Source: long-term Finance and Economics
On May 12, Fitch published a report saying that Zijin Mining Group Group Co., Ltd. (Zijin Mining Group Co., Ltd., referred to as "Zijin Mining Group")$Zijin Mining Group (02899.HK) $，$Zijin Mining Group (601899.SH) $, BBB- / stable) two recent proposed acquisitions of lithium resources and shares of listed companies in ChinaIt will increase its net leverage ratio by 0.2x-0.3x to 1.8x-2.1x (2021: 2.1x) between 2022 and 2023, reducing its rating space.However, the company's current rating reflects its diversified commodity mix, competitive cost advantage and strong cash flow generation capacity.
Zijin Mining Group announced acquisitions with a total amount of 9.4 billion yuan on April 30th and May 9th. It includes a 70 per cent stake in Laguocuo Lithium Salt Lake in Tibet and a 15 per cent stake in Fujian Longjing Environmental Protection Co., Ltd. (Fujian Longking Co., Ltd., 600388.SH), a leading environmental service provider listed in China. After the deal is completed, Zijin Mining Group will merge Longjing Environmental Protection, as Zijin Mining Group will receive an additional 10 per cent of proxy voting rights from previous controlling shareholders. Fitch expects the two deals to be completed in the first half of 2022, subject to regulatory approval.
Fitch believes that these acquisitions are in line with Zijin Mining Group's medium-term strategy for expanding in the new energy sector, but the impact on near-term economic benefits will be limited.Zijin Mining Group's management expects the Tibet greenbelt project to begin commercial operation in the second half of 2024.
therefore,Fitch expects that Zijin Mining Group's rating space will be downgraded after the above acquisition is completed.Although the leverage ratio is likely to remain within the negative sensitivity of Fitch (2.2 times net leverage) and comparable to the company's rating. Fitch estimates that without equity financing, the acquisition cost and future capital expenditure of the Tibet lithium project will increase its net debt / EBITDA to 1.8-2.1 times between 2022 and 2023.In view of the small size and moderate leverage of the acquired company, the merger of Longjing Environmental Protection has a limited impact on Zijin Mining Group's leverage ratio.
Fitch believes that the rating pressure caused by the larger-than-expected Zijin Mining Group acquisition has been alleviated by its strong profitability.Fitch expects Zijin Mining Group's EBITDA to rise from 33 billion yuan in 2021 to 43 billion yuan in 2022 due to increased production and commodity prices. Fitch predicts that copper and gold production will reach 773000 tons and 58 tons respectively by 2022 (2021: copper: 530000 tons; gold: 46 tons).