The company only has 21.15 billion yuan of monetary funds, which is not enough to cover short-term borrowings
"China Science and Technology Investment", Long Min, Li Wanting
On June 25, Zijin Mining (601899. SH) announced the completion of the issuance of US$2 billion convertible corporate bonds, which will be listed on the Hong Kong Stock Exchange on June 26. In addition, Zijin Mining completed a HK$3.9 billion (US$500 million) placement of new H-shares.
According to the current exchange rate, the financing scale is more than 18 billion yuan, and this issuance is also the largest overseas convertible bond issuance of A+H listed companies and the largest overseas convertible bond issuance by mining enterprises in the Asia-Pacific region.
Financing to repay foreign debts
On June 18, Zijin Mining announced on the Hong Kong Stock Exchange that the company intends to issue US$2 billion in convertible bonds and implement a placement of 251.9 million H shares, amounting to about HK$3.9 billion, equivalent to nearly US$500 million.
Previously, on May 16, Zijin Mining released its new "Five-Year Development Plan", which made important adjustments to the original 2030 development goals. Among them, the company plans to achieve the main economic indicators originally set in 2030 two years ahead of schedule, that is, in 2028, and plans to achieve about 50% growth in the company's mineral copper and mineral gold output on the basis of 2023 by 2028, achieving more than 1.5 million tons of copper, more than 100 tons of gold, and more than 250,000 tons of equivalent lithium carbonate.
In fact, Zijin Mining has already entered a stage of rapid expansion. According to iFinD data, since September 2011, Zijin Mining has carried out more than 30 M&A transactions, including Australia, South Africa, Central Asia, South America and other regions in addition to domestic mineral resources.
It is worth noting that in 2015, the international gold spot market opened at 1184.37 US dollars / ounce and closed at 1061.10 US dollars / ounce. Unlike other mining companies, Zijin Mining has made large-scale acquisitions at low prices. Acquired shares of Australian Phoenix Gold Company at a price of A$0.1 per share, of which the total share price of Phoenix Gold Company reached A$47 million (about 226 million yuan), and acquired 50% equity interest + 50% debt of Barrick (New Guinea) Limited; Acquired a 49.5% stake in Kamoa Holding Company in the Democratic Republic of the Congo (DRC) for US$412 million.
In 2022, the international gold price hit a stage low of $1,614 per ounce at the end of September. Zijin Mining also disclosed six transactions from June 2022 to November 2022, involving a total transaction price of 18.816 billion yuan, and the acquisition targets were Xiangyuan lithium polymetallic mine in Hunan Daoxian County, Sava Yaltun gold mine in Wuqia County, Xinjiang, 30% equity interest in Shandong Haiyu Gold Mine, Rosebel gold mine in Suriname in South America, 20% equity interest in Shapinggou molybdenum mine in Anhui Province and Zhaojin Mining, all of which are related to metal mines.
Under this counter-cyclical expansion measure, Zijin Mining's revenue in 2023 will be nearly 300 billion yuan, and the net profit attributable to the parent company will be 21.119 billion yuan, which is the best result since Zijin Mining's listing. It is worth noting that Zijin Mining has also raised frequent funds in recent years to support its rapid expansion. According to Wind data, in 2022 and 2023, Zijin Mining raised a total of 14 billion yuan and 7.25 billion yuan by issuing corporate bonds, medium-term notes and short-term financing bonds. As of July 2024, the financing amount has exceeded the financing amount for the whole year of 2023 and 2022.
As a result, Zijin Mining is also facing certain financial pressure. From 2019 to 2022, the asset-liability ratio was 53.91%, 59.08%, 55.46%, and 59.33%, respectively, and as of 2023, Zijin Mining's total assets were 343.006 billion yuan, total liabilities were 204.643 billion yuan, and the asset-liability ratio had reached 59.66%. At the same time, Tongling Nonferrous Metals (000630. SZ), Jiangxi Copper (600302.SH) and Yunnan Copper (000878.SZ) have asset-liability ratios of 49.52%, 54.36% and 56.43%, respectively, all lower than those of Zijin Mining.
The reporter noted that as of the end of the first quarter of 2024, Zijin Mining's short-term borrowings were 24.163 billion yuan, an increase of 15.12% from the end of the previous year; The non-current liabilities due within one year were 19.34 billion yuan, an increase of 7.25% over the end of the previous year, and the company only had 21.15 billion yuan of monetary funds, which was insufficient to cover short-term borrowings.
Zijin Mining's announcement on June 18 also showed that the issuer of the US$2 billion convertible bond was Jinji Capital Co., Ltd. (hereinafter referred to as "Jinji Capital"), a wholly-owned subsidiary of Zijin Mining, and Zijin Mining provided an unconditional guarantee for it. The annual interest rate of the convertible bond is 1%, and the funds are used to repay the company's overseas debts.
There are development risks in rapid expansion
At the same time, in terms of the bonds, the net proceeds after the completion of the issuance are expected to be about US$1.979 billion (about 14.368 billion yuan), which will be mainly used to repay overseas debts, and in terms of placing, the net proceeds after the completion of the issuance are expected to be about HK$3.871 billion (about 3.6 billion yuan), which will be used for business operations and development in overseas markets, including mergers and acquisitions, working capital and general corporate purposes.
In the 2023 annual report, Zijin Mining's overseas resources and production accounted for more than China's, making a significant contribution to profits. Among them, the resources of copper, gold, zinc (lead) and lithium carbonate account for 75%, 67%, 23% and 82% of the company's total resources respectively; The output of overseas mineral copper, mineral gold and mineral zinc (lead) accounted for 56%, 64% and 45% of the company's total output respectively. In 2023, the total pre-offset profit contributed by the Company's overseas projects accounted for 45% of the Company's total pre-offset profit.
But the rapidly expanding Zijin Mining also faces multiple risks. In November 2022, Fitch, a well-known international rating agency, downgraded Zijin Mining's Long-Term Issuer Default Rating (IDR) and Senior Unsecured Rating (IDR) to "BB+" from "BBB-". Fitch believes Zijin Mining's aggressive acquisition growth will lead to volatility in its debt leverage.
An Guangyong, an expert on the Credit Management Committee of the Global Mergers and Acquisitions Association, told China Science and Technology Investment: "Zijin Mining's rating downgrade is indeed related to its countercyclical mergers and acquisitions and rapid expansion. In its downgrade, Fitch noted that Zijin Mining's aggressive acquisition growth intentions have led to increased volatility in its debt leverage. Although Zijin Mining achieved its best revenue and net profit in history in 2023, its rapid expansion strategy has increased financial risks, especially in the current global economic environment, where companies have generally become more conservative. The economic downturn and geopolitical tensions have left the market worried about the future of highly indebted companies. Zijin Mining's continued expansion needs to balance development and financial stability in order to cope with possible economic uncertainties ahead. ”
At the same time, in January this year, Canadian mining company Solaris Resources announced plans to sell a 15% stake to Zijin Mining for 130 million Canadian dollars (about 688 million yuan) to help develop the Valinsa copper project in Ecuador. After four months of scrutiny by Canadian regulators, on May 21, local time, Solaris Resources said it had abandoned its plan to sell a minority stake to Zijin Mining for fear that the deal would not meet Canada's foreign investment standards in a timely manner.
It is worth noting that on June 28, Zijin Mining announced that recently, according to the review opinions of mineral resource reserves issued by the competent department of natural resources, the company's Tibet Julong Copper Mine and Heilongjiang Tongshan Copper Mine have a total of 18.377 million tons of newly registered copper metal resources, and 5.777 million tons of newly registered copper metal reserves, accounting for about 14.2% of China's copper reserves at the end of 2022. According to the China Mineral Resources Report 2023 disclosed by the Ministry of Natural Resources, China's copper reserves in 2022 were 40.7718 million tons.
However, at the same time, the taste of copper metal resources in the Julong mining area has declined, of which the estimated copper marginal grade in 2022 is 0.30%, and the estimated marginal grade after the new filing in 2024 has decreased to 0.17%, which is already lower than the general industrial index of copper exploration and standard open mining.
An Guangyong added: "The decline in the taste of copper resources in the Julong mining area, from 0.30% in 2022 to 0.17% in 2024, means that the cost of resource development will increase. According to copper exploration specifications, a decline in grade may affect the economics and viability of mining. At present, China's economy is facing downward pressure, the real estate industry is thunderstorming, corporate debt defaults and other phenomena are common, and market confidence is insufficient. Zijin Mining needs to invest more in improving resource efficiency and controlling costs, otherwise it will face greater operating pressure. ”
The reporter sent a letter to Zijin Mining on debt issues, financing issues, overseas market risks, etc., but has not received a reply as of press time.