A-Share Market Sees First Major M&A of the Year: Zijin Mining to Acquire Zangge Mining for CNY 13.7 Billion

Source: 21st Century Business Herald

Zangge Mining, January 17, 2025, 11:25, Qinghai

The content of this article does not constitute any investment advice. Disclosure information is subject to company announcements. Investors operate at their own risk.

On one side is Zangge Mining, with clear advantages in the potash and lithium sectors, and on the other is global mining leader Zijin Mining.

On the evening of January 16, both listed companies announced the details of the first major M&A deal of 2025. On that day, Zangge Mining’s controlling shareholder, Zangge Venture Investment Group (“Zangge Investment”), along with its concerted parties, the second-largest shareholder Ningbo Meishan Free Trade Port Zone Xinsha Hongyun Investment Management Co., Ltd., signed a control transfer agreement with Zijin International Holdings Ltd.

The transaction price was CNY 35 per share, representing an 18.64% premium over Zangge Mining’s market price at the time, with a total transaction value of CNY 13.729 billion. Upon completion, Zijin International will become the new controlling shareholder of Zangge Mining, and the company’s ultimate controlling party will change to the Shanghang County Finance Bureau.

“Including the shares previously held, Zijin Mining will hold a total of 25% of the shares. In combination with the company’s governance structure, Zijin Mining will obtain control of Zangge Mining and consolidate its financials,” Zijin Mining stated in a release that same evening.

This marks Zijin Mining’s second time obtaining control of an A-share listed company (after controlling Longjing Environmental) and its first acquisition of an A-share listed mining company.

For Zijin, the deal will not only indirectly increase its equity in Tibet Julong Copper but also further expand its lithium salt production capacity and resource reserves, supporting its goal of becoming “one of the world’s most important lithium producers.”

Zangge Mining will also benefit from strong support. While the controlling shareholder resolves its own equity pledge risks, Zijin Mining’s robust capital, industrial resources, and mining development experience will strongly promote the development of Zangge Mining’s existing resources, such as the Mami Cuo Salt Lake and Laos potash mines.

High-Quality Lithium Assets

“Zijin Mining Group Co., Ltd. is a large-scale mining group focusing on exploration and development of gold, copper, zinc, and other base metal resources, belonging to the non-ferrous metals industry,” Zangge Mining’s announcement stated.

However, Zijin Mining’s position in the non-ferrous sector is evidently more prominent than the announcement suggests.

According to MINING.COM’s Top 50 Global Mining Companies list, Zijin Mining ranks 6th globally, surpassing Brazil’s Vale, and is the top domestic mining company. As of the close of trading on January 15, 2025, Zijin Mining’s market capitalization was nearly CNY 420 billion.

After the transaction, Zangge Mining will elect a new nine-member board of directors, with Zijin International nominating four non-independent director candidates and one independent director candidate, and Zangge Investment and other equity sellers nominating two non-independent director candidates. This means Zijin Mining will control more than half of the board votes, gaining effective control and consolidating Zangge Mining’s financials.

Zangge Mining’s attractiveness to Zijin is closely related to its overall quality and the latter’s strategic planning. As a cyclical industry with frequent and intense price fluctuations, Zangge Mining’s performance in recent years has been noteworthy. In 2022, during the simultaneous rise of potash and lithium prices, net profit exceeded CNY 5.6 billion. Although the main products entered a downturn cycle from 2023 onwards, the company’s performance remained stable and surpassed industry peers.

For example, in the first three quarters of 2024, Zangge Mining’s net profit attributable to shareholders reached CNY 1.87 billion, exceeding other leading lithium-extracting miners, second only to Salt Lake Co. and Western Mining.

The key lies in Zangge Mining’s resource and cost advantages. The company is China’s second-largest potash producer and a major salt lake lithium producer. For instance, its lithium carbonate production costs in recent years have ranged between CNY 30,000–40,000 per ton, allowing it to remain profitable even in a market of persistently low lithium prices and gradual exit of high-cost capacity.

Compared with other non-ferrous listed companies, Zangge Mining also boasts low leverage and abundant cash flow. According to Wind data, since the lithium price surge in 2020, the company’s debt-to-asset ratio has fluctuated around 10%, dropping to just 4.85% by Q3 2023, ranking first among 139 non-ferrous companies classified by Shenwan. Its shareholders’ equity also increased from CNY 7.9 billion at the beginning of 2020 to CNY 13.2 billion.

For Zijin Mining, the lithium sector represents another major growth area following copper and gold. Since Chairman Chen Jinghe announced in August 2021 the plan to expand into lithium resources, Zijin has acquired multiple projects including Argentina’s 3Q Salt Lake, Tibet’s Laguecuo Salt Lake, and Hunan’s Xiangyuan lithium polymetallic mine.

In its updated five-year production plan (May 2024), lithium is listed among the five core segments alongside copper and gold, with a target lithium production of 250,000–300,000 tons LCE by 2028. At its 2024 senior management strategic seminar, Zijin emphasized, “Mining remains the core, accelerating mergers and development of copper and gold, achieving top global production and cost levels, fully advancing the lithium segment, and striving to become one of the world’s most important lithium producers.”

Given Zijin Mining’s production planning and strong counter-cyclical M&A record, Zangge Mining, with proven competitive advantages, naturally became the best choice for acquisition.

Significant Empowerment Potential

Qulong, Yulong, and Duolong are Tibet’s three most renowned core copper mines, with Qulong Copper developed by Tibet Julong Copper. The first cooperation between Zijin Mining and Zangge Mining started with this company.

At that time, Zangge Mining held the world-class Qulong Copper Mine, one of China’s largest, but development faced difficulties despite heavy investment.

In June 2020, Zangge Mining and Zangge Investment transferred a combined 50.1% stake in Julong Copper to Zijin Mining’s wholly owned subsidiary Tibet Zijin, transferring the development lead of Qulong Copper to Zijin. Subsequently, development accelerated, and Phase I was commissioned by the end of 2021. Copper production rose from 115,100 tons in 2022 to a planned 166,000 tons in 2024, boosted further by rising copper prices.

Regular reports show that Julong Copper’s revenue and net profit in 2022 were CNY 6.7 billion and CNY 2.355 billion, respectively. By H1 2024, revenue exceeded CNY 6 billion, and net profit reached CNY 2.778 billion, surpassing full-year 2022 levels.

In 2024, Julong Copper added 14.726 million tons of copper resources, bringing total recorded resources to 25.88 million tons with an average grade of 0.29%, making it one of the largest recorded copper mines in China. Phase II expansion has begun, and upon full operation, production capacity will reach 300,000–350,000 tons/year, indicating significant growth potential.

If Zijin Mining successfully acquires Zangge Mining, the latter could adopt a similar shareholding structure as Julong Copper, with Zijin as the primary shareholder and Zangge Investment as secondary.

This is particularly significant given increasing global control over strategic minerals. For instance, in November 2022, Canada’s Innovation, Science and Economic Development Department required three companies, including Zangge Mining, to divest or withdraw equity from Canadian lithium investments within 90 days.

After Zijin Mining gains control, Zangge Mining will transition from a private enterprise to a state-backed enterprise, enhancing its ability to acquire and develop resources.

Beyond its Chaerhan Salt Lake mining rights, Zangge Mining owns Mami Cuo in Tibet, Laos potash mines, and has stakes in Chaka and Longmu Cuo Salt Lakes via the Tibet-Qinghai Fund. These projects can leverage Zijin Mining’s resources and experience in mining development to quickly bring actual production online.

“The Mami Cuo project is progressing in parallel with approvals and certificate issuance. The project proposal has been submitted to the Tibetan Autonomous Region government for review, and mining rights application is ongoing,” Zangge Mining stated in November 2024.

With the successful precedent of Julong Copper, Zijin’s acquisition is expected to accelerate the development of resources like Mami Cuo.

“The company can effectively utilize Zijin Mining’s strong exploration and reserve expansion capabilities to enhance its own mineral resource development, speed up development of potash, lithium, and copper, improve resource utilization, and accelerate the realization of becoming a world-class mining group,” Zangge Mining noted.

Zijin Mining also committed that within 60 months of gaining control, it will manage potential conflicts in the lithium business by integrating operations prudently, prioritizing Zangge Mining in lithium and potash opportunities. This provides further potential for lithium asset consolidation.

Historical announcements indicate that as of June 2024, Zangge Mining’s ultimate controller Xiao Yongming and concerted party Lin Jifang, along with related parties Zangge Investment Group and Yonghong Industrial Group, had equity pledge ratios exceeding 80%, a highly leveraged position.

Although detailed plans for this transaction are still under discussion, a cash acquisition could significantly alleviate these pledge issues. Additionally, after completion, Xiao Yongming will continue to hold approximately 20% of shares through Sichuan Zangge Investment and Sichuan Yonghong Industrial, sharing in future growth.

While the equity transfer is still under negotiation and carries uncertainties, overall it is a mutually beneficial deal.

Editor: Yuan Chengying