Event: On August 9, 2024, Goldstone Resources released its 2024 semi-annual report. The company's revenue for the first half of 2024 was 1.119 billion yuan, up 100.20% year on year; net profit to mother was 0.168 billion yuan, up 32.54% year on year; net profit after deducting non-net profit was 0.169 billion yuan, up 34.01% year on year. The corresponding company's 2Q24 revenue was 0.671 billion yuan, up 49.66% month-on-month; net profit to mother was 0.107 billion yuan, up 76.87% month-on-month.

Comment: Baotou's “selection and integration” project was gradually put into operation, and the company's revenue and profit both increased. According to the company's 2024 semi-annual report, the main reason for the year-on-year increase in 1H24's revenue and net profit due to mother was the gradual expansion of Baotou's “selection and integration” project. After the gradual commissioning of the Jin'e Fluorine Chemical Project, sales revenue from anhydrous hydrogen fluoride and trade revenue from overseas sales of Baogang Jinshi Fluorite powder totaled 0.639 billion yuan, compared to only 9.1068 million yuan in the same period last year. Jin'e Bofluorine Chemical and Baogang Jinshi achieved a total net profit of 59.1,499 million yuan, compared to 2.0344 million yuan in the same period last year.

In terms of production and sales volume, 1H24 produced a total of 0.1831 million tons of fluorite concentrate products, down 0.0221 million tons from the same period last year; sales of self-produced fluorite concentrate products were 0.1593 million tons, a year-on-year decrease of 0.0354 million tons. The main reason for the decline in production and sales was the Changshan Jinshiyanqian Fluorite Mine, which was temporarily suspended by the Changshan County Emergency Management Bureau on May 1, 2024. According to the company's announcement to resume production, the Changshan County Emergency Management Bureau has reviewed the rectification situation, and Changshan Jinshi will resume production on August 8, 2024. Jin'e Fluorine Chemical produces 0.0526 million tons of anhydrous hydrogen fluoride and sells about 0.049 million tons of anhydrous hydrogen fluoride. Jin'e Fluorine Chemical has not yet started production in the same period last year. Jiangxi Jinling produces 0.0176 million tons of lepidomite concentrate and sells 0.0074 million tons of lepidomite concentrate.

The company's various net cash flows have changed significantly. Net cash flow from the company's operating activities in the first half of 2024 was $0.281 billion, up 31.76% year on year; net cash flow from investment activities was -0.569 billion yuan, up 24.95% year on year; net cash flow from financing activities was 0.551 billion yuan, down 35.55% year on year; and the balance of cash and equivalent at the end of the period was 0.466 billion yuan, down 20.83% year on year. Accounts receivable increased 63.91% year over year, and the accounts receivable turnover increased, from 3.12 times in the same period in 2023 to 3.74 times; inventory increased 208.86% year over year, and the inventory turnover ratio declined, from 1.46 times in the same period in 2023 to 1.27 times.

In the context of mine safety inspections, supply contraction provides support for fluorite prices, and seasonal factors may be a “catalyst” for rising prices. According to information on the official account of Fluorite News, the General Department of the State Mine Safety Supervision Administration carried out special fluorite mine production safety remediation from March to August 2024 to carry out inspections on safety issues such as illegal and illegal mining, inadequate risk management and control in empty mining areas, and failure to implement water prevention and control measures. Provincial regions with many fluorite mining enterprises such as Hebei Province, Inner Mongolia Autonomous Region, Zhejiang Province, Jiangxi Province, Henan Province, etc., should continue to work on the “three batches” work list to close and withdraw one batch, integrate and restructure one batch, and upgrade one batch of “three batches” to vigorously promote fluorite ore The production safety order in the mountains is stable and improving. We believe that in the context of stricter mine safety inspections, unqualified small and medium-sized mines will be consolidated or shut down, and the fluorite supply side may shrink, providing support for fluorite prices. According to Baichuan Yingfu data, the average monthly price of 97% fluorite wet powder in July 2024 was 3704.3 yuan/ton, up 10.79% from January. We believe that with the arrival of autumn and winter, low temperatures in the north will disrupt the supply side of fluorite ore, and fluorite prices are expected to rise steadily.

The Mongolian project marks the company's “sailing overseas” to further lay out overseas fluorite resources. The company uses the Mongolian project as a fulcrum to actively promote a global layout. According to the company's foreign investment announcement, the total investment in the Mongolian project was 174.2 million-201 million yuan. The partner finally controlled 67% of the target assets of Mongolian Minglida Company, namely a mining license located in Mongolia's East Gobi Province (“Mongolian Mining Rights”) and corresponding land use rights, well engineering, machinery and equipment, and slag that has been stored on the surface of the earth.

The company expects the 2024 project to produce about 0.15 million tons of high-grade primary mineral products, and plans to sell them directly or after further processing into fine powder in China. The company is optimistic about this project and the future resource reserves of neighboring mineral rights. It will simultaneously expand neighboring resources during production and transformation, so as to gradually achieve an annual output of 0.2 million-0.3 million tons of fluorite products equivalent to high-grade fluorite nuggets and acid-grade fluorite powder within 1-2 years, and strive to achieve the goal of an annual output equivalent to 0.5 million tons of fluorite products within 3-5 years. According to the company's 2024 mid-year report, the ODI (Outward Direct Investment) procedures for overseas investment matters for the company's Mongolian project have been completed, the target mining rights transfer has been approved by the Mongolian Bureau of Mineral Resources and Petroleum (“MRPAM”), and a mining license with the holder CM Kings has been obtained. We are optimistic about the completion and gradual completion of the company's Mongolian project. It is expected that the company's fluorite resource advantage will become more obvious, which will provide a resource guarantee for the company's long-term development in the future.

Investment advice: We expect Jinshi Resources' revenue for 2024-2026 to be 2.934/4.012/4.925 billion yuan, up 54.8%/36.7%/22.8% year on year, and net profit to mother of 0.489/0.743/0.974 billion yuan respectively, up 40.2%/51.9%/31.1% year on year, corresponding EPS of 0.81/1.23/1.61 yuan respectively.

Combined with the company's closing price on August 16, the corresponding PE was 30/20/15 times, respectively. We are based on the following three aspects: 1) We believe that in the context of stricter mine safety inspections, unqualified small and medium-sized mines will be consolidated or shut down, and the fluorite supply side may shrink to support fluorite prices; 2) We believe that with the arrival of autumn and winter, low temperatures in the north will disrupt the supply side of fluorite ore, and fluorite prices are expected to rise steadily; 3) We are optimistic about the completion and gradual completion of the company's fluorite resource advantages. It is expected that the company's fluorite resource advantages will become more obvious, which will provide resource guarantees for the company's long-term development and maintain the “purchase” rating.

Risk warning: risk of production safety and environmental protection, risk of product price fluctuations, risk of lower than expected mine resource reserves, risk of policy changes, risk of new project commissioning falling short of expectations, risk of downstream demand falling short of expectations