Holding for 14 years, making a profit of 1.5 billion, is CMOC "selling mines" to increase investment in new energy metals?

On June 19, Luoyang Molybdenum Industry Co., Ltd. (603993.SH) announced its plan to transfer 65.1% of its shares in Xinjiang Luomu Mining Co., Ltd. ("Xinjiang Luomu") to the unrelated third party CITIC Guoan Industrial Group Co., Ltd. for a price of 2.9 billion.

Currently, the minority shareholders of Xinjiang Luomu are Henan Yukuang Xinyuan Mining Co., Ltd. and Xinjiang Uygur Hami State-owned Assets Investment and Operation Co., Ltd., holding 27.9% and 7% of the shares, respectively.

Luoyang Molybdenum Industry expects to receive a net financial gain of approximately 1.5 billion after the completion of the transaction.

The main asset owned by Xinjiang Luomu is the Donggobi Molybdenum Mine acquired in 2010 for 1.036 billion. Based on the cost of 1.036 billion and a profit of 1.5 billion, the annualized return on investment for Luoyang Molybdenum Industry is approximately 6.6%.

According to Luoyang Molybdenum Industry's 2023 annual report, the molybdenum grade of the Donggobi Molybdenum Mine is 0.115%, with a resource quantity (in terms of metal) of 508,200 tons, a reserve quantity (in terms of metal) of 196,800 tons, a remaining exploitable resource life of 38 years, and a mining right validity period of 21 years.

However, due to environmental reasons, the Donggobi Molybdenum Mine has always remained undeveloped. As of the end of April this year, Xinjiang Luomu's net assets were approximately 1.336 billion, with a net loss of 1.99 million in the first four months of this year.

Regarding the purpose of this transaction, Luoyang Molybdenum Industry stated: "This asset sale effectively retrieves funds, improves capital distribution efficiency, and better focuses on the group's development priorities."

Currently, Luoyang Molybdenum Industry's "development priorities" appear to be in new energy metals.

An analyst from a East China non-ferrous metal brokerage firm, TradeWind01, believes that Luoyang Molybdenum Industry's main purpose in transferring the equity of Xinjiang Luomu this time is to allocate resources to core resources such as copper and energy metals. As the second largest shareholder of Luomu is Ningde Times (300750.SZ), this also aligns more with Ningde Times' pace of global expansion.

In 2023, Luoyang Molybdenum Industry had related transactions with Ningde Times and its controlling subsidiaries amounting to 2.11 billion, accounting for approximately 77.29% of its total related transaction amount.

At the beginning of this year, Luoyang Molybdenum Industry proposed a new round of copper production capacity expansion plan, aiming to achieve an annual output of 800,000 to 1 million tons of copper by 2028, and initiated the development of Phase III of the TFM Copper-Cobalt Mine and Phase II of the KFM Copper-Cobalt Mine in the Democratic Republic of the Congo.

TradeWind01 called Luoyang Molybdenum Industry to inquire about this year's copper-cobalt mine production target, but was unable to get through.

TFM is one of the world's largest copper-cobalt mines, and KFM is the world's largest cobalt mine. Ningde Times holds 25% of the shares of the company that owns the KFM Copper-Cobalt Mine through its holding company Ningbo Bangpu Times New Energy Co., Ltd.

In 2023, thanks to the production of TFM and KFM, Luoyang Molybdenum Industry produced 419,500 tons of copper and 55,000 tons of cobalt, representing a year-on-year increase of 51% and 174% respectively, making it the world's largest cobalt producer and approaching the top ten in global copper production In the first quarter of this year, in addition to a 15.66% year-on-year decline in molybdenum production, the production of metals such as copper, cobalt, and tungsten all saw varying degrees of growth.

Huaxin Securities analyst Xu Yong believes that the follow-up of copper-cobalt mines in the Congo will continue to contribute to its capacity expansion.

As an important component of ternary lithium batteries, cobalt can improve the stability and cycle life of the battery; copper, with excellent conductivity, is used in the conductive components of batteries and wiring harnesses in new energy vehicles, helping to improve the energy efficiency of batteries and vehicles.

On the day after the announcement was made, Luoyang Molybdenum's midday trading closed up 0.12% at 8.14 yuan per share, with a year-to-date increase of over 60%