Company News Company News Company News Sylt announced that it plans to increase the capital of Guizhou Lufa Industrial Co., Ltd., a participating subsidiary, with 200 million yuan of its own capital. After the capital increase, the company holds 40% of Guizhou Lufa's shares (20% before the capital increase). Priority will be given to payment of the remaining amount of Guizhou Lufa's mining rights price, and the rest of the capital will be used to repay Guizhou Lufa's foreign debt and invest in the transformation and operation of its mines. Comment Guizhou Lufa is the company's largest supplier of phosphate ore. The subsidiary Guizhou Lufa is mainly engaged in phosphate ore mining and sales business. It is Sylt's largest phosphate ore supplier. Currently, its main assets are the 4.56 square kilometer phosphate mining rights in Mingni Bay and the 8.38 square kilometer phosphate exploration license in Yongwen. The Mingniwan Mine has assessed reserves of 36.99 million tons and a production scale of 800,000 tons/year. The mining period is from January 2014 to April 2031; the Yongwen Mine has assessed reserves of 93.19 million tons, and the assessed production scale is 3 million tons/year. The Yongwen phosphate mine has now entered the exploration stage, and the ore grade is expected to be above 30%. This capital increase is of great strategic importance to guarantee the company's phosphate ore supply and the extension of the industrial chain. Currently, the phosphate ore required for the company's production is mainly procured from Guizhou Lufa and external suppliers. This capital increase in Guizhou Lufa is of great strategic significance in guaranteeing the company's phosphate ore supply and the upstream extension of the company's industrial chain. The mining volume commitment for this capital increase is that Guizhou Lufa will mine a total of no less than 4.5 million tons of phosphate ore from July 1, 2019 to June 30, 2022. The net profit promise is that the net profit for the next three years from July 1, 2019 will not be less than 1.2/1.5/180 million yuan, respectively. The price of this capital increase corresponding to the performance commitment for the next three years is 8.3/6.7/5.6x, respectively. The company's pyrite project was put into operation to improve the industrial chain, and we expect 2H19 to start contributing profits. At the end of June, the company's Maweishan pyrite's 380,000 tons/year mining technology improvement project entered the mining stage where it can be officially put into production. After the project is put into operation, the external procurement volume of pyrite will be reduced, which will help further guarantee the supply of raw materials for the company's three pyrite sulfuric acid production lines. We expect to effectively reduce production costs and enhance the profitability of the company's monoammonium phosphate. At the same time, associated mining of zinc, lead, copper, and silver will also increase profit contribution. The valuation suggests maintaining the 19-year profit forecast of 0.50 yuan/share. Considering the increase in Guizhou Lufa phosphate mining production capacity and the company's capital increase and stock expansion, we raised our 20-year profit forecast by 5% to 0.61 yuan/share. Currently, the company's stock price corresponds to a price-earnings ratio of 12.1/10.1x in 2019/20. Due to an increase in profit forecasts and an upward shift in the industry valuation center, we raised the target price by 15.6% to 7.4 yuan, corresponding to the 21.5% increase and the price-earnings ratio of 14.8/12.2x in 2019/20, maintaining an outperforming industry rating. Risky pyrite project mining fell short of expectations, prices for phosphate fertilizer and compound fertilizer were reduced, and there was a risk of a change in controlling interest.