(Yicai) Jan. 13 -- Zijin Mining is in talks to acquire a stake in Zangge Mining, the holder of rights to one of China’s largest lithium reserves. A deal would bolster the Chinese mining giant’s presence in lithium, a key material used in batteries for electric vehicles, smartphones, and renewable energy storage systems.

Zangge's two largest shareholders Tibet Zangge Venture Capital Group and Ningbo Meishan Bonded Port Area Xinsha Hongyun Investment Management plan to sell 17.5 percent and 7.2 percent of Zangge to Zijin, the Fujian province-based buyer announced on Jan. 10.

Based on Zangge’s [SHE: 000408] market capitalization of CNY46.62 billion (USD6.36 billion) today, the potential deal could be worth about CNY11.5 billion (USD1.6 billion) and would take Zijin's stake in Zangge to more than 25 percent.

The acquisition would not be greatly strained Zijin’s finances, even if it was made with cash, according to analysts. As of Sept. 30, the firm had CNY26.2 billion of cash reserves, the most ever.

Zijin's shares [SHA: 601899] closed 1.6 percent higher at CNY16.40 (USD2.24) each today, while the broader Shanghai market fell 0.3 percent.

As a leader in the non-ferrous metals sector, Zijin mainly develops gold, copper, zinc, and other base metals deposits, but the company has been quickly expanding into new energy materials, with proven, controlled, and estimated lithium reserves of more than 14.1 million tons. Its main lithium assets include the 3Q Lithium Salt Lake Project in Argentina and the Lakkor Tso Lithium Project in China’s southwestern Xizang Autonomous Region.

Zangge's core products are potassium chloride and lithium carbonate. The Qinghai province-based firm owns mineral resources in Qinghai’s Qarhan Salt Lake. Its stock [SHE: 000408] finished up 6.4 percent at CNY29.50 on Jan. 9, when trading in the shares was suspended.

Zangge's earnings have recently plunged due to falling lithium prices. In the first three quarters of last year, revenue sank 45 percent from a year earlier to CNY2.3 billion (USD313.7 million), while net profit slumped 37 percent to CNY1.9 billion. To address concerns, the company's major shareholders, including controller Xiao Yongming, have pledged to keep their shares.

Despite expectations of lithium prices continuing to fall in the near term, precious metals will remain an important asset allocation for central banks and institutional investors as major economies enter an interest rate-cutting cycle due to increased geopolitical risks, Zijin said in a recent report.

The firm also noted that while global economic pressures are increasing, the rapid development of sectors such as new energy and artificial intelligence is driving demand for metals. Meanwhile, increasing barriers to mining development are spurring mergers and acquisitions, it said.

Editor: Futura Costaglione