occurrences

Zangge Mining released its 2024 semi-annual report: the company achieved operating income of 1.762 billion yuan in the first half of 2024, a year-on-year decrease of 37.00%; net profit to mother was 1.297 billion yuan, a year-on-year decrease of 35.99%; net profit to mother after deducting non-recurring profit and loss was 1.278 billion yuan, a year-on-year decrease of 36.10%.

Key points of investment

Potassium-lithium production and sales are good, and the overall price decline

(1) Potassium chloride: In the first half of 2024, the company's output was 0.5228 million tons, -1.47% year on year; sales volume was 0.5401 million tons, -8.41% year on year. On a quarterly basis, Q1 and Q2 potassium chloride production was 0.1586 and 0.3642 million tons, respectively. Q1 and Q2 potassium chloride sales were 0.1396 and 0.4005 million tons, respectively.

Potassium chloride achieved revenue of 1.122 billion yuan in the first half of the year, down 32.70% year on year; gross profit margin was 48.28%, down 15.95 pct year on year. The average selling price of potassium chloride (tax included) was 2265.41 yuan/ton, down 26.52% year on year; the average sales cost was 1075.01 yuan/ton, up 6.27% year on year.

(2) Lithium carbonate: In the first half of 2024, the company's output was 5,809 tons, +28.89% year on year; sales volume was 7630 tons, +56.83% year over year. On a quarterly basis, Q1 and Q2 lithium carbonate production was 2385.5 and 3423.5 tons, respectively. Q1 and Q2 lithium carbonate sales were 3970 and 3660 tons, respectively.

In the first half of the year, lithium carbonate revenue was 0.634 billion yuan, a year-on-year decrease of 43.39%; the gross profit margin was 50.28%, a year-on-year decrease of 31.69 pcts. The average selling price of lithium carbonate was 93892.80 yuan/ton, down 63.90% year on year; the average sales cost was 41311.93 yuan/ton, down 0.44% year on year.

Julong Copper Mine will expand production, and the copper sector has great potential to increase investment income

Julong Copper produced 0.081 million tons of copper in the first two quarters of 2024, achieving revenue of 6.117 billion yuan and net profit of 2.778 billion yuan. Q1 and Q2 revenue were 2.97 billion yuan and 3.147 billion yuan respectively, up 6% from month to month in Q2. Net profit for Q1 and Q2 was 1.144 billion yuan and 1.634 billion yuan respectively, up 43% from month to month in Q2. The company holds 30.78% of Julong Copper's shares. During the semi-annual reporting period, the company obtained investment income of 0.855 billion yuan, accounting for 65.94% of the company's net profit to mother. Investment income increased by 0.27 billion yuan over the same period last year, an increase of 46.10%.

Julong Copper continues to expand its copper concentrate production capacity. On February 22, 2024, the Tibet Julong Copper Mine Phase II renovation and expansion project of the company's participating company was approved by the relevant departments.

The project is expected to achieve trial production in the first quarter of 2026. After delivery, the total annual ore volume of the first and second phase will exceed 0.11 billion tons, and the annual copper production will reach 0.3-0.35 million tons, making it the largest domestic mining scale and the largest single copper mine to be put into operation in the world this century.

The construction of Mamicuo Salt Lake is imminent. As of August 10, 2024, the Laos Potash Project is progressing simultaneously. As of August 10, 2024, the Tibet Mamicuo Project has completed work such as production workshop site selection, preliminary land leveling, and road construction in some mining areas. Currently, the company is proceeding with the processing of mining warrants for the Mamicuo Project in an orderly manner.

The Lao Ministry of Energy and Mining has reviewed and approved the “Exploration Report for the Tangkun Potash Mine Area in Setani County, Vientiane City” submitted to the Lao Government by the Lao Project Company. The report estimates the total amount of potash ore provened+control+inferred to be 6.285 billion tons, of which the total amount of potassium chloride resources is 0.97 billion tons, of which the total amount of potassium chloride resources at the proven + control level accounts for more than 79%. In the future, the Lao project company will proceed with the preparation and review of the “Project Feasibility Study Report” and “EIA Report”.

The potash mine project in Setani County, Vientiane, Laos, is currently carrying out field drilling projects and data collection and collation work.

Profit forecasting

We forecast that the company's revenue for 2024-2026 will be 3.515, 3.95, and 4.98 billion yuan, respectively, and net profit to mother will be 2.705, 2.937, and 3.467 billion yuan, respectively. The PE corresponding to the current stock price is 13.3, 12.3, and 10.4 times, respectively.

Due to the decline in the prices of lithium carbonate and potassium chloride, the company's operating income and net profit to mother decreased year-on-year. However, considering the company's significant cost advantage in extracting lithium from Salt Lake, Mamicuo Salt Lake can be expected in the future; Julong Copper Mine continues to expand production capacity, and the copper price center has begun to move upward. The company's forward performance is expected to continue to grow, so it maintains a “buy” investment rating.

Risk warning

1) Global lithium salt lake and lithium mine production exceeded expectations; 2) lithium battery demand fell short of expectations; 3) the company's salt lake and potash mining progress fell short of expectations; 4) Julong Copper's profit fell short of expectations; 5) potassium chloride prices fluctuated sharply, etc.