Incident: On October 26, 2024, Zangge Mining released its 2024 three-quarter report. The company's revenue for the first three quarters of 2024 was 2.324 billion yuan, down 44.53% year on year; net profit to mother was 1.868 billion yuan, down 37.08% year on year; deducted non-net profit was 1.847 billion yuan, down 37.38% year on year; the corresponding company's 3Q24 revenue was 0.562 billion yuan, down 59.65% year on month; year-on-month decline 51.02%, net profit to mother was 0.571 billion yuan, down 39.42% year on year and 25.63% month on month.
Prices of major products such as potassium and lithium have declined, and the company's performance is under pressure in the short term. According to the company's 2024 three-quarter report, the company's sales volume of potassium chloride in the first three quarters of 2024 was 0.715 million tons, down 28.22% year on year, and sales price including tax was 2301.21 yuan/ton, down 15.40% year on year. The sales volume of lithium carbonate was 10,210 tons, up 31.56% year on year, and the sales price including tax was 89250.72 yuan/ton, down 63.73% year on year.
In the first three quarters of 2024, the company's sales expense ratio was 1.42%, up 0.58 pcts year on year, up 7.21% year on year, up 2.07 pcts year on year, R&D expenses rate was 0.28%, down 0.10 pcts year on year, and financial expenses ratio was -0.39%, down 0.01 pcts year on year.
The company's various net cash flows changed significantly in the first three quarters of 2024. The net cash flow from the company's operating activities in the first three quarters of 2024 was 0.612 billion, -73.13% year on year; net cash flow from investment activities was 0.128 billion, +111.94% year on year; net cash flow from financing activities was -1.557 billion, +44.16% year over year, and the balance of cash and cash equivalents at the end of the period was 0.769 billion, or -35.86% year on year. Accounts receivable increased by 135.37% year on year, and the accounts receivable turnover increased significantly, from 45.22 times in the same period in 2023 to 64.25 times, an increase of 43.08% year over year. Inventories rose 24.82% year on year, and the inventory turnover ratio declined, from 2.88 times in the same period in 2023 to 2.65 times, down 7.81% year over year.
Julong Copper Mine will increase significantly in the future, and investment income will establish a stable source of profit for the company. According to the company's 2024 three-quarter report, Julong Copper sold 0.1206 million tons of copper in the first three quarters of 2024, achieving operating income of 9.272 billion yuan and net profit of 4.428 billion yuan. The company obtained investment income of 1.363 billion yuan, an increase of 33.88% over the previous year, accounting for 72.96% of the company's net profit returned to mother. According to Zijin Mining's announcement on June 29, 2024 to achieve a major breakthrough in prospecting and storage, the Julong Copper Mine Phase II renovation and expansion project is expected to achieve trial production in the first quarter of 2026. The annual ore extraction scale after delivery of the project will increase from 45 million tons to more than 0.11 billion tons, and the annual production of mineral copper will increase from 0.1544 million tons in 2023 to about 0.3-0.35 million tons. The annual production of molybdenum ore will increase from 0.005 million tons in 2023 To about 0.013 million tons, the annual production of mineral silver increased from 100 tons to 230 tons. In the future, if the third phase of the Julong Copper Mine project is approved and implemented, it is expected that an annual ore volume of about 0.2 billion tons will be harvested, making it the largest copper mine in the world, producing about 0.6 million tons of copper per year. We are optimistic about the gradual completion of the second phase of production at Julong Copper Mine. With the increase in copper metal production at Julong Copper Mine, the company's investment income is expected to continue to grow.
The company's key projects are progressing steadily, and resource reserves are expected to be further enriched. According to the company's 2024 three-quarter report, Zangge Laos Development has obtained 157.72 square kilometer potash deposit certificates in Vientiane Setani County and Russia County, Laos. The amount of potassium chloride resources is about 0.984 billion tons. Currently, the “Project Feasibility Study Report” has been prepared and is awaiting review, and the “EIA Report” is being prepared. In terms of settlement, Chaka and Longmucuo Salt Lake, the Tibet Tibetan Youth Fund acquired 39% of Guoneng Mining's shares with cash of 4.08 billion yuan and 0.6 billion yuan respectively. The registration procedure for the industrial and commercial change was completed on October 11, 2024. After the share change, the company penetrated 21% of the shares. Guoneng Mining has mining rights for two salt lakes, Alilong Mucuo and Jiezechaka in Tibet, with a total lithium carbonate reserve of 3.9 million tons (large reserves) and 28 million tons of potassium chloride (medium reserves). The mining license renewal work for Jiezechaka Salt Lake has been completed. The production capacity plan is to produce 0.06 million tons of lithium salt per year, including the 0.03 million ton industrial lithium hydroxide project and the 30,000 ton battery-grade lithium carbonate project. The renewal of the Longmucuo Salt Lake mining license has been completed. The production capacity plan is to produce 0.07 million tons of lithium salt per year. The “Feasibility Study Report” and “Development and Utilization Plan” of the project have been reviewed and approved, the EIA report has been prepared and publicized, and the EIA approval process is continuing. On the side of Mamicuo Salt Lake, the project has been reported to the autonomous region government and is awaiting approval; applications for the issuance of mining warrants are in progress. We are optimistic about the steady progress of the company's various projects, and the company's potassium and lithium resource reserves are expected to be further expanded.
Investment advice: We expect Cangge Mining's revenue for 2024-2026 to be 3.193/3.39/4.462 billion yuan, up -38.9%/6.2%/31.6% year on year, and net profit to mother of 2.445/2.648/3.874 billion yuan respectively, up -28.5%/8.3%/46.3% year on year, corresponding EPS of 1.55/1.68/2.45 yuan respectively. Combined with the company's closing price on October 30, the corresponding PE was 12/11/8 times, respectively. We are based on the following two aspects: 1) We are optimistic about the gradual completion of Julong Copper Phase II. As the copper and metal production of Julong Copper Mine rises, the company's investment income is expected to continue to grow; 2) We are optimistic about the steady progress of the company's various projects, and the company's potassium and lithium resource reserves are expected to be further expanded to maintain the “buy” rating.
Risk warning: production safety risk, risk of changes in the potassium-lithium product market, risk of mine resource exploration reserves falling short of expectations, risk of new project construction falling short of expectations, environmental protection risks.
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