LS Group may raise stake in LS-Nikko Copper to 90%

South Korea's LS Group is considering buying an additional stake in LS-Nikko Copper Inc. to boost its stake in the world’s second-largest electrolytic copper maker to nearly 90%, according to people with knowledge of the matter on Thursday.

LS-Nikko Copper is a joint venture between LS Group and JX Nippon Mining & Metals. The Korean components-to-machinery group controls 50.1% of the JV, with the remaining 49.9% stake owned by JX Nippon. 

LS Group is looking to purchase an additional 37.4% stake in the JV through two Korean private equity firms for around 600 billion won ($490 million). Once the purchase is completed, LS Group's ownership will increase to 87.5% in the copper smelter.

A consortium of JKL Partners Inc. and VL Investment Co. is closing in on a deal to buy out the Japanese company's stake in LS-Nikko for around 800 billion won.

JX Nippon was trying to sell off its stake in LS-Nikko as part of its business portfolio readjustment focused on selling minority stakes in JVs with foreign partners. The copper smelter suffered from falling copper refining margins as competition heated up with Chinese producers. 

When the Japanese partner first sounded out LS Group about the stake sale, the country's 14th-largest conglomerate was hesitant about increasing its ownership, so the two Seoul-based PE firms stepped in to buy the shares.

But now that raw material prices have skyrocketed in the wake of the Russia-Ukraine war, LS Group decided to build up its stake in the venture, which enjoyed a 50% jump in operating profit last year thanks to the soaring price of copper.

On the London Metal Exchange, copper was traded at $10,352 per ton on April 8, an 18% on-year increase, according to the Korea Mine Rehabilitation and Mineral Resources Corp.

LS-Nikko produces electrolytic copper and precious metals, counting its affiliate LS Cable & System Ltd. as a major customer. Electrolytic copper is mostly used in making copper wires. 

Brisk facility investment around the globe pushed the copper price higher, on the back of massive stimulus packages unveiled by the US and China.

Reduced supply was also behind the price increase, after European smelters lowered their operating ratios due to rising electricity prices following Mosow's invasion of Ukraine.

Amid supply chain disruptions, exercising greater control over the copper smelter will likely cut raw material costs for LS Cable, the country's top wire and cable producer.

Further, LS Group may replace some of the incumbent four Japanese executive directors out of nine in-house board members at LS-Nikko with those supportive of the Korean conglomerate.

Increased ownership in the copper smelter would also boost the value of LS Corp., the group's holding company, which will likely go public in the coming years.

Operating profit at LS-Nikko soared 55% on-year to 354 billion won in 2021, with sales up 20% to 10 trillion won over the same period.

Write to Shin-Young Park and Chae-Yeon Kim at nyusos@hankyung.com
Yeonhee Kim edited this article.