• Tietto board knocks back $649m African gold takeover from China’s Zhaojin
  • ANZ says oversupply of battery production capacity will hurt battery metals, threatening energy transition


Tietto Minerals (ASX:TIE) has pulled the O word out in its defence of a raid from Chinese shareholder Zhaojin Mining, calling a ~$649 million bid from the Hong Kong listed gold miner opportunistic.

A unanimous rejection of Zhaojin’s 58c per share offer for the West African gold miner came as it trotted out its October production numbers for its Abujar gold mine in Cote d’Ivoire.

The miner knocked down its H2 2023 guidance from 105,000-120,000oz to 75,000-85,000oz at AISC of US$1175-1350/oz at the start of January. But it delivered 33,753oz at 0.95g/t and 95% recoveries in the September quarter, more than double the 15,592oz produced in the June term.

In October, it delivered 12,057oz at a 1g/t grade and 94.8% recovery, an annualised rate of around 140,000ozpa. Tietto intends to produce at an average rate of around 170,000ozpa between 2024 and 2032.

Zhaojin owns around 7% of TIE, but isn’t the largest holder on the register. Fellow Chinese gold stock Chifeng owns ~13%, having entered in a placement last year, big enough to block a full takeover if it didn’t want to support it.

Given its entry price last year was 58c there would appear little motivation for it to sell out to the Zhaojin offer.

TIE’s board said the Zhaojin offer “materially undervalues the company”, saying the timing was opportunistic because Tietto’s share price should improve as the performance of Abujar improves. It also has a DFS on a second mine 11km south of Abujar due early next year.

“October 2023 was a record month for gold production at Abujar and was significantly ahead of gold production during September despite the continuation of the wet season, which has until now prevented the company from milling higher grade ore and stockpiling the lower grade ore,” Tietto said.

“Mining rates are expected to substantially exceed milling rates over the next eight months as we move into the dry season in Cote d’Ivoire. This will provide the company with significant flexibility to optimise for free cash generation as ore stockpiles are developed.”

Tietto hit an all-time high of 86c earlier this year before the slog began at Abujar. Its shares rose 6.2% to 60c today, lifting its market cap to ~$671m.


Chinese regulatory roadblock looms?

Tietto also raised questions over whether Zhaojin, which mined around 620,000oz of gold and smelted and processed another 260,000oz from third parties last year, would get Chinese outbound investment approvals.

“The Offer is subject to a number of defeating conditions, including the receipt of regulatory approvals from a number of Chinese regulatory authorities (including the NDRC, MOFCOM and SAFE) as well as from the Ministry of Mines, Petroleum and Energy of Cote d’Ivoire,” Tietto said.

“There can be no certainty as to whether these regulator approvals will be forthcoming or how long it may take to obtain such approvals.”

Zhaojin has already obtained Aussie FIRB approval for the takeover, and rebutted suggestions it would struggle to get a Chinese outbound investment tick.

“We are disappointed that the Tietto Board has not seen the value in our cash offer, which represents an attractive premium for shareholders, at a 42% premium to the five-day VWAP,” a Zhaojin Mining Industry spokeperson said.

“We believe the offer provides value and certainty for Tietto shareholders and we will continue discussions with the Board and Tietto shareholders on the merits of our proposal.

“We have Australian FIRB approval in place and have progressed work on obtaining other required approvals and believe we are well placed to obtain all required Chinese regulatory approvals.”


Are EV metals facing growing pains?

The battery metals complex charged like a raging bull, with a sea of green among lithium, graphite and rare earths stocks playeing the starring role.

But there are few doubts the collective of metals needed to fuel the EV revolution are struggling to keep their momentum going, as seen in the struggles of big lithium miners to maintain their margins.

ANZ’s commodity strategists Daniel Hynes and Soni Kumari said in a note this week that Chinese battery output, pushing 1000GWh this year, is now far exceeding domestic battery demand.

“After record growth last year, expectations were high for the EV market 2023. Aided by attractive government policies, China subsequently experienced a huge build-out in battery capacity. However, in a rush to make the most of the EV boom, supply has ultimately outweighed demand by two to one,” they say.

“This came as consumer demand suffered amid high inflation and an uncertain economic backdrop. While still strong, EV sales growth has subsequently been in decline. This has seen battery makers cut output and reduce their battery metal inventories.

“Metals such as lithium, cobalt and nickel look likely to remain oversupplied in the short term. This is likely to keep prices depressed. Nevertheless, we still see a strong long-term outlook. Supply still needs to increase by 1.5–3.5 times over the next five years, a goal not easily achieved.

“A period of sustained weakness in battery metal prices could ultimately make the decarbonisation of the transport sector even harder.”

Pic: ANZ Research

They say the honeymoon period for the EV market “appears to be over”, noting that western OEMs have been scaling back production plans amid losses and bottlenecks in their EV divisions, with EVs now taking longer to sell than petrol cars.

“EV sales are growing, however. They topped 300,000 units in the US for the first time in the third quarter, according to a Cox Automotive report,” Hynes and Kumari said. “They rose 14.3% in September in the European Union and 22% in China, the world’s largest EV market.”

They anticipate oversupply will put downward pressure on lithium, nickel and cobalt prices, but note the long-term outlook remains strong, with EVs to reach 30% of all new car sales from 2025.


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