Securities code: 000878 securities abbreviation: Yunnan Copper Co.Ltd(000878) Announcement No.: 2022-014 bond Code: 149134 bond abbreviation: 20 Yuntong 01
Announcement on carrying out commodity derivatives trading business
The company and all members of the board of directors guarantee that the information disclosed is true, accurate and complete without false records, misleading statements or major omissions.
Important content tips:
1. Yunnan Copper Co.Ltd(000878) (hereinafter referred to as Yunnan Copper Co.Ltd(000878) or the company) and its holding subsidiaries will carry out hedging business corresponding to the main products of copper, gold and silver.
2. The maximum margin provided by the company for hedging business at any time point shall not exceed 2.4 billion yuan.
3. The company’s commodity derivatives business can partially avoid the impact of spot price fluctuations on the company’s production and operation, which is conducive to the company’s stable operation, but there may also be market risk, capital risk, policy risk and transaction risk. The company will actively implement risk control measures to prevent relevant risks.
1、 Overview of commodity derivatives business
(I) necessity of developing commodity derivatives business
As commodity prices are greatly affected by macro situation, monetary policy, industrial supply and demand and other factors. The sharp fluctuation of commodity market price has a great impact on the profits and losses of the company’s own minerals, raw materials, main products and metal trade. In order to realize the company’s stable operation policy and achieve the company’s annual business objectives, the company needs to hedge the risks caused by market price fluctuations by carrying out hedging business.
The company conducts commodity derivatives business and conducts corresponding accounting and disclosure of commodity derivatives business in accordance with accounting standards for Business Enterprises No. 22 – recognition and measurement of financial instruments, accounting standards for Business Enterprises No. 37 – presentation of financial instruments and accounting standards for Business Enterprises No. 24 – hedge accounting.
(II) investment amount of commodity derivatives business
The company can afford to use its own legal funds to provide hedging business. The maximum amount of margin at any time point shall not exceed 2.4 billion, which can be recycled within the hedging period.
(III) development mode of commodity derivatives business
1. Hedging varieties: copper, gold, silver, etc.
2. Hedging Market: Shanghai Futures Exchange, Shanghai International Energy Trading Center, Shanghai gold exchange, London Metal Exchange (LME), London Bullion Market Association (LBMA).
3. Hedged quantity: the hedged quantity shall not exceed 90% of the company’s self-produced, purchased and sold physical quantity.
4. Hedging instruments: futures, options, etc
5. Contract term: no more than 12 months.
6. Liquidity arrangement and clearing and settlement principle: it is mainly to make capital preparation according to the maturity date corresponding to the establishment of position, and conduct purchase or sale liquidation according to the corresponding settlement price of futures exchange.
7. Payment method and liability for breach of contract: in case of breach of contract or transaction loss, it shall be settled by cash remittance on the due date.
8. Performance guarantee: guarantee in the form of futures trading margin.
(IV) investment period
From 2022 to the date when the company completes the review of commodity derivatives business in the next year and issues the announcement.
(V) source of funds
The company will use its own legal funds for futures hedging business.
2、 Review procedure
On February 21, 2022, the 30th meeting of the 8th board of directors and the 27th meeting of the 8th board of supervisors of the company deliberated and adopted the plan on Yunnan Copper Co.Ltd(000878) carrying out commodity derivatives trading business.
The plan needs to be submitted to the general meeting of shareholders of the company for deliberation.
The plan does not involve related party transactions and does not need to perform the decision-making procedures of related party transactions. 3、 Risk analysis and risk control measures for commodity derivatives business
(I) preparation for commodity derivatives business
1. The company has formulated the Yunnan Copper Co.Ltd(000878) commodity futures hedging management measures, and the hedging work is strictly implemented in accordance with the system.
2. The company establishes a futures business leading group to be responsible for making decisions on major matters of the company’s hedging business; Examination and approval of important futures hedging schemes; Review of annual hedging plan.
3. Commodity derivatives traders and fund allocators are authorized by the company’s legal person. 4. The company’s futures trading, risk control and other relevant personnel have passed the futures practice qualification examination.
(II) risk analysis of commodity derivatives business
1. Market risk
The price fluctuates above the average level in previous years. The spot market direction is opposite to the hedging direction. If the spot profit is large, the hedging loss will be large. The company can only lock in the processing profit without market excess return. At the same time, there is a price difference between spot and futures contracts, there is a monthly difference between futures in different months, and there are two market differences in domestic and foreign futures markets. Hedging cannot achieve 100% risk control.
2. Capital risk
Due to the large short-term fluctuation range of market price and the centralized pricing of raw materials or spot, the short-term hedging quantity position is large, the capital demand is large, the short-term capital is insufficient, and the position is forcibly closed, resulting in actual losses.
3. Policy risks
Relevant regulations and policies of foreign regulators affecting hedging business shall be revised.
4. Transaction risk
Risks caused by operating equipment failure; The risk of interruption of trading network; The risk of insufficient liquidity in futures trading months; The risk of futures being unable to trade when trading is suspended.
(III) risk control measures
1. Carry out hedging business in strict accordance with the measures for the administration of Yunnan Copper Co.Ltd(000878) commodity futures hedging. Improve and formulate the detailed rules for the implementation of futures and option hedging operations. Reasonably select the hedging month and market for hedging.
2. Prepare the capital budget in advance according to the specific situation of the company’s hedging business and in combination with market factors.
3. Pay close attention to the changes of policies and relevant regulations of foreign regulators, and adjust the hedging business in advance according to its impact to avoid policy risks.
4. Configure reliable trading equipment and provide a safe network trading environment; Select contracts with good liquidity.
4、 Impact of commodity derivatives business on the company
The exchanges and trading varieties selected by the company’s hedging business have large market transparency, active transactions and strong liquidity. The transaction price and settlement price can fully reflect the fair value of derivatives. By carrying out futures hedging business, we can avoid the business risks brought to the company by the fluctuation of the corresponding hedged physical price, which is conducive to the steady operation of the company.
The accounting policies and accounting principles related to hedging transactions of the company shall conduct corresponding accounting treatment for hedging business in accordance with the accounting standards for Business Enterprises No. 22 – recognition and measurement of financial instruments and accounting standards for Business Enterprises No. 24 – hedge accounting issued by the Ministry of finance of the people’s Republic of China, so as to reflect the relevant items of financial statements.
5、 Opinions of independent directors
The independent directors of the company, Mr. Yu Dingming, Mr. Wang Yong, Mr. Yang Yong and Mr. Na Pengjie, expressed their independent opinions on the matter as follows:
The relevant approval procedures for the company to use its own funds to carry out commodity derivatives transactions in 2022 comply with relevant national laws and regulations and the relevant provisions of the articles of association.
The company has established a sound decision-making and risk control organization for commodity derivatives trading, strictly followed the operating procedures and implemented them in accordance with the system requirements. The company’s commodity derivatives trading is mainly to preserve the value of self-produced minerals and inventory raw materials and products, control the risk of market price fluctuation, which is closely related to the company’s operation and does not damage the interests of the company and all shareholders.
The maximum amount and transaction type of annual hedging margin determined by the company meet the actual needs of the company, which is conducive to the company’s reasonable control of transaction risk.
We believe that the company takes commodity derivatives trading as an effective tool to avoid the risk of price fluctuation. By strengthening internal management, implementing risk prevention measures and improving operation level, it is conducive to give full play to the company’s competitive advantage. It is necessary for the company to carry out derivatives trading, and the risk can be controlled. The company’s commodity derivatives trading is conducive to ensuring the company’s operating benefits and reducing production and operation risks. We agree to the above plan and agree to submit it to the general meeting of shareholders of the company for deliberation. 7、 Document for future reference (I) Yunnan Copper Co.Ltd(000878) resolution of the 30th meeting of the eighth board of directors;
(II) Yunnan Copper Co.Ltd(000878) resolution of the 27th meeting of the eighth board of supervisors; (III) Yunnan Copper Co.Ltd(000878) independent opinions of independent directors on carrying out commodity derivatives trading business.
Yunnan Copper Co.Ltd(000878) board of directors February 21, 2022
