Zhejiang Huayou Cobalt Co.Ltd(603799) (603799)
Event: December 22, Zhejiang Huayou Cobalt Co.Ltd(603799) announcement, It is proposed to acquire 100% equity and related creditor’s rights of prospect lithium Zimbabwe (PVT) Ltd (Prospect lithium company) in Zimbabwe through its subsidiary Huayou international mining for us $422 million, and obtain 100% equity of Arcadia lithium mine in Zimbabwe, of which 87% equity comes from prospect Resources Ltd, an Australian listed company (PSC) is a wholly-owned subsidiary of pmpl, and the remaining two natural persons hold 6% / 7% equity of the project respectively. This acquisition still needs the approval of relevant departments such as the Chinese government and the Zimbabwean government, as well as the approval of the general meeting of shareholders of prospect company.
Arcadia lithium mine has lithium resource of 1.9 million tons of LCE, with a grade of 1.06%; It has a lithium reserve of 1.24 million tons of LCE, with a grade of 1.19%. Arcadia lithium mine is located about 38 kilometers east of Harare, the capital of Zimbabwe, with an altitude of 1300-1420 meters. The project is close to the main highways and railway intersections, 11 kilometers away from the main transmission line of the largest hydropower facilities in the region, and about 580 kilometers away from the regional export center Beira port, Tanzania. The roads are two lane cement roads with convenient transportation.
The project is planned to have a production capacity of 147000 tons of concentrate (6%) and 118000 tons of lithium permeable feldspar concentrate (4%), with good economy. According to the optimization feasibility study report published in December 2021 (OFS), the project has a construction period of 2 years and a production life of 18 years. Open pit mining is adopted with a stripping ratio of 3.4:1. Through gravity separation + flotation process, the annual output is 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. The cash cost of concentrate is USD 357 / ton (excluding tantalum by-product). Capex is 192 million US dollars. According to the neutral hypothetical concentrate price of 892 US dollars / ton, the after tax NPV of the project is 929 million US dollars, IRR is 60%, and the investment payback period is 3.3 years, which has a high investment value. The project has obtained the environmental assessment certificate of development and construction. Prospect company has started small-scale open mining at the end of 2020 and operated a small-scale lithium permeable long-distance pipeline on site Stone pilot production line, the first batch of products were shipped and sold in October.
Aiming at the track of “resource + material integration” of new energy, the company has a full layout of nickel cobalt lithium resources and continues to benefit from the cost reduction and efficiency increase brought by the integrated development of lithium battery materials. The company’s total planned capacity of nickel resources in Indonesia is 225000 tons of metal, and the amount of equity is 89700 tons. The first Huayue 60000 ton wet process project was successfully put into trial production in December; The total planned crude cobalt production capacity is 44200 tons, and a core resource barrier is built. The company has made rapid progress in the sales channel of lithium battery materials and product technology development, and quickly ranked among the first-line suppliers of new lithium battery materials. At the same time, the epitaxial layout of lithium iron phosphate has realized the synchronous development mode of ternary lithium iron phosphate double integration, with high certainty of performance growth. Investment suggestion: we estimate that the net profit attributable to the parent company from 2021 to 2023 will be RMB 3.247 billion, RMB 4.930 billion and RMB 7.686 billion respectively, corresponding to 41.8, 27.5 and 17.7 times of PE and 7.5, 6.0 and 4.5 times of Pb respectively, maintaining the “buy” rating.
Risk warning: the progress of the acquisition project is uncertain; Local political risks; Lithium prices fluctuated sharply
