Developing into “A Leader in Global New Energy Lithium Battery Material Field”

Huayou Cobalt (Zhejiang Huayou Cobalt Co.Ltd.),a company established in 2002,was engaged in smelting and processing of cobalt in the first place.Having been making efforts to expand its business to resources and materials,now the Company has established three major sectors,i.e.resource,nonferrous smelting and new energy material,and has constructed an integrated industry chain covering cobalt and nickel resource development and smelting and processing,ternary precursor and ternary material,and recycling of resources.Meanwhile,the Company is now making expansion and deployment in the whole industry chain of lithium iron phosphate.Undoubtedly,Huayou Cobalt is a strong competitor in the competition of “taking the lead in global new energy lithium battery material field”

1.The Strategic Deployment and Development History of Huayou Cobalt

The development history of Huayou Cobalt can be roughly divided into two phases:

From 2002 to 2015:In its initial stage,Huayou Cobalt was devoted to building a leading cobalt company globally.It not only actively sought cobalt resources overseas but also continuously expanded smelting and processing capacity,thus forming a development model featuring both cobalt resource expansion and smelting and processing capacity expansion.

From 2015 to now:Huayou Cobalt successfully went public in A share market in 2015,from when it changed its strategic objective to “being a leader in global new energy lithium battery material field” and started to keep in step with the pace of global NEV development.The Company has been expanding its business to ternary precursor,ternary material,nickel raw material,lithium resource and lithium battery recycling,and it has successfully constructed a vertical integrated industry system covering ternary battery material industry chain.Since the end of 2021,the Company also started to make deployments in lithium iron phosphate.

(1) Making deployments in cobalt and copper resources and smelting in Africa

Established in Tongxiang,Zhejiang in 2002,Huayou Cobalt was devoted to cobalt smelting and processing in the first place.China is a country that is in short of cobalt resource.Therefore,Huayou Cobalt,based on taking control of upstream resources,has been seeking the opportunities to acquire cobalt and copper resources in Democratic Republic of the Congo since 2003,so as to construct a resource supply base.In 2006,Huayou Cobalt set up CDM,a wholly-owned subsidiary,officially indicating the establishment of African operation supporting system and trading platform.In 2008,Huayou Cobalt successfully acquired the controlling stake of three mining companies of Democratic Republic of the Congo,i.e.MIKAS,COMMUS and WESO,indicating the initial formation of the landscape in resources.In 2015,Huayou Cobalt’s CDM acquired the exploiting right of PE527 of Democratic Republic of the Congo.

As of now,Huayou Cobalt owns 4 mining areas in Democratic Republic of the Congo,with all of them acquired by its whollyowned subsidiaries,MIKAS and CDM.Total controlled resource reserves contributed by the 4 areas is 584000 tons of copper reserves and 70000 tons of cobalt reserves.Specifically,copper-cobalt ore block and stockpiling ore of Lusuxi and Lukuni mines under PE527 exploiting right of CDM;KAMBOVE tailings and SHONKOLE mine of MIKAS.PE527 mining area and KAMBOVE tailings have gone into operation,and SHONKOLE mine has yet to commence.

Huayou Cobalt has constructed a cobalt resource supporting system consisting of proprietary mines in Congo,purchasing in Congo and international trade purchasing.Firstly,MIKAS and CDM in Democratic Republic of the Congo contribute 4100-4500 MMT of cobalt each year;secondly,the subsidiary CDM purchases from local mining companies and traders;thirdly,Huayou HK purchases from Glencore and other international mining companies and traders.

As of now,Huayou Cobalt has achieved the capacity of 39000 tons of cobalt products and 110000 tons of copper products,including 9000 tons of cobalt products in Tongxiang,and 30000 tons of cobalt products and 15000 tons of copper products in Quzhou,and 66000 tons of copper products from MIKAS and 30000 tons of copper products from CDM.

(2) Making deployments in ternary precursor and ternary materials

In the context of NEV industry and power battery industry gaining rapid development,Huayou Cobalt set up new material research institute to get itself prepared for downstream material field in 2013.The Company invested in the construction of a 20000-ton ternary precursor project in 2014,which was put into operation in 2016.This officially indicated the Company’s expansion to ternary precursor field.

In 2018,Huayou Cobalt made a big step into ternary precursor and ternary material field by working with downstream leading companies.Huayou New Energy worked with LG Chemical and POSCO to co-invest in the project of ternary precursor and ternary material.

In the two projects,Huayou Cobalt held the controlling share in ternary precursor project,and its partner held the controlling share in ternary material project.To be more specific,the project concerning LG Chemical:In Huajin Company’s ternary precursor project(annual capacity of 40000 tons),Huayou held 51% share and LG Chemical held 49%share,and phase one capacity of 20000 tons was put into operation;in Leyou Company’s cathode material project (annual capacity of 40000 tons),LG Chemical held 51% share and Huayou New Energy held 49% share,and phase one capacity of 20000 tons was put into operation.The project concerning POSCO:In Huayou-POSCO’s ternary precursor project(annual capacity of 30000 tons),Huayou held 60% share and POSCO held 40% share,and phase one capacity of 5000 tons was put into operation;in POSCO-Huayou’s cathode material project (annual capacity of 30000 tons),Huayou held 40% share and POSCO held 60% share,and phase one capacity of 5000 tons was put into operation.

Huayou Cobalt acquired Huahai New Energy in 2019,which helped to further expand the Company’s ternary precursor capacity.40000-ton ternary precursor capacity of the two phases of Huahai New Energy was completed and was put into operation in 2020.

In terms of ternary material,Huayou Cobalt squarely acquired the leading company in the industry.Huayou Holdings and Huayou Cobalt successfully assumed control of Bamo Tech in the form of share purchasing in 2017 and 2021 (holding 65% share in total).Bamo Tech is one of the TOP 3 ternary material companies in market share in China.It owns a capacity of 43000 tons of ternary cathode material and 13500 tons of lithium cobalt oxides.

Currently,Huayou Cobalt has 100000 tons of ternary material capacity under construction and it is expected to be completed by the end of 2022,including the capacity of 50000 tons from Bamo Tech that is now under construction and will be completed by the end of 2021,and the capacity of 50000 tons of ternary material included in Guangxi Bamo convertible project initiated in June,2021.

On the whole,Huayou Cobalt has currently controlled the capacity of 85000 tons of ternary precursor and 68000 tons of ternary material (equity capacity of 55000 tons).With the completion of the capacity of 125000 tons of ternary precursor and 145000 tons of ternary material (equity capacity of 120000 tons),Huayou Cobalt will have controlled the capacity of 210000 tons of ternary precursor and 213000 tons of ternary material by the end of 2022.

(3) Making deployments in nickel and cobalt raw material in Indonesia

During business expansion to ternary material,Huayou Cobalt became aware of the trend of high nickel content in ternary material.This led to its important deployments in nickel raw material in Indonesia since 2018.Just setting foot in a new area and a new field,Huayou Cobalt practically entered strategic partnership with Qingshan Holding Group,a nickel giant,so as to implement its deployments with smelting as its starting point.Huayou currently has co-established many nickel smelting projects in Indonesia.

Firstly,Huayue Nickel Cobalt project that started construction in October,2018,with annual capacity of 60000 MMTs of nickel hydroxide and 7800 MMts of cobalt hydroxide.In this project,Huayou Cobalt held 57% share,China Molybdenum held 30% and Qingshan held 10%.

Secondly,Youshan Nickel’s nickel matte project that started construction in August,2019,with annual capacity of 34000 tons of nickel.In this project,Huayou Cobalt held 29.25% share,Shengtun Mining held 35.75%as the operating party,and Qingshan held 35%.

Thirdly,Huake Nickel’s nickel matte project that started construction in May,2020,with annual capacity of 45000 tons of nickel.In this project,Huayou Cobalt held 70% share and Qingshan held 30%.

Fourthly,nickel cobalt hydroxide project of Huafei Nickel and Cobalt that started construction in May,2021.The project was coinvested by multiple companies,and Huayou Cobalt held 20% share.

As soon as the aforesaid projects are completed,Huayou Cobalt will have owned the equity capacity of cumulative 100000 tons of nickel raw material and 7400 tons of cobalt raw material in Indonesia.With the capacity of 4500 tons of cobalt raw material in Democratic Republic of the Congo included,Huayou Cobalt will be equipped with sufficient raw material guarantee in ternary precursor field.Furthermore,Huayou Cobalt is constructing a battery-level nickel sulfate project with annual capacity of 30000 tons in Quzhou that is going to be completed in the middle of 2022,which completely helps to realize seamless connection between nickel raw material and ternary precursor.

(4) Making deployments in lithium resource,lithium battery recycling and lithium iron phosphate

In terms of lithium resource,Huayou Cobalt subscribed for additional shares of AVZ,an Australian company in 2017,and it gained 11.2% equity,indicating the commencement of the Company’s lithium ore business.It is estimated that AVZ’s Manono project in Democratic Republic of the Congo boasts 400 million tons of lithium reserves,with the grade of lithium oxide 1.65%.It is one of the lithium mines with the highest lithium reserves globally.

In terms of lithium battery recycling,Zhejiang Huayou Recycling Technology Co.,Ltd.was established in 2017 to undertake the deployments in lithium battery recycling.Now,the capacity of treating 65000 tons of waste batteries has been built,and 5700 MMTs of cobalt can be comprehensively recycled each year at most.Huayou Recycling also acquired Taiwan Bilun and Korea TMC so as to make deployments in overseas recycling system construction.

In terms of lithium iron phosphate,in the context of lithium iron phosphate industry greatly recovering,Huayou Cobalt vigorously pushed into this field in November,2021.Firstly,the Company is planning to acquire Shengfan Technology in Hohhot in the name of its subsidiary,Bamo Tech.Shengfan Technology has already owned the capacity of 15000 tons of lithium iron phosphate,and it also has a capacity of 50000 tons under construction.It is estimated that all of Shengfan’s capacity will be put into operation in 2022.Secondly,Huayou is working with Xingfa Group to plan a step-by-step investment in an integrated industry in Yichang,Hubei that covers phosphate ore mining and beneficiation,phosphorus chemical industry,phosphoric acid by wet process,iron phosphate and lithium iron phosphate material.The project aims to construct an annual capacity of 500000 tons of lithium iron phosphate material and 500000 tons of lithium iron phosphate.

2.Huayou Cobalt Seized Development Opportunities by Making Integrated Deployments on Industry Chain and by Making Horizontal Expansions

(1) Integrated deployments on industry chain enable resources and materials to coordinate with each other and complement each other

Huayou Cobalt has implemented integrated deployments on ternary material industry chain covering “nickel and cobalt raw material -precursor - material - recycling” via a series of strategic deployments.Meanwhile,the Company is making deployments in alternative lithium iron phosphate integrated industry chain.

At upstream raw material end,Huayou Cobalt boasts great strengths in resources.According to elementary statistics,Huayou has controlled,directly or indirectly,260000 MMTs of nickel raw material (equity capacity of 100000 tons) and 27000 MMTs of cobalt raw material (equity capacity of 12000 tons),fully securing resource supply to the development of downstream ternary material.In addition,relying on its deployments in Indonesia and Democratic Republic of the Congo,the most important base of nickel and cobalt raw material in the world,and relying on its cooperation with the globally biggest nickel and cobalt resource companies,Huayou Cobalt has huge room for stronger resource control in the future

At downstream market end,Huayou Cobalt has occupied the leading position in our country.It occupied 11% of domestic market share in ternary precursor in 2020,becoming one of the TOP 4 ternary precursor giants.Just acquiring Bamo Tech has helped Huayou Cobalt to get a leading position with 11% of domestic market share,ranking the second nationwide.The equity share gained from joint investments with LG and POSCO will make Huayou Cobalt TOP 1 in domestic ternary material market.

Integrated strategic deployments on resource material industry chain will bring huge internal collaborative advantages to Huayou Cobalt.

Firstly,with the explosive growth in terminal demand,stable resource supply is of great importance to the development of material.The control of upstream resource and raw material will give Huayou Cobalt unparalleled resource strengths unmatched by other companies,i.e.capacity of 210000 tons of ternary precursor and 213000 tons of ternary material,thus equipping Huayou Cobalt with unparalleled market competitiveness and pricing power on industry chain.According to planning,Huayou Cobalt will realize an annual capacity of 500000 tons of directlycontrolled or indirectly-controlled ternary precursor and ternary material by 2025.With the strong support of resources,Huayou Cobalt is expected to develop into a leading ternary material company worldwide.

Secondly,Huayou has involved itself in the whole chain from resources down to ternary precursor and ternary material,and has entered strategic cooperation with leading downstream companies.This is helping the Company to smoothly transmit its raw material strengths- capacity of 260000 MMTs of nickel raw material (equity capacity of 100000 tons)and 27000 MMTs of cobalt raw material(equity capacity of 12000 tons) - downstream to high-end material industry chain,thus helping to improve added value of products and realize high-end development.More than that,comprehensive involvement will further provide guidance for Huayou Cobalt to comprehend technology development trend and continuously optimize its upstream resource deployments,thus enhancing its controlling of key resources.

(2) Integrated deployments on industry chain will provide Huayou Cobalt with significant advantages in potential “price war”

Over-high cost of power battery is a crucial constraint standing in the way of rapid development of NEV industry.An important factor for lithium iron phosphate recovering quickly since last year is over-high cost of ternary battery.Under the circumstance of a drastic slide in subsidy,electric vehicles with expensive ternary battery are far from economical compared to fuel vehicles.On the contrary,the lithium iron phosphate battery pack,with CTP innovation,greatly reduces the cost of battery pack and vehicle while basically meeting the demands of mileage endurance.

As a result,the ternary battery has to reduce its cost to be more competitive in price war in the future in spite of its high-tech energy density and comprehensive performance.Especially,threatened by lithium iron phosphate with its substitutability,ternary battery industry chain might be inevitably engaged in the cruel price war in the future.Huayou Cobalt,relying on its integrated deployments in resource material on ternary material industry chain,has simplified intermediate steps and reduced the cost of terminal products,which will give the Company unparalleled powerful final cards unmatched by other companies in price war.

(3) Expansion to lithium iron phosphate helps to alleviate technical route risks

Huayou Cobalt has taken the leading position in ternary material by virtue of its integrated deployments on industry chain.In the meantime,Huayou Cobalt is aiming higher achievement.The Company is making massive horizontal expansion to lithium iron phosphate industry,and is going to co-construct a lithium iron phosphate material industry chain with a total annual capacity of 500000 tons.This project is not only the extended application of its current operating experience and technologies and market strengths,but also is a pivotal measure to avoid risks of power battery technical route.

In spite of some weaknesses in the deployments in nickel resource and lithium resource,Huayou Cobalt already is a company with the most comprehensive deployments in lithium battery cathode material industry chain in the world.As the deployments of 500000-ton ternary material industry chain,severalhundred-thousand-ton lithium iron phosphate industry chain and one-hundred-thousandton power battery recycling industry chain are fully implemented by 2025,Huayou Cobalt will become a real “global leader in new energy lithium battery material”