3Q23 results in line with our expectations
Sinomine Resource Group (Sinomine) announced that in 3Q23, revenue dropped 32.4% YoY to Rmb1.4bn (down 8.2% QoQ), and net profit attributable to shareholders declined 22.1% YoY to Rmb568mn (up 39.6% QoQ), in line with our expectations.
Prices of lithium salt decline; production capacity of self-owned
mines to gradually increase. Prices of domestic lithium salt declined in 3Q23 after rebounding in 2Q23. The average lithium salt price stayed flat QoQ in 3Q23, but the average price of this product fell sharply YoY in 3Q23. Data from Asian Metal shows that domestic battery-grade lithium carbonate prices averaged Rmb239,100/t in 3Q23 (down 3% QoQ, down 51% YoY). We think sales volume of self-owned mines continued to increase in 3Q23, given capacity expansion at its Bikita Minerals lithium mine. The firm's cesium and rubidium salt business steadily grew, boosting earnings in 3Q23.
Trends to watch Shipping spodumene concentrates from the Bikita mine to China; increasing supply from self-owned mines in 2H23. The 2mnt/yr petalite
project and the 2mnt/yr spodumene project at the Bikita mine started production in July 2023, increasing the planned production capacity by 0.3mnt/yr for petalite and spodumene concentrates. We note that the firm has shipped 10,000t spodumene concentrate powder produced at the Bikita mine to China in September 2023, so as to provide raw materials for the 35,000t/yr lithium chemical production line1. We think lithium chemical supply from the firm's self-owned mines will increase, given additional production capacity of the Bikita mine in Zimbabwe and that of lithium salt in China. Increased lithium chemical supply will boost sales volume of lithium salt, and help the firm increase the self-sufficiency rate of this product, in our view.
Continuing to increase production capacity of lithium mines; raw materials required by Sinomine's lithium chemical manufacturing business to be all produced by itself. The quarterly report shows that
Jiangxi Dongpeng New Material (a subsidiary) has a lithium salt production capacity of 25,000t/yr. Jiangxi Chunpeng Lithium Industry (a subsidiary) is building a new lithium salt production base with a capacity of 35,000t/yr. It expects the project to reach designed capacity in 4Q23. The total planned lithium salt capacity of the two subsidiaries is 60,000t/yr.
After the Bikita capacity expansion project reaches designed capacity, Sinomine's resource production capacity may be able to support its lithium smelting, in our view. In other words, the firm could produce all the raw materials required by its lithium chemicals manufacturing business.
According to the annoucement, the board of directors has approved the construction of a mineral engineering project with a capacity of 1mnt/yr in the Tanco mine over 2023-2024. Supply from its self-owned mines will increase after the new mine starts production, in our view. In addition, the firm has signed an agreement with Tyranna Resources to fund the development of the Namibe lithium mine and obtain the selling right.
Financials and valuation
We cut our net profit forecasts by 13% to Rmb3.29bn for 2023 and 42% to Rmb2.19bn for 2024, to reflect lower lithium salt prices. The stock is trading at 7.8x 2023e and 11.8x 2024e P/E. We maintain an OUTPERFORM rating, but cut our target price 15% to Rmb46.62 to reflect lower lithium salt prices. Our TP implies 10.1x 2023e and 15.2x 2024e P/E, offering 29% upside.
Risks
Sharper-than-expected declines in lithium prices; delays in transporting concentrates to ports; overseas resource policy risks.