occurrences
The company issued an announcement on the progress of the acquisition on February 20, 2013: on February 9, 2013, the company received the “Niobium-tantalum Uranium Prediction Report for the 23702, 23324, 28668 and 28608 Mining Areas of the Republic of Madagascar” submitted by the Guangdong Materials Experimental Testing Center and the 7O4 Geological Brigade of the Guangdong Geological Bureau, submitted by Central Africa Resources (BVI) on February 9, 2013. Predicted resources for niobium-tantalum uranium ore were obtained (334): the ore volume was 34.75 million tons, including 76440 tons of NB2O5 (niobium pentoxide), 12,508 tons of Ta2O5 (tantalum pentoxide), and 17,373 tons of U (uranium).
reviews
We believe that the subject of this proposed acquisition is of excellent quality:
1. In addition to tantalum, there is a surprise for uranium, with reserves worth 52 billion dollars: the preliminary report shows that, in addition to the tantalum-niobium ore, 17,373 tons of uranium ore were added compared to the previously announced purchase intention, exceeding market expectations. According to current market prices, the domestic price of the tantalum ore Ta2O5 30% CIF is 1.65 million yuan/ton, the niobium ore NB2O is 550% min, the Ta2O 55% min is 260,000 yuan/ton, and the price of uranium metal is 48 US dollars/oz. According to our calculation, the resource reserve value is: tantalum ore 12508*165/10000 = 20.638 billion yuan, niobium ore 76440*26/10000 = 19.874 billion yuan, uranium metal 48*2204*6.24*17373/10000 = 11.464 billion yuan. The total mineral reserve value was 206.38+198.74+114.64 = 51,976 billion yuan.
2. Tantalum-niobium is a scarce strategic metal, and uranium is a nuclear metal: Tantalum is widely used in electronic circuits in defense, aviation, aerospace, electronic computers, high-grade civil appliances, and various electronic instruments. In the metallurgical industry, tantalum-niobium is mainly used as an additive to produce high-strength alloyed steels, improve the properties of various alloys, and make superhard tools. Uranium is the most basic raw material for the nuclear industry. It is an indispensable strategic metal for the development of the nuclear industry, and plays a vital role in the development of China's nuclear power industry and national defense industry. We believe that the resources purchased by the company are all strategic metals that are scarce domestically, and downstream demand is very impressive.
3. Ore grades are comparable to domestic ore grades. According to our understanding of African ore grades, there is room for further growth in the future: according to the announcement, the ore grades are 0.036% for tantalum ore, 0.22% for niobium ore, and 0.05% for uranium ore, which is comparable to similar domestic ore grades. According to our understanding of tantalum-niobium mines in Africa, the grade of tantalum-niobium ore is much higher than that in the domestic market, which is also higher than the grade in the announcement. We think there is still a possibility that resource reserves will rise as further exploration work is carried out in the future.
Remaining risks of the acquisition:
1. There is some uncertainty in the follow-up work: since exploration of mineral projects is divided into four stages: geological survey, survey, detailed investigation and exploration, the first step is still being carried out. As subsequent exploration work is carried out, there is still some uncertainty about resource reserves, technical and economic evaluation of mineral deposits, and the feasibility of mine construction.
2. The transaction price is yet to be determined
3. Political risks brought about by Malaysia's May general election: As mentioned in our previous report “Taking the First Step in Mineral Development”, since Malaysia is currently an interim government, the deferred approval of the company's prospecting rights and subsequent mining rights approval will still have to wait until the new government implements them after the May general election, and there are certain political risks.
Investment advice
In our last report, we only valued the company's titanium concentrate sales business and existing hotel business. We estimate that the company can achieve net profit of 501 million yuan, 188 million yuan, and 419 million yuan from 2012 to 2014: EPS in 2012 and 2014 was 0.22 yuan, 0.67 yuan, and 1.49 yuan respectively, corresponding to PE of 64.96 times, 23.89 times, and 10.73 times from 2013 to 2014.
As the company's acquisition process progresses, the uncertainty of the transaction will gradually decrease. Let's assume that when the deal is completed, we value the company segment: we value the company's titanium concentrate sales and hotel business 25 times PE for 13 years, with a market value of 1.88*25 = 4.7 billion. Regarding the value of the 52 billion reserves of tantalum-niobium-uranium ore, we believe that the reasonable market value should be above 2.5 billion yuan. Therefore, we believe that the total market value of the company should be greater than 7.2 billion yuan, and the theoretical stock price should be above 313 yuan. We will temporarily maintain the company's increase rating considering that the deal has not yet been completed and the political risks that will be faced in May.
