Key points of investment

Leading domestic lead and zinc company acquired Jin Xin to enter the lithium mining industry. Guocheng Mining is a leading domestic lead-zinc mining enterprise. Its main products are lead and zinc concentrates, silver, sulfuric acid, etc. In September 2022, the company initiated the acquisition of 100% of Hainan Guocheng Changqing's shares. After the acquisition, the company indirectly held 48% of Marcon Jinxin Mining's shares through Guocheng Changqing. According to the evaluation report, the total amount of lithium oxide resources identified at the Dangba spodumene mine owned by Jinxin Mining was 680,000 tons, with an average grade of 1.33%. It is a very high-quality large-scale lithium mine in China.

Jin Xin built 1.2 million tons of sampling capacity to open up profit space in Guocheng. In February 2022, Guocheng Group reached a strategic cooperation with Zhonghe to jointly promote the judicial restructuring process of Zhonghe shares and restore the company's ability to operate. In March, Zhonghe Co., Ltd. and Jinxin Mining settled with Zhongrong Trust. The debt issue was previously resolved. In October, Zhonghe Co., Ltd. announced that Jinxin Mining will carry out technical improvements and expansion of the original production line. After expanding production, the sampling capacity will be about 1.2 million tons/year, and the expansion and renewal of mining license scale will be promoted simultaneously.

In April 2023, the court approved Zhonghe's restructuring plan. Guocheng Green Energy, a subsidiary of Guocheng Group, plans to hold 44.77% of Zhonghe's shares. As the operation of Jinxin Mining is gradually straightened out, the lithium mine project is highly certain. In the future, with the release of Jinxin Mining, Guocheng Mining can be expected in the future.

Uncertainties overseas have intensified, and the importance of autonomous and controllable domestic lithium resources has been highlighted. We expect global lithium resources to be in a tight balance in 2025. Currently, uncertainty about overseas policies is intensifying. Canada is demanding that Chinese companies divest lithium mine assets in Canada, and Argentina, Bolivia, and Chile are considering establishing a “lithium industry OPEC.” China's lithium resources are heavily dependent on imports. In order to maintain the autonomy and control of lithium resources, it is necessary to step up domestic resource development efforts so that domestic lithium companies can play a leading role.

The lead, zinc, titanium dioxide, and silver businesses involved in the company are all rapidly expanding. In 2022, the company achieved revenue of 1,547 billion yuan, a decrease of 9.5% over the previous year. The main reason was the decline in revenue related to the trade business. (1) Lead and zinc: The Dongshengmiao mining industry currently collects 2 million tons/year for lead and zinc. It is currently providing technical improvements to raise the scale to 3.5 million tons/year. (2) Titanium dioxide: The company plans to build a comprehensive resource recycling project with an annual output of 200,000 tons of titanium dioxide, 1 million tons of sulfuric acid, and 1.1 million tons of subiron concentrate. It is expected to be completed and put into operation within 2023. (3) Silver:

Yubang Mining has resumed production, and the mining license production scale has increased from 600,000 tons/year to 8.25 million tons/year.

Profit forecasting

The company's net profit for 2023/2024/2025 is estimated to be 74/1,47/ 210 million yuan, the corresponding EPS is 0.66/1.31/1.88 yuan, and the corresponding PE is 25.0/12.6/8.8 times. Considering that the company's previous business was a traditional lead-zinc-copper business, and that in addition to the gradual commencement of production expansion projects such as the Jinxin lithium mine, silver, and titanium dioxide, it is expected that the company's performance will grow rapidly. First coverage, giving a “buy” rating.

Risk warning:

The progress of the project fell short of expectations, lithium prices fluctuated greatly, and downstream demand fell short of expectations.