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Announcement of Interim Results
for the Six Months Ended 30 June 2006
CITIC Pacific Limited (Incorporated in Hong Kong with limited liability)
(Stock Code: 267)
Chairman’s Letter to Shareholders
CITIC Pacific’s net profit for the first six months of 2006 was HK$3,440
million, a 24% increase compared with the same period last year. The
contribution from our special steel manufacturing business rose 28%
compared with the same period a year ago due to continued strong demand
for our products and the addition of Daye Special Steel. On the property
front, sales and rentals increased the contribution from this business by
120%. In light of the satisfactory performance and the Group’s strong cash
position, the board has recommended paying a special dividend of HK$0.30
per share in addition to an interim dividend of HK$0.30 per share.
Much has been achieved in the first six months of 2006 in better positioning
the Group for the future. As we increase our investments in mainland China,
we are at the same time focusing on the core businesses we manage,
divesting those that we do not, as well as those that do not provide
satisfactory returns.
Special Steel Manufacturing
Driven by strong demand for our products from key industries such as auto,
industrial machinery manufacturing, power generation and oil industries
among others which are experiencing tremendous growth, our special steel
business grew substantially in the first half of 2006 over the same period last
year. The addition of Daye Special Steel is another factor. The price of our
products also rebounded from the end of 2005 due to the increase in steel
consumption in mainland China and the export market as well as our effort
to produce a greater proportion of higher quality products. This not only
mitigated the rise in the cost of raw materials in particular iron ore, but also
led to increased profit margin.
The acquisition of Shijiazhuang Steel Mill is nearing completion. Steel
making of the new production line in Jiangyin in cooperation with
Sumitomo Metals is operating and is profitable. CITIC Pacific Special Steel,
which brings Jiangyin Xingcheng Special Steel, Xin Yegang, Daye Special Steel
and Shijiazhuang Steel Mill under one management, will surely reinforce our
leadership in the manufacturing of special steel in China.
Iron Ore Mining
To provide mainland China in general and our special steel business in
particular with a secure, stable and long-term supply of essential raw
material, in March this year, CITIC Pacific acquired the mining rights to one
billion tonnes of magnetite ore with options to another five billion tonnes in
the Pilbara region of Western Australia. The development of the first one
billion tonnes of ore reserve, capable of producing up to twelve million
tonnes of product a year, received Australian government approval in July.
Work on this is progressing well. The second one billion tonnes of reserve is
now in the final testing and confirmation stage.
CP Mining Management Pty Ltd. has been incorporated in Australia to
manage and coordinate the construction and operation of the project. Key
personnel, including chief executive officer, financial controller and project
director with extensive knowledge and experience in the mining industry
have been recruited. They are working closely with consultants and main
contractors on various aspects of the project including geological survey,
planning for mining, beneficiation plant, pellet plant, desalination plant,
power plant, transportation, port and other related works. A detailed
development proposal will be presented at the end of August. CITIC Pacific’s
shareholding in the entire project is 50% and the other 50% will be held by
other Chinese government designated steel groups to jointly develop the
project. CITIC Pacific will assume a leading role in the management of the
project.