Western Mining Co.Ltd(601168) acquired the equity of lithium resources company and set foot in Salt Lake Lithium Extraction

\u3000\u3 Guangdong Shaoneng Group Co.Ltd(000601) 168 Western Mining Co.Ltd(601168) )

Event: the company announced on March 1 that it plans to transfer 27% equity of East Taijinaier lithium resources company held by the controlling shareholder West Mining Group for RMB 3.343 billion.

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If the transfer is completed, the company will become the second largest shareholder of lithium resources company. Xikuang group, the controlling shareholder of the company, is the second largest shareholder of Dongtai Jinaier lithium resources company, and the first largest shareholder is Qinghai Taifeng Xianxian (49.5%). As of November 30, 2021, the net assets of lithium resources company were 1.363 billion yuan, the operating income was 678 million yuan and the net profit was 284 million yuan. In this transaction, the total equity value of lithium resources company is 12.38 billion yuan, and the 27% equity value held by West Mining Group is 3.343 billion yuan. During the appraisal, the sales price of lithium carbonate adopts the five-year average price of 92540 yuan / ton (including tax), and the valuation is objective and reasonable. After the transfer, the company will become the second largest shareholder of lithium resources company. This acquisition marks the company’s involvement in the development of salt lake lithium resources. On the one hand, it speeds up the upgrading of the company’s industrial structure, gives full play to the advantages of the company’s proximity and integrates into the strategic development needs of building a world-class Salt Lake industrial base in Qinghai Province; On the other hand, it helps the company to share the dividends of lithium new energy development and create new profit growth points.

Lithium resources has an annual capacity of 20000 tons of lithium carbonate and a total planned capacity of 30000 tons. Lithium resources company has built and operated a 10000 ton battery grade lithium carbonate production line, and its holding subsidiary Qinghai lithium industry (holding 74.54%) operates a 10000 ton lithium carbonate production line. From January to November 2021, lithium resources company produced 9510 tons of battery grade lithium carbonate. The annual output of 30000 tons of lithium carbonate of lithium resources company has been put on record by relevant government departments, and its supporting facilities are complete. It can build and increase the annual output of 10000 tons of lithium carbonate production line within one year. At that time, the lithium resources company will form an annual production capacity of 30000 tons of lithium carbonate, which will rank among the top in China’s lithium carbonate production enterprises.

East Taijinar Salt Lake is rich in resources and reserves. Lithium resources company owns the mining right of jinar salt lake lithium boron potassium mine in Dongtai, Golmud City, Qinghai Province. Now it is mainly engaged in the development of salt lake lithium resources and the production of lithium carbonate. As of December 2021, the LiCl porosity reserve of East Taijinar Salt Lake is 2022800 tons, with a grade of 303048 mg / L, equivalent to lce178.5% 20000 tons; B2O3 porosity reserves are 1233500 tons and the grade is 184805mg/l; KCl porosity reserves are 121389 million tons, with a grade of 1.47%. Lithium resource reserves have reached a super large scale, and the mining and beneficiation capacity can meet the raw materials required for an annual output of 30000 tons of lithium carbonate. The estimated service life of the mine is 19.78 years.

Lithium resources company has mature and advanced lithium extraction technology in salt lake. Qinghai lithium industry, the holding subsidiary of lithium resources company, has more than ten years of production experience in lithium carbonate products. By using the technology of selective migration of salt lake brine ions to synthesize lithium carbonate, Qinghai lithium industry has solved the technical problem of extracting lithium salt from salt lake with high magnesium lithium ratio, and is one of the earliest enterprises in China to overcome the “separation of magnesium and lithium” in salt lake lithium extraction. Its lithium carbonate products have stable quality and meet battery level standards. They have been widely used in lithium battery downstream industry and have been unanimously recognized by customers. In the future, expanding the production capacity of lithium resources or expanding the production of lithium resources in salt lakes will save the R & D cycle and make the lithium salt production capacity put into operation quickly.

The profit of the company’s traditional main business is stable. The company’s traditional main business is mainly the mining, beneficiation and smelting of copper and lead-zinc ores, benefiting from the high price operation of copper, lead-zinc and a substantial increase in profits. The company expects to realize a net profit attributable to the parent company of about 2.9 billion yuan in 2021, with a year-on-year increase of about 220%. We expect that the metal price will remain high in 2022, and the profit of the company’s traditional main business will be stable.

Profit forecast and investment rating: regardless of this equity acquisition, combined with the production capacity launch progress of phase II of Yulong Copper Mine and the judgment of metal price, we expect the net profit attributable to the parent company in 20212023 to be RMB 2.93 billion, 3.33 billion and 3.44 billion respectively, EPS to be RMB 1.23, 1.40 and 1.44/share, and the PE corresponding to the current stock price to be 13X, 12x and 11x. Considering the gradual release of phase II production capacity of Yulong Copper Mine and the long-term performance contribution of the company after the acquisition of lithium resources company, the “buy” rating of the company is maintained.

Risk factors: the price of lithium fell, and the price of copper, lead, zinc and other metals fell; The second phase capacity release progress of Yulong Copper Mine of the company is expected to be low; Copper, lead and zinc smelting and processing fees fell.

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