About us
CMOC’s vision commits us to growing into a respected world-class mining powerhouse no matter how long the journey is ahead. 2019 saw us striving to build capabilities on all fronts while staying vigilant as the world evolves rapidly. Step by step, we are forging ahead towards our purpose and destiny.
In 2019, the Company reported a revenue of RMB68.7 billion, including RMB49.2 billion contributed from IXM following its consolidation at the end of July. EBITDA for the year was RMB8.1 billion at 39% EBITDA margin for the mining segment, down from last year, mainly due to the fall of cobalt price and prolonged weakness of copper price. Net operating cash flow of the mining segment was RMB6.2 billion. At the end of 2019, debt-to-asset ratio of the Company was 57.65% (51.36% excluding IXM) and net interest-bearing debt ratio stood at 25.34% (17.36% excluding IXM). With a reported RMB1.857 billion of net profit attributable to shareholders, the Board of Directors proposes a dividend payment to shareholders totaling RMB929 million (including tax) at a payout ratio of 50%.
Safety is our core corporate value and “zero harm” is our paramount target. In 2019, the Company achieved zero fatality and zero material environmental incident across our global operations and recorded a TRIR of 1.62, outperforming the global industry average published by ICMM. When COVID-19 pandemic first broke out in China, the Company responded immediately. A Coronavirus Prevention and Control Leadership Group was set up on January 26th, 2020, and subsequently Emergency Response Teams were assembled at all operations with emergency plans developed. Procedures on containment of coronavirus were established and strictly followed. Support to ensure stable operations was put in place and readily available.
In 2019, under the guidance of the Board and the Strategy and Sustainability Committee, we formed the cross-function Sustainable Development Executive Committee, which reviewed and enacted eight compliance and sustainability policies including Code of Business Conduct. By the definitions in Global Reporting Initiative, CMOC’s total “key economic contributions” worldwide reached over RMB26 billion.
We believe that the core competitiveness of a mining company stems from constant pursuit of performance improvement and cost excellences. In 2019, the Company realigned the management structure at TFM in the DRC and our Phoenix office in the US. These major changes delivered a streamlined management model with greater simplicity and higher efficiency. This major overhaul brought profound benefits to the whole group and set a solid foundation for our future growth. Our global operations rolled out major efficiency programs which recorded a total of RMB1.47 billion cash cost savings over 2018, including USD130 million at TFM through cost-control initiatives on several aspects, consisting of mining, processing, administration, supply chain and logistics.
In China, the molybdenum and tungsten business showed outstanding robustness under the ever-tightening and ever-changing regulatory environment and kept its leading cost competitiveness among industry peers. In Brazil, breakthroughs were made thanks to perseverance in advancing our processing technology. And in our Australian copper and gold operation, two major capex projects are progressing on time and on budget.
We accomplished a smooth consolidation of IXM and started to see benefits from the synergies between our mining and trading businesses. In 2019, IXM achieved 5.11 million tons of physical trade and USD100 million of gross profit, a record high since it was founded in 2006, demonstrating the counter-cyclicality nature of its business model.
We are committed to technological innovation. As a smart-mining pioneer in China, we are the first Chinese company applying 5G technology to mining, leading the industry by increasingly deploying autonomous electric mining vehicles.
The Company always holds to the principle of keeping a strong balance sheet with sufficient liquidity. COVID-19 pandemic will impact our operating cash flows. Our stress test evaluates not only declining prices at different levels, but also global business shutdowns for a certain period of time. The Company has already prepared for the potential challenges and, based on our assessment, will stand strong facing these extreme scenarios.
We are focused on managing and improving our balance sheet. In 2019, the Company closed USD 1 billion financing via offshore bond issuance and syndication, as well as RMB 4 billion financing via onshore SCP and corporate bond issuance. These financing initiatives further optimised our debt structure and financing cost. In 2019, we achieved average cost of financing at 4%, one of the top performers in the industry.
The Company has constructed a portfolio of commodities essential to improve people’s quality of life. Our portfolio presents a unique set of high-quality assets with long-life, low cost and great potential. We seek diversification centering around our core business segments. Our global expansion across products and value chain leads to the diversification of market and client base, and of revenue streams and cash flows. The Company also maintains a balanced asset and liability structure denominated in both RMB and USD. We are very excited about the long-term value and growth potential of our portfolio which enhances our capabilities to counter and mitigate risks of the future.
Based on our research of the tungsten market and positive view on its long-term prospect, the Company acquired 28,300 tons of APT in 2019. This alternative investment increased our tungsten reserves and further consolidated our leading position in the sector. The Company also invested in a nickel and cobalt hydrometallurgy project in Indonesia through minority equity participation. Upon its completion, the project will each year deliver at least 15,000 tons (in nickel content) products to the Company.
The Company is in the process to develop our five-year corporate strategy. We will fully leverage the massive potential of our existing portfolio which presents very promising organic growth opportunities thanks to the exceptional quality of our mining assets. For instance, TFM, with its huge reserves, under appropriate conditions, has the great prospect to be developed into a world-class mine with annual production of over 400,000 tons copper and over 30,000 tons cobalt.
In the meantime, IXM is carrying out its mission, leveraging its advantage as a commodity trader, to facilitate the Group’s steady growth in the natural resources sector, and more importantly, to capture value adding synergistic opportunities across the Group’s mining, investment and financing activities.
The market’s recent volatility and downward trend reflected the growing concerns over another global economic recession, triggered by the spreading coronavirus. But where there is crisis, there is opportunity. While weathering through the storm, we will also strive to identify and seize the opportunities. Value creation, capital efficiency, shareholders return and sustainable development will always be our key considerations and criteria when making decisions over both organic and inorganic opportunities.
I would like to express my gratitude to all our shareholders, clients, vendors, partners, and communities for your continued trust and support which is critical and essential for our future growth. I also sincerely thank all our Board members, management teams and employees around the world for your hard work and contribution to the Company.
COVID-19 outbreak brought impacts unseen in a century across the world on many aspects, from social governance to economic activities, and from family behavior patterns to everyone’s mind and soul. Undoubtedly there will be profound effects. In the face of the rapid spread of the pandemic, the Company will unite and work with all stakeholders to overcome the unprecedented challenges. We believe that what does not defeat us makes us stronger.
Li Chaochun
Chairman
Beijing, China
In 2018, CMOC reported RMB4.6 billion of net profit attributable to shareholders of the listed company, up 70% year on year; RMB9.4 billion of net operating cash flow, up 12% year on year; RMB12.6 billion of EBITDA; RMB26.6 billion of cash reserves available for use at the end of the year; a debt-to-asset ratio of 51% and a net interest-bearing debt ratio of 9.9%. We continue paying back our shareholders vigorously. The Board of Directors has proposed to distribute a total of RMB2.376 billion (pre-tax) of annual dividends to shareholders, representing a payout ratio of 51.25%. During the reporting year, we achieved record financial results and will distribute record cash dividend.
In 2018, we saw a more volatile market. The price of copper and cobalt rose respectively from USD3.26 per pound and USD36 per pound at the beginning of the year to the peak USD3.33 per pound and USD44.45 per pound but slumped in June and entered the downturn. Copper price reached its bottom at around USD2.71 per pound while cobalt was sent on a continued downward trend. To the contrary, molybdenum and niobium had an opposite price performance: lowering in the first half of 2018 and rising in the second half. In general, the average market price of our core products - copper, cobalt, molybdenum, tungsten, and niobium rose respectively by 5.42%, 35.55%, 41.80%, 18.21%, and 23% in 2018 compared to 2017. Holding a diversified product portfolio is crucial in a cyclical industry like mining. We hope that CMOC can establish a portfolio of unique and scarce products to produce a healthy and sustainable cash flow, helping our company to succeed in both bull and bear markets.
With an ever-tightening policy and regulatory environment, global operation is becoming more and more challenging for mining companies. In China, there is more emphasis than ever on environmental protection and safety. Many laws, regulations and standards on environmental protection of the industrial sector have been updated and more attention has been given to their implementation, leading to tremendous impact on the mining industry. In recent years, CMOC has been following the highest industrial standards on environmental protection and continuously expanding investment in green development. Thanks to that, our molybdenum and tungsten business maintained stable production and operation last year, enabling us to outperform our competitors in production and sales and seize favourable market opportunities.
In the DRC, the government promulgated its revised Mining Code in 2018, which involves a series of major changes to financial and taxation policies. We actively respond to these differences and we believe that mutually beneficial solutions could be found through friendly negotiations. The government of the DRC speaks highly of the TFM project, of which CMOC is the controlling shareholder, as it contributed USD257 million and USD572 million to the Public Treasury in 2017 and 2018, respectively. Since its inception in 2006, TFM has paid a total of USD2.52 billion of taxes and parafiscal payments to the DRC government. The government is willing to listen to our opinions as we are a major investor and partner of the country, and we will continue to push forward negotiations on major issues of common concern.
Like most mining companies, CMOC faces operational challenges such as lowering grade, more complex mining conditions, and higher cost. To eliminate their negative impact on production, we already had plans in place to reduce cost and improve throughput and recovery rate by investing in technical optimization and debottlenecking initiatives. We also speed up study and progress of expansion projects to leverage our rich reserves. Last year, we achieved our budgetary goals for production and cost control in China, Brazil and Australia. In particular, we managed to maintain our production volume and unit cost for molybdenum and tungsten operations in China despite reduction in ore grade. Though copper saw an annual record low C1 cost of negative USD0.31 per pound in the DRC, we knew that such low cost was mostly due to the rising price of by-product cobalt. There is an urgent need for technical optimization and other operational improvements, and our logistics and administration system have a great potential for cost reduction and must be reformed. We are convinced that thanks to its high-quality resources, our TFM project will have the potential to double its production and earnings in the future. We have developed a 3-year Cost Optimization Project together with action plan to reduce cost and improve efficiency. It has specific requirements for each mine site and is currently being implemented in an orderly manner.
Despite so many challenges, we’re still enthusiastic and passionate about mining, a traditional industry with a long history, and we hope to bring new ideas to it as we grow. We’re proud to provide raw materials that are necessary to technological progress, industrial upgrade and better life quality. We’re optimistic about the long-term supply and demand fundamentals of our product portfolio and are confident in the future of the resources industry. As a cyclical industry, mining is capital-intensive and can be easily affected by politics and policies. It requires patience, persistence and a long-term vision to run a mining business well. It is a pity that the annual report only shows our performance in the last year and our outlook for the next year. What we should actually do is to exchange insights into one or even more business cycles with our investors. Fortunately, our majority shareholder CFC Group highly recognizes our vision and ambitions and offers its wisdom and strong support to long-term initiatives such as development of corporate values and business strategies. The lock-up period for our institutional investors participating in our non-public issuance of A Shares in 2017 expired in late July 2018, and we were happy that we did not see any large-scale sell-down by these investors. We hope that we can have more shareholders that have a passion for the resources industry, recognize our vision, and are willing to be our long-term partner. As a commercial organization, we’re committed to creating value for all shareholders, whether by dividend distribution or by higher returns on equity.
For the mining industry, products are considered homogeneous and their price depends on supply and demand in the market. Therefore, mining companies should focus on acquiring high-quality resources through M&A or successful exploration projects, which requires some element of opportunity and luck. They should also continuously optimize management to reduce cost and gain a competitive edge, which depends on their own endeavours. But Rome is not built in a day. With vision and ambition, we should first focus on organizational and cultural building together with recruiting and cultivating talents, setting up performance incentive mechanisms, placing employees in the positions where they can reach their full potential, and bringing the coordination and cooperation between different teams into full play. As a young and fast-growing international mining company, CMOC has a lot to do to build an integrated, powerful and inclusive culture and values system, as our team expands rapidly and we face cultural differences between China and Western countries, as well as regional differences.
As for organizational structure and management patterns, we choose to create our own path combining both Chinese and Western characteristics, hoping to draw on the advantages of Western style management while giving full play to Chinese nation’s hardworking spirit and determination to forge ahead. No matter what pattern we choose, we do know that the essence of management never changes: under the premise of compliance with laws and regulations, everything should revolve around operational efficiency and effectiveness. Last April, CMOC decided to set up a management headquarters with full lines of functions to gradually merge its former overseas management centre in Phoenix, the US, with a view to directly managing its overseas operations through an integration of Chinese and Western management philosophy.
I would like to extend my special appreciation to the managers and business leaders, either from China or overseas countries, who have joined the Group's headquarters and overseas offices over the past year. Our company is still in the initial stage of development, and we are still exploring along the way. As integration is ongoing with constant changes, our team members from different countries need to learn how to better cooperate with each other, so as to tackle various new challenges and new tasks. Working in such a demanding environment requires more efforts. But I believe that the company’s long-term vision and big dream resonate with the passion and enthusiasm deep down inside our heart, and that is what brings us together to jointly create something amazing. We are looking forward to having more talented professionals to join us.
We have formulated and implemented the corporate culture of “meritocracy, cost control, continuous improvement, and achievement sharing”. “Meritocracy” indicates our employment standard and system – we appoint people on grounds of personal abilities instead of their family backgrounds, educational backgrounds, working experience, or relationship with the management, and they must share our common values. We think highly of those who pursue excellence and efficiency and those who can deliver good results. We hope everyone in our team can develop a sense of entrepreneurship and leadership and be responsible and creative. “Cost control” and “continuous improvement” represent our understanding of the essence and core competitiveness in the mining industry, our emphasis on technology reform and innovation and process optimization and recreation, and our open mind and determination to make continuous efforts. In terms of “achievement sharing”, we emphasize the importance of growth and achievements as the foundation of sharing, and our value of praising effective contribution rather than fruitless hard work. These principles not only apply to our employees, but also to all our stakeholders. Nevertheless, it is always easier said than done. This corporate culture will only bring positive effects when put into practice with performance assessment. This year, we are going to carry out more measures in this aspect.
In our pursuit of ambitious growth, we should also remain disciplined at all times. Last year, we announced our planned acquisition of IXM, the third biggest base metals trading company in the world. We are expected to complete the transaction in the middle of this year. From the perspective of long-term strategy, trading will be an important component of our business if we want to be a significant player in the international mining industry. The global flow of metal products is facing more challenges, and services such as sales, procurement and logistics will generate added value. The market information brought by trading business in all links of the industry chain will help us acquire a deeper understanding of the supply and demand relationship as well as the price trends. In trading business, many sources of supply come directly from the mines, such as producing mines, mines under construction, and development projects. They are often accompanied by project financing or offtake financing, and we need to carry out professional technical evaluation on the mining project and provide continuous follow-up and guidance. The acquisition of IXM will enable us to create synergy, access more global metal mining projects, and acquire more alternative investment opportunities. We should have great vision and be far-sighted while making continuous effort.
With the recovery of commodity prices, especially in view of the strong performance of bulk commodities, our global industry peers are getting back to their strong balance sheet and are returning their shareholders with increased cash dividends or share buy-back leveraging the strong cashflow generated. Despite the fact that the global geopolitics and economy are still full of uncertainty and commodity prices are seeing intensified volatility in the short term, market players in the metals industry are expecting an increase in the price of metals in the long run, making the rare investment or transaction opportunities in the market seem expensive. Timing is of essence; what we now need is more patience. We will spend more time exploring and promoting the “organic growth” of our company, as our current resource combination has huge potential but relatively lower risks. We believe that competition and cooperation in the future will be mutually inclusive, and we should always keep an open mind and cherish the partnership with our peers.
Last year, we welcomed new members to the Board of Directors. I would like to take this opportunity and extend my sincere thanks to our four outgoing directors – Mr. Bai Yanchun, Mr. Xu Shan, Mr. Cheng Gordon, and Mr. Ma Hui, for their hard work and dedication. At the same time, I want to express my warm welcome to the four new directors – Mr. Guo Yimin, Mr. Wang Gerry Yougui, Mr. Li Shuhua, and Ms. Yan Ye. We have also updated the structure of the committees under the Board of Directors. The Strategic Committee has been changed into the Strategic and Sustainability Committee, the Audit Committee has been changed into the Audit and Risk Committee, and the Nomination Committee has been changed into the Nomination and Governance Committee. Accordingly, we have expanded and adjusted the scope and content of each committee’s responsibilities to further enhance the corporate governance. At the beginning of last year, we prepared and released our first Environmental, Social and Governance (ESG) Report that covered all our Chinese and overseas operations. In last August, the report was granted a BBB rating by MSCI, the highest rating ever granted to a Chinese company or an international company among the largest metals and mining industry peers by then.
Finally, I would like to extend my gratitude to our shareholders, local governments and communities, clients, financial institutions and partners for their gracious trust and support. I also want to thank all the CMOC employees in China and overseas countries for their hard work.
Li Chaochun
Chairman
Beijing, China
Thanks to the Company’s major acquisitions completed at the end of 2016, and the subsequent recovery of the global commodities market, we are now entering the harvest season. We are pleased to announce that in 2017, the Group realizeda consolidated net profit of RMB3.6 billion, with year-on-year growth of 253%. The net profit attributable to shareholders of the parent company was RMB2.7 billion with a year-on-year increase of 173%. The cash flow from operating activities was RMB8.4 billion, representing a year-on-year increase of 189%. The cash reserves available for use by the end of the year amounted to RMB26.5 billion. Following our long-term steady and high-ratio dividend policy, the Board of Directors have proposed to distribute to shareholders a total annual dividend of RMB1.642 billion (including tax).
Backed by a unique product portfolio with scarce resources, we are now benefitting from the Chinese economic structure upgrade and the vigorous development of the global EV sector, and attracting a lot of interest on the capital markets. In the past 12 months, the cumulative increase in the Company’s A share and H share prices reached 186% and 270% respectively, making it one of the best performing stocks in the global mining sector. The Company’s total market value has remained above RMB150 billion, ranking among the top global mining companies. This fully reflects our investors’ recognition of our strategic deployment, art of timing and speedy execution.
The acquisitions were just a beginning, and our first task was to go through transition period smoothly. As a mining company, we always regard the implementation of the highest safety and environmental standards as our first priority. Last year, the Lost Time Injury indicator in the DRC and Brazil operations were 3 and 2, respectively, which were significantly lower than those before the acquisitions. Our Australian operation achieved a historical record of 134 consecutive days with zero injury. In our China operation, we fully implemented the Ten Safety Principles and started to adopt international evaluation systems. While carrying out multiple transitional tasks including IT system migration, relocation of the regional center in Brazil, and office development in Phoenix, we also experienced a rare rainy season in the DRC and rising cost of raw material globally. Despite all these factors, the overall production outputs and costs of the DRC and Brazil operations have remained stable. These two important indicators of safety and operational stability highlight the smooth transition we had achieved.
We keep managing and optimizing the balance sheet. Last July, the Company successfully raised RMB18 billion from its non-public issuance of A Shares, which was the largest fund-raising in Chinese capital market in the past two years. The issuance was over-subscribed for 2.15 times, introducing eight high-quality long-term institutional investors such as China Structural Reform Fund and Bosera Fund. The issuance greatly optimized the Company’s assets and liabilities structure. By the end of last year, the Company’s gear ratio had been reduced to 53.1% and the interest-bearing net debt ratio was only 10.4%.
We implement a delicacy management philosophy and firmly believe that cost reduction comes from every detail. As an example, the Brazil operation has launched the “Kaizen project” which inspires all employees to explore cost reduction measures in the details of their daily work. At the same time, we further promoted cost reduction by optimizing production sites layout and processes. We always value and continuously invest in technological innovation because we believe it is the key to long-term and structural cost reduction. Last year we made many new achievements in these areas: inspired by the automated underground mining technology of our Australia NPM operation, our China site independently developed an intelligent mining processing line comprising remote-controlled trucks, excavators and high pressure pneumatic DTH drilling machines for open-pit mining. Having merits such as effectively preventing operational risks in hazardous areas, drastically reducing mining costs and improving operators’ working conditions, this technology won the first prize for Technological Progress in China’s non-ferrous metals industry.
We further increase our profitability by improving product structure and quality. The APT project of our tungsten business is a Demonstration Base Project for Comprehensive Utilization of Resources supported by the Chinese Ministry of Land and Resources. With its production process being an innovation in China and internationally, this project created the fastest record for construction and ramping up in the tungsten hydrometallurgy industry. Its advantages include high recovery rate, low cost and efficient recycling. In particular, by achieving almost zero emissions of waste and used water, it solved the long-standing environmental problem in the tungsten industry. This project also significantly reduced production costs by recovering molybdenum and other by-products, and increased the sale price of our tungsten product. The ATP project has reached an internationally leading level and won the first prize for “innovation in universities – research institutions – industry cooperation” in China.
Last April, through an exclusive option we secured an additional 24% interest in TFM, our DRC mining operation, we increased our controlling interests in this world-class project to 80%. In addition, the Company participated in the establishment of the New China Capital Legend Natural Resources Fund, which signed at the end of last year an agreement to buy the world’s 3rd largest non-ferrous metals trading company. This transaction is expected to be closed in the first half of 2018.
In 2018, we achieved a smooth transition following these acquisitions, and our focus in 2018 will be on efficient integration. Our overseas operating assets of different kinds in Australia, South America and Africa, each formerly affiliated to a different major international mining company, have different languages and local environments; if we add to this the international office based in Phoenix, USA and the currently expanding Group headquarters in China, it is not an overstatement to say that integrating new teams from all corners of the globe, each with different culture and background, will represent one of the greatest challenges for our integration. But we all share something in common: we belong to the same CMOC big family. We will work hard to build unified, inclusive, and strong CMOC culture and values. We will prove to the market that CMOC is not only good at acquisitions, but is also a good operator. Efficient integration can bring additional value creation.
Mining is a traditional industry. Its products have homogenous characteristics and its business logic is simple: be the best in the industry at maintaining a competitive cost advantage. Competitive cost advantage comes from two equally important aspects: resource and management. Quality resource is a gift from the nature but can also be obtained through successful exploration and acquisition. Excellent management, on the other side, depends on internal strength built through continuous efforts. Business management is an endless learning experience in which the East and the West have both their own strengths. Each company has a different style, and no model can be copied thoughtlessly. As an international company headquartered in China, we aim to promote Chinese values in the process of establishing corporate core values while at the same time maintaining a resolutely open and inclusive attitude.
Success belongs to the past. We will not be content with our current achievements and stop here. 2018 is the starting point of a new journey. We will keep on dreaming big, remain true to our original aspiration, act decisively and forge ahead.
I would like to express my earnest gratitude to shareholders, local governments and communities, customers and partners for their deep trust and long-term support. I also sincerely thank all Board members, domestic and international management teams, and all staff for their hard work and outstanding contribution to our Group's achievements.
Li Chaochun
Chairman
Beijing, China
2016 is a year of transformation for our company. If the acquisition of Northparkes copper/gold mine in Australia from Rio Tinto in 2013 marked the beginning of our overseas adventure, with the successful acquisitions in 2016 of the controlling interest in the world class Tenke Fungurume copper and cobalt facilities in the Democratic Republic of Congo (“DRC”) from Freeport-McMoran Inc. and the niobium and phosphates businesses in Brazil from Anglo American plc, we have become a truly international mining group. Boasting assets operated in four continents, we are now a global leading producer of specialty metals of molybdenum, tungsten, cobalt and niobium, one of the lowest cost large-scale copper miner in the world and the second largest phosphates producer in Brazil.
“It was the worst of times, it was the best of times; it was the age of foolishness, it was the age of wisdom; it was the epoch of incredulity, it was the epoch of belief; it was the season of darkness, it was the season of light; it was the winter of despair, it was the spring of hope; we had nothing before us, we had everything before us …”, this famous quote from Charles Dickens written almost 160 years ago still remains relevant, of which I only changed the order. That was the opening remarks I made at the Board meeting in April 2016, at which all directors of the Board voted unanimously to approve the two major acquisitions in Brazil and DRC. Since then we have experienced this extraordinary year of 2016.
Our vision is to become a respected international resources company. This faith is guiding our development. “Respected” is a simple word, but it really means a lot – it is very hard to become and stay “respected”. Resources are the key to the success of a mining company. First-tier resources make a first-tier mining company; and world-class resources make a world-class mining company. Without world-class assets, how can a mining company earn respect? In our opinion, mining is a quasi-financial and quasi-investment industry. With the commodity market undergoing cycles every couple of years, investing in mining sector is cyclical and needs a long-term vision and unrelenting persistence. For many years, we agonized over this strategic question: how do we utilize and structure our capital so that we can acquire and control first-tier or even world-class mining assets during different cycles? Four years ago, we predicted that the winter was coming for the mining industry. While other companies were splurging money to invest or chasing the market’s popularity, we were busy shedding non-core assets and disposing of inefficient assets to withdraw cash, and using financial tools and capital market to accumulate funds. Investing in the mining sector also entails tolerance to loneliness and resistance to temptations. When opportunities come, one needs to act decisively. How can we win the respect of others without such a strategic vision and a speedy execution? It is our faith that underpins everything.
It is still fresh in our memory that mining industry entered cold winter in the second half of 2015, and then hit its most freezing point in early 2016; all companies in the industry were struggling. Now it might be difficult for us to imagine that at the lowest point, the market cap of the fourth largest mining company in the world dropped to US$3.4 billion, and that of the largest listed copper producer was merely US$4.4 billion. However, it is only against this background that we can find opportunities and make a deal – having a buyer alone doesn’t make a deal, one also needs a willing seller. We can’t dream to buy “cheap” – quality assets never run short of buyers, even at the bottom of the cycle. All we need was PREPARATION, COURAGE, DECISIVENESS and SPEED, keys to our success in making deals. At present, commodity prices are rebounding vigorously and the stocks of mining companies have redoubled, indicating that the window in which major disposal of quality assets is closed. Looking back, how many opportunities in quality or world-class assets could one find in the global mining industry last year? Now, I am proud to tell our dear shareholders that we seized the best two opportunities ever available on the market; those could be the opportunities of a lifetime! When we think of our Chinese peer who failed to acquire Noranda a decade ago, we are more than grateful to the exceptional era and the ever stronger motherland we live in.
In terms of execution, two major transactions with sophisticated structure were carried out simultaneously amid intense western world competition. These two transactions amounted to US$4.3 billion in total and were completed by two syndicated facilities amounting to US$2.49 billion in aggregate. The total amount financed, including other financing instruments, exceeded RMB20 billion, and the financing activities were completed in the shortest possible period of time. Meanwhile, pursuant to the listing rules in Mainland China and Hong Kong, these two transactions constituted “major asset restructurings” in Mainland China, and respectively a “major transaction” and a “very substantial acquisition” in Hong Kong and required a large amount of disclosure and were subject to the approval procedures at the shareholders’ meeting. In the meantime, we also furthered a non-public equity issuance. Finally, we accomplished many “impossible missions”: we completed the closing of these two transactions within 5 months and 6 months respectively, and obtained the approval from the Issuance Examination Committee of the China Securities Regulatory Commission (“CSRC”) in January 2017 for the non-public equity issuance.
Although the successful closing of the transactions is certainly worth celebrating, “closing” does not mean the end. On the contrary, it has just begun. A smooth transition and an integration boosting the synergy are of greater importance, and are essential for us to determine the success or the failure of the acquisitions. Corporate management is an art that you can never finish learning. The East and the West have different strengths and limits. Every company embodies distinctive features and there is no panacea. In 2017, our priority will be the construction of an organizational structure and human resources, with an aim to getting well prepared for greater ambitions in the future.
From the macroscopic point of view, the political instability will be the greatest uncertainty. Further observations are needed to determine whether the prices of commodities are experiencing just a rebound or a sustainable recovery. We will adopt a cautious approach to the overall trend of the macro economy and the industry. Nonetheless, we are fully confident in the rise of global new energy and new material industries as well as the upgrade of the domestic manufacturing industry. We believe that as a key supplier of raw materials, thanks to our unique product portfolio, we will continuously benefit from the rise of these sectors both in the domestic and international markets.
I would like to express my gratitude to the shareholders, local governments and communities that we serve, clients and partners for their continued support to the Group. My special thanks go to the various financial institutions for the long-term partnership, especially for their valuable support to the transformational acquisitions of last year.
I would like to take this opportunity to extend my special appreciation to our principal shareholder, Cathay Fortune Corp for its wisdom and all-out support to the company in various aspects including the establishment of our vision, the development of strategies and the choice of timing.
I would like to express my sincere gratitude to all the Board members, our domestic and overseas management teams and all our employees for their diligence, efforts and contributions to the success of the Group. I would also like to extend my warmest greetings to all the staff of CMOC International, CMOC Brazil and CMOC DRC: Welcome to our big family!
Li Chaochun
Chairman
Beijing, China
