Event description

The price of ferrochrome in chromite has soared since 2016, especially in the past two months. At present, compared with the beginning of the year, the increase in chromite has generally reached 80% Mur90%; the price of ferrochrome is generally more than 50%. The year-on-year increase reached 40% and 60%.

Event comment

[1] insufficient supply and low inventory have led to a sharp rise in the price of chromite ferrochrome. At present, 98% of domestic chromium mines are dependent on imports, while large mining companies such as Glencore and Saman in South Africa have controlled chromium ore shipments, resulting in a continuous decline in domestic port imports. Affected by this, the port inventory of chromium ore fell to an all-time low of 885000 tons in August, slightly higher than the port inventory of chrome ore in September, which fell by 44.55% at the beginning of the year, but the average is still less than 970000 tons, slightly less than the demand for chromium ore in September of 960000 tons. Port inventories of chromium ore rebounded to 1 million tons in October, but supply constraints remained. We expect that the restrictions on shipments by large international mining companies will continue, and chromite prices may remain high in the fourth quarter and beyond.

[2] the company is the only scarce target of chromium ore in A-share, and its resource advantage is obvious. As chromium ore resources are relatively scarce in China, China's reserves are only 0.02% of the world's reserves, and the degree of external dependence is currently more than 98%, while Tibet's chromium ore reserves account for about 40% of the national reserves, and the company has obvious resource advantages.

The Luobusa chromite deposit in Tibet, owned by the company, is the only large chromite deposit in China, with abundant geological reserves and great potential value. In March this year, the company completed the acquisition of mining rights in the southern chromite mining area of the parent company Luobusa I and II Group, and it is expected that the production capacity will still be increased.

[3] Investment advice: buy rating. Affected by the decline in the steel industry and the decline in recoverable reserves, the company produced 36700 tons of chromium ore in 2015 and lowered its planned production for this year.

But the current surge in prices and the acquisition of new mining rights will boost the company's chrome production, and gross margins are expected to be more than 20 per cent as prices soar. With the current sharp rise in chromite prices and the good support and boost to the performance of the lithium mine, we have raised the company's profit forecast.

It is estimated that the return net profit of the company from 2016 to 2018 is 0.62,0.74 and 83 million yuan respectively, and the EPS is 0.12,0.14,0.16 yuan respectively, corresponding to 4.58X, 4.42X, 4.27X. Based on the rebound of chromium ore price, capacity expansion and the good prospect of lithium ore application, considering its scarcity, it is given a buy rating with a short-term target price of 25 yuan.

[4] risk: internal management risk, chromium ore price drop, lithium ore demand is lower than expected.