Xiamen Tungsten's two-day, two-incident acquisitions target upstream tungsten ore resources

Securities Times Reporter Ye Lingzhen

Xiamen Tungsten (600549) announced acquisition matters for two consecutive days, both related to tungsten resources. On the evening of March 25, the company announced that to improve the self-sufficiency rate of tungsten resources, Xiamen Tungsten signed a tripartite cooperation agreement with Fujian Provincial Industrial Holding Group Co., Ltd. (hereinafter referred to as “Fujian Gongke Group”) and Jiangxi Tungsten Holding Group Co., Ltd. (hereinafter referred to as “Jiangtung Group”). Fujian Gongke Group agreed that its subsidiary would transfer part of its equity in Jiangxi Jutong Industrial Co., Ltd. (hereinafter “Jiangxi Jutong”) to the company and Jiangtung Group, with the company intending to acquire a 30.17% stake.

According to reports, the price of this equity transaction is based on the total equity value of Jiangxi Jutong as reflected in the asset appraisal report, approximately 1.97B yuan, with the final valuation subject to the assessment results approved by the Fujian Provincial State-owned Assets Supervision and Administration Commission. The payment method and schedule for the equity transfer will be separately agreed upon.

Public information shows that Fujian Gongke Group is an indirect controlling shareholder of Xiamen Tungsten and the actual controller of Jiangxi Jutong. Currently, Fujian Gongke Group, through its subsidiaries Fujian Rare Earth (Group) Co., Ltd. (hereinafter “Fujian Rare Earth Group”), Xiamen Sanhong Tungsten Molybdenum Co., Ltd., and Fujian Juhong Rare Metal Investment Partnership (Limited Partnership), indirectly holds a total of 85.17% of Jiangxi Jutong.

According to the agreement, after the completion of this equity transfer, Xiamen Tungsten, Jiangtung Group, and Fujian Rare Earth Group will hold 30.17%, 30%, and 25% of Jiangxi Jutong, respectively.

Securities Times·e Company reporter noted that this is not the first time Xiamen Tungsten has planned to acquire equity in Jiangxi Jutong. As early as 2015, the company planned to acquire a 32.36% stake in Jiangxi Jutong from Fujian Rare Earth Group, but the deal was not completed due to litigation involving Jiangxi Jutong. Currently, the litigation over Jiangxi Jutong’s equity has been settled, with clear ownership rights and no major disputes, prompting the company to restart the acquisition process.

The reason Xiamen Tungsten is interested in Jiangxi Jutong is due to its tungsten mineral assets. The announcement shows that Jiangxi Jutong is the operating entity for the Dahu Tang tungsten mine development and construction, holding mining permits for the North and South areas of Dahu Tang tungsten mine. The North area has a production capacity of 6.6 million tons per year, with as of the end of November 2017, industrial tungsten ore reserves of 502,215 thousand tons, WO3 metal content of 843,300 tons, and an average grade of 0.168%. The South area has a capacity of 1.65 million tons per year, with as of December 31, 2020, industrial main mineral reserves of 180,457 thousand tons, WO3 metal of 370,283 tons, and an average grade of 0.205%. Notably, the North area has not produced since December 2015, and the South area ceased production at the end of December 2020.

Xiamen Tungsten stated that as the company’s capacity in the hard alloy, cutting tools, tungsten wire, and other downstream tungsten processing and application fields continues to grow, its demand for tungsten resources increases year by year. Currently, the company’s three operating tungsten mines and one under-construction tungsten mine can only meet part of the demand. Acquiring Jiangxi Jutong will help increase mineral reserves, promote the construction of the Dahu Tang tungsten mine, and improve tungsten resource self-sufficiency.

In addition to planning to acquire a stake in Jiangxi Jutong, Xiamen Tungsten also announced a tungsten mine investment plan on the evening of March 24. The company intends to acquire a 69% stake in Jiujiang Dadi Mining Development Co., Ltd. (hereinafter “Jiujiang Dadi Mining”) for about 295 million yuan in cash, of which 128 million yuan will be used to acquire the 30% stake held by Jiangxi Jutong, and 167 million yuan for the acquisition of a 39% stake held by a non-related party. According to the announcement, Jiujiang Dadi Mining and its subsidiaries hold exploration rights for the Yangshidian copper-molybdenum polymetallic deposit in Xiushui County, Jiangxi Province, and mining permits for the Kunshan tungsten-molybdenum mine. After the transaction, Xiamen Tungsten will become the controlling shareholder of Jiujiang Dadi Mining, further securing upstream tungsten mineral resources.

Currently, the domestic tungsten industry is in a high prosperity phase characterized by tightening supply and steady demand, driving continuous increases in tungsten prices. Industry insiders say that the trend of tightening tungsten supply domestically is expected to continue at least until 2028, and increasing resource self-sufficiency will become a core competitive advantage for industry companies, with industry chain profits likely to concentrate upstream.