Summary of the event: the company issued an announcement on June 14. According to the report of the holding subsidiary Zabuye in Tibet, the Department of Natural Resources of the Tibet Autonomous region completed the confirmation of the transfer income, payment amount and payment method of the Zabuye Salt Lake Deposit. On June 13, it signed a "payment contract" for income gold with Zabuye, Tibet. The first payment is 581 million yuan, and the rest is paid annually for 20 years (from 2023 to 2042), with an annual payment of 116 million yuan, totaling 2.907 billion yuan.
The equity fund is included in the intangible assets, which has a limited impact on the company's current operating performance. The interest fund for the transfer of mining rights will be accounted for as intangible assets and will be recovered annually through amortization of intangible assets, which will have a limited impact on the company's current performance. The payment of the equity fund is mainly funded by bank loans and enterprise-owned funds. according to the company's quarterly report of 2022, the company holds monetary funds of 1.218 billion yuan, an asset-liability ratio of about 15%, and a sufficient amount of bank credit. In addition, the interest rate of banks in Tibet has a great advantage, and loans can reduce the pressure on funds. Benefiting from the strong demand downstream in 2022, the market prices of lithium and chromium products have risen sharply, the company's full-year profit is expected to further increase, and operating cash flow is expected to increase significantly.
Promote the continuation of Zabuye mining rights and lay the foundation for accelerating the development of salt lakes. The 20-year mining right of Zabuye Salt Lake was obtained by Zabuye Lithium Industry Hi-Tech Co., Ltd. on September 2, 2002. the mining is valid until September 2, 2022 (1954 Beijing coordinate system). In May 2011, according to the requirements of the relevant industry departments, the coordinates must be converted to the 1980 Xi'an coordinate system, so Zabuye Lithium Hi-Tech has obtained a new mining license, and the validity period has been changed to May 5, 2022. According to the relevant regulations, the company needs to complete the payment of the proceeds from the transfer of mining rights from the Zabuye Salt Lake Deposit in Tibet when applying for the renewal registration of mining rights. Therefore, the signing of the "payment contract" for income gold will further promote the renewal and registration of mining rights in the Zabuye Salt Lake deposit in Tibet.
Salt Lake development strategy leading enterprises, lithium-chromium business into rapid growth. Chromium business: 98% of China's ferrochrome resources are imported, and the company controls Luobusa chromite, the largest ferrochrome mine in the country. Driven by the sharp rise in prices, the gross profit margin of the company's chromium business in 2021 is as high as 70%. Thanks to the improvement of mining technology, the output of chromium ore has doubled from 67000 tons to 140000 tons. Lithium business: the lithium grade of Zabuye Salt Lake ranks second in the world. According to the feasibility study, the complete cost of the second phase of the project after deducting depreciation and various expenses is 425,000 yuan / ton, and the cost advantage of lithium extraction is significant. After Baowu is stationed, it will fully support the capital, technology and management of listed companies, and the development of Zabuye Salt Lake will be greatly speeded up. At present, the second phase of the project is progressing smoothly, and the production capacity of 12000 tons of lithium salt is expected to be completed and put into production in mid-2023. According to the company's plan, a lithium salt scale of 30,000 to 50,000 tons is expected to be formed in 2025.
The value of China's local high-quality lithium resources should be strategically reassessed. China's lithium resources are highly dependent on Australian spodumene imports, accounting for more than 90% of imports in 2020. The proportion of lithium resources in salt lake brine is as high as 70% in the distribution of domestic lithium resources, which is mainly distributed in Tibet and Qinghai. Under the goal of self-controllable resources, the strategic value of lithium extraction from salt lakes in China is prominent. Zabuye is expected to lead the development of salt lakes in Tibet to achieve a breakthrough from 0 to 1.
Investment suggestion: high-quality chromite resources contribute stable gross profit, and Zabuye Phase II Salt Lake Lithium extraction Project opens up room for future growth. We estimate that the 22-24 net profit of the company will be 7.47 yuan 1.049 billion yuan 1.546 billion yuan, the EPS 1.43 pound 2.01 yuan 2.97 yuan, the current price corresponding to PE is 34-24-17 times, maintaining the "recommended" rating.
Risk hint: terminal demand is lower than expected; lithium price has fallen sharply; project progress is not as expected.