Greater China Materials_ DRC Suspends Cobalt Exports; Impacts on CMOC and Huayou

Summary of Conference Call Notes Industry Overview - Industry: Greater China Materials, specifically focusing on cobalt production and its market dynamics in the Democratic Republic of the Congo (DRC) [1][2] Key Points 1. Cobalt Export Suspension: The DRC has suspended cobalt exports for four months starting February 22, 2025, to address oversupply issues. The DRC produced approximately 70% of global cobalt in 2024 [2][7]. 2. Impact on CMOC: - CMOC produced 114,000 tons (kt) of cobalt in 2024 and plans to produce 110kt in 2025, all sourced from DRC operations. - Cobalt is estimated to contribute around 11% to CMOC's mining gross profit (GP) in 2024. - CMOC is expected to have approximately 40kt of cobalt inventory by the end of 2024, which may partially offset shipment volume losses during the export suspension. - If the ban is lifted on time, potential increases in cobalt prices could enhance CMOC's future sales [3][7]. 3. Impact on Huayou: - Huayou's annual cobalt production from its DRC mine is estimated to be only several thousand tons, resulting in minimal direct earnings impact from the suspension. - However, potential price increases in cobalt may positively affect Huayou's other cobalt-containing products, such as MHP and precursors [3][7]. Financial Projections and Risks 1. CMOC Valuation: - A discounted cash flow (DCF) model is used for CMOC, applying a weighted average cost of capital (WACC) of 8.0% with an assumed annual revenue growth of 2% beyond the explicit forecast period [8]. 2. Huayou Valuation: - Huayou's price target is derived from a DCF model with a WACC of 10.9% and a steady-state revenue growth rate of 2%, considering a slower penetration rate in ternary lithium-ion batteries compared to market expectations [9]. 3. Risks: - Upside risks include stronger-than-expected metal prices in 2025 and higher copper output beyond company guidance. - Downside risks involve weaker cobalt prices due to low demand from industrial sectors and domestic electric vehicles (EVs), as well as slower recovery in the global macroeconomy affecting other metal prices [12][15]. Additional Insights - The suspension of cobalt exports is a significant event that could reshape market dynamics, particularly for companies heavily reliant on DRC cobalt, such as CMOC and Huayou. - The potential for price hikes in cobalt and related products could create opportunities for companies to enhance profitability if managed effectively during the suspension period [3][7].