Those Years When I Was Forced to Top the Forbes List

Chapter 354 Panzhihua Iron and Steel Group, Rare Earth (Part 2)
"Mr. Chen, you must be joking. The China Iron and Steel Association just held a meeting recently, asking domestic steel companies to cooperate with the overall negotiation strategy to bring down international iron ore prices, keep the increase within 3%, or even lower prices. Our four major state-owned steel mills, including Shougang and Baogang, have all agreed that iron ore prices this year are unlikely to rise significantly."

Yu Zisu knew that iron ore prices were going to rise because China imported only 7000 million tons of iron ore in 2000, but by 2005 it had risen to 2.75 million tons, with imports increasing year by year.

Demand in a major country has tripled, so a price increase is normal; international iron ore prices have more than doubled in the past few years.

However, this year, the China Iron and Steel Association could no longer tolerate it and took the lead in suppressing prices. Some international mines also expressed their willingness to compromise. Everyone believed that prices could not rise further, and at most, there would only be a slight increase.

Chen Xuebing could only respond with a slight smile.

"Do we really have that kind of influence to just say costs will drop? Haven't international manufacturers always been ripping us off? When have they ever been a good guy?"

Yu Zisu suddenly turned his head and noticed a hint of a smirk on Chen Xuebing's lips, which suddenly brought him back to his senses.

He was still reminiscing about the united front he felt when the China Iron and Steel Association held its industry meeting, and he felt that the trend of iron ore price reductions was inevitable.

Thinking about it now
Yes.

What we lack, wasn't it bought at a high price?

"Mr. Chen, have you heard some news?"

Chen Xuebing's background is too mysterious.

Hanlong retreated at the first sign of trouble, made profits in the stock market, and was even able to lead the organization of a mega-project like the Chengdu-Chongqing transportation project.

He completely believed that Chen Xuebing had some inside story.

Chen Xuebing didn't explain anything, but instead asked Ren Ying, who was in the passenger seat, for a copy of the contract that Jiafeng Industry had just signed and handed it to Yu Zisu.

"Look, Jiafeng should be coming to place an order with you soon."

Yu Zisu took it, carefully flipped through a few pages, and quickly figured out the clue.

"Locking in price?"

"Well, I can't reveal too much about the details, but as long as you listen to me, achieving a profit of 30 billion this year shouldn't be a problem."

Chen Xuebing casually mentioned the figure of 30 billion, which shocked Yu Zisu.

"President Chen is really something." Yu Zisu smiled bitterly: "I know you have a lot of tricks up your sleeve, but state-owned factories are not as flexible as your private enterprises."

Chen Xuebing smiled easily: "Yes, I've considered that, which is why I said 3 billion. If Panzhihua Iron and Steel Group were my factory, that would be 10 billion."

Yu Zisu had nothing to say.

Three billion is the sum of their profits and revenue over the past four years.

The reason why state-owned steel plants are so large is because they are a necessary support that the state has to invest in. Although the steel industry has low profits, it is a strategic industry, and its existence supports the rapid development of almost all industries.

Chen Xuebing didn't want to explain in detail why steel prices rose this year, as it was due to a combination of factors, including rising iron ore prices, international freight rates, and a significant increase in domestic demand. If he were to explain it in detail, there would be too many things to reveal.

Sometimes being a little mysterious isn't a bad thing.

He thought for a moment, then said slowly, “The 3 billion I mentioned is just the profit from operations. You just need to secure the iron ore you need for the whole year through international negotiations in the first and second quarters. And you should delay the payment as much as possible, because the RMB exchange rate is rising. The momentum of the exchange rate reform in 2005 should not stop this year. According to the trend, the RMB arbitrage spread for the whole year will be at least 5 points. This is what I mean by the first and second opportunities.”

"And the profits outside of operations are your stock price."

At this moment, Yu Zisu wanted to say something, but Chen Xuebing waved his hand to interrupt him.

“I know that central state-owned enterprises insist on being bound by the policies of the State-owned Assets Supervision and Administration Commission (SASAC) and must meet the requirements for market value management. However, this year’s stock market has been too crazy, which will lead to a significant increase in valuations. This is a good opportunity for Panzhihua Iron & Steel. You currently hold 65% of the shares of the main listed company, Panzhihua Iron & Steel Vanadium, which far exceeds the mandatory requirement of 51% state-owned ownership. You can apply to the SASAC to sell a portion of the shares when the stock price is too high in order to maintain the market value within the normal range. Changzheng can act as your advisor to ensure that you can obtain sufficient profits from the sale of shares in the secondary market and stabilize the stock price without causing large fluctuations.”

"You should apply to the State-owned Assets Supervision and Administration Commission as soon as possible, otherwise when the stock market boom comes, your application won't be able to get in line."

"The funds generated from these two types of profits can ensure that you can smoothly complete the full merger of Panzhihua Iron & Steel Titanium Industry and Great Wall Shares in the next step, and complete new investments to achieve a new business shift."

Yu Zisu was somewhat tempted: "Mr. Chen, actually, when we merge with the other two listed companies, all we need is someone to guarantee our 'cash option,' and we're thinking of asking Baosteel."

Pangang Group has more than 51% control over the two acquired listed companies, Pangang Titanium Industry and Great Wall Shares. However, there are still many small shareholders in the market. The goal is to get them to transfer their shares to Pangang Steel & Vanadium, the listed entity of Pangang Group, so that the three listed companies can be completely merged into one.

The cash option is a provision that allows minority shareholders who do not wish to exchange their shares for Panzhihua Iron & Steel Vanadium, believing it would devalue their stock, to have a guarantor provide a guarantee for a specific time and a fair price. If, at the agreed time, the merger causes the value of the shares to be exchanged to drop, then the shares will be sold to me at the promised price.

This will complete the conversion of all shares.

The guarantor will inevitably bear the risk. If the price of Pangang Steel & Vanadium falls when the time comes, those shareholders who have converted their shares will definitely have to pass the steel and vanadium stock to the guarantor to take over.

Fortunately, Panzhihua Iron and Steel Group is under the State-owned Assets Supervision and Administration Commission (SASAC), which can issue orders or negotiate with other central enterprises to provide guarantees.

Of course, if a guarantee is needed, it can only be provided by a steel company with which the business is familiar.

Choose one of three.

Pangang's idea was naturally to have Baosteel, the most powerful and established company, take the lead.

This is also a strategy.

If the four steel companies were to be merged into two, Baosteel would definitely be the least interested in Panzhihua Iron and Steel Group, the fourth largest, and merging with the second and third largest would certainly be more cost-effective.

The merger of central state-owned enterprises is free; it's called a free transfer. How could Baosteel possibly pay for Panzhihua Iron and Steel Group while swallowing up the smallest one?

Panzhihua Iron and Steel Group sought help from Baosteel to temporarily form a partnership. Baosteel had no designs on them, making it the safest option.

On the contrary, it would be dangerous to look for Ansteel and Wuhan Iron and Steel.

The second and third largest companies are of similar strength, so they definitely want to merge with the fourth largest company, Panzhihua Iron and Steel Group, which is obviously second in strength, to ensure their own control.

If they were to act as guarantors and obtain a certain number of shares in the main listed company of Panzhihua Iron and Steel Group, they would take the opportunity to go further and directly swallow up Panzhihua Iron and Steel Group.

However, reality often goes against expectations. In the previous life, Baosteel was unwilling to provide a guarantee, so in the end, it was Ansteel that stepped in, and it was Ansteel that swallowed up Panzhihua Iron and Steel Group, and then Baosteel and Wuliangye merged.

"It's better to keep the initiative in your own hands. Wouldn't it be better to buy the circulating shares of Panzhihua Iron & Steel Titanium Industry and Great Wall Shares to complete the merger yourself? Why do you have to ask others for help? Mr. Yu, have you considered what would happen if Baosteel didn't agree to help once the three-in-one plan was submitted, and the State-owned Assets Supervision and Administration Commission insisted on having Wuhan Iron & Steel or Ansteel take over? Even if you complete the three-in-one merger, it will be too late."

Chen Xuebing was not exaggerating, and Yu Zisu also sighed.

It's only because there's no way to turn things around that we have to take a gamble.

"Mr. Yu, I'd like to ask, what is your planned timeframe for completing the three-in-one project?"

"By the end of this year."

As soon as Yu Zisu uttered those words, Chen Xuebing sneered again:
"A dead end."

Yu Zisu's expression changed.

"You don't understand the stock market at all, making wild judgments," Chen Xuebing said bluntly. "Stock market sentiment is currently at its peak. If it's not at its peak by the end of the year, it will be in the ebb tide after the peak. If you want to buy back the shares of two listed companies at this time, the cost will be staggering. If the stock market enters a downturn after you take full control, it will be a devastating blow to you." Yu Zisu asked uncertainly, "Mr. Chen, are you so sure it will fall? What if it rises?"

Chen Xuebing glanced at him with a half-smile: "If, Mr. Yu, the stock market has surged from 998 points to nearly 3000 points today, let alone rising any further, even if it were to fall from today's level, it would be an avalanche. If I were you, I wouldn't say 'if.' This three-in-one plan must wait until the stock market reaches an absolute trough before it can be completed."

Yu Zisu's expression darkened considerably.

It's uncertain whether Panzhihua Iron and Steel Group can wait this long.

At this moment, Chen Xuebing suddenly said enticingly, "If you let our Gu'an Group act as the restructuring consultant and participate in your market-oriented decisions, I can guarantee that Panzhihua Iron & Steel will undergo a major transformation within two years and surpass Wuhan Iron & Steel in one fell swoop."

Yu Zisu frowned immediately, staring at Chen Xuebing in disbelief: "President Chen, we are a central state-owned enterprise, how could we possibly let you participate in market-oriented decisions?"

As he pondered further, even more questions arose: "What are you after?"

Pangang Group doesn't make money, and in the eyes of a big businessman like Chen Xuebing who makes a fortune every day, it might even be a burden.

Several large steel companies are merging with each other in order to gain more support from higher levels and also to address issues of hierarchy.

"Of course I have demands. After Panzhihua Iron and Steel Group's profits reach 3 billion, you must acquire one of my special steel plants at market price, worth about 700 to 800 million. In addition, I want to become a strategic shareholder of Panzhihua Iron and Steel Group. Panzhihua Iron and Steel Group will support my real estate development in the future."

Chen Xuebing slowly presented his idea.

This idea gradually emerged during this period.

The acquisition of Chongqing Chunying Special Steel is under negotiation. It will cost about 80 million yuan to buy the residual value from the original shareholders, and tens of millions more to get the steel mill fully operational.

During the negotiations, he also studied some information about steel.

It gradually became clear that it was extremely difficult for a small steel mill to survive.

They have almost no advantage in competing with those large steel mills. Even if they want to grow stronger through acquisitions and mergers, they cannot have the advantage of state-owned enterprise orders.

Should we get a steel mill?

want.

But Chunying was too young.

They don't even have the qualifications to import iron ore, let alone order quotas, so they can only buy it from large manufacturers.

If a giant like Panzhihua Iron & Steel Group (Pangang) were to form a strategic partnership, Gu'an could not only integrate steel procurement costs but also expand its brand influence and gain market trust through the endorsement of the steel company's brand.

Moreover, Chunying originally owed them 2.2 million yuan, but now that she has obtained a bank loan, she has a chance to get out of trouble. After the integration and rescue, she can first make a profit from steel prices. If someone else takes over later, Gu'an can make several hundred million yuan.

Chen Xuebing's purpose was certainly not limited to that. Seeing Yu Zisu's hesitant expression, he explained the situation to President Yu step by step:
“We naturally have no right to interfere with state-owned enterprises. However, the state-owned enterprise is Panzhihua Iron & Steel Group, not Panzhihua Iron & Steel Vanadium. Panzhihua Iron & Steel Vanadium is just a subsidiary and has long been a listed company. It is a mixed-ownership enterprise. We have experience in dealing with such enterprises and we also have precedents in negotiations. As long as you are willing, we can work together to negotiate with the State-owned Assets Supervision and Administration Commission. I can use my successful cases to negotiate and at the same time buy you time for transformation. I can even take a stake in Panzhihua Iron & Steel Vanadium in the future. With the backing of a state-owned enterprise, market-oriented decision-making, and a promising new development direction, Panzhihua Iron & Steel Group has a real chance to become a giant steel enterprise that can compete with Baosteel.”

"Of course, if I'm to invest in Steel & Vanadium and help it, it has to go through a strategic transformation according to my ideas."

Chen Xuebing mentioned strategic transformation again.

Yu Zisu began to get curious: "President Chen, what exactly is the direction you mean by strategic transformation?"

"Rare earth elements," Chen Xuebing said simply.

"Rare earth elements?" Yu Zisu immediately shook his head: "We used to sell quite a lot of rare earth elements, but now... we don't even have mining permits!"

Rare earth elements are associated resources with iron ore.

As a collective term for 17 kinds of metal resources, its unique optical, electrical and magnetic properties have earned it the reputation of "industrial vitamins".

Neodymium (Nd) in light rare earth elements can be used to make generators and permanent magnet materials.

Lanthanum (La) and cerium (Ce) are used in automotive exhaust purification catalysts, which can reduce pollutant emissions by more than 90%; cerium is also used in mobile phone screen polishing agents.

Praseodymium (Pr) is used as a glass colorant.

Samarium (Sm) is used in nuclear reactor control materials.

Heavy rare earth elements are even more precious.

The addition of dysprosium (Dy) and terbium (Tb) can significantly improve high-temperature resistance.

Yttrium (Y) is used in high-temperature superconducting materials and laser technology;
Erbium (Er) and thulium (Tm) are key materials for optical fiber communication and lasers.

These things are like having superpowers, and each of them has different superpowers. They are key materials for fighter jets, radars, and even aircraft carriers.

However, for high-precision applications, ordinary purity is not enough; purification must reach at least 99.99% or higher.

Decades ago, although my country had a large reserve of rare earth oxides, it lacked purification technology. Western purification technology only reached 30%, and the process was extremely long, taking several months, and it remained at the laboratory purification stage.

Back then, if you needed rare earth elements, you had to take a large amount of materials abroad for purification and buy them back at a price a hundred times higher.

The turning point came in the 70s.

Xu Guangxian, who originally worked on nuclear fuel, led his team to join Baogang Group and developed the "reflux cascade extraction process," which achieved industrial-grade purification in one step and broke the Western monopoly.

Today, China accounts for more than 60% of the world's rare earth patents.

Moreover, because China has a large amount of rare earth resources, the indiscriminate mining during the past two decades and the large-scale cheap exports have caused the price of rare earths worldwide to collapse, making it impossible for Western rare earth companies to survive and slowing down technological progress.

Processing technology is becoming increasingly concentrated in China.

The chaotic and unregulated mining of rare earths continued until 2005.

Academician Xu Guangxian, along with a group of experts, submitted a proposal to the CPPCC: Rare earth is a strategic resource, and we must not repeat the mistakes made with soybeans!

By 06, rare earths were designated as a protected mineral, subject to total mining control, with mining quotas and export qualifications ending up in the hands of a few companies.

It should be no problem for Panzhihua Iron and Steel Group to obtain export qualifications, but mining permits are almost impossible to obtain.

But Chen Xuebing was not troubled by this problem.

He smiled slightly: "Does one need a mining license to process rare earths? Not necessarily. Australia, Russia, Brazil, Myanmar, and Vietnam all have rare earth mines, and many of them contain precious medium and heavy rare earth elements."

After saying that, he looked at Yu Zisu, his smile carrying a deeper meaning.

Rare earth resources in China are important strategic reserves, so they cannot be mined at will. However, they can be mined abroad.

The idea for rare earth elements came from a previous incident that inspired him.

Liu Han, Australia, molybdenum mine!
(End of this chapter)