Financial Services Agency, January 1 (Reporter Wang Bin) At the beginning of the new year, Guangsheng Nonferrous Metals (600259.SH) announced that it had “tied the knot” with the “rare earth aircraft carrier” China Rare Earth Group. This evening, Guangsheng Nonferrous Metals announced that Guangsheng Group, the indirect controlling shareholder, plans to transfer 100% of the shares of its direct subsidiary Guangdong Rare Earth Industry Group to China Rare Earth Group free of charge, causing China Rare Earth Group to indirectly hold 38.45% of the company's shares. After the transfer is completed, the controlling shareholder of the company will remain Guangdong Rare Earth Group, and the actual controller will be changed from the Guangdong Provincial State-owned Assets Administration Commission to China Rare Earth Group.

This means that after the restructuring of the China Rare Earth Group, the new round of integration in the rare earth industry has once again made substantial progress. Currently, the four major rare earth groups will be merged into the three major groups. Meanwhile, the China Rare Earth Group, which has just turned 2 years old, has taken over the important “One City” for major integration of medium and heavy rare earths in the South, and its listed company platforms have also increased from the previous “Unique Miao” China Rare Earth (000831.SZ) to 2.

Regarding the purpose of this acquisition, it is stated in the acquisition report that in order to further deepen the reform of state-owned enterprises, optimize resource allocation, and carry out the responsibility of ensuring the safety of the country's strategic resources. A relevant person from the China Rare Earth Group told the Financial Federation reporter that the new round of integration will further smooth communication links upstream and downstream of the rare earth industry chain and between different fields, and better guarantee the upgrading of traditional industries and the development of strategic emerging industries.

According to the Financial Services Association reporter, most industry insiders are optimistic about this acquisition by China Rare Earth Group. Yang Jiawen, a rare earth analyst at Shanghai Nonferrous Metals Network, said in an interview with a reporter from the Financial Association that the China Rare Earth Group's integration will increase the concentration of China's rare earth industry and control over rare earth prices, which will help give full play to the advantages of medium and heavy rare earth leaders and concentrate on major issues.

China's rare earths may become the biggest winner

Rare earths are an important strategic resource and an “industrial vitamin”, and play an important role in military, aerospace, and new materials. China ranks first in the world in terms of rare earth reserves and production, has the world's most complete rare earth industry system, and is a global leader in rare earth smelting technology.

According to US USGS statistics, the total global rare earth reserves in 2022 are about 130 million tons, and China's rare earth reserves are 44 million tons, accounting for 33.8% of the world's total reserves.

Specifically, China's main rare earth resources are distributed in Inner Mongolia, Jiangxi, Guangxi, Sichuan, Shandong and other regions, with distribution characteristics of “light in the north and in the south”. In the field of medium and heavy rare earths in the south, major rare earth companies include China Rare Earth, Xiamen Tungsten Industry (600549.SH), and Guangsheng Nonferrous.

As the main listed company of Guangdong Rare Earth Industry Group, Guangsheng Nonferrous has all rare earth mining licenses that have been approved in Guangdong Province. The company has 3 rare earth mining enterprises, 4 rare earth separation companies, 5 rare earth application companies, and 1 trade sector. It controls more than 120,000 tons of medium and heavy rare earth resources, and has a total annual separation capacity of 14,000 tons of rare earth oxides, creating a complete rare earth industry chain of “mining, smelting and separation, deep processing, trade circulation and import and export”. The products produced by the company include rare earth concentrates, mixed rare earths, rare earth oxides, rare earth permanent magnetic materials, etc.

In terms of performance, in the first three quarters of 2023, Guangsheng Nonferrous achieved revenue of 15.562 billion yuan, a year-on-year decrease of 15.3%; net profit to mother was 166 million yuan, a year-on-year decrease of 21.65%. As far as revenue scale is concerned, Guangsheng Nonferrous is currently in the second tier of the industry (the first tier is Northern Rare Earths). As of the third quarter of last year, the company's total assets were 8.944 billion yuan, an increase of 22.09% over the beginning of last year.

As a comparison, China's rare earth revenue for the first three quarters of last year was about 3.106 billion yuan, a year-on-year decrease of 1.97%; net profit to mother was about 126 million yuan, a year-on-year decrease of 65.89%.

Investors told the Financial Federation reporter that China Rare Earths, as the “eldest son” of the China Rare Earth Group, will help increase its profitability and enhance its position in the industry. “In order to avoid competition problems within the China Rare Earth Group, after the merger, the rare earth resources of the Guangdong Rare Earth Group may be skewed towards China's rare earths, while Guangsheng Nonferrous may focus on downstream magnetic materials.”

It should be pointed out that at present, China has implemented a total amount of rare earth mining and smelting. The rare earth indicators are distributed to the four major rare earth groups, which are then completed by several major rare earth companies. Among them, the China Rare Earth Group occupies over 80% of the domestic heavy rare earths and nearly 40% of the light rare earths mining market every year.

Taking 2023 as an example, the total control targets for rare earth mining, smelting and separation issued by the two ministries and commissions last year were 255,000 tons and 243.85 million tons respectively, up 21.4% and 20.7% year-on-year respectively. Among them, the light rare earth mining index was 235,900 tons, an increase of 23.6% over the previous year; the medium and heavy rare earth mining index was 191,000 tons, the same as the previous year.

Judging from the specific distribution, in the field of light rare earths, the North has 178,700 tons of rare earths, accounting for about 75% of the total light rare earth index; all others are owned by China. In the medium to heavy rare earth sector, China has 13,000 tons of rare earths, accounting for about 68% of the total target; the others are owned by Xiamen Tungsten Industry and Guangdong Rare Earth Group.

The rare earth industry's “one south, one north” pattern is advancing at an accelerated pace

Historically, China's rare earth industry has gone through formal integration three times. Although the “small, scattered, chaotic, and weak” situation of domestic rare earth enterprises developed in a disorderly manner improved during this period, there is still a certain gap between the overall requirements for high-quality development.

In 2011, the State Council issued “Certain Opinions on Promoting the Sustainable and Healthy Development of the Rare Earth Industry”. In the same year, the Ministry of Industry and Information Technology proposed a plan to form a “1+5” large-scale national rare earth group, forming six major rare earth groups, including Northern Rare Earths (600111.SH), Minmetals Group, China Alcoa Group, Xiamen Tungsten Industry, Guangdong Rare Earth, and Southern Rare Earth (the controlling shareholder is Ganzhou Rare Earth Group).

In 2021, the Ministry of Industry and Information Technology began the second round of major integration of the six major groups. On December 23 of this year, China Rare Earth Group was formally established. It was formed by integrating Minmetals Group, China Alcoa Group, and Southern Rare Earth among the six major groups to become a diversified central enterprise directly supervised by the State Council's State-owned Assets Supervision and Administration Commission.

At this point, China's top six rare earth groups have evolved into four rare earth groups: Northern Rare Earth, China Rare Earth Group, Guangdong Rare Earth Group, and Fujian Rare Earth Group.

From the formation of the six major groups to the establishment of the China Rare Earth Group, it took about 10 years; from the four major rare earth groups until now, the merger of China's rare earth groups, Guangsheng Chemical Co., Ltd., is only two years in between.

Earlier, a senior industry insider told the Financial Federation reporter that the country attaches great importance to the development of the rare earth industry, and the final pattern of the rare earth industry is expected to become “one south, one north, one light, one priority.” Among them, “south” and “heavy” refer to the China Rare Earth Group, while “north” and “light” refer to rare earths from the north.

In fact, as China Rare Earth Group gradually completes the integration of the southern rare earth market, the prototype of the “one south, one north” industry pattern has taken shape. People familiar with the matter told the Financial Federation reporter that starting in the second half of 2023, Guangsheng Nonferrous Metals and China Rare Earth Group's pricing and regulation in the medium to heavy rare earth markets will begin to synchronize.

A CIFA reporter noticed that China Rare Earth Group's current integration has long been predicted. At the end of October 2022, Guangsheng Nonferrous, the only listed platform under Guangdong Rare Earth Group, announced that its indirect controlling shareholder Guangdong Guangsheng Holding Group Co., Ltd. (Guangsheng Group) will achieve strategic cooperation with China Rare Earth Group. However, the two sides had not yet finalized the specific plan for the relevant cooperation at the time.

At the same time, cooperation between China Rare Earth Group and Fujian Rare Earth Group is already underway.

In September 2023, Xiamen Tungsten Industry also announced that the company and China Rare Earth Group signed a “Cooperation Framework Agreement”. In order to give full play to their respective advantages, strengthen cooperation in the rare earth industry, achieve mutual benefit and win-win results, and promote the high-quality development of the rare earth industry in Fujian, the two sides plan to carry out extensive cooperation in the fields of Fujian rare earth mining development, Fujian rare earth smelting and separation industry, raw material security for the rare earth deep processing industry, rare earth industry funds and innovation.

It is worth noting that according to the above agreement, not only related rare earth assets controlled by Xiamen Tungsten Industry and its holding subsidiary, but also related rare earth assets controlled by Fujian Rare Earth Group, the controlling shareholder of Xiamen Tungsten Industry.

According to a research report in Qianhai, East Asia, China's rare earth group may once again increase its industry concentration and control in the new round of integration, and will usher in another era of development. After the restructuring, a unified external window can be formed, which is of great significance for improving voice and competitiveness.