China Molybdenum on the lookout for cheap mines overseas after fund raising, commodity cycle pick up
China Molybdenum, whose shares have tripled in the past 14 months during which it sealed three deals to buy US$5.3 billion worth of mining assets overseas at the trough of the commodities market, is eyeing more acquisition opportunities.
The company, based in Luoyang, Henan province, has pursued a strategy of buying up minerals that will undergo a tightening of the supply demand balance in the long term.
“Cobalt is a good example ... we will keep monitoring market trends,” Li Chaochun, China Molybdenum chairman told investors and reporters on Wednesday. “However, we must stick to our internal guideline that the target firm must rank among the bottom half on the production cost curve, which means even if half of global demand disappears [and the metal price fell by half], it will survive.
“Of course, the asset in question must also have a long mine life.”
China Molybdenum’s Hong Kong shares were 1.2 per cent higher in mid-morning trade on Thursday, adding to a 4.1 per cent gain on Wednesday.
China Molybdenum recently completed an 18 billion yuan (US$2.73 billion) private share placement, which resulted in a 49.4 per cent stake in the company’s shares split between private equity firm Cathay Fortune and state-owned Luoyang Mining Group.
The fund raising exercise will lower the company’s liabilities to total assets ratio to 55.7 per cent from 70 per cent, boosting its capacity for potential acquisitions.
China Molybdenum, whose management has kept a low profile in recent years, surprised the market in 2016 by unveiling in rapid succession two acquisitions worth US$4.15 billion.
They include the US$1.5 billion acquisition of Anglo American and Ambras’ niobium and phosphates businesses in Brazil, and the US$2.65 billion purchase of a 56 per cent stake in Congo-based copper and cobalt miner Tenke Fungurume Mining.
Niobium is used to enhance the strength of steel alloys found in products such as gas pipelines and jet engines.
The deals were followed in November by an additional 24 per cent stake increase in Tenke for US$1.14 billion.
The price of copper has surged 43 per cent, while cobalt – a key ingredient in electric vehicle batteries – has jumped around 140 per cent since the Tenke deals were signed.
The two metals contributed the bulk of China Molybdenum’s 1.37 billion yuan net profit in the first half, compared to 501.6 million yuan in the same period last year. The company announced its interim results on Monday.
Tenke produced 216,000 tonnes of copper last year, with 16,000 tonnes of cobalt as a by-product. Its mines have proven reserves to support 25 years of production, according to the company.
This year’s output target is 210,000 to 220,000 tonnes of copper and 16,000 to 18,000 tonnes of cobalt.
About 84 per cent of its first-half revenue came from overseas operations.
Besides Africa and Brazil, Tenke also has copper and gold producing assets in Australia, which were acquired in 2013.
China Molybdenum is also the world’s second largest semi processed tungsten ore producer.