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The Making of the Glory of “China’s Capital of Molybdenum” –Part I

In March 2006, Henan Luanchuan County was awarded “China’s Capital of Molybdenum” honorable title by the China Mining Association. In the following decade, Luanchuan County rose to instant fame in China with the reputation of “China’s Capital of Molybdenum”, then, how did “China’s Capital of Molybdenum” forge its glory?

Luanchuan’s molybdenum resource reserve ranks top in Asia, and third worldwide. In May 1960, the first molybdenum dressing plant with 50 tonne per day processing capacity in Luanchuan County Danangou was completed and launched into production. Since then, Luanchuan County vigorously developed lead, zinc, gold, fluorite, phosphorite and oil shale resources. In 1984, Luanchuan County’s gross industrial output value topped 64.42 million yuan, which for the first time overtook the whole County’s gross output value of agriculture, accounting for 57.8% in total gross output value.

By the end of 1999, there are 26 molybdenum mining and dressing enterprises with 50 tonnes above daily molybdenum processing capacity within Luanchuan’s boundary, whose mining and dressing scale is 19730 tonne/day, it has initially developed one-stop production line covering mining and dressing, smelting and deep processing. Several dozen molybdenum enterprises including China Molybdenum Co., Ltd, Luanchuan County Metallurgical & Chemical Company, and Luoyang Mudu Mining Company one after another started production.

As China quickened its pace of Reform and Opening up, Luanchuan’s molybdenum mining and dressing industry also acquired rapid development. In 2010, Luanchuan County drafted the development strategy of “Strengthening the County through industry and mining, rejuvenating the County through tourism, building the County through ecological approach”. By the end of 2014, the number of molybdenum mining and dressing enterprises in Luanchuan County has reached 67, with daily dressing of crude ore up to 147,550 tonnes, and annual output of 103,300 tonnes of molybdenum concentrate, apart from molybdenum fine powder, other molybdenum serial extended products include more than 20 varieties such as molybdenum iron, ammonium molybdenum, and high purity molybdenum disulfide, its products are sold to more than 10 countries and regions in Europe, Americas and Japan.

The development of molybdenum industry pioneered and boosted rapid emergence of the entire mining industry in Luanchuan County. Just like two sides of a coin, mining development is no exception. Accompanying the rising prices of molybdenum products since 2004, behaviors such as stealing exploitation of resources, super-layer cross-border, mining in lieu of prospecting, and damage of environment continued despite repeated prohibition. For this reason, Luanchuan County once again unveiled the curtain of mining order rectification, this time’s rectification corrected and terminated 50 cases of disguised contracting agreements, investigated and prosecuted 25 licenseless mines, 4 cases of cross-border exploitation, 6 cases of mining in lieu of prospecting, 6000 plus times of ore transport vehicles, 86 person times of licenseless transport & sales of ore products, 11 cases of ore theft, and sealed up over 70 dressing & smelting equipment which damage environment and waste resources.

In August 2005, after the State Council distributed the “Notice on Rectifying and Standardizing Mineral Resource Exploitation Order”, Luanchuan County took advantage of this opportunity, again kicked off large-scale rectification and standardization of mineral resource exploitation order. In July 2008, the Inspection & Acceptance Team for Rectification and Standardization of Mineral Resource Exploitation Order from nine ministries and commissions of the State Council successfully accepted Luanchuan’s work performance.

It has been learned that, during the 20 plus years from 1988 to 2014, Luanchuan County organized more than 20 times of mining order rectification campaigns in varying scale, sealed up and closed down a total of over 2000 illegal molybdenum mine mouths, and outlawed more than 3000 small dressing factories and small mills.

If it can be argued that mining order rectification opened up clear and serene sky for Luanchuan’s molybdenum industry economy, then resource integration added wings to the takeoff of Luanchuan’s molybdenum industry.

In one mining order rectification campaign early in 1988, Luanchuan County successfully urged China Molybdenum Co., Ltd to acquire rural and town mining enterprises which could meet certain requirements and certain scale. Afterwards, because molybdenum market remained in sluggish condition for a long period of time, excluding China Molybdenum Co., Ltd which implemented large-scale operation, other molybdenum enterprises still remained in weak small-scale operation condition and in piecemeal approach. To this end, CPC Luanchuan County Committee and the County Government took into consideration local and actual conditions, implemented restructuring and M&A on more than 20 mine mouths surrounding three major molybdenum mines of Sandaozhuang, Nannihu, and Shangfanggou, and successfully accomplished open-pit mining of three major molybdenum mining zones.

Several years later, due to fast surge of the molybdenum market, in order to prevent the revival of chaotic mining in the molybdenum mining and dressing industry, Luanchuan County specially set up “Luanchuan County Leadership Group for Non-coal Resource Prospecting, Development, and Integration”, the focus was placed on rational planning of molybdenum mining zone development and processing zone, strictly controlling mining right setup procedure for key molybdenum mining concentration zone, and molybdenum ore processing concentration zone; for restricted mining zone under planning, it banned the setup of new exploitation right and exploration right. While building investment/financing platform for advantageous resource integration, this County also set up exit mechanism, give equal consideration to market rules and geological rules, adopted disposal approaches such as compensatory transfer, conversion of assets into shares, bankruptcy and restructuring. Furthermore, Luanchuan County also innovated mining right management mechanism, and took the initiative to introduce mine supervision responsibility system and accountability system in Luoyang.

This time’s integration enabled China Molybdenum Co., Ltd to control and operate three private enterprises of Sanqiang Tungsten & Molybdenum Company, Dadongpo Tungsten & Molybdenum Company, Jiuyang Mining Company, so as to make these three enterprises with daily processing of nearly 10,000 crude ore despite lack of fixed ore supply become legal majority-owned companies of China Molybdenum Group.

At Luanchuan County Nannihu Molybdenum Mining Zone, before integration there were a total of 5 exploitation rights, the integration main body is Luanchuan Longyu Molybdenum Industry Co., Ltd. After integration, it set up 1 mining right covering the entire area, while accomplishing open-pit mining, it also greatly improved operation standard and work efficiency.

Owing to historical reasons, Luanchuan Shibaogou lead-zinc, molybdenum and tungsten mine set up 24 mining rights, and developed a total of 60 places of big or small mining pits which are either in production, semi-production or discarded condition. In October 2010, as the main body of integration, Xinchuan Mining Company signed mining right transfer contract with 7 mining right holders. Integration brought brimming vitality to Xinchuan Mining Company. This company invested a total of 50 million yuan in prospecting, in April 2011 alone its drilling work load reached 16000 meters, it newly added 1.90 million tonnes of lead, zinc, molybdenum and tungsten reserve. Among 47 mining resource development model mines nationwide commended by the Ministry of Land and Resource in July 2011, Luanchuan County Xinchuan Mining Company was included in the name list.

Through integration of molybdenum resources, Luanchuan County has developed shareholding system including China Molybdenum Co., Ltd, Luanchuan Longyu Molybdenum Industry Co., Ltd, Henan Coal Chemical Industry Group Co., Ltd, Luoyang Nonferrous Metals Mining Group Inc, and Luoyang Mudu Mining Company. In particular, after integration the China Molybdenum Co., Ltd has developed into a Hong Kong listed company focusing on molybdenum & tungsten mining and dressing, smelting deep processing, and integrating scientific research, production, and trade, the company’s market value ranks among Top 30 in the global mining industry, it is a Top 100 enterprise in Henan and one of the 16 key enterprises in Luoyang, main products include 50 varieties in 9 series including molybdenum, tungsten, gold, silver, lead, zinc, copper, iron and sulfur, it is the world’s fourth biggest, and China’s biggest molybdenum manufacturer and supplier, and the second biggest manufacturer of tungsten concentrate in China.

China Molybdenum aims at the prospecting development cooperation field of traditional energy resources headed by metal mineral resources, in recent years, it closely followed the state government’s “One Belt, One Road” strategy, actively looked for premium, domestically sought-after mineral resources in overseas countries. On April 28, China Molybdenum released public notice, saying it plans to acquire Brazil’s premium niobium and nitrate businesses of Anglo American PLC, a global giant in the mining industry, with USD 1.5 billion. On May 9, it released public notice, saying it plans to invest USD 2.65 billion to acquire 56% equity of the copper & cobalt mine in the Democratic Republic of the Congo owned by Freeport-McMoRan Inc., a global giant in mining industry. These two big projects combine to have an acquisition amount of up to USD 4.15 billion (about RMB 27 billion yuan). Following the release of two large-scale overseas resource M&A pre-plans, on May 20 China Molybdenum published a pre-plan for private placement of A shares, planning to raise no more than 18 billion yuan, which would be used to acquire the niobium, phosphorous asset project in Brazil and the copper and cobalt asset project in the Democratic Republic of the Congo.