occurrences

Longbai Group announced on September 19 that Wuding Minerals, a subsidiary of the company, successfully bid for the survey prospecting rights for Changchong Titanium Ore in Wuding County, Yunnan Province for RMB 99.9 million.

Key points of investment

The company added prospecting rights to seize scarce resources

Wuding Minerals, a subsidiary of the company, obtained the survey prospecting rights for Changchong titanium ore in Wuding County, Yunnan Province from the Chuxiong Natural Resources and Planning Bureau through an auction. Wuding Minerals is authorized to explore and evaluate titanium ore resources within a total survey area of 23.52 square kilometers in Gubai Village, Yiying Village, Daqing Changchong, and Jadian Town in Wuding County, Yunnan Province within 5 years (the initial sale of prospecting rights is 5 years, and each time is 5 years). Three ore bodies were initially defined, covering an area of 7.93 square kilometers. An amount of 120.2769 million tons of iron titanite resource ore and 6.489 million tons of iron titanite minerals were discovered. The subsidiary's expenses include a one-time payment of 99 million yuan in the transaction price of the prospecting rights. After the prospecting rights are converted to mining rights according to law, during the mining period, the annual mining rights concession proceeds must be paid at 1.8% of the sales revenue of the mineral products in the previous year.

The policy strongly supports mineral exploration and helps the company accelerate prospecting. In order to improve the ability to guarantee titanium ore resources, the Chuxiong State Government proposed a “three-year action to implement titanium ore exploration” in the “Report on the Work of the Chuxiong State Government in 2022” to actively promote the establishment of new prospecting rights for titanium ore in Wuding Changchong. The Provincial Geological Exploration Fund Center invested 2.4555 million yuan and implemented the “Yunnan Chuxiong Titanium Ore Resources Survey and Evaluation Project” in 2022. At the same time, the “Yunnan Wuding Zhongcun - Fenzhou Titanium Iron Sand Survey Project” was promoted into the 2023 work plan for the new round of prospecting operations in Yunnan Province, and an investment of 2.7807 million yuan was sought from the Provincial Geological Exploration Fund Center.

This transaction will help increase resource reserves and enhance the company's core competitiveness

Titanium ore resources are scarce, and obtaining prospecting rights this time is expected to increase the company's titanium ore resource reserves and core competitiveness. According to USGS data, the growth rate of global titanium ore reserves slowed markedly after peaking in 2019. Titanium ore reserves have remained at about 0.75 billion tons over the past 5 years, highlighting the scarce resource attributes. Seizing titanium concentrate resources located upstream of the titanium dioxide industry chain is of great significance to the company's future development and titanium dioxide cost control. Through this prospecting rights transaction, the minerals and geological information obtained by the company's exploration will support the company's future titanium ore exploration and development activities in the region. Overall, it helps to increase the company's upstream titanium ore resource reserves, thereby continuing to enhance the company's core competitiveness in titanium ore resource control and the downstream titanium dioxide cost advantage supported by titanium concentrate production.

Profit forecasting

The company's net profit for 2024-2026 is estimated to be 3.8, 4.5, and 5.3 billion yuan, respectively. The current stock price corresponds to PE of 10.4, 8.7, and 7.5 times, respectively, giving it a “buy” investment rating.

Risk warning

The price of titanium dioxide fluctuated greatly; the commissioning of the project fell short of expectations; the price of raw materials rose; downstream demand fell short of expectations, etc.