Huayou in clean air upside breakout. Up 15% in a week.
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Huayou have a MC of 67.879 Billion Yuan which equates to around USD 10.75 Billion.
Each 1% rise of the Huayou share price is 107M USD......Think about that in context of the NZC MC.
Huayou market cap has risen USD 1 .6 Billion in the past week.
What does NZC mean to Huayou?
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From NZC presentation Huayou produced 25 kt of Cobalt Hydroxide in the past year.
Huayou control 25% of the global cobalt chemical market - talks/deals with majors such as Apple/BMW
This equates to around 11 kt of Cobalt metal consumption per year.
NZC has 42 kt of cobalt firmed up - excluding exploration upside.
NZC owns one of the few high grade JORC Cu and Co mines in the World not controlled by a major.
NZC owns a hot exploration tenement in the DRC which are very very difficult to find - without any Gecamines involvement or locked up indefinitely by the World Bank as security for DRC debt.
NZC has no artisinal miners across its holdings - and importantly has local support and involvement.
NZC can provide Huayou a secure source of cobalt to meet 40% of their current needs for 10 years.
NZC has a privately controlled ready to go mine with no Gecamines ownership.
NZC has clear chain of supply - easy to document for buyers such as Apple.
NZC cobalt ore has excellent recovery and conversion to cobalt hydroxide.
Huayou rely heavily on artisinal production - unreliable/risky and traceability and quality issues.
In summary, if NZC can provide 40% of the feed requirements for Huayou for the next 10 years then what do you think Huayou will do to limit risk and secure feedstock?
NZC MC USD 70 Million
Huayou MC USD 10,750,000 Million
Huayou is valued 150x larger than NZC.
Let's get this straight --> Huayou largely rely on artisinal miners and process raw cobalt ore to cobalt hydroxide. Their value add compared to NZC is a process plant at Lubumbashi. NZC can provide them 40% of their feed stock for 10 years yet are valued 150x less. Now any blind freddy can see where the money lies in this business - or a very obvious arbitrage play in NZC!
Lets get their straight - 40% feedstock for 10 years yet valued 150x less than the upstream processor.
Lets try value NZC on this basis. Note we are purely looking at the cobalt and not even considering the value of our 300 kt of copper (IGV of USD $2.1 Billion) !!!
NZC could go forward and build our own Stage 2 conversion plant and mine for around USD 200M. The challenge is finance/dilution. Lets say NZC designs for a 20 year process plant life based on the existing cobalt resource. 2kt of cobalt per year equates to 4.5 kt of cobalt hydroxide - or around 18% of Huayou's current output. 18% valuation of USD $10.75 Billion equates roughly to a USD 2 Billion valuation - for a USD 200 million outlay. Lets be conservative and say even half that valuation is pretty darned attractive compared to a USD 70M in ground value right now. (And again this is not considering our Copper value).
Do you think Huayou will allow NZC to establish an off-take agreement with a nearby Kolwezi processor?
Do you think Huayou would allow NZC to go to Stage 2 based on the MC disparity and margins involved?
But Hang On --> let's not give up too easily....NZC has control of its resource (for now).
NZC hold some very valuable cards --> wanted by at least 4x competing Chinese companies.
There are 3 Chinese cobalt process plants in the works in Kolwezi (30 km away) that have no feedstock security. Do you think they want Huayou to get NZC feed - one of the only untapped local mines?
It does not make economic sense for NZC management right now to do an off-take deal with Huayou because the Huayou process plant is 500km away at Lubambashi and the transport costs eat up 25% of the profits. Remember NZC is Tembo/T20 controlled and Huayou have a 15% stake.
So we if you are Huayou you have 2 obvious options to lock up NZC cobalt:
1. Take out NZC before DMS funding this year or competing off-takes signed
2. Fund Stage 2 and bring an ace to the table such as ready to go power allocation.
Forget mining codes and elections. The Chinese are going to Gobble, Gobble, Gobble.
What does this mean for NZC holders?
1. A take over at a market premium - at what price? Tembo control will ensure no low ball offer.
2. Absorbed by Huayou and free carried for a % into Stage 2 to become a high margin processor.
3. Either NZC or Huayou should take out one of these Chinese start ups in Kolwezi.
