Core views

The company's net profit for the third quarter was 72.76 million yuan, -18%/11% YoY. The continued decline in lithium prices caused short-term pressure on performance. The company's efforts to reduce costs and increase efficiency are progressing steadily, and costs can still be reduced by reducing the use of lithium permeable feldspar in the future. The company has world-class morganite mines and is the manufacturer with the most complete cesium industry chain in the world. The rubidium cesium business can contribute to stable cash flow.

The company's Kitumba copper mine 0.05 million tons/year copper project is advancing research work. The Tsumeb smelting slag resource recovery project is undergoing technical improvements and research. It is expected that the germanium-gallium project will release results next year. In the future, the company's lithium salt, rubidium, germanium, and copper ore businesses will be four-wheel driven to build an international mining group, with remarkable growth.

occurrences

Net profit from mother for the first three quarters was 0.546 billion yuan

In the first three quarters of 2024, the company achieved a total operating income of 3.569 billion yuan, a year-on-year decrease of 28.69%, and realized net profit attributable to shareholders of listed companies of 0.546 billion yuan, a year-on-year decrease of 73.64%. Looking at single-quarter data, total revenue for the third quarter was 1.148 billion yuan, down 18.25% year on year, down 11.39% month on month, and net profit to mother for the third quarter was 72.7625 million yuan, down 87.18% year on year and 66.45% month on month.

Brief review

Factors such as the continued decline in lithium prices and exchange losses put pressure on the third quarter results from January to September 2024. The average price of battery-grade lithium carbonate was 95,334 yuan/ton, -67.95% year over year. Of these, the average price for the third quarter was 7,9987 yuan/ton, -66.77%/-24.46% year on month. The continued decline in lithium prices affects the company's profitability. At the same time, incidental factors such as exchange losses due to the depreciation of the US dollar in the third quarter and the impact of supplementary tax payments were also the reason for the month-on-month decline in performance in the third quarter.

The sales volume of our own mines reached 0.028 million tons, and cost reduction and efficiency continued to advance

Sales of the company's own minerals increased dramatically. In the third quarter, its own mines sold a total of 11,114 tons of lithium salt, and the total sales volume of its own mines reached about 0.028 million tons in the first three quarters. Since this year, the company has taken more measures to reduce costs and increase efficiency. Photovoltaic power generation has reduced electricity costs, reduced the use of high-cost lithium permeable feldspar, increased low-cost spodumene output, increased the recovery rate at the Bikita mine, and negotiated pressure reduction costs with contractors. Since this year, it has achieved outstanding results, and costs have declined quarterly. Currently, the company still processes some lithium-permeable feldspar ore, so there is still room for pressure drop in subsequent costs. In the future, after building a lithium sulfate plant in Zimbabwe, the cost of the entire lithium salt process will be further reduced.

The cesium-rubidium business is steady and is the company's cash cow.

The company is a leading enterprise in the field of cesium-rubidium salt fine chemicals. It is the manufacturer with the most complete global cesium industry chain. It has two of the world's top three morganite resource mining areas: Canada's Tanco and Zimbabwe's Bikita. It has an absolute voice in the industry and has significant advantages. The rubidium cesium salt business has steady, high growth and high valuation characteristics. In the third quarter of 2024, the cesium-rubidium salt sector achieved operating income of 0.258 billion yuan and gross profit of 0.186 billion yuan. Gross profit increased 10.63% year-on-year. In the first three quarters of 2024, the cesium-rubidium salt sector achieved cumulative revenue of 0.728 billion yuan and a cumulative gross profit of 0.526 billion yuan. Gross profit remained the same as the previous year. The gross margin of the cesium-rubidium salt sector increased 8 percent year over year. The increase in cesium salt prices in the first half of the year led to a temporary decline in downstream procurement. After the market absorbed the impact of price increases, the procurement pace returned. The rubidium cesium salt business maintained steady growth, contributing to the company's stable cash flow.

The smelting slag at the Tsumeb smelter in Namibia is rich in germanium, gallium and zinc resources, and is a new growth point for performance.

The company acquired the Tsumeb smelter in Namibia and its ancillary facilities and polymetallic smelting tailings reactors. The smelting slag contains rich small metal resources. According to the assessment, using germanium > 50 g/ton as the boundary grade, the smelting slag heap holds 2.9435 million tons of resources (provented+controlled) of ore, with an average grade of 746.21 tons of germanium, with an average grade of 253.51 g/ton; 409.62 tons of gallium-containing metal, with an average grade of 139.16 g/ton; and 0.2095 million tons of zinc-containing metal, with an average grade of 7.12%.

The company is conducting research on resource recovery projects such as germanium, gallium and zinc in smelting slag. It is expected that production can contribute to profits, and the small metal layout will be further expanded to create a new performance growth point.

The copper business sector is beginning to take shape. The development of the Kitumba copper mine is one of the milestones in the copper sector resource development business. The company acquired 65% interest in the Kitumba copper mine in Zambia in March this year and completed delivery in July. The total amount of copper resources discovered by Kitumba copper mine was 27.9 million tons, 0.614 million tons of copper metal, 2.2% copper grade, and high exploration potential. The company plans a copper production capacity of 0.05 million tons/year and is currently in the research stage. The development of the Kitumba copper mine will provide a new profit growth point for the company's medium- to long-term development. Furthermore, the company strives to obtain new high-quality copper resources within 2 years and build a 0.1 million ton copper scale in the future.

Investment advice: Currently, the lithium business has reached the bottom, the negative factors have been fully released, and the company continues to reduce costs and increase efficiency to get through the cycle. On the basis of the rubidium cesium salt sector and lithium salt sector, the company is expanding business segments such as small metals such as germanium and gallium, and copper ore development, with remarkable future growth. The company's net profit is expected to return to mother in 2024-2026 of 0.76/1.33/1.97 billion yuan. The PE corresponding to the current stock price is 32/18/12 times, giving it a “buy” rating.

Risk warning: 1. If lithium prices fall more than expected, the annual results may fall short of expectations; 2. The company's lithium salt production capacity is 0.066 million tons/year, and can be completely self-sufficient in resources during the year. If capacity release is low, the annual performance may fall short of expectations; 3. The company's pressure drops the cost of lithium ore, but there is a possibility that the cost reduction falls short of expectations; 4. The risk of the Zimbabwean currency depreciation or exchange loss exceeding expectations; 5. The cesium salt sector has a risk that the growth rate will fall short of expectations.; 6 The germanium-gallium business and copper ore development business, which are being promoted, are currently still in the research stage, and there is a possibility that progress will fall short of expectations.