. |
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Finance Costs, Net |
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Our net finance cost increased by 16.7% from RMB2,137.9 million for the year ended December 31, 2009 to RMB2,495.2 million (US$378.1 million) for the year ended December 31, 2010. Notwithstanding the year-on-year increase in interest-bearing borrowings, we have maintained our total interest expenses basically constant as compared with 2009 through optimization of our debt portfolio, expanding our low-cost financing channels and lowering of the interest rates. However, since more construction in progress projects were completed and transferred to property, plant and equipment in 2010, capitalized interest expense decreased as compared with 2009, leading to an increase of approximately RMB235 million (US$35.6 million) in finance costs. In addition, we reduced our fund reserve to expedite fund turnover to reduce demand for fund and in turn our interest income was reduced by approximately RMB34 million (US$5.2 million). We also adopted low-cost notes financing by issuing and utilizing more notes, resulting in an increase of approximately RMB35 million (US$5.3 million) in the discount on interest and the handling fee during the year. Furthermore, net exchange gains for the year decreased by approximately RMB47 million (US$7.1 million) as compared with the preceding year. |
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Income Tax |
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Our income tax expense was RMB411.3 million (US$62.3 million) for the year ended December 31, 2010, compared to income tax benefit of RMB711.0 million for the year ended December 31, 2009, primarily due to the significant increase of our total profit since we achieved a turnaround from loss to profit in 2010. |
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Results of Operations |
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We incurred net profit of RMB969.1 million (US$146.8 million) for the year ended December 31, 2010, compared with a net loss of RMB4,679.6 million for the year ended December 31, 2009, primarily due to rebound of the market price of our major products, the effect of cost control measures and the increase of our production and sales volume. |
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Year Ended December 31, 2009 Compared with Year Ended December 31, 2008 |
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Revenues |
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Our revenues decreased by 8.4% from RMB76,728.1 million for the year ended December 31, 2008 to RMB70,268.0 million for the year ended December 31, 2009, primarily due to the decrease in the price of our products. Our average selling prices of alumina and primary aluminum decreased by 28.4% and 19.7%, respectively, in 2009 from the prior year. The significant decrease in the average price of our products reflects the effect of the global financial crisis, particularly from the fourth quarter of 2008 through early 2009, which significantly reduced demand for our product from major aluminum consuming industries such as the automobile, transportation and construction industries. The decrease in revenues was partially offset by the increase in the external sales volumes of alumina and primary aluminum, reflecting the increased demand for these products as the global economy started to recover in the second half of 2009. |
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Cost of Sales |
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Our cost of sales decreased by 2.7% from RMB70,960.6 million for the year ended December 31, 2008 to RMB69,079.4 million for the year ended December 31, 2009, primarily due to the decrease in the prices of certain raw materials and production input such as bauxite, alumina, fuel and electricity that reduced our per unit cost and the implementation of our cost reduction efforts, including our efforts to reduce energy consumption. The decrease in cost of sales was partially offset by the increase in the sales volume in our alumina and primary aluminum segments. Our gross profit margin decreased from 6.3% for the year ended December 31, 2008 to 1.7% for the year ended December 31, 2009, primarily due to the relatively larger decrease of our average selling price than the decrease of the prices of raw materials. |
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General and Administrative Expenses |
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Our general and administrative expenses increased by 17.9% from RMB2,507.1 million for the year ended December 31, 2008 to RMB2,956.4 million for the year ended December 31, 2009, primarily due to the addition of early retirement benefits and severance compensation that we paid in connection with the implementation of early retirement schemes and employment reduction plans adopted in 2009 at a number of branches and subsidiaries. |
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Selling and Distribution Expenses |
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Our selling and distribution expenses decreased by 19.1% from RMB1,562.8 million for the year ended December 31, 2008 to RMB1,264.9 million for the year ended December 31, 2009, primarily due to the decrease in the transportation, loading and packaging expenses as a result of our efforts to optimize logistics management and allocate production among our production sites to minimize delivery costs. |
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Research and Development Expenses |
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Our research and development expenses increased slightly from RMB177.5 million for the year ended December 31, 2008 to RMB177.8 million for the year ended December 31, 2009. |
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Impairment Charge/write-off of Property, Plant and Equipment |
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Our impairment charge/write-off of property, plant and equipment increased significantly from RMB1.3 million for the year ended December 31, 2008 to RMB623.8 million for the year ended December 31, 2009, primarily due the selective retirement of certain property, plant and equipment resulting in an impairment loss of RMB624 million. As part of our ongoing effort to optimize operations, we have discontinued the use of certain production equipment and reduced the carrying amount of these pieces of equipment to our estimated net proceeds, or recoverable amount, from their disposal. |
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Other Income |
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Other income increased by 49.9% from RMB100.8 million for the year ended December 31, 2008 to RMB151.1 million for the year ended December 31, 2009, primarily due to an increase in government grants. In 2009, we received government grants of RMB151 million in the form of subsidies for electricity costs, our environmental protection projects and research and development efforts, whereas in 2008 we received government grants of RMB101 million. |
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Other Gains, Net |
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Our net other gains increased from RMB212.8 million for the year ended December 31, 2008 to RMB403.8 million for the year ended December 31, 2009, primarily due to an increase in realized/unrealized gain on futures and option contracts of RMB167.6 million. |
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Operating Loss |
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As a result of the foregoing, we incurred operating loss of RMB3,279.4 million for the year ended December 31, 2009, compared with an operating profit of RMB1,832.4 million for the year ended December 31, 2008. |
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Finance Costs, Net |
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Our net finance cost increased by 25.0% from RMB1,709.7 million for the year ended December 31, 2008 to RMB2,137.9 million for the year ended December 31, 2009, primarily due to increase in interest expenses as the result of the increase in our bank loans and other borrowings, partially offset by the decrease in our effective interest rate. |
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Income Tax Benefit |
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Our income tax benefit increased significantly from RMB34.1 million for the year ended December 31, 2008 to RMB711.0 million for the year ended December 31, 2009, primarily due to our recognition of deferred income tax assets corresponding to the taxable losses for 2009. The deferred income tax assets are expected to be realized in future utilization periods. |
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Results of Operations |
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We incurred net loss of RMB4,679.6 million for the year ended December 31, 2009, compared with a net profit of RMB168.6 million for the year ended December 31, 2008. |
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Discussion of Segment Operations |
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We account for our operations on a segmental basis, that is, separately prepare the accounting for our alumina, primary aluminum, aluminum fabrication and trading segments as well as other segment operations. Unless otherwise indicated, also included in these segments are other revenues derived from activities such as supplying electricity, gas, heat and water to affiliates, selling scrap and other materials and providing services including transportation and research and development to third parties. For additional data and information relating to our business segments and segment presentation, see Note 6 to our audited consolidated financial statements. |
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The following table sets forth a breakdown of our revenues by segment and the contribution of external sales and inter-segment sales for the periods indicated: |
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Year Ended December 31, 2010 Compared with Year Ended December 31, 2009 |
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Alumina Segment |
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Revenues. Total revenues generated by the alumina segment increased by 46.7% from RMB18,289.5 million for the year ended December 31, 2009 to RMB26,837.9 million (US$4,066.3 million) for the year ended December 31, 2010, primarily due to increase in the selling prices and the sales volume of alumina manufactured by us. |
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Revenues from external sales of alumina segment decreased by 62.5% from RMB5,734.1 million for the year ended December 31, 2009 to RMB2,148.3 million (US$325.5 million) for the year ended December 31, 2010, primarily because the alumina refineries significantly decreased the direct sales to the external customers and increased the volume sold through Chalco Trading as a result of the sales channel integration. |
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Revenues from inter-segment sales of alumina segment increased by 96.6% from RMB12,555.4 million for the year ended December 31, 2009 to RMB24,689.6 million (US$3,740.8 million) for the year ended December 31, 2010, primarily due to the significant increased sales volume of alumina manufactured by us through Chalco Trading. |
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Cost and expenses.The total cost and expenses for our alumina segment increased by 21.6% from RMB21,185.1 million for the year ended December 31, 2009 to RMB25,760.8 million (US$3,903.1 million) for the year ended December 31, 2010, primarily due to the increase in the price of raw materials and sales volume of alumina manufactured by us. |
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Segment Results. Our alumina segment incurred an profit before income tax of RMB1,077.1 million (US$163.2 million) for the year ended December 31, 2010, compared with the loss before income tax of RMB2,895.6 million for the year ended December 31, 2009. |
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Primary Aluminum Segment |
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Revenues.Total revenues generated by the primary aluminum segment increased by 24.6% from RMB42,731.2 million for the year ended December 31, 2009 to RMB53,255.0 million (US$8,068.9 million) for the year ended December 31, 2010, primarily due to the increase in the selling prices and the sales volume of primary aluminum manufactured by us. |
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Revenues from external sales of the primary aluminum segment slightly increased by 0.5% from RMB26,267.7 million for the year ended December 31, 2009 to RMB26,407.3 million (US$4,001.1 million) for the year ended December 31, 2010, primarily due to the increase in the selling price of primary aluminum manufactured by us. Our average selling price of primary aluminum increased by 14.4% in 2010 from 2009. However, the primary aluminum smelters significantly decrease direct sales to external customers because of the sales channel integration, whick offset the effect of increased selling price of primary aluminum. |
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Revenues from inter-segment sales of primary aluminum segment increased by 63.1% from RMB16,463.5 million for the year ended December 31, 2009 to RMB26,847.7 million (US$4,067.8 million) for the year ended December 31, 2010, primarily due to the significant increased sales volume of primary aluminum manufactured by us through Chalco Trading. |
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Cost and expenses.The total cost and expenses for our primary aluminum segment increased by 19.8% from RMB44,157.7 million for the year ended December 31, 2009 to RMB52,896.2 million (US$8,014.5 million) for the year ended December 31, 2010, primarily due to the increase in the price of raw materials, the electric power cost and sales volume of primary aluminum manufactured by us. |
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Segment Results.The profit before income tax of our primary aluminum segment was RMB358.8 million (US$54.4 million) for the year ended December 31, 2010, compared to the loss before income tax of RMB1,426.5 million for the year ended December 31, 2009. |
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Aluminum Fabrication Segment |
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Revenues.Total revenues generated by the aluminum fabrication segment increased by 47.4% from RMB7,102.6 million for the year ended December 31, 2009 to RMB10,466.0 million (US$1,585.8 million) for the year ended December 31 2010, primarily due to increase in the selling prices and sales volume of various aluminum fabrication products manufactured by us. |
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Revenues from external sales of the aluminum fabrication segment increased by 70.8% from RMB6,040.4 million for the year ended December 31, 2009 to RMB10,315.3 million (US$1,562.9 million) for the year ended December 31, 2010, primarily due to the increase in selling price of various aluminum fabrication products and sales volume directly from the aluminum fabrication plants. |
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Revenues from inter-segment sales of aluminium fabrication decreased by 85.8% from RMB1,062.2 million for year ended December 31, 2009 to RMB150.7 million (US$22.9 million) for the year ended December 31, 2010, primarily due to the significantly decreased sales volume of self-produced aluminum fabrication products through Chalco Trading. We believe individual sales by each of our own aluminum fabrication plants are more efficient than integrated sales through Chalco Trading as specific aluminum fabrication products are tailored for specific customers. |
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Cost and expenses. The total cost and expenses for our aluminum fabrication segment increased by 34.9% from RMB8,000.5 million for the year ended December 31, 2009 to RMB10,789.6 million (US$1,634.8 million) for the year ended December 31, 2010, primarily due to the increase in the price of raw materials and sales volume of aluminum fabrication products manufactured by us. |
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Segment Results.The total loss before income tax of our aluminum fabrication segment decreased by 64.0% from RMB897.9 million for the year ended December 31, 2009 to RMB323.6 million (US$49.0 million) for the year ended December 31, 2010. |
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Trading Segment |
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Revenues.Total revenues generated by the trading segment increased by 134.4% from RMB38,451.3 million for the year ended December 31, 2009 to RMB90,141.4 million (US$13,657.8 million) for the year ended December 31 2010, primarily due to increase in average selling price and sales volume of self-produced alumina and primary aluminum through Chalco Trading, and increase in trading volume of non-ferrous metal products purchased from external manufacturers. |
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Revenues from external sales of the trading segment increased by 156.7% from RMB31,939.7 million for the year ended December 31, 2009 to RMB81,982.2 million (US$12,421.6 million) for the year ended December 31, 2010, primarily due to increase in average selling price and sales volume of self-produced alumina and primary aluminum through Chalco Trading and increase in trading volume of non-ferrous metal products. Our average selling price of alumina and primary aluminum increased by 21.9% and 14.4%, respectively, in 2010 from 2009. |
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Revenues from inter-segment sales of the trading segment increased by 25.3% from RMB6.511.5 million for year ended December 31, 2009 to RMB8,159.2 million (US$1,236.2 million) for the year ended December 31, 2010, primarily due to the increase in price of raw and ancillary materials and alumina sold to our own plants. |
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Cost and expenses.The total cost and expenses for our trading segment increased 136.1% from RMB37,818.8 million for the year ended December 31, 2009 to RMB89,280.8 million (US$13,527.4 million) for the year ended December 31, 2010, primarily due to the increase in the price and volume of major aluminum and other non-ferrous metal products procured and sold through Chalco Trading. |
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Segment Results.The total profit before income tax of our trading segment increased by 36.1% from RMB632.5 million for the year ended December 31, 2009 to RMB860.6 million (US$130.4 million) for the year ended December 31, 2010. |
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Year Ended December 31, 2009 Compared with Year Ended December 31, 2008 |
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Alumina Segment |
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Revenues.Total revenues generated by the alumina segment decreased by 33.0% from RMB27,311.2 million for the year ended December 31, 2008 to RMB18,289.5 million for the year ended December 31, 2009, primarily due to decrease in the price of alumina in 2009. |
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Revenues from external sales in the alumina segment decreased by 46.4% from RMB10,689.0 million for the year ended December 31, 2008 to RMB5,734.1 million for year ended December 31, 2009, primarily due to the decrease in the selling price of alumina. |
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Revenues from internal sales of alumina to our smelters decreased by 24.5% from RMB16,622.2 million for the year ended December 31, 2008 to RMB12,555.4 million for year ended December 31, 2009, primarily due to a decrease in the selling price of internal sales of alumina as a result of increased competition and challenging market conditions. |
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Cost and expenses.The total cost and expenses for our alumina segment decreased by 21.0% from RMB26,800.0 million for the year ended December 31, 2008 to RMB21,185.1 million for the year ended December 31, 2009, due to the decrease in the prices of raw materials and the implementation of our cost reduction measures, including our efforts to reduce energy consumption. |
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Segment Results.Our alumina segment incurred a loss before income tax of RMB2,895.6 million for the year ended December 31, 2009, compared with an operating profit of RMB511.2 million for the year ended December 31, 2008. |
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Primary Aluminum Segment |
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Revenues.Total revenues generated by the primary aluminum segment decreased by 16.7% from RMB51,273.1 million for the year ended December 31, 2008 to RMB42,731.2 million for year ended December 31, 2009, primarily due to the decrease in the selling price of primary aluminum. |
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Revenues from external sales of the primary aluminum segment decreased by 6.1% from RMB27,970.8 million for the year ended December 31, 2008 to RMB26,267.7 million for the year ended December 31, 2009, primarily due to the decrease in the selling price of primary aluminum. |
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Revenues from internal sales of primary aluminum to our aluminum fabrication plants decreased by 29.3% from RMB23,302.3 million for the year ended December 31, 2008 to RMB16,463.5 million for the year ended December 31, 2009, primarily due to the decrease in the selling price of primary aluminum. |
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Cost and expenses.The total cost and expenses for our primary aluminum segment decreased by 12.8% from RMB50,658.6 million for the year ended December 31, 2008 to RMB44,157.7 million for the year ended December 31, 2009 due to the decrease in the prices of raw materials and the implementation of our cost reduction measures, including our efforts to reduce energy consumption. Our decrease in cost of sales was partly offset by the increase in our volume of external sales. |
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Segment Results.Our primary aluminium segment incurred a loss before income tax of RMB1,426.5 million for the year ended December 31, 2009, compared with an operating profit of RMB614.5 million for the year ended December 31, 2008. |
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Aluminum Fabrication Segment |
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Revenues.Total revenues generated by the aluminum fabrication segment decreased by 32.3% from RMB10,485.4 million for the year ended December 31, 2008 to RMB7,102.6 million for the year ended December 31, 2009, primarily due to the decrease in demand from end-user markets. |
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Revenues from external sales of the aluminum fabrication segment decreased by 38.0% from RMB9,744.5 million for the year ended December 31, 2008 to RMB6,040.4 million for the year ended December 31, 2009, primarily due to the decrease of the overall demand from end-users and the allocation from direct sales to integrated sales of aluminum fabrication products in late 2009. |
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Revenues from inter-segment sales of aluminium fabrication increased by 43.4% from RMB740.9 million for year ended December 31, 2008 to RMB1,062.2 million for the year ended December 31, 2009, primarily because we determined to integrate sales channel of aluminium fabrication products by increased sales of aluminum fabrication products through Chalco Trading in late 2009. |
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Cost and expenses.The total cost and expenses for our aluminum fabrication segment decreased by 27.9% from RMB11,097.4 million for the year ended December 31, 2008 to RMB8,000.5 million for the year ended December 31, 2009 due to the decrease in the prices of raw materials and the implementation of our cost reduction measures, including our efforts to reduce energy consumption. |
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Segment Results.The total loss before income tax of our aluminum fabrication segment increased by 46.7% from RMB612.0 million for the year ended December 31, 2008 to RMB897.9 million for the year ended December 31, 2009. |
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Trading Segment |
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Revenues.Total revenues generated by the trading segment increased by 3.8% from RMB37,047.0 million for the year ended December 31, 2008 to RMB38,451.3 million for the year ended December 31 2009, primarily due to the increase in external sales of trading segment, which is partially offset by the decrease in the inter-segment sales of trading segment. |
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Revenues from external sales of the trading segment increased by 15.2% from RMB27,718.7 million for the year ended December 31, 2008 to RMB31,939.7 million for the year ended December 31, 2009, primarily because commencing in late 2009, we increased sales of products manufactured by us through Chalco Trading and engaged Chalco Trading in substantial trading of outsourced non-ferrous metal production through Chalco Trading. |
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Revenues from internal sales of the trading segment decreased by 30.2% from RMB9,328.3 million for year ended December 31, 2008 to RMB6,511.6 million for the year ended December 31, 2009, primarily due to the decrease in price of alumina as well as raw and ancillary materials procured for our own plants. |
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Cost and expenses.The total cost and expenses for our trading segment increased by 1.6% from RMB37,222.6 million for the year ended December 31, 2008 to RMB37,818.8 million for the year ended December 31, 2009, due to the increased sales volume of non-ferrous metal products commencing in late 2009. |
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Segment Results.Our trading segment incurred an operating profit before income tax of RMB632.5 million for the year ended December 31, 2009, compared with an operating loss of RMB175.6 million for the year ended December 31, 2008. |
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B. LIQUIDITY AND CAPITAL RESOURCES |
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Historically, our primary sources of funding have been cash generated from operating activities, prepayments and deposits from customers, short-term, medium-term and long-term borrowings and proceeds from equity or debt offerings. Our primary uses of funds have been working capital for production, capital expenditures and repayments of short-term, medium-term and long-term borrowings. |
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Our current assets amounted to RMB41,324.5 million (US$6,261.3 million) as of December 31, 2010, representing an increase of 13.7% from RMB36,333.9 million as of December 31, 2009, primarily due to increase in cash and cash equivalents, inventories as well as other current assets. As of December 31, 2010, our bank balances and cash amounted to RMB9,495.6 million (US$1,438.7 million), representing an increase of 20.8% from RMB7,858.8 million as of December 31, 2009, primarily due to an increase in cash and equivalents.As of December 31, 2010, our inventories amounted to RMB21,780.0 million (US$3,300.0 million), representing an increase of 6.6% from RMB20,423.2 million as of December 31, 2009, primarily due to the increase of our reserve of raw materials and fuels and the increase of the prices of such raw materials. As of December 31, 2010, our other current assets amounted to RMB6,140.0 million (US$930.3 million), representing an increase of 26.6% from RMB4,848.7 million as of December 31, 2009. |
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As of December 31, 2010, our current liabilities amounted to RMB55,733.5 million (US$8,444.5 million), representing a 39.2% increase from RMB40,029.9 million as of December 31, 2009. Our current liabilities increased primarily due to the issuance of short-term financing bonds in the amount of RMB10,700 million (US$1,621.2 million) during the period and the expiration of the three-year medium-term notes in the amount of RMB5,000 million (US$757.6 million) issued in June 2008 within one year. |
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As of December 31, 2010, we had net current liabilities of RMB14,409.0 million (US$2,183.2 million) as compared with our net current liabilities of RMB3,696.0 million as of December 31, 2009. As of December 31, 2010, our current ratio (current assets/current liabilities) was 0.74, representing a decrease of 0.17 as compared with 0.91 as of December 31, 2009. Our quick ratio ((current assets - inventories)/current liabilities) was 0.35 as of December 31, 2010, representing a decrease of 0.05 as compared with 0.40 as of December 31, 2009. |
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During the past years, we engaged in debt financing to fund our operations and business expansion. In June 2007, we issued long-term corporate bonds with maturity of ten years in the principal amount of RMB2 billion. The fixed annual coupon and effective rates of these bonds are 4.50% and 4.64%, respectively. In June 2008, we issued medium-term notes in the principal amount of RMB5 billion with three-year terms for operating cash flows and capital expenditures. The fixed annual coupon and effective interest rates of these notes are 5.30% and 5.62%, respectively. In October 2008, we issued medium-term notes with a total face value of RMB5 billion at par (face value of RMB100 per unit) with five-year terms for operating cash flows and capital expenditures. The fixed annual coupon and effective interest rates of these notes are 4.58% and 4.92%, respectively. In July and August 2010, we issued the first and second tranches of medium-term notes, respectively, each with a face value of RMB1 billion (US$0.2 billion) at par with five-year term to replenish capital expenditure purposes, operating cash flows and bank loans re-financing. The effective interest rates of the first and second tranches of the notes are 4.34% and 4.20%, respectively. In March and June 2010, we issued the first and second tranches of short-term bills, respectively, each with a face value of RMB 5 billion (US$0.8 billion) at par (face value of RMB100 per unit) with one-year term to replenish general working capital and bank loan swap. The effective interest rates of the first and second tranches of the bills are 3.04% and 3.17%, respectively. |
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As of December 31, 2010, our gearing ratio (net debts/total capital as defined in Note 3.3 to our audited consolidated financial statements) was approximately 59.1% as compared with approximately 58.3% as of December 31, 2009. |
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Our ability to obtain additional external financing in the future and the cost of such financing are subject to a variety of uncertainties, including: |
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Net Cash Generated from/(used in) Operating Activities |
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For the year ended December 31, 2010, we had a cash inflow before changes in working capital but after adjustments for non-cash items and non-operating cash outflow of RMB9,763.2 million (US$1,479.3 million) and net cash generated from operating activities of RMB7,103.9 million (US$1,076.3 million). Net cash flow generated from operating activities consisted primarily of our profit before tax of RMB1,380.4 million (US$209.2 million), an outflow of RMB2,358.9 million (US$357.4 million) for changes in working capital and income tax of RMB300.5 million (US$45.5 million). The outflow from changes in working capital consisted primarily of (i) increase in inventories of RMB1,356.8 million (US$205.6 million) and (ii) increase in other current assets of RMB515.6 million (US$78.1 million), slightly offset by decrease in other non-current assets and increase in trade and notes payable. |
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For the year ended December 31, 2009, we had a cash inflow before changes in working capital but after adjustments for non-cash items and non-operating cash outflow of RMB3,136.2 million and net cash used in operating activities of RMB705.9 million. Net cash used in operating activities primarily reflected our loss before income tax of RMB5,390.6 million, an outflow of RMB3,640.7 million for changes in working capital and income taxes of RMB201.4 million. The cash outflow from changes in working capital consisted primarily of (i) decrease in other payables and accrued expenses of RMB2,967.6 million and (ii) increase in trade and notes receivable of RMB1,342.4 million, primarily due to an increase in sales on credit, partly offset by increase in trade and notes payable of RMB1,585.9 million, which also reflected an increase in production activities as demand for our product started to recover in the second quarter 2009. |
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For the year ended December 31, 2008, we had a cash inflow before changes in working capital but after adjustments for non-cash items and non-operating cash outflow of RMB7,263.7 million and net cash generated from operating activities of RMB5,024.0 million. Net cash flow generated from operating activities consisted primarily of our profit before tax of RMB134.5 million, an outflow of RMB731.1 million for changes in working capital and income tax of 1,508.6 million. The outflow from changes in working capital consisted primarily of (i) increase in inventories of RMB3,856.9 million and (ii) increase in other current assets of RMB1,303.4 million, partly offset by (i) increase in other payables and accrued expenses of RMB3,134.7 million and (ii) decrease in trade and notes receivable of RMB2,023.5 million. |
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Net Cash Used in Investing Activities |
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Net cash used in investing activities decreased by 12.8% from RMB9,477.2 million for the year ended December 31, 2009 to RMB8,260.3 million (US$1,251.6 million) for the year ended December 31, 2010, primarily due to the increase of cash inflow related to investments and government grants received, and the decrease in purchases of property, plant and equipment. Our net cash used in investing activities consisted primarily of (i) purchase of property, plant and equipment of RMB8,325.9 million (US$1,261.5 million) and (ii) deposit for investment projects of RMB849.8 million (US$128.8 million) and (iii) capital injection to associates of RMB748.7 million (US$113.4 million). |
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Net cash flow used in investing activities decreased by 57.3% from RMB22,207.5 million for the year ended December 31, 2008 to RMB9,477.2 million for the year ended December 31, 2009, primarily because we selectively slowed down a number of projects. Net cash used in investing activities in 2009 consisted primarily of (i) purchase of property, plant and equipment of RMB9,597.3 million and (ii) purchase of land use rights and leasehold land of RMB260.7 million, partially offset by net cash inflow from settlement of futures contracts of RMB458.0 million. |
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Net cash used in investing activities was RMB22,207.5 million for the year ended December 31, 2008, consisting primarily of (i) purchase of property, plant and equipment of RMB16,791.5 million and (ii) payments of consideration for acquisitions of subsidiaries net of cash acquired of RMB4,610.6 million, partially offset by proceeds from disposal of property, plant and equipment of RMB23.3 million. |
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Net Cash Generated from Financing Activities |
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Net cash generated from financing activities increased from RMB1,576.7 million for the year ended December 31, 2009 to RMB2,717.5 million (US$411.8 million) for the year ended December 31, 2010, primarily due to the increase of external debt financing during the year. Our net cash generated from financing activities for the year ended December 31, 2010 consisted primarily of drawdown of short-term and long-term loans of RMB34,141.5million (US$5,173.0 million), partially offset by repayments of short-term and long-term loans of RMB41,195.1 million (US$6,241.7 million). |
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Net cash generated from financing activities decreased significantly from RMB24,370.4 million for the year ended December 31, 2008 to RMB1,576.7 million for the year ended December 31, 2009, primarily because we did not issue short-term or long-term bonds in 2009. Our net cash generated from financing activities for the year ended December 31, 2009 consisted primarily of drawdown of short-term and long-term loans of RMB38,057.5 million, partially offset by (i) repayments of short-term and long-term loans of RMB27,644.3 million and (ii) repayments of short-term bonds of RMB5,000.0 million. |
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Net cash generated from financing activities was RMB24,370.4 million for the year ended December 31, 2008, consisting primarily of (i) drawdown of short-term and long-term loans of RMB32,401.4 million and (ii) issuance of short-term and long-term bonds of RMB15,000.0 million, partially offset by (i) repayments of short-term and long-term loans of RMB16,049.1 million and (ii) repayments of short-term bonds of RMB3,000.0 million. |
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Borrowings and Banking Facilities |
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Our net borrowings were as follows as of December 31, 2009 and 2010: |
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Executive Directors |
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Xiong Weiping,aged 54, serves as the chairman of the Board, our chief executive officer and the general manager of Chinalco. Mr. Xiong served on our Board from 2001 to 2006 and was re-appointed to the Board in 2009. Mr. Xiong holds a doctorate degree of engineering from Central South University of Industry where he studied mining engineering. He completed his post-doctoral research in economics at the Guanghua School of Management at Peking University where he is a professor and a Ph.D tutor. He has received grants from the State Council of China and was recognized as the "Middle-aged and Youth Expert with Special Contribution to the Nation" by the former Ministry of Personnel of the PRC. He was previously the deputy secretary of Hunan Provincial Communist Youth League, a member of standing committee of the All China Youth Federation, president of Hunan Youth Union Committee and vice-chancellor and dean of the Faculty of Management and professor at the Central South University of Industry. Mr. Xiong previously served as the vice president of China Copper, Lead & Zinc Group Corporation, a vice president of Chinalco, an executive director, senior vice president and president of Chalco and the vice chairman and general manager of China National Travel Service (HK) Group Corporation (China Travel Service (Holdings) Hong Kong Limited). |
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Luo Jianchuan,aged 47, serves as an executive director on our Board, chairman of the development planning committee, vice chairman of the executive committee, and our president. He has been employed by us since 2001. Mr. Luo holds a bachelor's degree in mining from Kunming University of Science and Technology and a doctorate degree from Central South University of Industry, and he is a professor-grade senior engineer. He has long engaged in corporate management of non-ferrous metals and thus has extensive professional experience and strong management skills in those fields. Mr. Luo previously served as an engineer of the Lead and Zinc Bureau of China Non-ferrous Metals Industry Corporation, manager of Haikou Nanxin Industry & Commerce Corporation, assistant to general manager of Jinpeng Mining Development Corporation, deputy general manager and general manager of Beijing Xinquan Tech-trading Corporation, assistant to general manager of China Non-ferrous Metals Industry Trading Group Corporation, deputy chief of the Trading Division of China Copper, Lead & Zinc Group Corporation, general manager of China Aluminum International Trading Corporation Limited, general manager of the Operations and Sales Division, vice president and senior vice president of us. |
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Chen Jihua,(resigned), aged 43, served as an executive director on our Board, our vice president and chief financial officer until his resignation on October 28, 2010. Mr. Chen had been employed by us since 2001. He holds a master's degree from Central University of Finance and Economics. He formerly served as executive manager of the International Finance Department of China Chengxin Securities Appraisal Company Limited, financial controller of Red Bull Vitamin Beverages Company Limited, regional (China) financial controller of Saudi Arabia ALJ (China) Limited, financial controller of Jitong Network Communications Company Limited, assistant to president of Chinalco and general manager of our finance department. |
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Liu Xiangmin,aged 48, serves as an executive director on our Board and our vice president and has been employed by us since 2001. Mr. Liu holds a doctorate degree from Central South University of Industry where he studied non-ferrous metal science and is a professor-grade senior engineer. Mr. Liu previously served as deputy head and head of the Alumina branch of Zhongzhou Aluminum Plant, deputy head of Zhongzhou Aluminum Plant and general manager of our Zhongzhou branch. |
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Non-Executive Directors |
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Lv Youqing,age 47, serves as a non-executive director on our Board and the deputy general manager of Chinalco. He has been with us since June 2010. He graduated as a postgraduate from the Political Studies Institute, Social Science Faculty of Sichuan Province in 1989. He then later graduated from School of Economics, Sichuan University majoring in management, and obtained a Ph.D. degree in economics. He is a visiting scholar of Finance Department of New York University, and is a professor-grade senior engineer. Mr. Lv accumulated substantial practical experience in economics and enterprise management. He previously served as deputy director of Policy Reform Division, Policy Research Office of Sichuan Province, vice factory manager, deputy party secretary, factory manager and party secretary of Nanchong Gear Factory. He also served as deputy mayor of Nanchong People's Government, and a member of standing committee, deputy mayor and deputy party secretary of Luzhou's Municipal Party Committee. Mr. Lv is also a vice president of China Association of Work Safety. |
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Shi Chungui,aged 70, serves as a non-executive director on our Board and has been with us since 2005. He holds a bachelor's degree in accounting from Northeast University of Finance and Economics. Mr. Shi is a senior economist with extensive experience in finance, government and corproate management. Mr. Shi was previously the vice director of Commerce Bureau of Qinhuangdao City, Hebei Province, deputy mayor and the standing deputy mayor of Qinhuangdao City, Hebei Province, president of Hebei Branch of China Construction Bank, president of Beijing Branch of China Construction Bank, deputy president of the head office of China Construction Bank and deputy president of China Cinda Asset Management Corporation, vice chairman of Tianjin Pipe Co. , Ltd. and vice chairman of China Investment Society. Mr. Shi is currently an independent director of Intime Department Store (Group) Company Limited, China National Materials Company Limited and Cinda Securities Co., Ltd. |
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Independent Non-Executive Directors |
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Kang Yi,(retired), aged 70, served as an independent non-executive director on the Board since 2004 and the chairman of the remuneration committee of the Board until June 22, 2010. He is also the chairman of the China Non-ferrous Metals Industry Association. Mr. Kang holds a bachelor's degree from Central-South Institute of Mining and Metallurgy where he studied metallurgy of non-ferrous metals and is a professor-grade senior engineer. Mr. Kang previously served as the factory manager of Qingtongxia Aluminum Plant, head of the economic committee of Ningxia Hui Autonomous Region, deputy general manager of China Non-ferrous Metals Industry Corporation and deputy head of the State Non-ferrous Metals Industry Bureau. Mr Kang is a member of the National Committee of the Chinese People's Political Consultative Conference and the China Association for Science and Technology, the chairman of Non-ferrous Metals Society of China and an independent non-executive director of Jinduicheng Molybdenum Co., Ltd. and Baoji Titanium Industry Co., Ltd. Mr. Kang Yi did not offer himself for re-appointment upon expiry of his term of appointment on June 22, 2010 and retired from his position as independent non-executive director and a member of the remuneration committee of the Board of the Company. |
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Zhang Zhuoyuan,aged 77, has served as an independent non-executive director on the Board since 2007. Mr. Zhang graduated from the Faculty of Economics of Zhongnan University of Economics. Mr. Zhang previously served as the director, researcher and Ph.D tutor of the Institute of Finance, Trade and Economics of Chinese Academy of Social Sciences, chief editor of the Finance & Trade Economics, a director, researcher and Ph.D tutor at the Institute of Industrial Economics of Chinese Academy of Social Sciences and a director, researcher and Ph.D tutor of the Institute of Economics of the Chinese Academy of Social Sciences. He is chief editor of Economics Research Journal. Mr. Zhang is also a member of the ninth and tenth sessions of the National Committee of the Chinese People's Political Consultative, a consultant of each of China Price Association and the Chinese Society for Urban Studies and a director of Chinese Society for Cost Studies and Secretary-General of Foundation of Sun Ye Fang Economics and Science. Mr. Zhang is a member of the Chinese Academy of Social Sciences and a researcher at the Institute of Economics. |
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Wang Mengkui,aged 72, has served as an independent non-executive director on the Board since 2008. Mr. Wang graduated from the School of Economics, Peking University. He is an economist engaged in long-term analysis of economic theory and policy and is currently a professor and advisor of doctor candidates of Peking University. He has published many articles on economic theory and related topics. Mr. Wang previously served as a vice head and researcher of the economic team of the research office of the Secretariat of the Communist Party of China Central Committee, a member of the State Development and Planning Commission, executive vice director of economic research centre of the State Development and Planning Commission, the vice director and director of the research office of the State Council of China and the center director of the Development Research Center of the State Council of China. Mr. Wang also served as a member of the Tenth Standing Committee of National People's Congress and vice director of Financial and Economic Affairs Committee of National People's Congress. He is currently the chairman of the China Development Research Foundation and a committee member of the National Social Security Fund of the PRC. |
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Zhu Demiao,aged 46, has served as an independent non-executive director and Chairman of the audit committee of the Board since 2008. Mr. Zhu is currently the senior consultant of Oaktree Capital (Hong Kong) Ltd. Mr. Zhu holds a MBA degree from the University of Chicago Graduate School of Business, a master's degree in economics from the Research Institute for Fiscal Science at the Ministry of Finance of the PRC and a bachelor's degree in economics from Hebei Geological Institute. Mr. Zhu is one of the early Certified Public Accountants in the PRC. Mr. Zhu previously worked in the Ministry of Finance and in the investment analysis department of FMC Corporation. He also served as the head of China Business in the Equity Capital Market Department and Investment Bank Department of Credit Suisse First Boston, a managing director and member of the executive committee of the Asia-Pacific region of JP Morgan Chase & Co. and chairman of operating committee of the Greater China Region of JP Morgan Chase & Co. Mr. Zhu joined Oaktree Capital (Hong Kong) Ltd. in November 2005 and served as the managing director. He has been the senior consultant of Oaktree Captial (Hong Kong) Ltd. since August 2010. Mr. Zhu is currently an independent director of WSP Holding Limited. |
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Supervisors |
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Our supervisors are elected to represent our employees and shareholders and serve a term of three years or until the election of their respective successors, whichever is earlier. Our supervisors are Mr. Ao Hong, Mr. Yuan Li and Mr. Zhang Zhankui who were elected at the 2009 annual general meeting held on June 22, 2010 with a term of office expiring at the conclusion of the annual general meeting for the year 2012. |
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The table and discussion below set forth certain information concerning our supervisors. |
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Provision of Engineering, Construction and Supervisory Services Agreement with Chinalco |
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The Provision of Engineering, Construction and Supervisory Services Agreement dated November 5, 2001 has been extended to December 31, 2012. Pursuant to this agreement, Chinalco will provide certain engineering, construction and supervisory services to us at the state guidance price and, where there is no state guidance price, at market price. Such services are mainly provided by subsidiaries of Chinalco including China Aluminum International Engineering Corporation Limited. The annual cap for the continuing connected transactions under this agreement was set at RMB11,000 million for 2008 and RMB12,200 million for 2009. On November 13, 2009, our shareholders increased the annual caps of this agreement to RMB13,500.0 million (US$2,045.5 million), RMB14,900.0 million and RMB16,400.0 million for 2010, 2011 and 2012, respectively. |
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Comprehensive Social and Logistics Service Agreement with Chinalco |
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We have entered into a Comprehensive Social and Logistics Services Agreement with Chinalco to receive a broad range of social and logistics services including education and schooling, public transportation and property management. In 2009, our shareholders approved an increase in the annual cap for this agreement to reflect our growing demand for the social and logistics services provided under this agreement as our business expands and Chinalco's expected increase in costs associated with providing these services. |
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Mutual Supply Agreement with Chinalco |
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Chinalco provides ancillary production supplies and services which include, among other things, various raw materials required in alumina and primary aluminum production, transportation and loading services and production supporting service. To support its aluminum fabrication business, Chinalco purchases primary aluminum and other alumina products from us. Chinalco transferred to us (a) operating assets and businesses for the production of alumina, primary aluminum, scrap materials, coal and pitch, and (b) assets and businesses for the provision of ancillary production supplies and services which include, among other things, the supply of electricity, gas, heat and water, spare parts and the provision of repair and maintenance services. Such businesses and operating units continue to provide ancillary production supplies and services to Chinalco. |
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This Mutual Supply Agreement dated July 1, 2001 has been extended to December 31, 2012. For 2010, 2011 and 2012, the annual cap on sales by us to Chinalco is RMB9,500.0 million (US$1,439.4 million), RMB10,500.0 million and RMB11,500.0 million, respectively, and the annual cap on the purchases by us from Chinalco is RMB4,450.0 million (US$674.2 million), RMB4,900.0 million and RMB5,200.0 million, respectively. |
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Mineral Supply Agreement with Chinalco |
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Chinalco provides us bauxite and limestone from several mines that it operates. Chinalco also purchases bauxite and limestone from other mines that it jointly operates with third parties and re-sell such bauxite and limestone to us at cost. We entered into a Mineral Supply Agreement with Chinalco on November 5, 2001, which has been extended every three years since. |
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Land Use Rights Lease Agreement with Chinalco |
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On November 5, 2001, we entered into the Land Use Rights Leasing Agreement with Chinalco for the lease of 459 parcels of land covering an aggregate area of approximately 61.9 million square meters and spanning across eight provinces in the PRC. This agreement is for a term of 50 years expiring on June 30, 2051. The annual rent paid in 2010 to Chinalco was approximately RMB572 million (US$86.7 million). On February 25, 2008, Chinalco and we entered into a supplemental agreement, pursuant to which the total annual rental of the land use rights in connection with the leased properties was further increased from RMB620.0 million for 2008 to RMB1 billion for 2009. |
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The transactions under the supplemental agreement constitute continuing connected transactions under the Listing Rules. The revised annual rental of RMB1 billion is less than 2.5% of the applicable percentage ratio under the Listing Rules. The rental revision is required to be disclosed by way of announcement but is not required to be approved by our independent shareholders. |
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Building Lease Agreement with Chinalco |
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We entered into the Building Lease Agreement dated November 5, 2001 for a term of 20 years expiring June 30, 2020. At our special general meeting held on February 27, 2007, our shareholders approved to aggregate the rental payable to Chinalco under this agreement and apply for an aggregate annual cap of RMB100 million for 2007, 2008 and 2009. |
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Chinalco transferred to us, among other operating assets, ownership of the buildings and properties for the operation of our core businesses, and retained certain buildings and properties for its operations. Pursuant to this agreement, we leased to Chinalco and Chinalco leased to us a number of buildings and properties for ancillary uses, which include buildings and properties mainly for offices, dormitory, canteen and storage purposes. The buildings and properties we lease to Chinalco comprise 59 buildings with an aggregate gross floor area of 62,819 square meters. In turn, the buildings and properties Chinalco leases to us for ancillary uses comprise 100 buildings with an aggregate gross area of 273,637 square meters. |
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On March 28, 2005, we entered into a tenancy agreement with China Aluminum Development Company Limited, a wholly-owned subsidiary of Chinalco, in respect of the office premises at 12th to 16th floors and 18th to 31st floors of No. 62 North Xizhimen Street, Hai Dian District, Beijing, PRC with an aggregate gross floor area of 30,160.81 square meters for a term of three years. The annual rent amounts to RMB61.6 million, determined according to the prevailing market rate. On October 15, 2008, we renewed the tenancy agreement to extend it for another three years commencing on October 16, 2008. Under the renewed tenancy agreement the aggregated gross floor area we lease was increased to 30,187.9 square meters for an annual rent of RMB61.7 million payable each six months. In 2010, we paid RMB72 million under the renewed tenancy agreement. |
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Provision of Alumina and Aluminum Products Agreement between us and Guangxi Investment (including its subsidiaries and associates) |
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We sell alumina and aluminum ingots to Guangxi Investment, a promoter of us, and purchases alumina from an associate of Guangxi Investment, Guangxi Huayin. The annual cap for our sales of alumina and primary aluminum to the subsidiaries of Guangxi Investment in 2007, 2008 and 2009 was initially set at RMB450 million each year. As the sales by us to Guangxi Investment increased, the annual caps for each of 2008 and 2009 were revised to RMB1,490 million. The annual cap for purchases of alumina from an associate of Guangxi Investment was RMB815 million for 2008 and RMB1,770 million for 2009. |
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We entered into the Mutual Provision of Products Framework Agreement on October 20, 2008 with Guangxi Investment, which was effective from the execution date until December 31, 2009. This agreement was extended by three years until December 31, 2012. Pursuant to the agreement, we would continue to sell alumina and aluminum ingots to Guangxi Investment (including its subsidiaries and associates) and purchase alumina from Guangxi Investment (including its subsidiaries and associates). |
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Provision of Aluminum and Aluminum Alloy Ingots and Aluminum Fabrication Services Agreement between us and Xinan Aluminum |
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Xinan Aluminum (including its subsidiaries and associates) purchases products from us and provides products and services to us. Xinan Aluminum is our connected person by reason of it being a substantial shareholder of one of our subsidiaries, Chalco Southwest Aluminum. We entered into the Mutual Provision of Products and Services Framework Agreement on October 20, 2008 with Xinan Aluminum, which was effective until December 31, 2009. The annual cap for our sales to Xinan Aluminum for 2008 and 2009 was RMB9,000 million and RMB7,000 million, respectively, while our purchase from Xinan Aluminum was RMB4,600 million and RMB4,000 million, respectively. On December 30, 2009, our shareholders approved the extension of the term of this agreement to December 31, 2012 and set the annual cap on sales by us at RMB8,000.0 million (US$1,212.1 million), RMB8,500.0 million and RMB9,000.0 million, respectively, for 2010, 2011 and 2012 and the annual cap on the purchases by us at RMB4,200.0 million (US$636.4 million), RMB4,800.0 million and RMB5,200.0 million, respectively, for the same periods. |
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Agreement for Sale and Purchase of Aluminum Products between us and Guizhou Development |
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The continuing connected transactions between us and Guizhou Development, a promoter of us, include our sales of aluminum products to Guizhou Development. The annual caps for the sales between us and Guizhou Development was RMB400 million for 2008, RMB450 million for 2009 and RMB500 for 2010. |
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Mutual Provision of Products and Services between us and Nanping Aluminum |
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Nanping Aluminum (through its subsidiaries and associates) purchases alumina, primary aluminum and aluminum alloy ingots from us, and Chalco Ruimin purchases aluminum sheets and fabrication services from Nanping Aluminum. All the above transactions are conducted on normal commercial terms and at market prices. The annual cap for the our sales of alumina, primary aluminum and aluminum alloy ingots to Nanping Aluminum was RMB920 million for 2008 and RMB1,030 million for 2009. The annual cap for Chalco Ruimin's purchase of aluminum sheets and fabrication services from Nanping Aluminum was RMB400 million for 2008 and RMB450 million for 2009. Our agreement with Nanping Aluminum for the sales of alumina, primary aluminum and other aluminum products has an original term of five years, expiring on December 31, 2009. On December 30, 2009, our shareholders approved the extension of the term of this agreement to December 31, 2012 and set the annual cap on the our sales to Nanping Aluminum at RMB1,500 million (US$227.3 million), RMB1,800 million and RMB2,200 million, respectively, for 2010, 2011 and 2012. Currently, Nanping Aluminum is no longer our connected person upon dilution of its shareholding in the relevant subsidiary to below 10%. |
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Long-term Sale and Purchase Agreement for Alumina between us and Guan Lv |
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Guan Lv purchases alumina and aluminum alloy ingots from us pursuant to a long term supply agreement dated August 22, 2006, which was extended in 2009 to December 31, 2012 and certain spot contracts from time to time. All the foregoing sales are conducted on normal commercial terms and generally in cash with delivery against payment. The annual cap for such transactions was RMB210.0 million for 2008, RMB260.0 million for 2009 and RMB500 million for 2010 (US$75.8 million). As Guan Lv holds 49% of the equity interests in one of our subsidiaries, Shanxi Huasheng, Guan Lv is our connected person. |
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Joint venture agreement to establish Shanxi Jiexiu |
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On October 27, 2010, we entered into a joint venture contract together with Shanxi Aluminum Plant, Luxin Company as well as natural shareholders to establish Shanxi Jiexiu by way of capital contribution of approximately RMB537 million (US$81.4 million), upon which we hold 34% equity interest of Shanxi Jiexiu. As Shanxi Aluminum Plant is the subsidiary of Chinalco, our controlling shareholder, the joint establishment of Shanxi Jiexiu by us and Shanxi Aluminum Plant by the capital contribution constitutes a connected transaction. Shanxi Jiexiu will engage in the integration of coal resources in Shanxi Province by investing in and reorganizing five coal mining companies in the Jiexiu area, Shanxi Province, with total retained reserves of approximately 300 million tonnes. As of December 31, 2010, the transaction was in progress. |
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Disposal of equity interests in CICL |
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In compliance with the relevant laws and regulations on transfer of state-owned equity interests in the PRC, our subsidiary, CICL, listed the equity interests on China Beijing Equity Exchange on November 22, 2010 for open bidding by public bidders. Chinalco, being the only bidder for the equity interests, successfully bid the equity interests and on December 20, 2010, CIT, as vendor, entered into the Agreement with Chinalco for the disposal of equity interests in CICL, being all of CIT's interests in CICL, to Chinalco at a consideration of RMB156,986,000 (US$23,785,758). Upon completion of the agreement, we ceased to have any interest in CICL. |
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Framework agreement for aluminum products fabrication services with Chinalco |
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Shandong Aluminum, a wholly-owned subsidiary of Chinalco, has been providing aluminum products fabrication services to our Shandong branch of the Company since 2009. In addition, Qinghai Aluminum Co., Ltd., a wholly-owned subsidiary of Chinalco, has been providing aluminum products fabrication services to Chalco Ruimin since 2010. In 2009 and 2010, an aggregate of approximately RMB51 million and RMB138 million were paid by our relevant branch and subsidiary to the two relevant subsidiaries of Chinalco for the provision of aluminum products fabrication services respectively. To better regulate the aluminum products fabrication services to be provided by Chinalco, we and Chinalco executed a framework agreement for aluminum products fabrication services on February 28, 2011. This agreement is for a term of two years starting from January 1, 2011 to December 31, 2012. The annual caps for aluminum products fabrication services to be provided by the subsidiaries of Chinalco to our relevant branch and subsidiary are expected to be approximately RMB240 million(US$36.4 million) each year. |
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We provide the following additional information on material related party transactions during the periods indicated: |
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232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
) (the "Company") and its subsidiaries (together the "Group") are principally engaged in manufacture and distribution of alumina, primary aluminum and aluminum fabrication products. The Group is also engaged in the development of bauxite related resources, the production, fabrication and distribution of bauxite, carbon and relevant non-ferrous metal products and trading of non-ferrous metal products.
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), the Company's immediate and ultimate holding company, and China Nonferrous Metals Processing Technology Co., Ltd. ("China Nonferrous") (
) (an entity controlled by Chinalco) for total cash consideration of RMB4,175 million. On October 1, 2008, the Company also acquired the aluminum alloy business from Pingguo Aluminum Company (an entity controlled by Chinalco) ("Aluminum alloy business of Pingguo Aluminum") for cash consideration of RMB96 million. Pursuant to the relevant acquisition agreements, the original shareholders of these companies/business are entitled to any profit or loss generated by the entities acquired between the agreed-upon valuation dates and respective effective acquisition dates. In this connection, the Company had received RMB27 million from Pingguo Aluminum Company for the acquisition of the Aluminum alloy business of Pingguo Aluminum in 2008, and has to pay Chinalco and China Nonferrous a total of RMB6 million for the acquisition of the six companies below. As of December 31, 2010, the amount payable to Chinalco and China Nonferrous remained outstanding. All these entities are incorporated and operated in the PRC and their details are as follows:
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). Pursuant to the agreement, Duofuduo Chemical injected cash of RMB37 million into Fushun Fluoride Co., Ltd. ("Fushun Fluoride") (
) for 55% equity interest in Fushun Fluoride. Thereafter, the Company's equity interest in Fushun Fluoride decreased from 100% to 45% and the Company ceased to have control from June 30, 2010 onwards. At the same time, Fushun Fluoride changed its name to Duofuduo (Fushun) Technology Development Co., Ltd. (
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