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China molybdenum: Four dimensions support outstanding performance


1.The core M & a capability is emerging, the asset portfolio adds another world-class asset, and the amount of cobalt resources exceeds Glencore, becoming the first in the world.

Based on domestic tungsten and molybdenum mines, the company has acquired many kinds of world-class assets such as copper and cobalt, niobium and phosphorus, tungsten and molybdenum, trade and so on through multiple mergers and acquisitions at the bottom of the cycle. The company announced on December 13, 2020 that it would acquire 95% shares of kisanfu copper cobalt mine, the world's largest and highest grade undeveloped copper cobalt project, with its own funds of US $550 million. On the one hand, the consideration for acquisition is lower than the average consideration for acquisition of copper cobalt ore by Chinese enterprises in 2020, which shows the company's low price M & A ability again; on the other hand, after the acquisition, the company controls the growth of copper resources by 22.2%, which is about half of China's copper resources The company controlled the growth of cobalt resources by 148%, surpassed Glencore and became the first in the world, accounting for nearly 20% of the global cobalt resources. The company's resource advantage was further strengthened.

2.Organization upgrading and synergy help the two major copper and cobalt projects to advance steadily, and it is expected to become the world's top 10 copper producers and the world's largest cobalt supplier after reaching the target.

In August 2020, sun Ruiwen became the general manager of the company. The "troika" structure of the management has been steadily formed, and the company's strategy of paying equal attention to endogenous growth on the basis of extensive M & A has been strengthened. Sun Ruiwen has more than 10 years of operation experience in Congo (DRC) copper cobalt mine, and has the experience of managing and developing large copper mines with more than 100000 tons. Under the leadership of the existing team, benefiting from the resource endowment and synergy of TFM and kisanfu, the two world-class copper cobalt mines will steadily realize their value. With the doubling of TFM and the commissioning of kisanfu's new projects, we expect Luoyang molybdenum industry to have a production capacity of 500000 tons of copper and 50000 tons of cobalt in 2025, becoming the world's top 10 copper producer and the world's largest supplier of cobalt.

3.It is expected that China molybdenum will usher in a period of simultaneous increase in performance and valuation.

The development of world-class mining leaders is mainly based on two paths: excellent natural resources endowment and continuous extension merger and acquisition. Limited by the relatively barren resource attribute and relatively fully developed mining environment in China, the development of China's mining enterprises after 2010 is mainly to go out to sea to merge high-quality resources, purple gold mine and China molybdenum At this stage, they have the resources to develop into a world-class mining leader. With the gradually clear recognition of output / performance growth, Zijin Mining has changed from diversified discount to leading premium. Since 2020, a / H shares have risen by more than 100%. Considering the construction progress of the project, we expect that the output release of China molybdenum lags Zijin Mining for one year, and it will usher in the trend of simultaneous increase of performance and valuation.

4.The relative mismatch between supply and demand under the release of liquidity supports copper prices to remain strong, small metal prices usher in periodic make-up, and the company's profit is expected to increase significantly.

Due to the relative mismatch between supply and demand caused by economic recovery under low inventory, we expect the liquidity release under the new round of fiscal stimulus policy of the Federal Reserve and the weakening of the US dollar. We expect the average price of copper in 2020-2021 to be US $6100 / 7500 / ton. The demand for new energy vehicles continues to strengthen, and the upstream supply of cobalt is expected to be tight in 2021. It is expected that the price of cobalt will hit 350000 yuan / ton in 2021. The price of copper and cobalt is expected to start a long-term upward trend due to the slowdown of supply growth caused by resource and capital cycles and the continuous pull of copper and cobalt by new energy vehicles. It is expected that the price of traditional molybdenum, tungsten, niobium and other small metals will usher in a cycle of make-up, and the company's profit is expected to increase significantly with the output growth under the steady construction of superimposed projects.

5.Risk factors

The risks include: the risk of continuous impact of epidemic situation on downstream consumption; the risk of battery material technology route change; the risk of metal price fluctuation; the risk of the company's overseas asset operation; the risk of project construction and development progress less than expected.

Source: CITIC Securities Research Institute.