Zijin Mining's shares drop on tax hike report

Zijin Mining Group Co Ltd said on Thursday that its tax rate will rise 10 percent this year after the government canceled its status as a high-tech company, following a severe pollution incident last year.

In a statement to the Shanghai Stock Exchange, the country's leading gold and copper producer said its tax rate has increased from 15 percent to 25 percent, the standard level of corporate income tax in China.

Zijin's A shares in Shanghai fell 3.05 percent to 7.63 yuan ($1.16) on Thursday, after the announcement.

The tax hike, which took effect on July 3, had already been taken into account in the company's results briefing in January and won't have a "substantial impact" on its results for 2010, the statement said.

The Shanghai and Hong Kong-listed Zijin's profit rose 30 to 40 percent year-on-year, or 4.6 to 5 billion yuan, in 2010, after prices of its main products were raised and on higher production of copper and zinc, the company said in a filing in January.

"We're placing our emphasis on corporate reconstruction and re-establishing our image to counter the effect of the tax hike," said Zheng Yuqiang, board secretary of the Fujian-base company.

Zheng declined to comment on what specific effect the tax rise will have on performance and the stock price this year, but he said he was not "surprised" by the cancellation, given the severity of the accident last year.

In a pollution accident in July, acid waste escaped from Zijin's copper plant in Fujian into a nearby river. The accident killed 28 people and caused about 32 million yuan in economic losses.

An analyst with Northeast Securities, who declined to be named because the issue is "sensitive", said the effect of the tax increase had already been fully digested by the stock market on Thursday and won't further drag down Zijin's share price.

"Ten percent of the profit will be erased by the tax hike. But the impact stops there - the news won't affect the company's overall business this year," said the analyst.

However, Deng Xinrong, a nonferrous-metal-industry analyst with Founder Securities, said Zijin's business will not grow as quickly this year because the price of its main products, gold and copper, won't repeat the rally they had last year.

He expects gold to fluctuate between $1,300 and $1,500 an ounce as the economic rebound in the United States and other developed economies pares demand, and said that copper will sell at a high of between $9,000 and $11,000 a ton, because of ample domestic stocks.(Chin Org.cn)