Report highlights

Jinshi Resources is currently the largest professional mining company with resource reserves, mining, production and processing in China's fluorite industry. Since its development in 2001, the company's business has gradually expanded to downstream fluorine chemicals, fluorine-containing lithium battery materials, etc., and has leveraged comprehensive utilization of resources using technology to cooperate in the development of Baiyun Eboban symbiotic fluorite resources and lithium containing fine (tail) mud to extract lithium mica concentrate. In the 2024 interim report, total revenue for the first half of the year was 1.119 billion yuan, +100.2% YoY, and net profit 0.176 billion yuan, +33.03% YoY.

The company has leading single fluorite reserves and a high level of profit in the basic business market. The company's single type of fluorite has resource reserves of about 27 million tons of ore, and the corresponding mineral volume is about 13 million tons. At this stage, the annual output of self-produced fluorite concentrate is stable between 0.4-0.5 million tons, and acid-grade fluorite powder accounts for 65%. The gross profit margin of self-produced fluorite concentrate in the first half of 2024 was 51.9%, an increase of 4.6 percentage points over 2023.

The company grasped the second phase of the fluorite industry through the implementation of the Baiyun Ebo Selective Integration Project. We believe that with the gradual depletion of high-grade fluorite resources and stricter production safety and environmental protection policies, China's supply will gradually shift to mainly low-grade large-scale associated fluorite mines, and increase imports of superior fluorite products from Mongolia to ease resource constraints. Baiyun Ebo mine is associated with 0.13 billion tons of fluorite resources. Baogang Jinshi currently has a total ore processing capacity of 5.1 million tons/year, which can recover 0.8 million tons of fluorite powder per year after delivery. The company has mastered the “use of low-grade fluorite powder to prepare anhydrous hydrogen fluoride” technology, which is the key to leveraging and increasing the added value of associated fluorite resources. The profit margin is comparable to traditional fluorite powder methods, and there is still room for cost reduction. By the end of 2023, the company had basically built a flexible AHF/aluminum fluoride production line with an annual output of 0.3 million tons. The selective integration project is an example of an asset-light model where technology leverages resources, and will help the company move towards greater development space.

The company lays out Mongolian fluorite minerals and takes the first step of “integrating scarce global resources”. As competition in global supply chains intensifies and national resourcism is on the rise, the importance of fluorite as one of the key minerals is increasing. As the world's third largest producer and largest exporter of fluorite, Mongolia has great potential to increase production. The company is optimistic about the long-term resource reserves of the Mongolian project and neighboring mineral rights, and will simultaneously expand the neighboring resources during production and transformation of this project. The Mongolian subsidiary is expected to achieve an annual output equivalent to 0.5 million tons of fluorite products within 3-5 years, and achieve the target of “gradually achieving 1.5 million tons of fluorite products per year within five years” proposed in 2021.

Investment advice

As a leading company in the fluorite industry, the company is expected to achieve breakthrough growth through the extension to the fluorine chemical industry and the forward-looking layout of fluorite minerals in Mongolia, and benefit from the rise in fluorite/anhydrous hydrogen fluoride prices brought about by the upward boom in the fluorite industry, as well as the cost advantages brought about by the technology for preparing hydrogen fluoride using low-grade fluorite powder and the expansion of the scale of the industry. Based on the above assumptions, the company's net profit for 2024-2026 is expected to be 0.386/0.598/0.876 billion yuan, up 10.5%/54.9%/46.6% year-on-year, and EPS is 0.64/0.99/1.45 yuan/share. The current stock price corresponds to 2024 PE about 41 times, which is covered for the first time to give a “gain” rating.

Risk warning: 1. Technical route competition risk; 2. Risk of product demand falling short of expectations; 3. Risk of falling short of expectations in Mongolian fluorite project development; 4. Production safety and environmental protection risks