Zhejiang Huayou Cobalt Co.Ltd(603799) (603799)
matter:
The company announced that it plans to acquire 100% equity of prospect Resources Ltd, an Australian listed company (“prospect company”), which owns 100% equity of Arcadia lithium mine in Zimbabwe.
Ping An View:
The lithium project to be acquired is rich in resources: Acradia lithium mine is located in mashonalan District East of Zimbabwe, With No. 38 Mining Right (10.26 km2) and scattered small mining rights (about 4 km2), the validity period of the mining right is unlimited. According to the latest JORC (2012) standard report released by prospect lithium mining company, the standard resource of Acradia lithium mine is 1.9 million tons of lithium carbonate equivalent and the storage capacity is 1.24 million tons of lithium carbonate equivalent. It is an important undeveloped lithium project in the world.
The preliminary preparations for the Acradia project have been carried out in an orderly manner: the Acradia lithium project has obtained the EIA certificate, started small-scale open pit mining at the end of 2020, operated a small-scale lithium permeable feldspar pilot production line on site, and completed the shipment and sales of the first batch of products in October 2021. According to the optimization feasibility report of reaching an annual ore processing capacity of 2.4 million tons at one time, the construction period of the project is 2 years, and open-pit mining is adopted. It is expected that after the project is completed, the annual output will be 147000 tons of spodumene concentrate, 94000 tons of technical lithium permeable feldspar concentrate, 24000 tons of chemical lithium permeable feldspar concentrate and 0.3 tons of tantalum concentrate. After the acquisition, the company will further improve and optimize the project scheme.
Acquisition helps the company improve the layout of new energy materials industry chain: in recent years, adhering to the idea of “controlling resources at the top, expanding markets at the bottom and improving capacity in the middle”, the company has deepened upgrading and transformation and comprehensively distributed new energy materials and resources. Its business scope has been extended from the original single cobalt to nickel resources development and lithium battery cathode materials. After the acquisition, the company will increase its lithium resource development business, basically complete the layout of lithium battery upstream resources and materials, and become one of the companies with the most complete layout of lithium battery upstream materials industry chain, so as to provide impetus for the company’s sustainable growth and further enhance the company’s competitiveness.
Investment suggestion: it will take some time for the acquisition project to be put into operation. We maintain the previous profit forecast. According to the latest equity dilution, it is expected that the company’s EPS from 2021 to 2023 will be 2.89/3.42/4.10 yuan, and the PE corresponding to the closing price on December 22, 2021 will be 39 / 33 / 27 times respectively, maintaining the “recommended” investment rating.
Risk tips: (1) risk of product price fluctuation. The prices of the company’s main products cobalt products, ternary precursor products and copper and nickel products have high volatility. If the prices of cobalt, copper and nickel metals fall sharply in the future, the company will face the risk of inventory falling price loss and lower than expected operating performance, sharp decline or loss. (2) Exchange risk. The cobalt raw materials purchased by the company from international mining companies or large traders are generally settled in US dollars. At the same time, the functional currency of the company’s overseas subsidiaries is mostly US dollars, and the change of RMB exchange rate will bring the risk of foreign currency statement translation to the company. (3) Risk of new energy vehicles falling short of expectations. The company’s Cobalt and cathode material related products are closely related to the development of new energy vehicles. If the development of new energy vehicles does not meet expectations due to the impact of subsidy policies in the future, the demand will be affected. (4) The risk of M & a failure. The acquisition still needs the approval of relevant departments such as the Chinese government and the Zimbabwean government and the approval of the general meeting of shareholders of prospect company. Whether it can be approved is still uncertain.
