Key points of investment
Incident: On March 15, China Mining Resources announced that its wholly-owned subsidiary Afmin plans to acquire 50% of Momentum's Junction shares and Chifupu's 15% shares in Junction at a benchmark price of $58.5 million in cash. Junction's main asset is the Kitumba copper project in Zambia. The rights are valid from November 2014 to November 2039. After the transaction is completed, the company will have a total 65% interest in the Kitumba copper project. The Kitumba copper project is currently under development. According to the 2015 resource estimation report, the total amount of copper mineral resources discovered in the Kitumba copper mine area is 27.9 million tons, 614,000 tons of copper metal, and the average grade of copper is 2.20%.
Actively deploying copper ore and copper smelting production capacity, the copper business is expected to become a subsequent growth point. The company's existing copper projects are mainly in Zambia. The total amount of copper metal found in the Shifuma copper mine area is 22.27 million tons, with an average grade of 0.73%; the two ore bodies in the Kashihi copper mine contain an average of 2.17% copper and 70,000 tons of copper; and the Kabwe copper mine has a copper metal content of 154,600 tons, with an average grade of 1.4%. On the smelting side, on March 7, the company reached an agreement to acquire the Tsumeb smelter in Namibia. The Tsumeb smelter is one of the few special smelters in the world that can handle complex concentrates such as high-arsenic copper concentrate. Currently, the smelting production capacity is 50,000 tons, and we expect to start contributing profits in '24.
The long-term layout of lithium resources is planned to be 100,000 tons, and lithium salt is expected to be shipped in 24 years, so there is room for cost reduction. The Bikita mine in Zimbabwe had a production capacity of 2 million tons of lithium permeable feldspar plus 2 million tons of spodumene in November 23, corresponding to 60,000 tons of LCE, and there is a plan to expand production of 20,000 tons of LCE.
Currently, the total cost of selection, transportation and exchange is 800 US dollars/ton. In the future, we expect to reduce it to 600-700 US dollars/ton, corresponding to the full cost of 75,000 yuan/ton LCE, which mainly benefits from lower electricity costs and exchange losses along with downstream costs. Canada's Tanco mine currently has 180,000 tons of spodumene mining and production capacity. The 1 million ton beneficiation plant is planned, corresponding to 20,000 tons of LCE. We expect to release production capacity in 25 years, and the research cost is about 350 US dollars/ton. On the smelting side, part of Q1's production capacity has been overhauled. We expect Q1 to ship 0.5-0.6 million tons, and we expect to ship 4-5 million tons throughout the year.
Profit forecast and investment rating: We basically maintain the company's profit forecast. The company's net profit for 23-25 is estimated to be 23.98/14.93/19.68 billion yuan, -27%/-38%/+32% year-on-year, corresponding PE is 10x/15x/12x, maintaining a “buy” rating.
Risk warning: Production capacity release falls short of expectations, demand falls short of expectations