Yunnan Chihong Zinc & Germanium Co, the country's fifth-largest zinc smelter, said yesterday it plans to raise up to 1.8 billion yuan in a rights offer to expand its lead and zinc production capacity.

Yunnan Chihong will offer three shares for every 10 at a price of 7.69 yuan apiece on Nov 30, the company said.

A-shares of the Yunnan-based firm rose as much as 9.8 percent yesterday before closing up 4.52 percent to 32.82 yuan.

Analysts said the capacity expansion will boost its core business and also indicates better earnings prospects in the long run.

Yunnan Chihong said that the funds raised from the rights offer would be used for a project that can produce 100,000 tons of zinc plating per year.

The company said the project would involve a total investment of 2.7 billion yuan and increase its total capacity of zinc products to 215,000 tons a year, while crude lead capacity will rise 75 percent to 140,000 tons.

"Demand for zinc will remain strong driven by the country's urge to develop eco-friendly products like zinc-air batteries," said Chen Yue, an analyst at Shanghai CIFCO Futures Co.

Zinc futures in Shanghai rose to a new high of 18,525 yuan per ton on Nov 23 before edging down to 18,290 yuan yesterday.

The spot price of zinc has almost doubled this year and lifted Yunnan Chihong's third-quarter profit by 24 percent to 105.2 million yuan from a year ago.

Cai Dagui, an analyst at Ping An Securities, said the company's earnings per share would climb to 0.37 yuan and 0.73 yuan in 2009 and 2010 respectively.