China s mining king, won a countercyclical gamble

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Text |Giant Tide w**e, Author |Edit |Yang Xuran.

Currently,Its volume has ranked among the world's top 500, and its profit scale ranks 6th among global non-ferrous metal mining enterprises and 1st in China, and its profitability far exceeds that of domestic counterparts such as Minmetals, Chinalco, and Jinchuan.

The company was listed on H-shares in 2003 and A-shares in 2008, and H-shares created 38 times capital appreciation, and gave birth to Chen Fashu, the richest man in Fujian, and Ke Xiping, the richest man in Xiamen, leaving many capital myths.

In the mining industry in 2021, the market value of Zijin Mining once approached 370 billion yuan, and it is still at a high level, with a current market value of more than 320 billion yuan, ranking 25th in the entire A-share market and first in non-ferrous metals.

As we all know, mining is a highly cyclical business, and industry leaders such as Glencore and Barrick have experienced sharp losses. But Zijin Mining has never lost money since 2000, and even in 2015, when the industry was in a historic winter, it was still able to make a solid profit.

Relying on its initial experience in "abandoning me", low-cost mining and counter-cyclical acquisitions, Zijin Mining has sailed smoothly like a giant ship in this extremely high-risk industry.

After spending a huge amount of RMB 54 billion on mergers and acquisitions, Zijin Mining has once again entered a new field - lithium mining, and when the cyclical fluctuations of this new market show more drastic characteristics, the challenges that Chen Jinghe and Zijin Mining need to deal with should not be underestimated.

Zijin Mining was originally part of the Finance Bureau of Shanghang County, Longyan City, Fujian Province, but it is such a county-level enterprise that has reached a level never seen by many large central and local state-owned enterprises.

By the end of 2022, Zijin Mining was already the largest producer of copper, zinc and gold (listed companies) in China, becoming a veritable "mining king of China".

In 2022, Zijin Mining produced 880,000 tons of copper in minerals, equivalent to 46% of the total domestic production; 56 tonnes of mineral gold, accounting for 19% of the total domestic production; The copper output is 400,000 tons, equivalent to 13% of the domestic one.

In terms of global comparison, its copper, gold and zinc holdings rank 7th, 8th and 7th in the world respectively, and its emerging lithium resources are 9th in the world; Copper, gold and zinc are the 6th, 9th and 4th largest producers in the world, respectively.

Putting Zijin Mining on the world stage is inseparable from the "counter-cyclical M&A" strategy formulated by Chen Jinghe, the company's spiritual leader.

In 2005, Zijin Mining launched its "going global" strategy, and Chen Jinghe was like driving an "acquisition chariot", holding a world map to search in all directions.

That year, the company took its first step towards globalization by acquiring a 21% stake in Canada's Summit Mining for C$1.95 million. More importantly, the deal gives Zijin Mining a role in the Eskay Creek gold project owned by Barrick, a world gold mining leader.

After accumulating experience in early overseas integration, Zijin Mining's later mergers and acquisitions have become familiar. From Canada and Mongolia in the north, to Australia and South Africa in the south, to Britain and the United States in the west, and even to Central and Southeast Asia, Zijin Mining has left its presence.

Under Chen Jinghe's leadership, Zijin Mining has been sweeping goods around the world. Since 2009, more than 20 mergers and acquisitions have been launched, with a transaction value of more than 54 billion yuan.

Especially in 2015, in the most terrible winter of bulk minerals, Chen Jinghe did the opposite. Including Australia's Phoenix** Company, Norton Gold Fields, Congo Mussonoi Mining, Barrick (New Guinea) Company, Congo (DRC) Kamoa-Kakula Copper Mine, Nevsun Company, Buritika Gold Mine, **Julong Copper, Aurora Gold Mine in Guyana, etc., were all acquired by Zijin Mining that year.

You know, 2015 is the last time the mining giants want to remember. With the abrupt end of the "** decade", the industry fell to the bottom. Vale suffered a huge loss of $12.1 billion that year, and Glencore lost 49$6.4 billion, Barrick lost $3.1 billion, and Rio Tinto lost $17$1.9 billion.

Domestic enterprises are also not immune, Minmetals Development has lost nearly 4 billion yuan, Minmetals Resources has lost 1 billion, and Tongling Nonferrous Metals has lost nearly 700 million yuan.

However, thanks to reasonable hedging and low-cost smelting, Zijin Mining not only made a profit of 1.7 billion yuan that year, but also had an operating cash flow of more than 10 billion yuan.

At this time, other players in the industry were already too busy to take care of themselves, and their assets were at a once-in-a-lifetime historical low.

Entering 2022, Zijin Mining's acquisition pace has accelerated, with 4 billion yuan to acquire the interests of Haiyu Gold Mine; $2.6 billion acquisition of South American gold mine Rosebel; 5.9 billion yuan to buy the world's largest single molybdenum deposit, 40The acquisition of a 20% stake in Zhaojin Mining and a 30% stake in Haiyu Gold Mine for 6.3 billion yuan, plus the acquisition of Jiangnan Chemical shares in the secondary market, as well as the control of Longjing Environmental Protection, etc., this year alone, Zijin Mining has more than 10 acquisitions and equity transactions, with a cumulative cost of nearly 35 billion yuan.

Since 2005, Zijin Mining has increased its copper resources by 12 times, gold resources by 8 times, mineral copper production by 44 times, and mineral gold production by 3 times with the support of capital operation7 times; The company's total assets increased by 55 times, and the net profit attributable to the parent company increased by 29 times.

When bulk resources ushered in a new round of upward cycle in 2022, Zijin Mining, which had made a big gamble earlier, made a lot of money.

Counter-cyclical purchases, small investment to increase reserves, and low-cost mining" is the growth path that Chen Jinghe has drawn for Zijin Mining. Prior to this, he and Zijin Mining also went through a long period of germination and growth.

The Purple Mountain, where Zijin Mining started, is located in the southwest of Longyan City, Fujian Province, and the Tingjiang Mansion Chronicles recorded: "During the Kangding period of the Song Dynasty, the Purple Mountain was rich in gold, because of its name. ”

Ancient records could not be used as a scientific basis, and systematic exploration work was still needed to determine its value, which fell to the young Chen Jinghe. Since 1982, at the age of 25, Chen Jinghe has led a team stationed in the Purple Mountain for 10 years of exploration.

As a result, the Purple Mountain gold reserves are only 543 tonnes with only 1 gram per tonne of ore**. Experts agree that this is a poor mine that "can't produce food". Due to the small economic value, Fujian Province decided to delegate the mining rights of Purple Mountain to Shanghang County, where it is located.

But Chen Jinghe was unwilling to let ten years of hard work go to waste, and he took the initiative to go to Shanghang County Mining Company as the general manager. For Purple Mountain, Chen Jinghe boldly adopted the heap leaching technology that is not optimistic in the industry, greatly reducing the investment in 50,000 tons of gold ore from 29 million yuan to 7 million yuan, and turning a large amount of waste ore into gold mines that can be extracted.

The Purple Mountain immediately turned into a phoenix. At present, the proven gold reserves of Purple Mountain exceed 300 tons, with a potential value of more than 10 billion yuan.

In 2001, Shanghang Mining Company changed its name to Zijin Mining, and since then it has been listed on the Hong Kong stock market and the A-share market. During this period, the company successively introduced Chen Fashu of Xinhuadu and Ke Xiping of Hengxing Group, and Zijin Mining realized the original accumulation of wealth for the two, and later became the boss of the capital industry.

Looking back on the development history of Zijin Mining for more than 30 years, the first decade revolves around Zijin Mountain, relying on technological innovation to achieve efficient development; In the second decade, it will go out of Fujian and face the whole country to become a leading copper mine and leading producer in China; In the third decade, the mergers and acquisitions of overseas resources will be accelerated.

Since 2017, the world's best barriers have increased sharply, and the trend of anti-globalization has risen, but the review of mergers and acquisitions in the field of basic resources has been relatively modest. When Zijin Mining goes global, it also pays great attention to risk avoidance, and basically buys mature projects in production in developed countries, so as to avoid various costs such as exploration. In emerging market countries, cooperation is used.

In the early days of cross-border mergers and acquisitions, Zijin Mining cooperated with world giants in small steps to increase equity reserves and accumulate experience. After 2020, Zijin Mining has gradually become full-fledged, and large-scale mergers and acquisitions have begun to increase significantly.

By the end of 2022, the company's retained resources (proven, controlled and inferred) were 73.72 million tons of copper, 3,117 tons of gold, 11.18 million tons of zinc (lead), 14,612 tons of silver, and 12.15 million tons of lithium (equivalent lithium carbonate).

Compared with other large mining enterprises, Zijin Mining has a strong ability to resist risks. This is due to the cost control brought by smelting technology and proper hedging, the company in 2015, copper ore and other bulk resources are rare, still achieved 165.6 billion yuan of net profit attributable to the parent company.

Moreover, the net inflow of operating cash flow for the year was as high as 1026.9 billion yuan, a year-on-year increase of 6247%。This lays a solid foundation for its reverse operation during the trough period.

Lithium ore is known as the future-oriented "white oil" of mankind, and with the explosion of downstream new energy vehicles, the demand for upstream lithium, nickel, cobalt and other metal resources has skyrocketed.

As the leading lithium battery industry, the strategic position of lithium mines is becoming increasingly prominent.

Since 2021, Zijin Mining has gradually entered the lithium mining field on the basis of the original copper, gold, zinc, etc. Chen Jinghe has no small ambitions, he pointed out: "We must strive to become an important enterprise in the global lithium industry".

In October of that year, Zijin Mining spent nearly 5 billion yuan to acquire Argentina's 3Q lithium salt lake, and since then it has smashed 3$800 million to build a lithium carbonate plant.

In April 2022, 768.2 billion yuan to buy a 70% interest in the ** Lagoco Salt Lake Lithium Mine; Two months later, it acquired Hunan Houdao Mining 71. for 1.8 billion yuan14% equity, successfully pocketed 100% of the mining rights of Xiangyuan lithium polymetallic mine.

After the completion of the three operations, Zijin Mining has formed a "two lakes and one mine" pattern, with the three assets owning 7.63 million tons, 2.14 million tons and 2.16 million tons of equivalent lithium carbonate, respectively, totaling more than 10 million tons.

By 2023, the risk of mining investment will intensify, and the pace of mergers and acquisitions of Zijin Mining will slow down, but it will still increase investment in high-quality lithium mines. In July of that year, Tianqi obtained a 20% stake in Shenghe Lithium through a capital increase, and obtained a minority interest in Yajiang Cuola Lithium Mine, a core lithium mine in western Sichuan.

In October, Zijin Mining was granted the prospecting rights for the northern section of the Manono lithium mine approved by the Ministry of Mines of the Democratic Republic of the Congo (DRC). The Manono lithium mine ranks fourth in the world in clay and hard rock lithium mines with 16.4 million tons of lithium carbonate equivalent.

After a stormy operation,Zijin Mining controls more than 12.15 million tons of lithium carbonate equivalent, ranking ninth in the world, and third in China after Tianqi and Ganfeng.

At present, Zijin Mining is vigorously promoting the implementation of the project, and the first lithium mining project, Lithium Covest, has successfully opened up the optimized process of lithium carbonate and successfully produced 20 kilograms of qualified lithium carbonate products, providing technical support for the construction of the 3Q salt lake project. Lagoco Salt Lake Lithium has also completed the production of battery-grade lithium hydroxide pilot products.

Entering 2023, lithium carbonate has plummeted, and the latest battery-grade lithium carbonate has fallen to the shutdown cost line of 100,000 tons, and the performance of related enterprises has been hit hard.

Zijin Mining has incomparable advantages in the field of hydrometallurgy, which can empower the smelting of lithium ore, reduce costs, improve the best rate and related technical indicators. But such a huge drawdown is estimated to be something that Chen Jinghe did not expect.

In his 2024 New Year's address, he called "cost control the most important basic management work in the next three years" and said that it is necessary to "resolutely curb the rising trend of costs in recent years and ensure that unit costs fall on the basis of 2023." ”

When the gambling ambition meets the downward trend of the lithium mining cycle, Zijin Mining has entered a new field, but it is also facing new problems. This time, will Chen Jinghe be able to smoothly handle the cyclical fluctuations of the mining industry as usual?

After ten years of hard work, Chen Jinghe finally made a career and brought Zijin Mining to the top of the world's top 500 and global mining enterprises, which is impressive.

However, in the field of minerals with a very high risk coefficient, how to deal with cyclical fluctuations is an unavoidable issue. The 100-year history of Rio Tinto and BHP Billiton is a turbulent history of mining, and their success is built on their ability to navigate cycles.

Over the years, Zijin Mining has proven its grasp of the mining cycle. On the basis of the success of the first and copper mines, Chen Jinghe led the team into the new world of lithium mines, and tried to build another Zijin mining within 5 years and enter the top 3-5 in the world. This means that Zijin Mining will become an important upstream enterprise in the new energy era, and its ambitions are huge.

However, in the face of the larger-than-expected drawdown of lithium mines, the "King of Chinese Mines" will face the first stress test brought to itself by this new field with huge scale and huge value but more violent fluctuations in the future.