2023 Annual Address by CEO

Dear Shareholders and friends who care about CMOC, 

First of all, on behalf of CMOC, I would like to thank you for your long-lasting trust and support. 

2023 marks a crucial and extraordinary year in the development history of CMOC. Over this year, in the face of an extremely complex external environment, we have finally solved the dispute of TFM royalties with wisdom and courage though it was a journey fraught with difficulties and dangers, which has laid a solid foundation for our long-term development in Africa, and we have also gained valuable experience in dealing with such complicated situations. Over this year, our two world-class projects, the KFM project and the TFM mixed ore project, have been successively put into production, hence a jump in our copper and cobalt production capacity, cementing our leading position among the global peers who produce metals for the new energy industry. Over this year, we have made bold moves to promote IXM’s trading business upgrades and organizational restructuring; we challenged the limit to snatch at opportunities in the molybdenum and tungsten market in China; the reform of our niobium and phosphorus business in Brazil has been steadily promoted in unchartered waters; all business segments have achieved positive improvements on all fronts and the Company’s operating results have reached a new record high. 

It has been a full decade since we embarked on a journey of internationalization in 2013. During these ten years, from debut to center stage, we have been developing core competencies required of an international mining company, which has paved the way for our future growth into a world-class resource company. We are now facing new situation given by times: first, amid the rise of counter-globalization, resource nationalism, and the reshaping geopolitical landscape in recent years, the global supply chain has been restructured at a faster pace and enterprises are coping in an even more bewildering external environment; second, under the background of carbon peaking and carbon neutrality, ESG performance has increasingly become a mandatory indicator, and sustainable development has been treated as an important part of the core competitiveness of a mining enterprise. These situations challenge us to find a way to participate in international rivalry with a more mature mentality, more confidence, and a more open attitude. 

2024 marks the 20th anniversary of CMOC’s restructuring and the beginning year of internationalization 2.0. We have put forward development targets for the next five years: to achieve the second stage goal of “ramp up” of the “three-step”, and to take the first step towards becoming a world-class mining company. The targets mainly include: the Company will achieve annual production volume of 800,000-1,000,000 tonnes of copper metal, 90,000-100,000 tonnes of cobalt metal, 25,000-30,000 tonnes of molybdenum metal and more than 10,000 tonnes of niobium metal; the Company will make significant improvement in international operations capability, successfully build the “5233” structure, satisfactorily complete the digitized and intelligence “SAP” project, form a distinctive feature in the international governance system, and the ESG will reach the level of the world-class enterprises. As the first year of the implementation of these targets, we must ensure a good start. In 2024, a “Refinement Year” for us, we will thoroughly implement the general approach to “improving quality, reducing costs and increasing efficiency” to achieve breakthroughs and improvements. I would like to share with you my thoughts as follows on this year’s work:

ENHANCING THE QUALITY OF OUR OPERATIONS TO BUILD A WORLD-CLASS MINING COMPANY

In 2023, when dealing with the complex external environment, we focused on production on one hand and construction on the other. The two new projects TFM’s mixed ore and KFM were completed and put into production as planned, resulting in a surge in production capacity. We raised the spirit of “challenging the impossible” of the CMOC employees and forged an excellent team capable of striving for excellence in difficulties. These first-rate mine projects are entirely constructed under the leadership of CMOC and have achieved designed production and met standards, fully verifying that we have the capability to develop worldclass projects. For both TFM and KFM, this year is the first year of full-load production. TFM will achieve designed production in the first quarter and meet the standard production in the second quarter. KFM will achieve stable and high production to ensure that it can produce over 520,000 tonnes of copper and over 60,000 tonnes of cobalt throughout the year. Reaching these targets will make the Company one of the top ten copper producers in the globe and the Company will remain the world’s largest cobalt producer. Besides, we will compare with ourselves and benchmark our performance against industry standards to go beyond what we have achieved and create a signature of CMOC. Moreover, we will also strengthen the geological exploration work and launch the plan of additional reserves so as to prepare for the development of TFM Phase III and KFM Phase II. This year we will continue to expedite the operations in Brazil, we will diversify sources of income, enhance efficiency and reduce costs; and IXM will upgrade its business. We will guarantee high and stable production while satisfying high safety standards and achieving fine ESG performance, thereby proving that we not only excel in resources and construction, but also in management and operation. 

BOLSTERING CORPORATE GOVERNANCE TO CONSISTENTLY BUILD AN INTERNATIONAL OPERATING SYSTEM WITH CMOC CHARACTERISTICS 

Fundamentally, competition in the mining industry is all about cost which is determined by two key factors: resources and management. For a mining company, if its resources are fixed, its management will be the cardinal variable, which means people are the decisive factor. In recent years, while observing international rules and local laws and customs, we have instilled the hard-working virtue and cost control practices of Chinese mining people into our overseas production and operations, and achieved remarkable results, forming a rudimentary international operation system with CMOC characteristics. We are also well aware that, there are large gaps between us and the top-notch players in the global market in terms of resource reserves, profitability, management level and talent development, and there is a long way to cover before becoming a “respected, modern, world-class resource company”. To bridge these gaps requires continual efforts to build our “5233” international governance system and development of a management approach in line with international ESG standards and tailored to the Company’s actual situation.

Management is, in essence, to arouse people’s initiative and creativity and minimize the weaknesses of human nature. We must continue to improve the assessment and incentive mechanism and give full play to the “one enterprise, one policy” guideline; we will promote the development of a tiered incentive mechanism and introduce special incentive measures so that from the top down employees will feel pressured and motivated and take upon their share of task and everyone will be incentivized thus achieving “sharing the results”; we will work out the second equity incentive plan in due course to enhance the long-term incentive mechanism. Meanwhile, we must also strengthen the supervision system to prevent corruption, reinforce risk prevention and control measures, and further improve the chief audit and supervisory officer system to safeguard the Company’s longterm and healthy development. 

INTENSIFYING EFFORTS TO REDUCE COSTS AND ENHANCE EFFICIENCY TO BOOST OUR GLOBAL COMPETITIVENESS 

For a mining enterprise, cost is the core operational KPI, and the relentless pursuit of lower costs and higher efficiency should be deeply planted in the minds of mining people. This year, we aim to achieve an upsurge in production capacity and cost reduction, which will serve as not only the basic guarantee for sharpening the competitive advantages of the enterprise, but also an important measure for the accomplishments in the “Refinement Year”. The focus of cost reduction is always on the front line of business, so we will set a target of 30% to 40% reduction for assessing our performance in cost reduction and efficiency enhancement this year and enhance the cost awareness of all staff through some policies. We will keep an eye on the cost components, diversify sources of income and reduce expenditure, and exercise caution in budgeting, so that all staff members will become cost-conscious, consumption will be decreased throughout all processes, and costs will be reduced across the board. 

One small step in technology innovation means one giant leap in cost reduction and efficiency enhancement. Even the slightest improvement in a technological indicator, when measured on a world-class production capacity base, can bring significant economic benefits: USD30 million for every percentage point increase in TFM’s copper recovery rate, and approximately USD6 million for every percentage point increase in the niobium recovery rate in Brazil. We still have enormous room for improvement in this area. 

Digitalization and informatization tools play an important role in cost reduction and efficiency enhancement. In recent years, taking the “SAP” project as leverage, we have greatly improved our digital intelligence capabilities, which have helped us attain better management and control and higher operating efficiency, and lower costs and enhance efficiency. At present, building on the completion of two phases of the “SAP” project, we must focus on the core goal of cost reduction and efficiency enhancement in a bid to upgrade the project and raise the Company’s digital capabilities to a higher level.

QUICKENING THE EXPANSION OF RESOURCES LAYOUT TO VIGOROUSLY CULTIVATE NEW PROFIT GROWTH DRIVERS 

Since last year, the violently fluctuating prices of metals for the new energy industry such as nickel, lithium and cobalt have increased the exposure of all market participants to risks, which highlight the extreme importance of timing in resource mergers and acquisitions. Fluctuations in the market are temporary, we are always highly optimistic about the resource demand brought about by our country’s industrial upgrading and the global energy transformation and will continue to focus on metals for the new energy metals and important strategic metals. At present, the Company has sufficient reserves of cash and financial instruments. Currently, many mineral products have entered the market clearing stage and have been rationally priced, which has brought us better opportunities for investment and mergers and acquisitions. We need to expand our resources layout promptly. 

CONSOLIDATING OUR LEADERSHIP IN ESG PERFORMANCE TO ENHANCE THE ABILITY TO ADDRESS COMPLEX SITUATIONS 

For a company possessing mineral resources distributed in various countries, it has to cope with complex overseas operating environments, properly handle the relationships with various stakeholders, and achieve a dynamic “rebalancing of interests” in its mining operations. Dealing with risks and challenges is normal for a mining company, but how well it addresses these risks and challenges also mirrors how internationalized it is. 

The nearly two-year efforts to settle the TFM royalties dispute have greatly improved our ability to deal with complex situations; the successful settlement marks that CMOC has passed the major examination that must be taken to become a world-class resource company; by handling this dispute we have gained a deeper understanding of the value of ESG work. Our commitment to the philosophy of “responsible mining for a better world” and maximizing value for all stakeholders has proved to be our greatest strength in coping with risks and challenges and the fundamental guarantee for ensuring the long-term stability of our international operations. We must continue to improve our ESG management system, consolidate our leadership in ESG efforts at home and abroad, and build a solid moat for our Company’s operations. Last year, we unveiled our carbon neutrality roadmap, and this year we have unveiled the first TCFD report. We must implement various measures to shoulder our responsibility for the cause of global carbon neutrality. 

Join us on the expedition to the future. The dragon is the totem of the Chinese nation and also the symbol of the CMOC people’s spirit of challenging the impossible. This year, with such spirit, CMOC people around the world will vigorously continue to integrate Chinese wisdom and Chinese technology with global resources, facilitate responsible delivery of mineral products to the world, and contribute Chinese strength to the global energy transformation. 

CEO

Sun Ruiwen

2022 Annual Address by CEO

Dear Shareholders,

On behalf of CMOC, I am honored to have this opportunity to express my heartfelt gratitude for your long-term trust and support during this time every year.

During this year, the frequent occurrence of international geopolitical conflicts brought great uncertainty, which deeply affected our business. In the face of major changes unseen in a century, we still maintained a good momentum of development.

We achieved record performance supported by stable production and operations, continuous technical upgrade, and rise in both commodity prices and production of key varieties. We accelerated the conversion of resources into production capacity and reached the milestones for the two world-class projects of TFM mixed ore and KFM, both ready to put into production this year. CATL became our new strategic shareholder, which marked our breakthrough in the layout of lithium resources. We completed the organizational upgrade at our headquarters and continued to improve IT, human resources, and headquarters function development. The project of the SAP Phase I was launched successfully to build a foundation for global digital management and we have steadily improved our global governance capabilities.

2023 is likely to see continued global economic uncertainties amid the Russia-Ukraine conflict, rising inflation, tightening macro policies, and great power conflicts, despite of the accelerating recovery of Chinese economy. The mineral market is prone to supply disruption caused by rising resources nationalism and geopolitical turbulence. To navigate these profound changes, “Stick to the original heart, Grasp the law, Continuous evolution” will be our response.

“Stick to the original heart” means to always maintain the passion for the ancient industry of mining, and we are proud that we provide the raw materials that are the building blocks for the world’s technological progress, industrial upgrading, and daily life improvement. We will walk through the volatility in overseas markets with the commitment along our journey of becoming a world-class company. Difficulties and challenges are not scary, what kind of mental state to face will test the true quality of the Company. We believe that as long as we uphold the concept of “responsible mining, make the world a better place” and continue to create the greatest value for all stakeholders, we will be able to deal with various risks and challenges.

“Grasp the law” means to have a deep understanding of the nature of mining competition, eliminate interference, be calm and do the right thing quietly. “Don’t be afraid of floating clouds to cover your eyes, it’s just because you are at the highest level.” As all players in the mining industry sell the same products, the competitiveness of a company lies in cost, which is determined by resources and management abilities. We will continue to focus on acquiring high-quality resources and improving management to sustain our strength in industry competition and commodity cycle.

“Continuous evolution” means to stick to the existing strategy, improve international operations, promote cost and efficiency initiatives, increase ESG performance, strengthening the connection with stakeholders and making firm efforts to respond to the uncertainty of the external environment.

2023 marks the tenth year since CMOC started its global journey. Ten years ago, even the most optimistic mind would never have imagined that today CMOC is one of the players in the center of the global new energy revolution. It is remarkable that we are now fully ready to achieve stellar growth with a global development presence and world-class resources. Guided by the three-step strategy of “laying the foundation, moving up the ladder, and achieving stellar growth”, we will focus on the following aspects this year:

Production and operations

TFM mixed ore and KFM will start production in 2023. The two projects, both independently operated by CMOC, show the spirit of “challenging the impossible” of all CMOC employees. We are proud to say we have made significant progress on building a top-performing team and delivering international operations abilities based on our experience of constructing world-class projects within over two years. We will see tremendous incremental production capacity and strong potential for future development once TFM mixed ore project and KFM ramp up to full production.

We also aim for major breakthroughs in Brazil’s management improvement and CMOC China’s strategic shift in 2023. We must unswervingly adhere to the coordination of “mining + trade” and take the road of modern mining. The transition of IXM’s management will bring further dynamism to both of our organic and inorganic growth. The closer we are to fulfilling our strategic goal of building a world-class resources company, the stronger the commitment and efforts are required.

Resources acquisition

The world’s mining industry is built on M&As and it is continuous acquisitions of quality resources that keep companies competitive. In recent years, the rapid growth in the new energy sector has prompted a surge of M&As in new energy metals, and consequently, the rising market zeal towards related resources. Though it’s always easier to go with the tide, we stay calm and conscious and stick to our disciplines amid market heat, being patient when no good opportunity is available and being quick to take actions when there is one, as demonstrated by the important move we made in lithium resources in 2022. In 2023, in response to the ongoing global energy transition, we will focus on new energy metals to acquire key varieties in key regions. We will actively involve ourselves in the new energy revolution by cooperating with upstream and downstream partners, seeking global opportunities, and investing in new projects.

Corporate governance

We are well aware of the gaps between us and industry-leading players in terms of resources and reserves, size of operations, profitability, and management capabilities. We have a long way to go before becoming a “respected” company. We have been exploring a more effective international operations and management approach to match our growing business footprint. We believe that the purpose of management is to inspire employees to reach their full potential and seek success, a rule works for employees of all nationalities. This is why we keep on track to practice the management principles integrating the strengths of both Eastern and Western styles, bring into play the virtues of hard work of the Chinese people and the pursuit of cost control while respecting local history and culture, and motivate the creativity and initiative of people. This is not going to be easy, but we are on the right track and will chart a course to a more globalized management method for a Chinese company.

This year, we will roll out incentive programs to align personal growth with company development and to allow more sharing with employees. We will continue to implement tailored and dedicated incentive plans for key tasks and projects to reflect our concept of achievement sharing.

ESG development

ESG has come to the forefront of the mining industry and is integral to what constitutes a respectable international player. A resources company, inherently exposed to high environmental and social risks, bears greater responsibility to improve ESG management and disclosure transparency to mitigate risks and address the concerns of stakeholders, including investors, communities, and host governments. This has become a firm-wide priority of the Company.

We will relentlessly pursue improvements in our top ESG performance to enhance our soft power. The ultimate goal of ESG management is to echo the global pursuit of green and harmonious development and reach sustainable and high-quality development through structural transformation, industrial upgrading, environmental-friendly efforts, and harmony with community. In 2023, we developed our carbon-neutral roadmap and identified the carbon neutral goal by 2050. We are pleased to honor the commitment and to make a meaningful contribution to the carbon neutral dialogue of the world.

Corporate culture

We presented our vision of becoming “a respected, world-class, and modern resources company” in 2022 based on reflections of the lessons learned over past years. We are also nurturing a corporate culture pillared by the time-honored Chinese style of simplicity, honesty and humbleness while embracing our major shareholder CFC’s aspiration for excellence and truth-seeking. This culture incorporates the ideas of cost control and lean management of a mining company and is embedded with a modern inclination for utilizing financial tools and industry cycle. We are shaping values of CMOC that boasts industry characteristics and supports our international development. CMOC culture and spirit, as they are refined over time, will be the force driving the sustainability and robustness of our business growth.

According to our strategic planning, 2023 will be a critical year of transition from “laying the foundation” to “moving up the ladder”. 2023 will be the year of advancement and will see our all-rounded improvement in management, cost, technology, M&A, production capacity, efficiency, and comprehensive protection. I would like to thank CMOC employees for their dedication and hard work and our investors, clients and partners for your support and encouragement during this process.

A smooth sea never made a skilled sailor. As long as we rise against all the challenges and changes with commitment, adaptability, and progress, we will come out stronger and greater!

CEO

Ruiwen Sun

Dear Shareholders,

Thank you for your continued care, support, and trust in CMOC.

2021 marks an extraordinary year, as the pandemic brought great uncertainty to the world economy and no individual nor company could survive this global disaster alone. Despite demanding challenges, we managed to deliver satisfactory business results while protecting health of our employees and maintaining stable operations based on our strengths in global logistics network and production automation and our defenses built against COVID-19 in both pandemic prevention and control and in provision of supplies.

Financial highlights – In 2021, CMOC achieved an operating revenue of RMB173.863 billion, representing a year-on-year increase of 53.89%; the net profit attributable to the parent company was RMB5.106 billion, representing a year-on-year increase of 119.26%; the net profit attributable to the Company after non-recurring items amounted to RMB4.103 billion, representing a year-on-year increase of 276.24%. The total revenue and net profit reached a record high. All core business units maintained stable operation amid the pandemic, recording a significant drop in frequency of safety incident and new highs in output of key products, while IXM realized best-ever performance, a demonstration of the success that we will continue to achieve via the path of the new “mining + trading” business model.

More importantly, we also consolidated the groundwork to look ahead to the future. The “5233” management concept was practiced, the organizational upgrading and cultural reshaping were basically completed, and headquarter functions were further improved. We rebuilt the management processes and established a global management framework. Digitalization programs were rolled out to support the global business. All these helped lay a solid foundation for our growth going forward.

The pandemic itself is a trigger for people to rethink the relationship between humanity and the world, as well as for us to consider more broadly about the nature of the mining industry and our core competitiveness. Facing the new business environment and technology solutions, the traditional mining industry has been endowed with new connotations. Based on the history of the Company’s development and our understanding of the industry, we have officially updated the Company’s vision to “highly respected, modern, and world-class resources company” in accordance with the standards of international first-class mining companies.

Being “respected” represents our aspiration and pursuit that could be interpreted from three dimensions:

First is commercial success. This is the reason and purpose of the incorporation of any business entity like CMOC. To ride the tide of the new energy revolution, we will increase our production capacity and increase mineral resources and ore reserves to maintain industry-leading profitability. Sustained commercial success is the cornerstone to enhance our influence in the industry and consolidate our leading position in the global supply of battery metals and EV raw materials, enabling us to play an important role in the global energy transition.

Second is all-round people development. We are committed to becoming an international company of excellence that upholds a corporate culture which makes our employees happy and proud and empowers them to realize their value and a successful and exciting career at CMOC.

Third is best practice in sustainability. We exercise the strictest safety, environmental, and social standards and cherish the natural resources to achieve sustainable development and maximum value for all stakeholders.

Being “modern” indicates our methodology and approach to business operations. This is a key trait that distinguishes us from traditional mining companies and requires outperformance in three aspects:

First is modern mine production. In line with the latest round of industrial revolution, we vigorously promote digital and intelligent mine development to modernize mining, beneficiation, and smelting processes. In addition, we refine mine production and improve resource utilization efficiency. Our ambition is to achieve harmonised development of the natural resources, by protecting natural environment and the communities that host our business.

Second is leverage the financial market and financial tools to avoid risks and gain profits based on a healthy balance sheet. The mining industry is quasi-financial, thus the ability to employ financial tools is a core competence of mining companies and is an advantage that we have already demonstrated in our track record. We will continue to leverage this advantage to support growth of the mining business. We will focus on balance sheet and prioritize liquidity management with a clear mind in the context of the cyclical nature of the industry.

Third is greater synergy of mining and trading. We will further leverage the synergy between upstream mines and IXM’s metal trading by taking advantage of IXM’s global network and persistently explore the potential of the “mining + trading” business model. Being “world-class” is our goal and will be the natural course of development should we keep on the right track. This necessitates a strong presence in the international mining arena and commercial success in a free and open economic system as a mature and confident player. In addition to world-class resources, industry-leading profitability, and pricing power over important resources, our teams, organizational structure, operational efficiency, corporate culture, and branding also need to be competitive by international standard. We are also dedicated to playing a leading role in new energy metals such as copper, cobalt and nickel and specialty metals such as molybdenum, tungsten, and niobium. We are keenly aware that to realize our vision, we need to be down-to-earth and take one step at a time. Therefore, we have formulated a “three-step” development path, of which the first step is to “lay a foundation” of low cost and high efficiency. Through the organization upgrade and the establishment of global control system, we will improve mechanism, attract mining elites for business operation and future expansion. The second step is to “ramp up” with multiplying production capacity. With the improvement of production capacity, the staff team has been tempered in the construction of world-class projects; with modern governance methods, our subsidiaries have been effectively controlled; with clear responsibilities and rights, and clear boundaries, the level of global governance has been raised in an all-round way. The third step is to achieve “stellar growth” towards being a world-class company, to improve our business size and cash flows to a new level and to build our talent team and increase our project reserves to meet new requirements; focusing on key regions and categories and seeking great improvement to achieve our vision in accordance with our strategic goals. Today, we are at the crunch time to transit from step 1 to step 2. As 2022 is featured as a year of construction, we will speed up the construction of two world-class mines in the DRC to maximize resources value and lay a solid foundation for the Company to achieve leapfrog development. We are also aware that culture can be a driving force for productivity and a flexible value network bonding individuals with each other and with organizations. A healthy corporate culture can spark productive cooperation among excellent talents. After more than a year of discussion, the framework of our corporate culture has taken shape. Based on our history, this framework is built as an active response to the ever-changing environment and challenges ahead; it is an important guideline for business units worldwide to practice in their operations, in establishing rules and regulations, setting up code of conduct, fulfilling social responsibilities, and promoting brand image. It is a guidance for all employees to embrace and follow and a banner to unify thoughts, reach consensus, and motive and inspire employees. We believe that supported by such corporate culture, we will be ushered in a promising future to build our strongest moat. The world is undergoing profound changes and we are confident that we will become a respected, modern, and world[1]class resources company amid the global industrial and energy revolutions. The worldwide economy is gaining momentum to recover from the subsiding COVID-19 impacts. We believe that we could weather any crisis and challenges as long as we stay true to our aspiration, follow the rules, adapt ourselves to changes, and continue to create value for all stakeholders. The best way to predict the future is to create it! In this era of greatness, we rise to the challenges and remain resolute in pursuing our goals and vision by keeping the path of high-quality growth. We will live up to our mission and will continue to deliver results to maximize returns for shareholders!

 

2019 Annual Address by the Chairman of the Board

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. 

▸ Financial performance

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 and ESG 

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.

▸ Operations

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.  

▸ Balance sheet management 

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. 

▸ Portfolio 

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. 

▸ Business development 

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.

▸ Looking ahead

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. 

▸ Sincere thanks  

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

2018 Annual Address by the Chairman of the Board

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.