Matters: Fengyang Derui Mining Co., Ltd. (hereinafter referred to as "Dirui Mining"), a wholly-owned subsidiary of the company, contributed 30 million yuan to establish Chuzhou Zhongdu Mining (Fengyang) Development Co., Ltd., together with Chuzhou Chengtu Zhongdu Mining Co., Ltd., Fengyang Huazhong Glass Co., Ltd., with a shareholding ratio of 30%, 55% and 15% respectively.
Chuzhou Zhongdu Mining (Fengyang) Development Co., Ltd. will focus on the mining, processing and sales of local quartz mines in Fengyang. In the future, the company will apply for prospecting and mining rights of local quartz mines and participate in the integration of existing quartz resources in Fengyang County.
Peace viewpoint:
Set up a mining joint venture company to open the prelude to resource integration.
The company announced the framework agreement for mining cooperation with Fengyang Municipal Government in April 2013. The key point of cooperating with the government to integrate mineral resources is to straighten out the ownership structure, benefit distribution and other elements. As a quartz mining platform in Fengyang County, the establishment of Zhongdu Mining marks the completion of the cooperation mechanism, and the prelude to the company's participation in the integration of quartz resources in Fengyang County is about to begin.
The price of quartz sand continues to rise and the layout is of strategic significance.
China is rich in quartz sand resources, but there are few high-quality quartz resources that are easy to be exploited, only in Fengyang, Anhui and Heyuan, Guangdong. In most places, the cost of mining and mineral processing is high due to geological conditions and mineral quality, which does not have the economic value of mining. In order to make use of superior resources, Chuzhou has positioned the silicon industry as one of the three hundred billion yuan industries.
As quartz sand has a certain transportation radius, the upgrading strategy of silicon industry will ensure the local demand for quartz sand.
Taking the purchase price of the company as a reference, the price of quartz sand grew at an average annual compound growth rate of about 33% in 2008-12. Under the background of rising quartz sand prices, the strategic significance of the layout of quartz resources comes from two aspects: 1, for the daily glassware industry, low cost is an important factor to gain competitive advantage, and mastering upstream resources is a strategic way to maintain low costs; 2, high-quality quartz sand resources are relatively scarce, layout in advance to enjoy the premium brought by the increasing scarcity of resources.
Full integration corresponds to an increase in market value of 1.1 billion yuan.
Fengyang County has publicly auctioned the reserves of the No. 7 section of about 18 million tons, and the auction price of tons of ore is about 12 yuan. According to this reference, after deducting the 3 ore sections that have been auctioned (including No. 7 ore section), the value of the remaining 16 ore sections is equivalent to about 3.5 billion yuan. According to the calculation of 1 times PB,30% rights and interests, the successful integration of Fengyang quartz resources will increase the company's market capitalization by 1.1 billion yuan.
Profit forecast and valuation: considering the uncertain pace of Zhongdu Mining Integration Quartz Mine, excluding the performance forecast for the time being, maintaining the performance forecast of EPS0.30, 0.53,0.69 yuan for the past 15 years, corresponding to the closing price of 11.20 yuan on December 5, 2013, the PE is 37.1,21.2 and 16.3 times respectively. The layout of quartz resources has the strategic significance of maintaining the cost advantage and enjoying the resource premium. The prelude to the integration of the company's resources has been opened and the "recommended" rating has been maintained.
Risk tips: the progress of structural upgrading is lower than expected, raw materials and fuel prices fluctuate, etc.