China / Hong Kong Company Guide
China Molybdenum Co Ltd Version 1 | Bloomberg: 3993 HK Equity | 603993 CH Equity | Reuters: 3993.HK | 603993.SS Refer to important disclosures at the end of this report
DBS Group Research . Equity 6 Feb 2018
H: BUY (Initiate coverage) Best proxy to upcycle of copper and Last Traded Price (H) ( 6 Feb 2018):HK$5.29 (HSI : 30,595) cobalt Price Target 12-mth (H): HK$8.00 (51% upside) · Leading global copper miner and producer with strong A: HOLD (Initiate coverage) cost advantage; world’s second largest cobalt miner and Last Traded Price (A) ( 6 Feb 2018):RMB$7.18 (CSI300 Index : 4,149) producer Price Target 12-mth (A): RMB6.42 (-11% downside) · Well-leveraged to upcycle of copper and cobalt Analyst · Earnings CAGR of 43% in 2017-19 Addison Dai +852 2971 1931 [email protected] · Initiating with BUY, TP HK$8.00 Manyi LU [email protected] Leading copper producer with cost advantage, world’s second largest cobalt producer. The company’s Tengke Fungurume mine Price Relative (TFM) in Congo has one of the largest copper-cobalt resources in the HK$ Relative Index RMB Relative Index world at one of the highest grade. On our estimates, copper cash 8.6 262 383 5.9 242 7.6 cost of TFM is around 70% lower than other top global miners. This 333 222 4.9 6.6 202 283 is not only due to cobalt being a by-product, but also due to superior 3.9 5.6 182 233 copper refinery technology namely solvent extraction-electrowining 4.6 162 2.9 142 183 3.6 122 (SX-EW). In 1H17, copper and cobalt accounted for 44% and 21% 1.9 133 2.6 102 of the company’s sales revenue. 0.9 83 1.6 82 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Upcycle of copper industry due to tightening raw material supply. China Molybdenum Co Ltd-A (LHS) China Molybdenum Co Ltd (LHS) Relative HSI (RHS) Relative CSI300 Index (RHS) Low copper prices in 2015-16 led to collapse in investments into the sector. While it usually takes three years to ramp up capacity at new mines, supply has tightened since 2017, driven by output cut from Forecasts and Valuation (H Shares) top miners. In 2018, the mine union enterprise agreement FY Dec (RMB m) 2016A 2017F 2018F 2019F renegotiation in Chile and Peru and China’s expected ban on scrap Turnover 6,950 25,049 29,826 31,524 copper imports (for Category 7 scrap) could further escalate the EBITDA 2,758 12,434 17,056 18,514 Pre-tax Profit 1,190 6,168 11,348 12,841 supply uncertainty. Net Profit 998 2,605 4,735 5,331 Upcycle of cobalt driven by limited raw material sources and strong Net Pft (Pre Ex) (core profit) 998 2,605 4,735 5,331 growth in new energy vehicles (NEV). The global supply deficit EPS (RMB) 0.06 0.14 0.22 0.25 started in 2016 with supply gap of 460 tonnes. We project China’s EPS (HK$) 0.07 0.17 0.27 0.31 cobalt consumption, accounting for 50% of world’s, to grow 6-9% EPS Gth (%) 24.3 131.4 60.3 12.6 in 2018-2020, driven by demand of battery chemical at a CAGR of Diluted EPS (HK$) 0.07 0.17 0.27 0.31 DPS (HK$) 0.04 0.10 0.16 0.18 10%, on the back of market share gain of nickel-cobalt-manganese BV Per Share (HK$) 1.38 2.46 2.31 2.47 (NMC) ternary material and output expansion in NEV. PE (X) 72.0 31.1 19.4 17.2 Valuation: P/Cash Flow (X) 24.6 10.8 7.6 5.2 Our HK$8.00 TP is based on 36.5x 2018F PE, equivalent to 3.5x P/BV P/Free CF (X) 34.9 12.2 8.2 5.5 and 10.3x EV/EBITDA based on 2018F. CMOC’s valuation re-rated EV/EBITDA (X) 38.2 8.2 6.3 5.2 Net Div Yield (%) 0.8 1.9 3.0 3.4 after the company announced to acquire world-class TFM in May P/Book Value (X) 3.8 2.1 2.3 2.1 2016. Our target valuation reflects premium to A-share peers’ which Net Debt/Equity (X) 0.5 0.3 0.1 CASH are trading at 30x PE and global peers’ 13x PE based on 2018, ROAE (%) 5.5 N/A 12.2 12.8 justified by scarcity value for an upstream player with strong cost Earnings Rev (%): NEW NEW advantage. Consensus NP (RMB mn) 2,624 3,980 4,411 Key Risks to Our View: Other Broker Recs: B: 79 S: 21 H: 11 ICB Industry: Basic Materials Commodity price risks and forex risk. ICB Sector: Mining At A Glance Principal Business: A global leading copper producer, the second Issued Capital - H shares (m shs) 3,933 largest cobalt producer,one of the top five molybdenum producer in - Non H shares (m 17,666 the world. 1H17, sales volume of copper and cobalt was 132kt and H shs as a % of Total 18 Total Mkt. Cap (HK$m/US$m) 114,260 / 14,610 7,559 tonne respectively, based on metal tonne. Major Shareholders Source of all data on this page: Company, DBSV, Thomson Reuters, HKEX Luoyang Mining Group Co., Ltd. (%) 24.7 Hongshang Industry Holding (%) 23.3 Major H Shareholders The Capital Group Companies, Inc. (%) 6.1 H Shares-Free Float (%) 93.9 3m Avg. Daily Val. (US$m) 46.6
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China /Hong Kong Company Guide China Molybdenum Co Ltd
Table of Contents
Investment summary 3 Company overview 4 Revenue and profit 5 Production cost 8 Competitive edge 8 Strategy & Management 10 Financial analysis 11 Earnings sensitivity 11 Potential earnings catalyst 11 Balance sheet 11 Valuation and recommendation 13 Shareholdering structure 15 Investment risks 15 Copper industry 16 Cobalt industry 19 Molybdenum and Tungsten Industry 24 Niobium and Phosphorus Industry 26
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China/Hong Kong Company Guide China Molybdenum Co Ltd
Investment summary use of solvent extraction-electrowining (SX-EW) technology to refine copper. Currently, the cash cost of copper from using SX- We are initiating coverage on China Molybdenum Co., Ltd. EW technology is c.30% lower than of the prevalent fire- (CMOC) - H with a BUY rating and target price of HK$8.00, refining technology. based on 36.5x 2018F PE, equivalent to 3.5x P/BV and 10.3x Earnings sensitivity. Copper and cobalt accounted for 44% and EV/EBITDA based on our 2018 earnings forecasts. Our target 21% of sales revenue in 1H17. Earnings are most sensitive to price implies 0.85x PEG based on net profit CAGR of 43% in change in copper prices. For 2018, we estimate that every 5% 2017-19. change in copper price would swing earnings by 6.0%, while Leading global copper miner and producer, world’s second every 5% change in cobalt prices would swing earnings by largest cobalt miner and producer. The Tenke Fungurume 3.4%. copper-cobalt mine (TFM) in the Democratic Republic of the Copper industry outlook – Tightening copper raw material Congo (DRC) has one of the largest copper-cobalt resources in supply to support higher copper price in 2018. Low copper the world with one of the highest grades. The mine produces prices in 2015-16 led to collapse in investments in the sector. 216kt of copper and 16kt of by-product cobalt per annum. The While it usually takes three years to ramp up capacity at a new Northparkes copper mine (NPM) in Australia, is an underground copper mine, supply has tightened since 2017. The production mine with high automation, and produces 46kt of copper per of the top 12 copper miners, representing 50% of world’s annum. CMOC’s Shandaozhuang mine has one of the largest output, had fallen 7% y-o-y for the first three quarters of 2017. reserves of molybdenum and the second largest reserves of The 2018 copper TC (treating charge) declined 11%, hitting a tungsten in the world. Mine life exceeds 20-30 year. five-year low, suggesting less availability of copper concentrate. Major products produced include copper and crude cobalt In 2018, overseas, more than forty mine union enterprise hydroxides (TFM), copper concentrate (NPM), ferromoly, agreements would be renegotiated in Chile and Peru, which in ammonium paratungstate (APT) and tungsten concentrate total account for 40% of global mine output. This could further (Shandaozhuang mine) escalate supply uncertainty. Besides, China’s expected ban on scrap copper imports (for Category 7 scrap) could disrupt c.11% Competitive advantages – strong M&A track record in the of the country’s raw material supply. overseas, strong cost advantage of copper production. CMOC completed the acquisition of a 56% equity interest in TFM from Cobalt industry outlook – Upcycle driven by limited raw material Freeport-McMoran (FCX US, not rated) in November 2016 resource and strong growth in new energy vehicles (NEV). The following the announcement in May 2016, when copper and supply deficit started in 2016, with refined cobalt consumption cobalt prices hit trough levels. The acquisition boosted the grew 1.9% to 93,950 tonne versus output declined 2.8% to company’s copper sales volume by 4.7-fold and cobalt sales 93,490 tonne. We project cobalt consumption of China, volume to 16kt from nil previously. TFM has been running accounting for 50% of world’s consumption, is to grow 6%- smoothly after the M&A, and has helped to improve the 9% in 2018-2020, driven by strong growth in battery chemicals company’s ROE riding on the recovery in copper and cobalt at a CAGR of 10%. This is to be fuelled by output expansion of prices. TFM’s copper cash cost is at lower first quartile along the NEV and market share gain of nickel-cobalt-manganese (NMC) global copper industry cost curve, which is c.70% lower than ternary material as cathode material for Li-ion battery of NEV. In that of top global peers (including Glencore, Freeport-McMoran, 2017, we noticed the market share of NMC ternary material in BHP Billiton, Southern Copper). This is not only because TFM is a NEV battery had increased to 44% versus 23% in 2015 as the copper-cobalt mine (cobalt is by-product), but also due to its uptake in vehicle electrification boost cobalt demand.
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China /Hong Kong Company Guide China Molybdenum Co Ltd
Company overview (DRC) from Freeport-McMoran (FCX US, not rated). This follows the company’s full acquisition of niobium and phosphates Founded in 1969, China Molybdenum Co., Ltd. (CMOC) is business in Brazil from Anglo American (AAL LN, not rated) in reorganised as a joint stock company in August 2016. CMOC is October 2016. Earlier in 2013, China Moly acquired 80% equity primarily engaged in the mining and producing of molybdenum, interest in Northparkes copper mine (NPM) in Australia from Rio tungsten, copper, cobalt, niobium and phosphorus. CMOC is a Tinto (Rio AU, not rated). leading global copper miner and producer with annual output of around 250kt. CMOC is world’s second largest cobalt miner Major products. In domestic China, the company’s major and producer with annual output of around 16kt, accounting products are ferromoly, ammonium paratungstate (APT), for 13% of global cobalt mined output based on statistics of tungsten concentrate. In overseas, the company’s key products 2016. Annual output of molybedenum and tungsten output is are copper concentrate (NPM), refined copper and crude cobalt 16kt and 11kt respectively. The company produces around hydroxides (TFM). Majoritity of the company’s refined copper is 1.18mt phosphorus fertiliser and around 8,000 tonne niobium sold to Trafigura. Almost all of the company’s crude cobalt hydroxides output is supplied to Freeport Cobalt. per annum. CMOC generates sales revenue mainly from copper, cobalt and molybdenum, which accounted for 44%, 21% and 10% respectively of the company’s sales revenue in 1H17. Cobalt industry: Supply chain
China Moly: Sales revenue breakdown in 1H17
Niobium , Others, 2% 7% Phosphates , 11%
Tungsten, Copper, 5% 44% Moly , 10%
Cobalt, 21%
Source: Company, DBS Vickers
In April 2007, CMOC was listed on the Hong Kong Exchange and raised proceeds of HK$8.1bn. In October 2012, the company was listed on Shanghai Stock Exchange (SSE) by raising Rmb600mn. In December 2014, the company issued convertible bonds amounted Rmb4.9bn listed on the SSE. In July 2017, the company completed non-public issuance of A shares and raised Rmb18bn, with lock-up period of one year. Source: Company, DBS Vickers Production base. In domestic China, CMOC operates its wholly- owned Sandaozhuang molybdenum-tungsten mine in Luoyang City of Henan province, which is the largest proved reserves of Mine reserves and mine life. In domestic China, CMOC’s molybdenum and the second largest proven reserves of molybdenum resouces (Sandaozhuang molybedenum/tungsten tungsten in the world. mine) has an average grade of 0.10% Mo, which is higher In overseas, CMOC owns world-class assets across three grade than the majority of global major molybdenum deposits. countries. In November 2016, the company completed Globally, tungsten mines are largely independent ones acquisition of 56% equity interest of Tenke Fungurume copper- compared to the company’s molybedenum-tungsten mine cobalt mine (TFM) in the Democratic Republic of the Congo (tungsten is by-product of molybedenum). The orebody of the Sandaozhuang mine contains the second largest reserves of
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China/Hong Kong Company Guide China Molybdenum Co Ltd tungsten in the world. Current ore reserve estimates are and 20 years respectively. In Brazil, CMOC is the second largest adequate for a mine life of more than 30 years. supplier of phosphate fertiliser in Brazil with output capacity of 1.2mt.p.a., with mine life exceeding 46 years; CMOC is the In overseas, TFM in DRC is one of the largest copper-cobalt second largest producer of niobium in the world with output resources in the world with one of the highest grade. TFM is capacity of 9,000 t.p.a., with mine life exceeding 16 years. open-pit mine. NPM in Australia, is underground mine with high automation. The two mines have mine life exceeding 25 years
China Moly: Mine resources and mine reserves
Mine name Mine CM OC Resources Grade (% Reserv es Grade (% type ownership (mn t)* or g/t for (mn t)* or g/t for Au and Au and Co) Co)
Sandaozhuang Mo 100% 522 0.10 284 0.10
WO3 100% 522 0.09 284 0.12 Shangfanggou Mo 55% 463 0.14 41 0.18 NPM Cu 80% 482 0.56 121 0.58 Au 80% 482 0.18 121 0.22 Tenke Cu 56% 836 2.89 182 2.51 Co 56% 836 0.27 182 0.31 Niobium and Nb 100% 108 1.07 34 0.90 phosphates (Nb2O5) mining area I Niobium and Nb 100% 458 0.26 232 0.36 phosphates (Nb2O5) mining area II P(P2O5) 100% 458 11.40 232 11.90
Source: Company, DBS Vickers
Note: *Represent aggregate figure of mineral resouces for the whole mine
Revenue and profit
In 1H17, sales revenue increased by 4.16-fold y-o-y to Rmb11,655mn driven by full-year consolidation of sales revenue of TFM and Brazil phosphorous and niobium business, after completion of acquisitions in November 2016 and October 2016 respectively. In 1H17, the company’s sales volume of copper rose by 5.86-fold y-o-y to 132kt, of cobalt increased to 7.6kt from nil one year ago, of phosphate fertiliser surged to 464kt from nil one year earlier, of niobium hiked to 4.1kt from nil one year ago.
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China /Hong Kong Company Guide China Molybdenum Co Ltd
CMOC: Sales revenue breakdown
(Rmb mn)
40,000
30,000
20,000
10,000
- 2013 2014 2015 2016 1H17 2017F 2018F 2019F Other Copper and related products (NPM) Copper, cobalt and related products (TFM) Phosphorus related products Niobium related products
Source: Company, DBS Vickers
In the first half of 2017, by mineral segment, copper, cobalt, company’s exposed commodities including copper, cobalt, phosphates and molybdenum accounted for 44%, 21%, 11% molybdenum, tungsten, phosphates and niobium in later part of and 10% respectively of the company’s sales revenue. the report from page 16 to page 26, based on which we generate our price assumptions for 2018 and 2019. Decline in sales revenue in 2015 was mainly due to collapse in the commodity prices because of China’s sluggish economy. We have conducted detailed industry analysis towards the
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China/Hong Kong Company Guide China Molybdenum Co Ltd
In terms of sales volume, we forecast sales volume in 2018 to be flattish y-o-y as we forecast 2018 output to be unchanged from 2017’s level as the company does not have new capacity expansion in 2017. CMOC: Assumptions of prices and sales volume
2014 2015 2016 2017F 2018F 2019F Key assumptions of price: Ferromoly (Rmb/t) 93,100 67,900 67,100 85,989 102,000 102,510 y-o-y % -27.1% -1.2% 28.2% 18.6% 0.5% Tungsten APT* (Rmb/t) 103,805 71,370 68,120 88,556 108,954 109,499 y-o-y % -31.2% -4.6% 30.0% 23.0% 0.5% Cathod copper (US$/lb) 3.11 2.50 2.21 2.80 3.36 3.57 y-o-y % -19.8% -11.5% 26.9% 19.7% 6.5% Metallic cobalt (US$/Ib) 13 12 26 42 45 y-o-y % -10.5% 124.4% 62.0% 7.0% Phosphate - MAP (US$/t) 469 351 371 405 409 y-o-y % -25.2% 5.7% 9.2% 1.0% Niobium price (US$/t) 37,442 35,038 30,016 28,869 30,570 30,723 y-o-y % -6.4% -14.3% -3.8% 5.9% 0.5% Key assumptions of sales volume: Molybdenum (with metal equivalents of 100% MO metal) (tonne) 19,871 18,068 20,495 20,290 20,371 20,432 y-o-y % -9.1% 13.4% -1.0% 0.4% 0.3% Tungsten (tonne) 6,928 8,133 11,478 11,897 11,945 11,980 y-o-y % 17.4% 41.1% 3.6% 0.4% 0.3% NPM copper (tonne) 43,618 40,348 35,962 36,256 36,293 36,365 y-o-y % -7.5% -10.9% 0.8% 0.1% 0.2% Tenke Copper (tonne) - - 27,356 218,064 218,282 218,718 y-o-y % 697.1% 0.1% 0.2% Cobalt (tonne) - - 1,825 16,116 16,148 16,164 y-o-y % 783.1% 0.2% 0.1% Phosphate fertilizer (tonne) - - 303,395 986,089 987,076 988,062 y-o-y % 225.0% 0.1% 0.1% Niobium metal (tonne) - - 1,998 8,145 8,154 8,170
Source: Company, DBS Vickers
Note: *APT stands for ammonium paratungstate
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China /Hong Kong Company Guide China Molybdenum Co Ltd
Production cost Competitive edge
Copper cash cost. New copper mine supply is increasingly Strong track record of M&A and execution. To facilitate business challenging as low copper prices during 2015-16 has led to diversification beyond molybdenum and tungsten operations, CMOC collapse in sector investment. Grade from existing mined output acquired 80% equity interest in Northparke Mine (NPM) in Australia has continuously declining, which leads to an increase in cash in 2013 at a consideration of US$800mn from Rio Tinto. In 2015, cost in the industry. Copper cash cost of CMOC’s NPM follows NPM registered net profit to shareholders amounted Rmb322mn, the industry trend and its cash cost has been rising since 2014. which accounted for 42% of CMOC’s net profit during the year. We project copper cash cost of NPM to increase to US$0.985/lb NPM deploys low-cost mining method, which makes its production and US$1.087/lb in 2018 and 2019 respectively vs estimated cost lower than its underground mine peers. US$0.893/lb for 2017. Nevertheless, we project the company’s In May 2016, CMOC announced to aquire Tenke Fungurume Mining total copper cash cost in 2017, 2018 and 2019 to decline to (TFM) from Freeport-McMoran (FCX US, not rated) at a consideration US$0.35/lb, US$0.35/lb and US$0.36/lb respectively, compared of US$2.65bn. The deal was completed in November 2016. to US$0.58/lb in 2016 due to positive contribution from lower Subsequently in 1H17, TFM recorded net profit to shareholders up to cash cost from TFM, after CMOC completed the acquisition in Rmb566mn, accounting for 68% of the CMOC’s net profit during November 2016. the period. The acquisition was against the backdrop of Freeport- Production cost of molybdenum, tungsten, phosphorous McMoran’s share price collapse since 2014 due to a deteriorating products. For molybdenum, tungsten and related products, the balance sheet (net gearing of 258% in 2015) due to loss making, hit change in the production cost mainly follows material price by continuous weakness in commodity prices. The deal was well trend, as raw material coupled with energy cost accounts for recognised by the capital markets as the company issued non-public c.50% of the cost of good sales. For phosphorus products, raw A share with oversubscription and raised Rmb18bn in July 2017. material together with energy cost, accounts for nearly 50% of For the above overseas acquisition, it took CMOC around six month the cost of good sales. to complete the deal after the announcement of M&A. Both of the projects ran smoothly after the completion. Mining assets have cost advantage. TFM and NPM assets have strong CMOC: Cash cost and GP margin by segment cost advantage globally, whose cash cost achieves lower first quartile of global copper industry cost curve (See below chart “Global 2016 2017F 2018F 2019F Copper Sector: Industry cost curve in 2017”). CMOC’s average cash Cash cost: cost of copper is much lower than its global top peers including Molybdenum (Rmb/t) 55,279 54,322 54,322 54,322 Freeport-McMoran, BHP Billiton, Glencore and South Copper Tungsten (Rmb/t) 12,593 16,624 16,624 16,624 Corporation. We have compiled the cash cost comparison (See below “CMOC: Copper cash cost vs global peers” chart). Copper - NPM (US$/lb) 0.81 0.89 0.99 1.09 Copper - Tenke (US$/lb) 0.26 0.24 0.24 The outperformance in TFM is not only because it is a copper-cobalt mine (the copper cash cost is calculated based on deducting by- GP margin (%): product cobalt cost), but also due to its superior refining technology Molybdenum, Tungsten and related products 46% 50% 59% 59% for the copper production. TFM deploys solvent extraction- Niobium, phosphorus related electrowining (SX-EW) technology. Globally, fire-refining is a majority products 22% 19% 21% 21% deployed technology to refine copper whilst SX-EW is a minority Copper, Cobalt and related deployed one. According to our industry channel checks, currently products - Tenke 23% 42% 51% 53% cash cost of SX-EW technology is around 30% lower than that of Copper, Gold and related fire-refining one. products - NPM 27% 32% 30% 30%
Source: Company, DBS Vickers
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China/Hong Kong Company Guide China Molybdenum Co Ltd
Global Copper Sector: Industry cost curve in 2017
Source: SNL Mine Economics, Company, DBS Vickers
CMOC: Copper cash cost vs global peers
(US$/lb) 2.50 2.10 2.00 1.81
1.36 1.50 1.26 1.20 0.92 0.93 0.97 1.00 0.87 0.86 0.86 0.64 0.58 0.50 0.35 0.35
- 2015 2016 2017F 2018F
CMOC* Glencore Freeport-McMoran** BHP (Olympic Dam mine) Southern Copper***
Source: Company, DBS Vickers
Note: *CMOC's calculation has deducted by-product cobalt cost; **Freeport's cost calculation has deducted by products gold and Mo costs; ***Southern Copper calculation had deducted by-product costs
Strong resouces of molybdenum and tungsten. CMOC’s Diversified asset class. The company completed the acquisition Shandaozhuang mine is one of the largest reserves of of niobium and phosphates business in Brazil from Anglo molybdenum and the second larget reserves of tungsten in the American in October 2016. While the acquisition of niobium, to world with tungsten being a by-product of molybdenum. This some extent, has business synergy with the molybdenum means business operation of tungsten complements that of business due to same end-user steel industry, the acquisition of molybdenum. The asset is scarce given majority of tungsten phosphates business, featuring less cyclical, can complement resources in the world are independent mines. This helped the the cyclical commodities business of copper, cobalt and company maintain a solid gross profit margin of 34% in tough molybdenum. 2H15 although molybdenum concentrate prices hit below cash cost in 4Q15.
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China /Hong Kong Company Guide China Molybdenum Co Ltd
Strategy & Management Limited (NGL), a wholly-owned subsidiary of China Anxing Asset Management, to set up NCCL Natural Resources Investment The company’s vision is to become a respected international Fund. CMOC is a limited partner whose capital contribution will group. The acquisitions of world-class mines, including NPM in not excced 45%. NCCL, a wholly-owned subsidiary of New 2013 and TFM in 2016 turned out to be successful. ROE of the China Asset Management, is to act as a general partner role to business has started to improve on the back of recovery in manage the fund. copper and cobalt prices since 2H16. The fund intends to seek M&A opportunities. Immediately after Set up natural resouces investment fund with NCCL. On 15 the set-up, the NCCL Investment fund announced to acquire December 2017, Natural Resource Elite Investment Limited global metal business of commodity trader Louis Dreyfus, at a (NREIL), a wholly-owned subsidiary of CMOC announced to consideration of US$450mn. The transaction are expected to be establish a partnership with i) New China Capital Legend completed by 30 September 2018. We have not factored in the Limited (NCCL), a wholly-owned subsidiary of New China event for our 2018F earnings pending for final completion . Capital International Management Limited, and ii) Next Goal
CMOC: Management profile
Name Ag Current appointment Experience e
LI 40 Executive Director and Mr. Li has been the chairman of the Board since Jan 2014. Mr. Li graduated from Shanghai Chaochun chairman of the Board Jiaotong University with a bachelor’s degree in law in Jul 1999. From Apr 2002 to Feb 2003, he was a deputy manager of planning and strategy implementation of the general representative office of The Hong Kong and Shanghai Banking Corporation Limited. From Jul 2003 to Jan 2007, Mr. Li was an executive director of the investment department of Cathay Fortune Corporation, one of the founders of the Company. From Jan 2007 to 14 Jan 2014, Mr. Li was the vice chairman of the Board.
LI Faben 53 Executive Director and Mr. Li has been the executive Director of the Company since Aug 2006 and the general general manager manager since Oct 2012. Mr. Li graduated from the Central South Mining & Metallurgical College with a bachelor’s degree in engineering in 1983 (major in mining engineering) and the Xi’an University of Architecture and Technology with a master’s degree in engineering in 2004 (specialized in mining engineering) and a doctor’s degree in Management Science and Engineering in Jan 2014. From Nov 2002 to Aug 2006, Mr. Li was the deputy general manager and vice chairman of Luoyang Luanchuan Molybdenum Group Co., Ltd. as well as a director of Luoyang Mining Group Co., Ltd.
YUE 43 Secretary to the Board Mr. Yue has been the secretary to the Board of the Company since Mar 2017. He graduated Yuanbin with a bachelor’s degree in engineering at the department of materials engineering of the Shenyang Industrial College in Jul 1995. Mr. Yue then obtained a master of technology economics from the School of Economics and Management of Tongji University in Mar 1998. Mr. Yue served as a managing director of the corporate finance department of Guotai Junan Securities Co. Ltd., a vice president in the investment banking division of China Fortune Securities Co. Ltd. and a vice president of NewMargin Ventures.
GU Meifeng 52 Chief financial offier Ms. Gu has been the chief financial officer of the Company since Aug 2006. Ms. Gu graduated from Henan University in 1995 and obtained a master’s degree in accounting from The Chinese University of Hong Kong in Dec 2009. From 1994 to Jun 2006, Ms. Gu was a deputy general manager of Luoyang Zhonghua Certified Public Accountants Co., Ltd. Between 2000 and 2006, Ms. Gu served as an independent supervisor of Luoyang Glass Company Limited). Ms. Gu was the executive Director of the Company from Jun 2013 to Jun 2015. In addition, Ms. Gu has been serving as a director of Xinjiang Luomu Mining Co., Ltd since Jul 2011 and as a supervisor of Luoyang High Tech Molybdenum & Tungsten Materials Co., Ltd. since May 2010. Ms. Gu is a certified public accountant, registered asset appraiser and senior accountant.
Source: Company, DBS Vickers
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China/Hong Kong Company Guide China Molybdenum Co Ltd
Financial analysis If CMOC exercises the call option to buy 24% stake in TFM, we forecast a full-year earnings accretion to be at least Rmb485mn, P&L based on TFM’s 1H17 earnings performance. So far, there is no Earnings contribution. In 1H17, CMOC reported net profit to detailed timeline for the company to complete stake purchase. shareholders of TFM, NPM and niobium & phosphates segments were Rmb566mn, Rmb72mn and Rmb87mn respectively, accouting for 67.8%, 10.4% and 8.6% of the company’s Balance sheet earnings during the period. Cash conversion cycle to remain healthy. In 2016, cash conversion cycle surged to 231 days from 106 days in 2015 as Earnings sensitivity the company’s inventory base enlarged after the acquisitions of TFM and niobium & phosphates assets in Brazil were completed CMOC’s earnings are most sensivite to changes in copper prices, in 4Q16. We expect the company’s cash conversion cycle to followed by cobalt prices, the impact of which we have return to histrorical levels from 2017 onwards. estimated as below chart.
CMOC: Cash conversion cycle CMOC: Earnings sensitivity 2015 2016 2017F 2018F 2019F FY18F AR turnover days (x) 68 57 38 50 49 Net profit under base case scenario (Rmb mn) 4,735 Inventory turnover days (x) 64 210 122 126 129 5% increase in copper prices 6.0% AP turnover days (x) 27 36 29 41 41 Cash conversion cycle 106 231 132 135 137 5% increase in cobalt prices 3.4% 5% increase in molybdenum prices 1.0% Source: Company, DBS Vickers Source: Company, DBS Vickers
Capex and FCF. We forecast capex in 2017-2018 to moderate to Rmb850mn and Rmb900mn respectively vs estimated Potential earnings catalyst Rmb30bn for 2016 as the payments for overseas acquisitions are largely over. We project Op-CF in FY18 to improve to In January 2017, CMOC announced that it had entered a Rmb12bn vs estimated Rmb7.5bn for FY17, due to strong cooperation framework agreement with BHR, a subsidiary of earnings growth riding on stronger prices for copper, cobalt and Dingyuan, pursuant to which CMOC is exclusively granted the molybdenum. As such, we expect 2018 free cash flow tofurther exercise option to buy 24% minority interests in TFM till April improve to Rmb8.6bn vs estimated Rmb6.2bn fo 2017. 2020. In April 2017, BHR completed acquisition of 24% equity stake in TFM. BHR was granted a syndicated loan not exceeding ROE and net gearing. Our FY18F ROE is to improve to 12.2% US$690 (representing 60% of the total consideration for the from estimated 9.2% for 2017, driven by increase in net profit deal), with assistance of CMOC. The total consideration is margin and rise in asset turnover. We project net gearing to around US$1.15bn. CMOC recognised an investment gain of decline to 53% in 2018 from estimated 61% for 2017. Rmb46mn for the granted options in 1H17 due to recovery in cobalt prices. We estimate an investment gain of Rmb100mn for 2017 as gain in cobalt prices had extended into 2H17.
CMOC: ROE and net gearing
2013 2014 2015 2016 2017F 2018F 2019F Net profit margin (%) 21% 27% 18% 14% 10% 16% 17% Asset turnover (%) 29% 27% 14% 12% 29% 33% 32% Lev erage (x) 1.6 1.9 1.8 3.3 3.1 2.3 2.4 ROE (%) 9.9% 13.6% 4.8% 5.5% 9.2% 12.2% 12.8% Net gearing (%) 53% 65% 38% 83% 61% 53% 46%
Source: Company, DBS Vickers
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Dividend policy. Durng 2013-2016, the company had paid dividend at a payout ratio of 56-61%. We expect CMOC to retain a stable dividend policy. We project FY17/FY18F dividend payout to be both 58%.
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Valuation and recommendation rated) and Nanjing Hanrui (300618.CH, not rated). The two peers are trading at 30x PE and 11.7x P/BV on average, based We initiate coverage of CMOC- H with BUY rating and target on 2018 bloomberg-consensus forecasts. Huayou and Hanrui price of HK$8.00, equivalent to 36.5x PE, 3.5x P/BV and 10.3x are both downstream cobalt refineries, whose business EV/EBITDA based on 2018 earnings forecasts. Our target price competition is intense due to a lot of market participants. This is implies 0.85x PEG based on net profit CAGR of 43% in 2017- inferior to upstream miner (crude cobalt hydroxide producer) 19. like CMOC with world-class assets. Cobalt mining hasa very Net profit to rise at a CAGR of 43% in 2017-19F. This is on the high entry barrier with restrictions to availability of cobalt back of: i) GP margin to increase to 46.3% and 48.5% resources. While Huayou and Hanrui have been seeking respectively in 2018 and 2019 vs estimated 37.9% for 2017 upstream cobalt resources for many years, so far the due to stronger copper, cobalt and molybdenum prices; we development is quite muted. Thus, we think our target project FY18/19 copper prices to rise by 20%/6.5%, cobalt valuation premium for CMOC is justified. prices to increase 62%/7%; molybdenum prices to hike Compared to global copper peers. Four of Global top five 18.6%/0.5% whilst the production cost to increase marginally; copper are listed, including Freeport-McMoran, BHP Billition, ii) Sale volume to increase slightly for copper, cobalt, Glencore and Southern Copper, which are trading at 13.4x molybdenum and phosphates; iii) FY18/19F finance expenses to FY18F PE on average. As discussed in the earlier part of the decline to Rmb900mn and Rmb800mn respectively vs estimated report, CMOC’s cash cost of copper production is the lowest Rmb1,599mn as forex losses are expected to be moderate in compared to the other four names, helped by its extreme low 2018 and nill in 2019. cash cost of TFM after deducting by-product cobalt cost. This is The target valuation rationale. CMOC-H is trading at historical justified that CMOC is trading at premium to its global copper average of 22.4x P/E and 2.0x P/BV since its HK IPO in April peers. Needless to say, the company has granted an exclusively 2007, with business only focus on molybdenum and tungsten option to buy an additional 24% equity interest in TFM. before 2013. CMOC’s valuation has started to re-rate after it announced to acquire TFM in May 2016. Thus, we think it is not justified to rely on historical valuation to derive our valuation target. Compared to A-share cobalt peers. In A-share, there are two cobalt producers namely Zhejiang Huayou (603799.CH, not
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China /Hong Kong Company Guide China Molybdenum Co Ltd
CMOC: Peers valuation
Mkt PE PE P/Bk P/Bk EV /EBITDA EV /EBITDA ROE ROE Currency Price Cap 18F 19F 18F 19F 18F 19F 18F 19F Company Name Code Local$ US$m x x x x x x % % Conglomerate Glencore GLEN LN GBP 3.8275 74,214 11.9 12.5 1.5 1.4 7.9 7.9 12.6 11.9 Bhp Billiton BHP AU AUD 30.81 381 14.1 17.1 2.1 2.0 6.0 6.6 15.4 12.2
Copper Rio Tinto RIO AU AUD 78.25 108,349 13.0 13.8 2.4 2.3 5.1 5.4 18.0 15.6 Vale On Adr 1:1 V ALE US USD 12.54 66,267 9.7 9.9 1.3 1.2 5.9 6.1 14.1 13.6 Southern Copper SCCO US USD 47.4 36,642 18.9 18.7 4.5 3.9 10.1 9.8 25.9 24.2 Anglo American AAL LN GBP 16.48 31,116 9.6 10.9 1.2 1.2 6.7 7.3 12.3 10.2 F reeport-Mcmoran F CX US USD 17.97 26,013 8.8 13.3 2.3 2.0 4.7 6.4 28.3 14.1 Antofagasta ANTO LN GBP 9.014 11,945 16.0 14.4 1.6 1.5 8.6 7.8 9.0 9.8 Zijin Mining Group 'H' 2899 HK HKD 4.16 12,257 19.0 16.4 2.2 2.0 7.4 6.7 12.4 12.9 J iangxi Copper 'H' 358 HK HKD 13.9 6,158 14.2 12.0 0.8 0.8 8.0 7.5 5.6 6.2 F irst Quantum Mrls. F M CN CA D 17.81 9,675 14.6 9.4 1.0 0.9 6.4 4.6 6.5 9.5 Oz Minerals OZL AU AUD 9.38 2,215 15.0 17.5 1.1 1.0 4.3 4.8 6.6 5.6
Cobalt Zhejiang Huayou Cob.'A' 603799 CH CNY 100.63 9,020 23.9 18.6 7.1 5.1 n.a. n.a. 30.0 28.3 Gem 'A ' 002340 CH CNY 6.36 3,670 28.3 20.9 2.7 2.4 n.a. n.a. 10.4 12.2 Nanjing Hanrui Cob. 'A' 300618 CH CNY 243 4,410 35.9 27.5 16.3 10.6 n.a. n.a. 62.0 59.2 Sherritt Intl.Restrctd Vtg S CN CA D 1.22 381 n.a. 9.6 n.a. n.a. n.a. n.a. n.a. n.a.
Tungsten Xiamen Tungsten 'A' 600549 CH CNY 24.36 4,005 28.0 19.4 3.3 2.9 14.7 13.1 12.8 16.7 Chongyi Zhangyuan Tgtn. 'A' 002378 CH CNY 8.75 1,223 134.6 n.a. 4.0 n.a. n.a. n.a. 2.5 n.a.
Molybdenum J induicheng Molybdenum 'A' 601958 CH CNY 7.04 3,435 78.2 42.7 1.7 1.6 22.5 20.5 2.2 3.8 China Molybdenum 'H'* 3993 HK HKD 5.99 16,552 22.3 20.9 4.7 4.3 6.9 6.0 22.0 21.7 # FY18: FY19; FY19: FY20
^ Core EPS
Source: Thomson Reuters, *DBS Vickers
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China/Hong Kong Company Guide China Molybdenum Co Ltd
CMOC: PE bands CMOC: PB bands
x x 8.0 120 7.0 100 6.0 80 5.0
60 4.0 +1SD: 3.3x +1SD: 41.5x 3.0 40 Avg: 22.4x 2.0 Avg: 2x 20 -1SD: 3.2x 1.0 -1SD: 0.7x 0 0.0 Apr-15 Apr-16 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-17 Apr-18 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Source: Thomson Reuters, DBS Vickers Source: Thomson Reuters, DBS Vickers
Shareholdering structure increase of cobalt mine output to be worse than expected. In 2018, Glencore guides that it is to increase 11kt mined cobalt On 12 January 2014, Cathy Fortune Corporation (CFC), owned output as its Katanga Mining is to commission operation after by Mr. Yu Yong, has become the largest shareholder from completion of a debottleneck program. We only assume 50% being the second largest shareholder previously after CFC of the mined cobalt output to come onsteam. If Glencore’s new increased its stake in H shares in the secondary market. supply of cobalt is worse than market expected, this will Following that, Luoyang Mining Group Co., (LMG), owned by adversely impact global cobalt prices. the State-owned Asset Supervision and Administration Commission of the People’s Government of Luoyang City, has Copper cash cost of NPM. Copper cash cost of NPM has become the second largest shareholder from being the largest increased since 2015 to US$0.87/lb in 1H17 versus US$0.64/lb, shareholder previously. Shareholding structure of CMOC’s two this follows a similar industry trend as mined grades continue to largest shareholders has been stable since January 2014. fall. Given NPM accounts for around 14% of CMOC’s copper sales volume, we think the risk is moderate and expect stronger CMOC: Shareholding structure copper prices in 2018 could more than offset potential higher cash cost. Major shareholders Number of Shareholding shares held (%) Forex risks. In the first nine month, CMOC reported forex losses (100m) of Rmb408mn included in finance expenses, due mainly to Cathay Fortune Corporation 53.33 24.69% significant depreciation of Congolese franc against US dollar US Luoyang Mining Group Co. Ltd 53.30 24.68% dollar is a functioning currency for CMOC’s copper and cobalt Total 215.99 49.37% business, while the company has certain borrowings Source: Company, DBS Vickers denominated in Congolese franc. In 2017, Congolese franc had depreciated by 27% against US dollar due to economic Investment risks slowdown and political upheaval in Democratic Republic of Congo (DRC). In YTD 2018, the forex of Congolese franc Commodity prices risks. The company’s eanrings are more against US$ has stabilised since September 2017. We estimate sensitive to copper prices and cobalt prices. We have discussed forex losses included in finance expenses for 2017 was the eanrings sensitivity in earlier part of the report. To derail Rmb480mn. We forecast a forex losses of Rmb100mn for 2018. positive price momentum for cobalt prices, we shall see supply
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China /Hong Kong Company Guide China Molybdenum Co Ltd
Copper industry Limited new mine capacity in 2018-2020. Given it usually takes Tightening copper raw material supply three to five years to ramp up the mined output capacity, supply has getting tighter since 2017. In 2016, world’s copper mine 2018 annual TC falls to US$82.25/tonne, indicating tight supply output was 19.4mt. Over the first nine months of 2017, top of raw material. At end-Decemeber 2017, Tongling Nonferrous twelve copper miners in the world produced 7.5mt in total, led China Smelters Purchase Team (CSPT), signed annual TC down 7% y-o-y. Their output represents around 50% of the (treating charge) with Freeport at US$82.25/tonne. TC in 2018 world’s supply. edged down 11% y-o-y, hitting a five-year low, which suggests less copper concentrates availability. This reflects that global Global Copper Industry: Copper concentrate output (kt) copper mine investment had collapsed since 2014 due to falling prices. Global leading producers such as Codelco, Freeport (FCX Company 9M17 9M16 yoy (%) US, not rated), BHP Billiton (BHP AU, not rated) had reduced their mine output to support copper selling prices. CODEL CO 1,323 1,366 -3.1% F reeport-McMoran 1,239 1,402 -11.6%
China Copper Industry: Annual TC BHP Billiton 1,018 1,173 -13.1% Glencore 842 943 -10.7% Southern Copper Corporation 676 690 -2.1% (US$/t) Antofagasta 527 504 4.5% 120 Anglo American 431 431 0.0%
100 F irst Quantum Minerals 420 393 6.7% V ale 330 331 -0.1% 80 Rio Tinto 330 410 -19.6% Teck Resources Limited 209 252 -17.1% 60 Lundin Mining Corporation 170 188 -9.4% 40 Total 7,514 8,081 -7.0%
20 Source: Companies, DBS Vickers
- 2012 2013 2014 2015 2016 2017 2018
Source: CNIA, ICSG
Global global industry: New mine output capacity
Company Project location Mine name Type Capacity Expected y ear of (10,000 t) commencement
Rio Tinto Mongolia Oyu Tolgoi New mine 30 2020 BHP Biliton/Rio Tinto U.S Resolution New mine 30 2020 Glencore Z ambia Mopani Debottlenecking project 20 2023 BHP Biliton Australia Olimpic Dam Capacity expanison 3-8 2021 Zijin Mining DRC K amoa New mine 20 2018 First Quantum Panama Cobre Panama New mine 32 2018 Southern Copper Peru Toquepala New mine 10 2018
Source: SMM, DBS Vickers
Supply uncertainty from Chile and Peru could escalate in 2018. more often strikes in Chile and Peru, as it is expected that more South America Chile and Peru accounted for 28% and 12% than forty mine union enterprise agreements would be global copper concentrate output, based on statistics of ISGS negotiated in the two countries during the year, which will 2016. In 2018, we expect supply disruption is to come from involve an annualised output of around 5-6 mt.
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China/Hong Kong Company Guide China Molybdenum Co Ltd
During November-December 2017, Peruvian operations of Growing Chinese refined output is heavily relying on raw Southern Copper (SCCO US, not rated) already held a three- material imports. Based on statistics of ISGS 2016, China week strike. Lately, on 23 November 2017, one of the unions at accounted for 9% of world’s copper concentrate output, while Chile’s Esocondida, the biggest copper mine, held a one-day China contributed to 36% of refined copper output and 50% warning strike. of copper consumption in the world. China’s output of copper China Copper Industry: Global copper concentrate concentrate had peaked in 2014. We estimate China’s output by country (2016) dependence on imported copper concentrate is around 75%.
(mt ) (% total) United States 1.41 7.3% China Copper Industry: Copper concentrate output Australia 0.97 5.0% Canada 0.72 3.7% (mt ) Chile 5.50 28.4% 2.0 1.76 1.71 1.74 China 1.74 9.0% 1.8 1.63 1.60 Congo (Kinshasa) 0.91 4.7% 1.6 1.43 1.43 Mexico 0.62 3.2% 1.4 1.2 Peru 2.30 11.9% 1.0 Russia 0.71 3.7% 0.8 Z ambia 0.74 3.8% 0.6 Others 3.78 19.5% 0.4 0.2 Total 19.40 - Source: USGC, DBS Vickers 2012 2013 2014 2015 2016
11M2016 11M2017
Global Copper Industry: Inventory Source: CEIC, China Nonferrous Metals Industry Association, DBS Vickers (tonne) 900,000 800,000 Scrap copper imports are facing stricter constraints. According 700,000 to our discussion with industry channel checks, China would 600,000 ban imports of some copper scrap called Category 7 scrap, 500,000 which are solid waste that does not meet stricter impurity 400,000 standard, most likely in the end of 2018 or in early 2019. This 300,000 reflects central government’s sustained intention to crack down 200,000 imports of foreign waste that generate pollution when it is used 100,000 by domestic smelters to produce refined copper. 0 Currently, around 20% of China’s refined copper output uses scrap copper as raw material. Imports of scrap copper meet Feb- 13 Feb- 14 Feb- 15 Feb- 16 Feb- 17 Nov-14 Nov-15 Nov-13 Nov-16 Nov-17 Aug-13 Aug- 14 Aug- 15 Aug-16 Aug- 17 May-13 May-14 May-15 May-16 May-17 around 55% of China’s requirement of scrap copper. LME SHFE
Source: Bloomberg, DBS Vickers
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China /Hong Kong Company Guide China Molybdenum Co Ltd
China Copper Industry: Imports of copper scrap and refined copper Grid investment. The State Grid Corporate of China (SGCC) plans to invest Rmb3.34 trillion to build out the power grid over 13th five- (mt ) year plan (FYP). In 2016, According to statistics of SMM, China’s grid construction investment was Rmb498bn and the investment is 8.0 expected to be Rmb578bn for 2017. This implies grid construction 7.0 investment is to be Rmb754bn on average for 2018-2020. 6.0 3.6 3.7 Air conditioner output. Air conditioner accounts for around 71% of 5.0 3.6 3.3 2.9 the total power consumption in home appliances. Due to recovery 4.0 in home sales, China’s air conditioner output in 2017 grew 28% y- 3.0 o-y to 143.5mn units. We expect the production growth to remain 2.0 3.9 3.7 3.3 3.0 3.3 solid in 2018 as home sales growth is expected to be intact. 1.0 China property GFA new starts. In 2017, China’s floor space sold - 2014 2015 2016 11M16 11M2017 increased 8% y-o-y to 1,694mn sqm while floor space completed Imports of copper scrap were largely flattish y-o-y at 1,015mn sqm. As property sales Imports of refined copper recovery is most likely to extend into 2018, we think consumption growth in copper for the construction segment will remain steady. Source: China Nonferrous Metals Industry Association, DBS Vickers Falling inventory. Copper inventories at both SHFE and LME have been falling since March 2017. For the week ended 19 Jan 2018, China refined copper capacity continues to expand in 2018. We aggregate inventory of SHFE and LME was 388kt, down 13% y-o-y estimate China’s refined copper output capacity had reached compared to same period a year earlier. 11.7mt as of end-2017. In 2018, we project new capacity addition to be 1.4mt, respresenting y-o-y growth of 12.0%. Copper prices. LME copper prices had recovered since 4Q16, Driven by new capacity, we forecast China’s refined copper underpinned by better-than-expected Chinese demand and output to increase by 6% y-o-y to 8.5mt in 2018. Based on this, accelerating global economic growth, buoyed by strong PMI for we expect supply of copper concentrate to feed Chinese refined Euro zone and US. Meanwhile, supply disruption from mines strikes output to tighten further. and unfavourable weather in South America help to push the prices higher. In 2017, LME copper prices posted upward with annual China copper demand is to be underpinned by stable power average of US$6,182/t, up 27% y-o-y. In 2018, we forecast LME grid investment and solid home appliance output. In 2018, we copper prices to increase 20% y-o-y to US$7,400/t. project China’s copper consumption to increase 2.5% y-o-y to 12.2mt following an estimated growth of 2.6% in 2017. Global Copper Industry: LME copper prices Electricity power, home appliance and construction segment 9,000 account for around 46%, 15% and 9% of Chinese copper consumption respectively. 8,000 7,000 China Copper Industry: End-user demand 6,000 5,000 4,000 10.0% 3,000 9.0% 2,000 46.0% 9.0% 1,000
11.0% 0 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17
15.0% May-13 May-14 May-15 May-16 May-17
Source: Bloomberg, DBS Vickers Electricity power Home a ppl ia nce Transportation Building/construction
Electronics Others
Source: CNIA, ICSG
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China/Hong Kong Company Guide China Molybdenum Co Ltd
Cobalt industry LCO (lithium cobalt oxide), NMC (lithium nickel-cobalt- manganese oxide) and NCA (lithium nickel-cobalt-aluminium Upcycle driven by limited raw material resource and strong oxide) accounted for 73%, 24% and 4% respectively of cobalt growth in new energy vehicle consumption for the battery chemicals segment. Raw material - cobalt mine output. Globally speaking, almost Global: Li-ion battery chemistry comparison 98% of cobalt is mined as a by-product of copper and nickel mining, with copper and nickel mining accounts for 60% and Li-ion battery chemistry Application Attribution 38% respectively. Thus, cobalt metal has no primary supply. LCO (Lithium cobalt 3C products Good cy cle life, Congo continues to be the world’s leading source of mined oxide） good energy cobalt, supplying around 54% of world cobalt mine output in density, but poor 2016, according to statistics of USGS (United States Geological power density Survey). In 2016, global cobalt mine output declined 2.2% y-o-y NMC (Lithium nickel NEV , consumer High energy to 123k tonne as Glencore shut down its Katanga mine in 4Q15 cobalt manganese products, density, high in response to weak cobalt prices and Australia slashed its oxide) industrial energy power density, output by 15% y-o-y due to continuous decline in nickel prices. storage sy stem long life (ESS) Global cobalt demand. The uptick usage of cobalt in chemical NCA (Lithium nickel NEV -Tesla Strong energy products is because of its conductive properties. Cobalt is cobalt aluminium oxide) density, strong traditionally used for preparing high-strength, elevated power density, temperature alloys, and magnetic applications. Globally, long life, the most consumption in cobalt closely follows industrial production. expensiv e Battery materials, super alloys, cemented carbide, ceramics and LMO (Lithium NEV A safer alternativ e catalysts accounts for 50%, 18%, 8%, 6% and 5% of world’s manganese oxide) to LCO, but has a cobalt consumption. lower cy cle life LFP (Lithium iron NEV -BYD Safety , good cy cle Darton Commodities, an cobalt industry think tank, expects phosphate) life, but lower cobalt demand of battery chemicals to grow at a CAGR of 12% power, lower in 2016-2022. energy density Source: Company, DBS Vickers Global Cobalt Industry: Consumption breakdown
The rechargable batteries market is expected to grow rapidly as the world pivots towards electric vehicles. In 2016, 0.75mn 6% 10% units of electric vehicles were sold worldwide, or less than 1% 3% of new-car sales in the year. During the year, China accounted for c.50% of the global NEV sales. Market consensus looks at 5% China’s NEV (new energy vehicles) production to expand to 50% 8% 2.0mn units by end-2020 and 7.0mn units by end-2025. This respresents 37% CAGR in 2017-2020 and 28% CAGR in 2020- 18% 2025. Global cobalt supply is highly concentrated. The concentration of cobalt mine industry is high. The larget producers of cobalt Battery chemicals Super alloys are Glencore and China Moly’s Tenke Mine (DRC), with annual Cemented carbide Catalysts Magnets Ceramics output of 28,300 tonne and 16,000 tonne respectively in 2016, Others accounting for aggregate 41% of world’s mine output. When Glencore announced to halt operations at its Katanga mine in Source: CDI, Darton Commodities, DBS Vickers DRC in September 2015 due to low copper prices, it eroded world’s cobalt supply by 2.3% or by 2,900 tonne, on an annualised basis.
Rechargable batteries market. According to statistics of Darton Leading miners reduced mine output in 2017. We have Commodities, world’s refined consumption grew 1.9% y-o-y to compiled production figures for top global miners, including 93,950 tonne, driven by 2% growth of battery chemicals Glencore, China Moly, Sherritt (S CN, not rated) and Vale segment and 3% growth of superalloys segment. In 2016, (VALE3 BZ, not rated), which account for c.47% of the global cobalt consumption of rechargeable batteries was estimated to cobalt mine supply altogether, according to our calculation. be around 47,000 tonne. Breakdown by Li-ion battery chemistry, Based on their output in the first nine months, we estimate the
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China /Hong Kong Company Guide China Molybdenum Co Ltd four miners’ aggregate cobalt ore output in 2017 to have dropped 7.5% y-o-y. China Cobalt Industry: Consumption breakdown ESG (environmental, social and corporate government) issues 4% arise from artisanal mining in Congo. Artisanal mining emerges 3% in rural poor areas in developing nations, which employs 3% 6% workers for mining with hand tools. According to statistics of 4% USGS, artisanal mining accounts for roughly 15% of Congo’s cobalt mine supply. The artisanal mines are usually small mines, which employs children labour. It is estimated that children comprise 40 percent of artisanal miners, presenting on artisanal mining sites as members of the family. 80% In Novemeber 2017, the London Metal Exchange decided to investigate those cobalt traded on its platform, highlighting the issues regarding proper sourcing of cobalt. Earlier in September Lithium-ion battery Magnets 2017, companies including BASF and Volkswagon, as well as Ceramics Catalysts non-governmental organisations (NGO) launched a Global Cemented carbide Super alloys Battery Alliance at the World Economic Forum, targetting to alleviate child labour miners in Congo. We expect the supply Source: DBS Vickers, Antaike chain investigation will further intensify as the downstream electric vehicles and consumer products develops. This could lead a potential supply cut if the investigation turns into regulating action.
Congo: Artisinal mining
Source: Google picture, DBS Vickers,
China plays leading role in global cobalt output, however, it is short of cobalt resources. On the basis of tonnes of contained cobalt, China is the largest refined cobalt producer in the world, accounting for 50% of global output. China primarily relies on imports of raw material (cobalt ores and crude cobalt hydroexides) and recovery from scrap to produce refined cobalt and cobalt salts, as China’s domestic cobalt mine output only accounts for 6% of world’s total.
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China/Hong Kong Company Guide China Molybdenum Co Ltd
China Cobalt Industry: Demand forecasts by end-user
2015 2016 2017E 2018F 2019F 2020F Li-ion battery - Ternary material (NCM) 5,766 8,896 14,196 16,918 20,499 25,508 % y-o-y 54.3% 59.6% 19.2% 21.2% 24.4% Li-ion battery - Lithium cobalt oxide (LCO) 26,958 27,436 31,800 32,436 33,085 33,746 % y-o-y 1.8% 15.9% 2.0% 2.0% 2.0% Super Alloys 1,648 1,651 1,663 1,664 1,666 1,667 % y-o-y 0.2% 0.7% 0.3% 0.3% 0.3% Cemented carbide 3,707 3,714 3,740 3,750 3,759 3,768 % y-o-y 0.2% 0.7% 0.3% 0.3% 0.3% Cataly sts 1,799 1,799 1,801 1,803 1,805 1,806 % y-o-y 0.0% 0.1% 0.1% 0.1% 0.1% Ceramics 2,076 2,076 2,078 2,080 2,082 2,084 % y-o-y 0.0% 0.1% 0.1% 0.1% 0.1% Magnets 2,214 2,214 2,217 2,219 2,221 2,223 % y-o-y 0.0% 0.1% 0.1% 0.1% 0.1% Total 44,168 47,787 57,495 60,870 65,116 70,804 % y-o-y 8.2% 20.3% 5.9% 7.0% 8.7%
Source: SMM, DBS Vickers
China Cobalt Industry: Utilisation rate of refined cobalt The tight supply of cobalt material is also proved by decline in utilisation of China’s refined cobalt output capacity, which declined to 65% in 2017 vs 87% in 2016 as output of cobalt (%) salts (battery grade) spiked due to strong demand for Li-ion 100% battery chemicals. 90% 80% 70% 60% 50% 40% 30% 20% 10% 2016 2017E 2018F 2019F 2020F
Source: DBS Vickers, SMM
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China /Hong Kong Company Guide China Molybdenum Co Ltd
Cobalt is a raw material feeding cathode material for NEV battery. We forecast China’s cobalt consumption in 2018 and Expected renewed NEV subisidies policy to benefit usage of 2019 to grow 5.9% and 7.0% driven by i) growth in NEV NCM battery. According to latest media reports, details of NEV output and ii) subsidy plan for 2018 is still pending for approval. The policy is growing market penetration of NMC (nickel-cobalt-maganese) expected to cancel subsidies for NEV with a driving range of less cathode material replacing LFP (lithium iron phosphate) cathode than 150km. Despite of anticipation of phase-out subsidies for material. low - energy - density battery, we still expect 30% y - o - y growth China’s cobalt consumption in NEV is shifting towards nickel- for NEV output in China in 2018 as we believe more usage of cobalt-maganese cathodes material from LFP material. Nearly NCM battery to drive the industry growth. 80% of China’s cobalt consumption is used to make Li-ion China targets NEV sales at 2mn units by 2020 and 7mn units by battery chemicals, including lithium-ion batteries with cobalt 2025, representing a CAGR of 28.5%. According to China cathodes (LCO), with nickel-cobalt-manganese (NCM) cathodes, Association of Automobile Manufacturers (CAAM), China’s NEV and with phosphate cathodes (LFP). output surged 53% y-o-y to 0.78mn units. On April 25th 2017, China’s Ministry of Industry and Information Technology (MIIT), For NEV batteries in China, LFP and NCM are predominately the National Development and Reform Commission (NDRC), deployed. Given NCM cathode materials are superior in both and the Ministry of Science and Technology jointly issued the energy density and power density compared to LFP, coupled “Medium and Long-term Development Plan for the Automotive with declining in cost, market share of NCM increased to 44% Industry”. The plan targets China’s NEV sales (including battery electric vehicles and plug-in hybrid electric vehicle) of 2mn units in 2017 vs 28% in 2015, according to our channel checks. In by 2020. By 2025, the plan targets NEV sales to account for comparison, market share of LFP decreased to 50% in 2017 vs 20% of the country’s total vehicle sales, which is expected to be 69% in 2015, as government’s supportive subsidies policy 7mn units. This implies a CAGR of 37% in 2017-2020, followed encourages more usage of NCM batteries. by a CAGR of 28.5% in 2020-2025.
China Cobalt Industry: Penetration of ternery cathode material (NCM) in new energy vehicle battery Cobalt prices. Global cobalt prices started to recover since 4Q16. In 2017, cobalt prices had more than doubled, with MB (Metal (%) Bulletin) Low Grade low prices increased from US$15.0/lb at the beginning of the year to US$35/lb at year-end. This is due to 100% 4% 4% 6% global restocking fuelled by demand growth in NEV and 3C 80% products (computer, communication and consumer electronic). 50% On a yearly basis, cobalt MB Low Grade low prices in 2017 were 60% 69% 73% US$25.8/lb, up 126% y-o-y from US$11.4/lb in 2016. 40% The hike in cobalt prices is also triggered by hedge funds 20% 44% buyings. On 8 December 2017, Cobalt 27 (KBLT CN, not rated) 28% 23% bought up to 720 tonne of cobalt from the spot market with a 0% 10% price premium to the spot rates. The restocking is 2015 2016 2017 impactful, considering it accounts for around 3% of global Others annualised trading volume of cobalt in the spot market. LFP (磷酸铁锂) Ternery material NCM (三元材料) YTD 2018, cobalt MB Low Grade low prices have increased by 6.4% to US$37.25/lb. In 2018, we forecast MB Low Grade low Source: SMM, DBS Vickers prices to increase 63% y-o-y to US$42/lb.
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China/Hong Kong Company Guide China Molybdenum Co Ltd
China Cobalt Industry: LME cobalt prices China Cobalt Industry: LME cobalt inventory
(US$/t) (tonne) 90,000 850 80,000 800 70,000 750 60,000 50,000 700 40,000 650 30,000 600 20,000 550 10,000 0 500 Jan-16 Jan-17 Jan-18 Sep-16 Sep-17 J ul -16 J ul -17 J ul -13 J ul -14 J ul -15 May-17 May-16 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Source: DBS Vickers, Antaike Source: DBS Vickers, Antaike
Global: NEV battery comparison
Company Tesla BMW Nissan BYD GM Toyota V ehicle Model S i3 Leaf E6 Chev rolet V olt Prius (Lithium-ion battery version) Type Pure electric Pure electric Pure electric Pure electric Range-extended hybrid Hy brid Battery supplier Panasonic Samsung SDI Self-dev eloped Self-dev eloped LG Panasonic Battery capacity (kWh) 85 22 24 60 16 4.4 Driving Range (km) 408 260 249 300 80 (electric driv e) 24 (electric driv e) Li-ion battery chemistry NCA Modified LMO LMO LFP LMO NCM
Source: Company, Public media, DBS Vickers
LMO battery of BMW i3 NCA battery cell and pack of Tesla Model S
Source: Google pircture, DBS Vickers Source: Google picture, DBS Vickers
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China /Hong Kong Company Guide China Molybdenum Co Ltd
Molybdenum and Tungsten Industry Demand and supply. Following recovery in both China and global’s economies, in 2016, stainless steel output in China and Molybdenum is used principally as an alloying agent in steel, global rose 16% and 10% respectively. The recovery had cast irons and superalloys to enhance hardness and strength. extended into 2017. Over January-September 2017, China’s Steel industry (mainly stainless steel, alloy steel and carbon) output of moly increased 16% y-o-y to 66,001 tonne, while accounts for around 71% of molybdenum consumption. Raw moly exports for the first eleven months surged 57% y-o-y to molybdenum concentrate is roasted in a furnace to produce 7,018 tonne. As supply of moly raw material was in shortage moly oxide, typically having 90% purity (containing due to shut-down of polluting mines driven by stricter approximately 60% moly metal). Ferromoly, containing 60% to environmental inspection, China’s imports of moly concentrate 75% of moly, is produced by smelting molybdenum oxide wit increased 14% y-o-y for the first eleven month of 2017. iron oxide in a conventional metallothermic process. Ferromoly prices. Given steel industry accounts for dominant China is the largest producer of Moly in the world, accounting consumption of moly, we have noticed Chinese moly prices are for 35% of global moly metal output and 43% of mined moly highly correlated to Chinese stainless steel prices and carbon output. In China, two largest moly producer Jinduicheng Moly steel prices. China’s ferromoly price have recovered since 2H17, (601958.CH, not rated) and China Moly realised output volume following recovery in China’s carbon steel industry. In 2017, of moly concentrates of 17,707 tonne and 16,302 tonne ferromoly prices recovered 28% y-o-y to Rmb85,993/t (incl.VAT). respectively, based on metal equivalent of 100% moly metal. In 2018, we forecast ferromoly prices to continue to increase by The two companies represented 42% of China’s moly 18.6% y-o-y. concentrate output volume.
China Moly Sector: Moly prices vs stainless steel prices China Moly Sector: Moly prices vs HRC steel prices
(Rmb/t) (Rmb/t) (Rmb/t) (Rmb/t) 25,000 140,000 5,000 160,000 120,000 4,500 20,000 140,000 4,000 100,000 120,000 3,500 15,000 80,000 3,000 100,000 10,000 60,000 2,500 80,000 40,000 2,000 60,000 5,000 1,500 20,000 40,000 1,000 0 0
500 20,000 13 14 15 16 17 18 13 14 15 16 17 ------0 0
Jul Jul Jul Jul Jul Jan Jan Jan Jan Jan Jan 13 14 15 16 17 18 13 14 15 16 17 ------Jul Jul Jul Jul Jul
Stainless Steel price (LHS) Jan Jan Jan Jan Jan Jan Ferromoly price (RHS) HRC price (LHS) Ferromoly(RHS) Source: WIND, DBS Vickers Source: Wind, DBS Vickers
Tungsten environmental regulation has limited the number of mining, imposing quotas on concentrate output. In 1H17, China Tungsten, in terms of its metallic form, is hard and brittle. witnessed tight supply as environmental reviews took place in Cemented carbides and steel sectors are two key end-user for Hunan and Fujian, which accounts for 50% of tungsten reserves. Tungsten, which represent 58% and 17% of Tungsten consumption respectively. Consumption of tungsten tends to Tungsten prices. Globally, tungsten intermediates are the most follow a similar trend of general economic activity, as its main important form of tungsten traded. These include tungstates, downstream includes construction and machinery such as ammonium paratungstate (APT). APT prices have manufacturing. Currently, China’s consumption for tungsten recovered since early 2016 following recovery in China’s carbon accounts for around 70% of global demand. steel prices increase. In 2017, APT prices gained 30% y-o-y to Rmb138,036/t (incl.VAT). In 2018, we forecast APT prices to World supply of tungsten is dominated by China, which continue to increase by 23%. accounts for around 82% of world mine production in 2016, according to statistics of USGS. Since 2016, China’s
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China/Hong Kong Company Guide China Molybdenum Co Ltd
China Tungsten Sector: Tungsten concentrate prices China Tungsten Sector: APT prices in Jiangxi
(Rmb/t, incl.VAT) (Rmb/t, WO3≥88.5%) 160,000 250,000 140,000 200,000 120,000 100,000 150,000 80,000 60,000 100,000 40,000 50,000 20,000
0 0 J ul -13 J ul -14 J ul -15 J ul -16 J ul -17 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 J ul -13 J ul -14 J ul -15 J ul -16 J ul -17 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18
Source: WIND, DBS Vickers Source: WIND, DBS Vickers
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China /Hong Kong Company Guide China Molybdenum Co Ltd
Niobium and Phosphorus Industry Monoammonium phosphate (MAP) is a major kind of phosphate fertilizer product in Brazilian market. In Brazil, output Niobium is less cyclical. End products of niobium include high- of MAP was 654,000 tonnes in 2015 and 630,000 tonnes in strength & low-alloy steel (HSLA), advanced high-strength steel, 2016, according to statistics of the International Fertilizer stainless steel and heat resistant steel plate, whose end-user is Industry Association (IFA). The annual production is stable as auto industry, heavy engineering, infrastructure and only Companhia Vale do Rio Dace and China Moly own the petrochemical sectors. The consumption by ferroniobium (FeNb) production capacity in the country. accounts for 90% of the total consumption of niobium. In 2017, MAP prices hovered higher to US$371/t, up 4% y-o-y. In 2H17, FeNb prices were slightly higher h-o-h at US$29.5/kg This follows a 25% y-o-y decline in MAP prices occurred in compared to US$28.3/kg in 1H17. This follows a 14% decline in 2016, as Brazil’s demand for MAP slipped 33.6% due to selling prices in 2016 due to weaker demand of stainless steel economy weakness and surging China’s exports into Brazil industry. Historically, the FeNb prices fluctuated between exacerbated the price pressure. US$30-40/kg. Generally speaking, FeNb prices are less volatile compared to other industry commodity prices as the market is According to IFA, output of MAP of Brazil was 654,000 and highly consolidated. Currently, top two producers in Brazil, 630,000 tonnes for 2015 and 2016 respectively. namely CBMM (Companhia Brasileira de Metalurgia e The decline in MAP price during 2015 and 2016 is more driven Mineracao) and Anglo American (acquired by China Moly) by the demand side. During the period, the demand for accounts for around 90% of world’s output. chemical fertilizers dropped continuously as a result of sluggish economy of Brazil. According to the statistics of HIS, the In most of the cases, FeNb is sold directly to steelmakers, largely demand for MAP of Brazil dropped 33.6% in 2016 and fall back under yearly contract and pegging to spot selling prices. to the level in 2011. Apart from the weak demand, China’s robust export in phosphate fertilizer and the reduction of costs China Niobium: Brazil ferroniobium (FeNb) prices of raw materials and transportation also contributed to the decline.
(US$/kg) In 2017, MAP prices inched up 5.7% y-o-y to US$371/t. In 2018, we forecast MAP prices to increase 9.2% y-o-y on the back of 40.00 recovery in Brazil economy.
35.00 Brazil phosphorus: MAP prices*
30.00 (US$/t) 600
25.00 500
400 20.00 300 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 May-13 May-15 May-16 May-14 May-17 200
Source: WIND, DBS Vickers 100
0 Phosphorus. Brazil is world’s fifth largest chemical fertilizer consumer in the world. The demand is far more than its J ul -13 J ul -15 J ul -16 J ul -14 J ul -17 Jan-13 Jan-14 Jan-16 Jan-17 Jan-15 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17 domestic production and it needs to import a large amount of Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 chemical fertilizer from Russia, U.S and China. According to Ministry of Foreign trade and Export of Brazil, imports of Source: Bloomberg Finance, DBS Vickers
Phosphorate (P2O5) meets 60% of the country’s total consumption in 2016. Given limited new capacity to come Note: The prices denote CFR spot prices online, Brazil’s reliance on the imports will continue to be high and the ratio is expected to remain 57-58% by 2021.
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China/Hong Kong Company Guide China Molybdenum Co Ltd
Cathod copper ASP (USD/lb)
3.57 3.61 3.36 CRITICAL FACTORS TO WATCH 3.09 2.8 2.58 2.5 Critical Factors 2.21 2.06
Earnings are most sensivite to change in copper prices, followed 1.55 by cobalt prices. Thus, industry outlook of copper and cobalt is 1.03 critical factors for the company. 0.52
0.00 Copper industry outlook – Tightening copper raw material 2015A 2016A 2017F 2018F 2019F supply to support higher copper price in 2018. Low copper prices in 2015-16 led to collapse in investments in the sector. Metallic cobalt ASP (USD/lb) While it usually takes three years to ramp up capacity at a new 45.8 44.9 copper mine, supply has tightened since 2017. The production 42.0 of the top 12 copper miners, representing 50% of world’s 36.7 output, had fallen 7% y-o-y for the first three quarters of 2017. 27.5 25.9 The 2018 copper TC (treating charge) declined 11%, hitting a five-year low, suggesting less availability of copper concentrate. 18.3 12.9 In 2018, overseas, more than forty mine union enterprise 11.6 9.2 agreements would be renegotiated in Chile and Peru, which in total account for 40% of global mine output. This could further 0.0 2015A 2016A 2017F 2018F 2019F escalate supply uncertainty. Besides, China’s expected ban on scrap copper imports (for Category 7 scrap) could disrupt c.11% NPM copper output (tonne) of the country’s raw material supply. 41,155 40,348.0 Cobalt industry outlook – Upcycle driven by limited raw material 35,962.0 36,256.4 36,292.7 36,365.2 resource and strong growth in new energy vehicles (NEV). The 32,924 supply deficit started in 2016, with refined cobalt consumption 24,693 grew 1.9% to 93,950 tonne versus output declined 2.8% to 93,490 tonne. We project cobalt consumption of China, 16,462 accounting for 50% of world’s consumption, is to grow 6%- 8,231 9% in 2018-2020, driven by strong growth in battery chemicals at a CAGR of 10%. This is to be fuelled by output expansion of 0 2015A 2016A 2017F 2018F 2019F NEV and market share gain of nickel-cobalt-manganese (NMC) ternary material as cathode material for Li-ion battery of NEV. In Tenke copper output (tonne)
2017, we noticed the market share of NMC ternary in NEV 218,064 218,282 218,718 220,905 battery had increased to 44% versus 23% in 2015 as the uptake in vehicle electrification boost cobalt demand. 176,724 132,543
88,362
44,181 27,356 0 0 2015A 2016A 2017F 2018F 2019F
Cobalt output (tonne)
18000 16,116 16,148 16,164 16000 14000 12000 10000 8000 6000 4000 1,825 2000 0 0 2015A 2016A 2017F 2018F 2019F
Source: Company, DBS Vickers Page 27
China /Hong Kong Company Guide China Molybdenum Co Ltd
Leverage & Asset Turnover (x) 0.3 Balance Sheet: 0.90 Capex and FCF. We forecast capex in 2017-2018 to moderate to 0.80 Rmb850mn and Rmb900mn respectively vs estimated Rmb30bn for 0.70 0.3 2016 as the payments for overseas acquisitions are largely over. We 0.60 0.50 0.2 project Op-CF in FY18 to improve to Rmb12bn vs estimated 0.40 Rmb7.5bn for FY17, due to strong earnings growth riding on 0.30 0.2 stronger prices for copper, cobalt and molybdenum. As such, we 0.20 expect 2018 free cash flow tofurther improve to Rmb8.6bn vs 0.10 0.00 0.1 estimated Rmb6.2bn fo 2017. 2015A 2016A 2017F 2018F 2019F Net gearing. We project net gearing to decline to 53% in 2018 from Gross Debt to Equity (LHS) Asset Turnover (RHS) estimated 61% for 2017. Capital Expenditure RMBm 1,000.0 Share Price Drivers: 900.0 800.0 Economic outlook and copper and cobalt prices. 700.0 600.0 500.0 Key Risks: 400.0 300.0 Commodity prices risks. The company’s eanrings are more sensitive 200.0 100.0 to copper prices and cobalt prices. We have discussed the eanrings 0.0 sensitivity in earlier part of the report. To derail positive price 2015A 2016A 2017F 2018F 2019F momentum for cobalt prices, we shall see supply increase of cobalt Capital Expenditure (-) ROE mine output to be worse than expected. In 2018, Glencore guides that it is to increase 11kt mined cobalt output as its Katanga Mining 12.0% is to commission operation after completion of debottleneck 10.0% program. We only assume 50% of the mined cobalt output to come 8.0% onsteam. If Glencore’s new supply of cobalt is worse than market 6.0% expected, this will adversely impact global cobalt prices. 4.0% Forex risks. In the first nine month, CMOC reported forex losses of Rmb408mn included in finance expenses, due mainly to significant 2.0% depreciation of Congolese franc against US dollar US dollar is a 0.0% 2015A 2016A 2017F 2018F 2019F functioning currency for CMOC’s copper and cobalt business, while Forward PE Band the company has certain borrowings denominated in Congolese (x) franc. In 2017, Congolese franc had depreciated by 27% against US 44.2 dollar due to economic slowdown and political upheaval in 39.2
Democratic Republic of Congo (DRC). In YTD 2018, the forex of 34.2 +2sd: 32.1x Congolese franc against US$ has been stabilised since September 29.2 2017. We estimate forex losses included in finance expenses for 24.2 +1sd: 25.3x 2017 was Rmb480mn. We forecast a forex losses of Rmb100mn for 19.2 Avg: 18.4x 14.2 2018. -1sd: 11.5x 9.2 4.2 -2sd: 4.7x Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Company Background: PB Band A global leading copper producer, the largest largest cobalt (x) producer,on of the top five molybdenum producer in the world. 1H17, sales volume of copper and cobalt was 132kt and 7,559 2.6 tonne respectively, based on metal tonne. In 2016, sales volume was +2sd: 2.29x 2.1 20.5kt based on metal tonne. +1sd: 1.88x 1.6 Avg: 1.48x
1.1 -1sd: 1.08x
0.6 -2sd: 0.67x Feb-14 Feb-15 Feb-16 Feb-17 Feb-18
Source: Company, DBS Vickers
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China/Hong Kong Company Guide China Molybdenum Co Ltd
Key Assumptions FY Dec 2014A 2015A 2016A 2017F 2018F 2019F
Cathod copper ASP 3.1 2.5 2.2 2.8 3.4 3.6 (USD/lb) Metallic cobalt ASP 12.9 11.6 25.9 42.0 44.9 (USD/lb) NPM copper output 43,618 40,348 35,962 36,256 36,293 36,365 (tonne) Tenke copper output 27,356 218,064 218,282 218,718 (tonne) Cobalt output (tonne) 1,825.0 16,116 16,148 16,164 Source: Company, DBS Vickers
Segmental Breakdown (RMB m)
FY Dec 2014A 2015A 2016A 2017F 2018F 2019F Revenues (RMB m) Molybdenum, tungsten 3,615 2,421 2,816 3,769 4,593 4,629 Niobiumd l drelated d products 0 0 411 1,791 1,948 1,969 Phosphorus related 0 0 730 2,643 2,876 2,907 Copper,d cobalt and related 0 0 1,296 14,808 17,991 19,447 Copperd ()and related 2,083 1,443 1,381 1,703 1,973 2,101 Othersd (NPM) 965 333 316 334 445 470 Total 6,662 4,197 6,950 25,049 29,826 31,524 (RMB m) Molybdenum, tungsten 1,661 938 1,304 1,876 2,692 2,723 Niobiumd l drelated d products 0 0 104 388 494 498 Phosphorus related 0 0 145 573 729 736 Copper,d cobalt and related 0 0 300 6,198 9,191 10,605 Copperd (TFM)and related 1,091 512 368 648 793 797 Othersd ( ) (311) (118) (125) (193) (98) (80) Total 2,441 1,332 2,095 9,490 13,802 15,280 Margins (%) Molybdenum, tungsten 45.9 38.7 46.3 49.8 58.6 58.8 Niobiumd l drelated d products N/A N/A 25.3 21.7 25.4 25.3 Phosphorus related N/A N/A 19.9 21.7 25.4 25.3 Copper,d cobalt and related N/A N/A 23.1 41.9 51.1 54.5 Copperd (TFM)and related 52.4 35.5 26.6 38.1 40.2 38.0 Othersd ( ) (32.2) (35.3) (39.5) (57.6) (22.0) (17.0) Total 36.6 31.7 30.2 37.9 46.3 48.5 Source: Company, DBS Vickers
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China /Hong Kong Company Guide China Molybdenum Co Ltd
Income Statement (RMB m) FY Dec 2014A 2015A 2016A 2017F 2018F 2019F Revenue 6,662 4,197 6,950 25,049 29,826 31,524 Cost of Goods Sold (4,221) (2,865) (4,854) (15,559 (16,024 (16,244 Gross Profit 2,441 1,332 2,095 9,490 13,802 15,280 Other Opng (Exp)/Inc (548) (442) (805) (1,378) (1,640) (1,734) Operating Profit 1,893 890 1,290 8,113 12,161 13,546 Other Non Opg (Exp)/Inc 437 (161) 308 (346) 87 95 Associates & JV Inc 0 0 0 0 0 0 Net Interest (Exp)/Inc (182) (46) (408) (1,599) (900) (800) Dividend Income 0 0 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 0 0 Pre-tax Profit 2,148 683 1,190 6,168 11,348 12,841 Tax (348) 20 (171) (2,127) (3,913) (4,427) Minority Interest 24 58 (21) (1,437) (2,701) (3,083) Preference Dividend 0 0 0 0 0 0 Net Profit 1,824 761 998 2,605 4,735 5,331 Net Profit before Except. 1,824 761 998 2,605 4,735 5,331 EBITDA 3,182 1,474 2,758 12,434 17,056 18,514 Growth Revenue Gth (%) 20.3 (37.0) 65.6 260.4 19.1 5.7 EBITDA Gth (%) 79.1 (53.7) 87.1 350.8 37.2 8.6 Opg Profit Gth (%) 131.1 (53.0) 44.9 528.8 49.9 11.4 Net Profit Gth (%) 55.4 (58.3) 31.1 161.0 81.8 12.6 Margins & Ratio Gross Margins (%) 36.6 31.7 30.2 37.9 46.3 48.5 Opg Profit Margin (%) 28.4 21.2 18.6 32.4 40.8 43.0 Net Profit Margin (%) 27.4 18.1 14.4 10.4 15.9 16.9 ROAE (%) 13.6 4.8 5.5 N/A 12.2 12.8 ROA (%) 7.3 2.6 1.7 N/A 4.7 5.1 ROCE (%) 7.0 3.5 2.2 N/A 9.1 9.6 Div Payout Ratio (%) 55.5 55.5 59.2 58.1 58.1 58.1 Net Interest Cover (x) 10.4 19.3 3.2 5.1 13.5 16.9 Source: Company, DBS Vickers
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China/Hong Kong Company Guide China Molybdenum Co Ltd
Interim Income Statement (RMB m) FY Dec 2H2014 1H2015 2H2015 1H2016 2H2016 1H2017
Revenue 2,956 2,269 1,928 2,260 4,690 11,655 Cost of Goods Sold (1,744) (1,453) (1,412) (1,493) (3,361) (7,664) Gross Profit 1,212 817 515 766 1,329 3,991 Other Oper. (Exp)/Inc (322) (196) (246) (219) (587) (565) Operating Profit 890 620 270 548 742 3,426 Other Non Opg (Exp)/Inc 160 (68) (93) 137 171 (310) Associates & JV Inc 0 0 0 0 0 0 Net Interest (Exp)/Inc (126) (161) 115 (89) (319) (1,026) Exceptional Gain/(Loss) 0 0 0 0 0 0 Pre-tax Profit 923 391 291 595 595 2,090 Tax (117) 46 (26) (94) (77) (721) Minority Interest 13 26 33 10 (32) (534) Net Profit 819 463 298 512 486 835 Net profit bef Except. 819 463 298 512 486 835
Growth Revenue Gth (%) 3.8 (38.8) (34.8) (0.4) 143.3 415.7 Opg Profit Gth (%) 310.6 (38.1) (69.7) (11.7) 175.2 525.3 Net Profit Gth (%) 43.9 (53.9) (63.6) 10.6 63.1 63.1
Margins Gross Margins (%) 41.0 36.0 26.7 33.9 28.3 34.2 Opg Profit Margins (%) 30.1 27.3 14.0 24.2 15.8 29.4 Net Profit Margins (%) 27.7 20.4 15.5 22.7 10.4 7.2
Source: Company, DBS Vickers
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China /Hong Kong Company Guide China Molybdenum Co Ltd
Balance Sheet (RMB m) FY Dec 2014A 2015A 2016A 2017F 2018F 2019F
Net Fixed Assets 4,984 4,495 27,273 24,940 22,286 19,486 Invts in Associates & JVs 0 0 0 0 0 0 Other LT Assets 8,307 10,654 41,071 45,881 44,101 39,666 Cash & ST Invts 9,326 10,414 9,970 13,892 21,519 34,115 Inventory 433 593 5,083 5,500 5,750 5,900 Debtors 851 744 1,462 3,895 4,338 4,285 Other Current Assets 4,155 3,981 3,288 3,984 4,482 4,657 Total Assets 28,055 30,881 88,147 98,091 102,476 108,109
ST Debt 306 2,906 4,372 5,372 5,800 6,200 Creditors 193 237 742 1,781 1,100 1,200 Other Current Liab 2,501 5,625 10,868 10,740 11,122 11,783 LT Debt 4,161 1,942 23,377 21,363 20,439 19,039 Other LT Liabilities 5,750 2,353 14,451 13,455 13,455 13,455 Shareholder’s Equity 14,634 17,353 18,738 37,687 40,166 42,956 Minority Interests 511 463 15,599 7,692 10,393 13,476 Total Cap. & Liab. 28,055 30,881 88,147 98,091 102,476 108,109
Non-Cash Wkg. Capital 2,745 (545) (1,777) 858 2,347 1,859 Net Cash/(Debt) 4,859 5,567 (17,779) (12,844) (4,720) 8,876 Debtors Turn (avg days) 45.4 69.4 57.9 N/A 50.4 49.9 Creditors Turn (avg days) 21.1 37.0 48.4 N/A 46.9 36.9 Inventory Turn (avg days) 67.9 88.3 280.4 N/A 183.0 187.0 Asset Turnover (x) 0.3 0.1 0.1 NM 0.3 0.3 Current Ratio (x) 4.9 1.8 1.2 1.5 2.0 2.6 Quick Ratio (x) 3.4 1.3 0.7 1.0 1.4 2.0 Net Debt/Equity (X) CASH CASH 0.5 0.3 0.1 CASH Net Debt/Equity ex MI (X) (0.3) (0.3) 0.9 0.3 0.1 (0.2) Capex to Debt (%) 13.5 12.2 3.1 3.2 3.4 3.6 Z-Score (X) NA NA NA NA NA NA
Source: Company, DBS Vickers
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China/Hong Kong Company Guide China Molybdenum Co Ltd
Cash Flow Statement (RMB m) FY Dec 2014A 2015A 2016A 2017F 2018F 2019F
Pre-Tax Profit 2,148 683 1,190 6,168 11,348 12,841 Dep. & Amort. 853 745 1,160 4,668 4,807 4,873 Tax Paid 348 (20) 171 2,127 3,913 4,427 Assoc. & JV Inc/(loss) 0 0 0 0 0 0 (Pft)/ Loss on disposal of FAs 29 38 (6) 0 0 0 Chg in Wkg.Cap. 1,034 25 (70) (2,311) (1,011) (122) Other Operating CF 1,371 571 1,659 3,017 4,377 8,449 Net Operating CF 3,635 1,359 2,915 7,500 12,086 17,627 Capital Exp.(net) (602) (593) (854) (850) (900) (900) Other Invts.(net) (9,229) (12,123) (1,416) (354) 0 0 Invts in Assoc. & JV 0 0 0 0 0 0 Div from Assoc & JV 0 0 0 0 0 0 Other Investing CF 5,751 12,550 (25,378) 1,522 159 166 Net Investing CF (4,079) (166) (27,648) 318 (741) (734) Div Paid (974) (1,333) (1,108) (1,513) (2,751) (3,097) Chg in Gross Debt 4,698 3,004 24,243 (1,014) (1,000) (1,000) Capital Issues 0 0 0 0 0 0 Other Financing CF 566 403 856 500 100 (200) Net Financing CF 4,289 2,074 23,991 (2,027) (3,651) (4,297) Currency Adjustments (24) 89 181 (320) (67) 0 Chg in Cash 3,821 3,357 (562) 5,471 7,628 12,596 Opg CFPS (RMB) 0.17 0.08 0.18 0.52 0.61 0.82 Free CFPS (RMB) 0.20 0.05 0.12 0.35 0.52 0.77
Source: Company, DBS Vickers
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China /Hong Kong Company Guide China Molybdenum Co Ltd sDBSVHK recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 6 Feb 2018 08:26:44 (HKT) Dissemination Date: 6 Feb 2018 22:03:28 (HKT) Sources for all charts and tables are DBS Vickers unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Vickers (Hong Kong) Limited (“DBSV HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS Bank (Hong Kong) Limited (DBS HK), DBSV HK, and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSV HK.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
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China/Hong Kong Company Guide China Molybdenum Co Ltd
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK or their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 02 Feb 2018.
2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
3. Compensation for investment banking services: DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
4. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
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China /Hong Kong Company Guide China Molybdenum Co Ltd
RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946. DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSVHK is regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities. Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. United This report is produced by DBSVHK which is regulated by the Hong Kong Securities and Futures Commission
Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.
In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, International Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it.
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China/Hong Kong Company Guide China Molybdenum Co Ltd
United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. United States This report was prepared by DBSVHK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Vickers (Hong Kong) Limited 18th Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong Tel: (852) 2820-4888, Fax: (852) 2868-1523 Company Regn. No. 31758
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China /Hong Kong Company Guide China Molybdenum Co Ltd
DBS Regional Research Offices
HONG KONG MALAYSIA SINGAPORE DBS Vickers (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 2820 4888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2863 1523 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong Ltd e-mail: [email protected] Company Regn. No. 196800306E
INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand
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