Key points:

The company is mainly engaged in the production and sale of fluorite and downstream related products

Since its establishment in 2001, the company has focused on the investment and development of fluorite ore, a national strategic mineral resource, as well as the production and sale of fluorite products. Since 2021, the company's business has gradually expanded into downstream fluorine chemicals, fluorine-containing lithium battery materials, etc., and has made major breakthroughs in comprehensive recycling of resources such as the development and utilization of symbiotic fluorite resources and extraction of lithium containing fine (tail) mud to extract lepidomite concentrate.

The company's main products are acid-grade fluorite powder (mainly used to prepare hydrofluoric acid), high-grade fluorite block ore (bulk fluorite raw ore with calcium fluoride content ≥ 65%, mainly used as a melting aid for metals such as steel), lithium mica concentrate (mainly used in the preparation of lithium carbonate and glass, ceramics industries, etc.), and anhydrous hydrogen fluoride (a basic chemical raw material for fluorine chemicals).

The company is a leading enterprise in the industry with leading fluorite resource reserves, mining and processing

The company's production and operation model mainly involves a single fluorite mine and comprehensive utilization of resources.

In terms of single fluorite mines, the production of the company's own single mine mainly consists of two links: mining and mineral processing. The fluorite mines produced by the company all use an underground mining model. The deposits are shallowly buried and the geological conditions are relatively stable. After the raw fluorite ore extracted from the mine arrives at the beneficiation plant, high-grade fluorite blocks are pre-selected and waste stone is thrown away. The remaining raw ore is made into fluorite powder through mineral processing. The company has the advantage of fluorite resource reserves, and the proven usable resource reserves rank first in the country. The company's fluorite has resource reserves of about 27 million tons of ore, corresponding to about 13 million tons of minerals, and all of them are single fluorite ores. Currently, the proven usable resources of a single type of fluorite mine in China are only about 80 million tons of minerals. In terms of mining scale, the company already has a mining license of 1.12 million tons/year for a single fluorite mine, with 8 production mines and 7 beneficiation plants. Judging from the production scale of individual mines, the company has 6 large-scale fluorite mines with an annual mining scale of 0.1 million tons/year or more, ranking first in the country.

In the first half of 2024, the production and sales volume of the company's single fluorite mine products decreased compared to the same period last year. The total production of fluorite concentrate products (including acid grade fluorite powder and high-grade fluorite block ore) was about 0.1831 million tons, a decrease of 0.0221 million tons compared to 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 decline in production and sales of the company's fluorite concentrate products was mainly due to the temporary cessation of production at the Iwanqian fluorite mine of the holding subsidiary Changshan Jinshi from May 2024. In August 2024, the company announced that Changshan Jinshi would resume production.

The company overcomes the recycling of associated fluorite resources and the technology for extracting lepidomite from lithium-containing sludge to indirectly control or obtain resources in an asset-light model

In terms of comprehensive utilization of resources, the company uses technical advantages to indirectly control or obtain resources in an asset-light model through cooperation with resource parties, and is also responsible for the overall operation and management of the project. The company cooperated with Baogang Co., Ltd. to develop the Baiyun Ebo Gongbanseng Fluorite Mine in Baotou, Inner Mongolia, and the tailings lithium extraction project in cooperation with Jiuling Lithium Industry in Yichun, Jiangxi, all in this model.

1. Recycling of associated fluorite resources

Baiyun Ebo Mine is an important iron, rare earth, and niobium symbiosis mine in China, and is associated with about 0.13 billion tons of fluorite resources. In order to effectively comprehensively recycle resources such as fluorite associated with tailings, in March 2021, the company announced a joint venture with Baogang Co., Ltd., Yonghe Refrigeration, and Longda Group to establish Inner Mongolia Baogang Jinshi Mineral Processing Co., Ltd. and Inner Mongolia Jin'e Bofluorine Chemical Co., Ltd. The two companies operate as a whole according to “selection and integration”.

Baogang Jinshi is controlled by Baogang Co., Ltd., and the development targets are unutilized fluorite resources such as fluorite resources in Baogang Baiyun Ebo ore, fluorite resources in tailings, and surrounding rock of Baiyun Ebo Mine. The total planned raw ore treatment scale is 6.1 million tons/year, and the production of fluorite powder is about 0.8 million tons/year.

Jin'e Fluorine Chemical is owned by Jinshi Resources. It mainly buys fluorite powder produced by Baogang Jinshi to produce fluoride. According to the company's 2024 semi-annual report, Jin'e Bo Fluorine Chemical has now basically built a flexible production line with an annual output of 0.3 million tons of anhydrous hydrogen fluoride/aluminum fluoride. Furthermore, since Baogang Jinshi sells all fluorite products to Jin'e Fluorine Chemical, in addition to producing fluoride for its own use, Jin'e Fluorine Chemical sells the excess parts abroad.

In the first half of 2024, Jin'e Fluorine Chemical produced 0.0526 million tons of anhydrous hydrogen fluoride and sold about 0.049 million tons of anhydrous hydrogen fluoride. In the same period last year, Jin'e Fluorine Chemical was not yet put into operation. Baogang Jinshi produced a total of 0.2528 million tons of fluorite powder, and Jinebo sold 0.0839 million tons.

2. Extraction of lithium containing lithium sludge

The Yichun region of Jiangxi is very rich in porcelain clay resources. The mineral processing process basically uses flotation to recover leptomite after desulfurization, and flotation tailings are supplied as feldspar to ceramic manufacturers. In production practices, lithium containing fine sludge produced by the “desulfurization” process still contains about 0.3%-0.5% lithium oxide. On the one hand, this causes waste of lithium oxide resources. On the other hand, due to its high lithium oxide content, applications in the ceramic industry are limited, and there is a problem of market consumption difficulties. In October 2022, the company announced that its subsidiary Jinling Lithium will invest in the construction of a “project to process 1 million tons of lithium mica fine sludge per year to improve the quality and value-added mineral processing plant”. Jinling Lithium is a joint venture between the company and Jiuling Lithium. It is controlled by the company, accounting for 51% of the company's shares. The project mainly targets some lithium-containing fine sludge in the Yichun regional market. It draws on the company's main process technology for extracting fluorite from iron rare earth tailings, comprehensively recycles and reuses lithium sludge to extract lithium mica resources from fine mud, and can also add value to fine ceramic clay. After completion and delivery, the project is expected to produce about 0.108 million tons of lithium mica concentrate with 2.0%-2.5% lithium oxide content and 0.892 million tons of fine ceramic sludge per year. The project was put into operation in May 2023. In the first half of 2024, Jinling Lithium produced 0.0176 million tons of lepidomite concentrate and sold 0.0074 million tons of lepidomite concentrate.

The company lays out Mongolian fluorite resources and starts a global layout

In conjunction with the company announcements in January and May 2024, the company established “Zhejiang Huameng Holdings Co., Ltd.” (of which the company's shareholding ratio is 90%) as a foreign investor. The entity established “Inner Mongolia Jinshi Huameng Industrial Development Co., Ltd.” in a joint venture with Beijing Runtianze Trading Co., Ltd. (of which the company's foreign investors held 67%). The joint venture established CMKings FILLC, a wholly-owned subsidiary in Mongolia, and acquired the target assets held by Minglida through the Mongolian subsidiary. The underlying assets mainly include a mining license located in Mongolia's East Gobi Province, as well as corresponding land use rights, well engineering, machinery and equipment, and slag that has been transported to the surface for storage. The company is optimistic about the 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 semi-annual report, the ODI (Outward Direct Investment) procedure for the overseas investment of the company's Mongolian project has been completed, the target mining rights transfer has been approved by the Mongolian Bureau of Mineral Resources and Petroleum, and a mining license from the holder CM Kings has been obtained.

Baotou's “Selection and Integration” Project Contributes to Semi-Annual Performance Growth

In the first half of 2024, the company achieved revenue of 1.12 billion yuan, up 100.2% year on year, and net profit to mother 0.17 billion yuan, up 32.5% year on year. The gross profit margin on sales was 26.53%, down 21.5pct year on year, and the net profit margin was 15.72%, down 7.9pct year on year. With 2024Q2, the company achieved revenue of 0.67 billion yuan, a year-on-year increase of 71.7%, a month-on-month increase of 49.7%, and net profit of 0.11 billion yuan to mother, an increase of 16.6% year-on-year and 76.9% month-on-month.

The increase in the company's semi-annual revenue was mainly due to a sharp increase in sales revenue from anhydrous hydrogen fluoride and trade revenue from overseas sales of Baogang Jinshi Fluorite powder after the gradual commencement of production. The two reached 0.639 billion yuan in the first half of 2024, compared to only 9.1068 million yuan in the same period last year. The increase in the company's net profit to mother in half a year was mainly due to the Baotou “Selection and Integration” project. Jin'e Bofluorine Chemical and Baogang Jinshi achieved a total net profit of 59.1,499 million yuan, which was only 2.0344 million yuan in the same period last year. The company's semi-annual net profit growth rate was lower than the increase in revenue, mainly due to the fact that the new revenue mainly came from fluorine chemical projects, and the gross margin of the fluorine chemical industry was generally low, far lower than the gross profit margin of the company's own fluorite concentrate (acid grade fluorite powder and high-grade fluorite block ore). However, due to the “selective integration” model of the company's fluorine chemical products, the profit from the fluorine chemical project has been partially reflected in the return on investment in Baogang Jinshi.

Investment advice

The company adheres to the “resource+technology” two-pronged strategy and is committed to becoming a global resource development and deep processing enterprise with scarce resource advantages and leading technology. We predict that the company's net profit for 2024-2026 will be 0.472, 0.7, and 0.886 billion yuan, respectively. As of August 24, 2024, the PE corresponding to the company's stock price will be 30.1, 20.3, and 16.0 times. First coverage, giving a “buy” rating.

Risk warning

Risks such as large fluctuations in product prices; demand falling short of expectations; project launch progress falling short of expectations.