Production grew steadily at the bottom of the cycle. “Volume compensation” helped the company get through the cycle. Under the downward trend in lithium salt prices, the company is one of the few domestic enterprises that can achieve stable “volume compensation” performance. We expect that the company plans to maintain a high growth rate in the lithium ore sector, and it is expected that the “quantitative compensation” cycle will be achieved at the bottom of the lithium price. At the same time, the company has begun to lay out the copper sector and open a second growth curve. Overall, the company has high growth potential. We expect the company to achieve revenue of 62.83, 66.70, and 8.081 billion yuan in 2023-2025, with year-on-year changes of -21.9%, +6.2%, and net profit attributable to the parent company of 25.07, 18.47, and 21.38 billion yuan, with year-on-year changes of -23.9%, -26.3%, and +15.8%, respectively, and EPS of 3.44, 2.53, and 2.93 yuan/share, respectively. The current stock price is 9.2, 12.4, and 10.7 times PE, respectively. First coverage, giving a “buy” rating.
Three advantages protect the company through the cycle
Advantage 1: Empowering geological exploration to reduce the acquisition cost of a single ton of resources. The company started with geological exploration to empower the rare light metals sector, and the acquisition cost was lower than the industry average. After acquiring Bikita, China Mining Resources used the advantages of geological exploration to increase storage twice. After the increase in storage, the valuation of a single ton of resources was only 98 US dollars/ton LCE, which is lower than that of its peers.
Advantage 2: Self-contained lithium salt production is growing steadily, and “volume compensation” stabilizes performance at the bottom of the cycle. With the release of 2 million tons/year production capacity at the Bikita mine and the plan for the 1 million tons/year construction project at the Tanco mine, we expect the compound annual growth rate of our lithium salt production to reach 99.6% from 2023 to 2025, helping the company get through the bottom of the cycle.
Advantage 3: Hold pricing power in the rubidium cesium sector and act as a “cash cow”. The company has discovered 80% of the world's cesium resources and has global rubidium cesium salt pricing rights. The gross margin of cesium-rubidium products is extremely high, and the gross margin level of the cesium-rubidium sector reached 65% in 2022.
Lay out the copper sector and start secondary growth
The Kitumba copper mine and Tsumeb smelter were acquired, and the copper sector was laid out in multiple stages. The company has successively acquired Tsumeb Smelter and Kitumba Copper Mine to complete the multi-stage layout of the copper sector. Among them, the Kitumba copper mine has a resource volume of 27.9 million tons, an average copper grade of 2.20%, and a copper metal volume of 614,000 tons. The potential for additional storage is impressive, and it is expected to start a second growth curve.
Risk warning: Bikita and Tanco's expansion progress falls short of expectations, Canadian and African policy risks, sharp drop in commodity prices, and lower growth in demand for new energy vehicles and energy storage than expected.