Workers smelt ore to extract copper at LS-Nikko Copper's furnace in Ulsan in this 2015 file photo. Yonhap

LS-Nikko Copper CEO Doh Suk-goo

Analysts expect smelting company to go public in long run

By Park Jae-hyuk

LS Group is expected to end its 23-year partnership with JX Nippon Mining & Metals in the near future, because the Japanese special steel producer is seeking to sell its stake in LS-Nikko Copper, a joint venture operated with the Korean conglomerate, according LS, Monday.

"Japan Korea Joint Smelting (JKJS) is considering selling its 49.9-percent stake in LS-Nikko Copper to private equity firms (PEFs), although it is yet to be certain whether the deal will be successful," an LS Corp. spokesman said. "We have been aware of the fact that our Japanese partner has pushed ahead with the sale, but we do not know the details of the confidential deal."

LS Corp., the group's holding firm, owns a 50.1-percent stake in the copper smelting company, while the remaining 49.9 percent is held by JKJS, comprised of three Japanese firms. JX holds an 80-percent stake in JKJS, while Mitsui Mining & Smelting and Marubeni each hold a 10-percent stake.

According to industry officials, JKJS is in talks with a consortium of JKL Partners and VL Investment to sell its stake for about 800 billion won ($670 million).

JX had been seeking to exit from the copper smelting business since last year to focus more on metals, recycling and advanced materials. Last April, it sold its entire stake in PT Smelting, a joint venture in Indonesia.

Once the Japanese shareholders finish selling their stake, LS-Nikko Copper is expected to change its name.

The company was founded in 1999 as LG-Nikko Copper, after LG Group secured an investment from JX for the group to expand its presence in the copper smelting market. When LS Group was spun off from LG Group in 2005, its name was changed into LS-Nikko Copper.

"Despite the investment from the Japanese shareholders, we have been fully responsible for managing LS-Nikko Copper, so our partner's sale of its stake will have a limited impact," the LS Corp. spokesman said.

There is speculation that LS-Nikko Copper will seek to go public in the long run, although LS Corp. said it is too early to talk about an initial public offering (IPO).

"The Japanese shareholders must have remained reluctant to invest more for the growth of LS-Nikko Copper, because they have already enjoyed handsome dividends from the profitable company. In contrast, the PEFs will urge LS Corp. to foster LS-Nikko Copper over the next three to five years, in order to raise the valuation of their shares," a domestic securities analyst said. "At the moment of maximizing their share value, the PEFs will have no choice but to pursue an IPO for their exit."

The analyst expected LS Corp. to remain skeptical about acquiring the remaining 49.9-percent stake in LS-Nikko Copper.

"If LS Corp. had planned to own the entire stake in LS-Nikko Copper, it would have bought the Japanese partner's stake earlier," he said. "LS Corp. must prefer investing for the growth of LS-Nikko Copper to acquiring an additional stake in the company."