Zijin Mining Group Co., a prominent Chinese copper and gold producer, has taken a significant step in its diversification strategy by acquiring a 24.8% stake in Zangge Mining Co. for 13.7 billion yuan ($1.9 billion). This move, announced in a late Thursday exchange filing, marks Zijin’s largest single investment to date and positions the company strategically within the burgeoning lithium market.
The acquisition reflects Zijin’s ongoing efforts to capitalize on the growing demand for lithium, a critical component in electric vehicle (EV) batteries. This strategic pivot comes after a decade of aggressive global expansion, establishing Zijin as one of the leading players in the copper mining industry. The company, which began its journey mining gold in China’s southeastern mountains in the 1980s, now boasts a market capitalization of approximately $57 billion.
The new investment grants Zijin “controlling power” in Zangge, though specific details of this control were not disclosed in the filing. The news prompted a 1.6% rise in Zijin’s shares in Hong Kong trading on Friday.
Zijin’s entry into lithium comes amid a period of significant volatility in the lithium market. Since late 2022, lithium prices have plummeted nearly 90%, causing financial strain for listed producers and sparking a wave of acquisitions. Notably, Rio Tinto Group, the world’s second-largest miner, acquired Arcadium Lithium Plc for $6.7 billion last year, underscoring the strategic value of lithium assets.
Zangge Mining, headquartered in Qinghai, a mineral-rich region in western China, primarily produces potash—a key ingredient in fertilizer. However, approximately a third of its revenue is derived from lithium extracted from salt lakes. Prior to the announcement, Zangge’s market valuation stood at 46.6 billion yuan ($6.4 billion) on the Shenzhen Stock Exchange.
The partnership between Zijin and Zangge is not new. The two companies collaborated on the Julong copper mine in Tibet, with Zijin acquiring a stake in 2020. Analysts at Jefferies, including Shuhang Jiang, expressed that while the deal was unexpected, it is strategically sound due to the existing relationship between the companies. The analysts highlighted Zangge’s investment in three undeveloped lithium brine deposits as a likely motivator for Zijin’s acquisition. Additionally, the deal provides Zijin with a larger, controlling interest in the Julong copper project.
Zangge currently has the capacity to produce 10,000 tons of battery-grade lithium carbonate annually. The Julong copper mine, meanwhile, is poised for significant expansion. Phase two of the project is anticipated to commence at the end of this year, with Zangge’s attributable production expected to range between 92,000 and 108,000 tons. This output could increase to 180,000 tons in the mine’s third phase.
The acquisition is set to enhance Zijin’s portfolio across copper, lithium, and potash resources, improving operational efficiency at Julong and accelerating its development. The transaction will lead to the appointment of a new nine-member board at Zangge, with Zijin having the authority to recommend four non-independent directors and one independent director.
Zijin’s foray into lithium signifies a strategic response to the evolving dynamics of the global mining industry. As the demand for EVs and renewable energy storage solutions continues to rise, the importance of lithium as a critical resource cannot be overstated. This acquisition not only strengthens Zijin’s resource base but also positions it to play a pivotal role in the energy transition.
Analysts and industry observers will be closely watching Zijin’s integration of Zangge’s assets and the development of its lithium production capacity. The move could set a precedent for other traditional mining companies looking to diversify into the EV supply chain.
With its robust financial position and proven track record in managing large-scale mining projects, Zijin is well-placed to capitalize on the growth opportunities in the lithium market. The investment in Zangge Mining underscores Zijin’s commitment to long-term growth and its adaptability in navigating the challenges and opportunities of a rapidly changing global energy landscape.
