When investing in China, one only needs to understand a few key elements to succeed. The primary element is business fundamentals; the next is the use of political party power. Put the two together and an investor will soon understand that the entire concept of the Chinese transformation to a semi-capitalistic system rests in the retention of power. Those that had it in the past do not want to lose it and position themselves to retain it. To this end, an investor in China should look at a company’s fundamentals first and then move onto who is in charge or who knows who in the overall Chinese political/business model planning structure. If both fall into line, profit and stability will most likely reign.
Terra Nostra Resources Corp., a copper and stainless steel manufacturer, works to vertically produce stainless steel, copper billet and downstream products. The company operates as the nation’s second largest stainless steel manufacturer and is one of the top 10 copper manufacturers in China.
As of the second quarter 2008, the company controls 51% or more interest in its two subsidiaries. Near term future plans include increasing ownership to near 80%. The company’s stainless steel plant, Quanxin Stainless Steel, consists of three arc furnaces capable of producing 230,000 metric tons (MT) of stainless steel. All products meet series 200,300, and 400 specifications. The company’s copper subsidiary, Jinpeng Copper, produces copper billets and value-added copper rods, wire and low-oxygen rods. Jinpeng Copper uses a combination of scrap and raw material copper to meet its 170 MT of electrolytic copper capacity.
Although it is unlikely that the company would turn down export sales opportunities, it is primarily engaged in the domestic market. In this regard, it sees significant copper opportunities as urbanization continues to advance at a rate close to unmanageable. To this end, the company is aggressively working to serve downstream value-added product opportunities directed at infrastructure and building markets.
Currently, the company’s product mix is more oriented toward producing billet products but is quickly expanding as the company advances its aggressive and forward-thinking business plan. Although copper production may seem to be more suited in this use, the company’s 150 MT hot-roll narrow strip stainless steel line is working at a solid pace to fill factory orders throughout China. Some capacity, however, has been reassigned to serve the custom stainless steel marketplace.
Many investors are relatively circumspect about making investments in Chinese companies, owing to a particular lack of understanding about how the country plans to integrate a capitalistic system into a domestic economy based on an entirely different system. These investors would be somewhat correct in their wariness. Where Terra Nostra in concerned, however, there should be little if any concern. This is because the chairman of the board – Mr. Sun Liu James Po – is a person with very high ranking authority within the economic/political integration decision making structure of the government. In a general sense, the company has a leader in a very high position of authority and is predisposed to be able to move the company forward in a very positive and profitable way.
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