(Report Producer/Analyst: Huang Tengfei, Southwest Securities)
1. Based on the advantages of resource endowment, expand and strengthen the non-ferrous metal industry
1.1 Silver tin faucet starts again
Inner Mongolia Xingye Yintin Mining Co., Ltd., located in Chifeng City, Inner Mongolia, which is known as the "hometown of China's non-ferrous metals", is a large-scale mining company mainly engaged in the exploration and development of metal mineral resources, and its main business is the mining and smelting of non-ferrous metals and precious metals.
The company has more than 20 years of industry experience and unique geographical conditions, reserves strong mineral resources, production capacity and mining technology technology and scientific and technological content are in a leading position among mining enterprises of the same scale. The company's main products are lead, zinc, silver, tin, copper, iron and other non-ferrous metals, as well as metals such as bismuth and tungsten according to the associated metals of the mined ores.
The company's equity structure is stable, and the upstream and downstream industrial chains are covered. The controlling shareholder of the company is Inner Mongolia Xingye Group, which holds 20.9% of the shares as of the third quarter of 2023. The company has a whole industrial chain integrating mining, mineral processing, smelting, chemical industry, metal processing, scientific research and trade, and continuously enriches the industrial chain by establishing and participating in holding subsidiaries.
1.2 The group's reorganization plan was implemented, and the predicament was reversed and started again
In August 2019, the company's controlling shareholder, Xingye Group, applied to the court for the reorganization of Xingye Group due to its inability to repay its due debts and obvious lack of solvency.
In July 2020, the Intermediate People's Court of Chifeng City, Inner Mongolia Autonomous Region, ruled to carry out substantive merger and reorganization of Xingye Group, Chifeng Yulong State Guesthouse, and Xiwu Zhumuqin Qibudun Yingen Mining. In August 2022, the reorganization plan entered the implementation stage.
According to the reorganization plan, the Group's debts are mainly 4.011 billion yuan of common property secured claims, 9.444 billion yuan of ordinary claims, 1.1081 million yuan of employee claims, and 1.9589 million yuan of tax claims. Thereinto:
Employee claims and tax claims: The IB Group shall repay the reorganization plan in full in cash within 6 months from the date of approval by the court.
Secured claims with property:
(1) Principal: The principal shall be repaid on a pro-rata basis with the amount of the property-secured creditor's right and the amount of the retained creditor's right. Under the Restructuring Plan, Henyep Group will repay 10% in the first year, 20% in the second year and 70% in the third year.
(2) Interest: During the period of debt retention, the interest shall be calculated based on the amount of outstanding debt retention claims, calculated from the date on which the reorganization plan is approved by the court (excluding the date), and the interest rate of the retained debts shall be determined by 30% of the one-year loan prime rate (LPR) announced by the National Interbank Funding Center (NIBOR) before the draft reorganization plan is submitted to the court and the creditors' meeting.
Ordinary creditor's rights: The part of ordinary creditor's rights below 500,000 yuan shall be repaid in full in cash in cash in a lump sum within 6 months from the date of approval of the reorganization plan by the court in accordance with the proportion of 100%. The part above 500,000 yuan will be compensated by the share of the trust beneficiary right on a pro rata basis.
1.3 Mineral resources are abundant in reserves and high in grade
Non-ferrous metal mineral reserves are abundant, and ore raw materials are self-sufficient. The company has abundant mineral resources, large reserves and high grade, and has strong resource advantages.
At present, the company has 8 mining subsidiaries, of which Rongguan Mining is the leading enterprise in the locality, with ore reserves of 11.731 million tons, zinc metal of 524,000 tons with a grade of 5.42%, and iron metal of 524,000 tons with a grade of 29.9%; Yinman Mining is one of the largest silver producing mines in China, with a total ore volume of 58.689 million tons and a silver metal grade of 181.8 g/t and 2,300 tons of silver with a grade of 195.4 g/ The tonnes of silver metal were 6,300 tons and the tin metal volume was 195,600 tons, with a grade of 0.74%, both of which have strong profitability.
1.4 The resumption of production continued to increase volume, and the performance flexibility can be expected
The performance follows the cyclical fluctuations of tin prices. In 2019, Yinman Mining, a subsidiary of the company, stopped production due to an accident, and Rongguan Mining and Xilin Mining responded to the government's non-coal mine shutdown inspection requirements and stopped production in stages, resulting in a sharp decline in the company's revenue.
After resuming and reorganizing, Yinman Mining resumed production in November 2020. From 2019 to 2023, the company's performance has grown steadily, and in the third quarter of 2023, it is close to recovering its pre-pandemic revenue position and continues to rise.
In the past five years, the company's performance has fluctuated with tin prices, and the net profit attributable to the parent has continued to oscillate, but in the first three quarters of 2023, the company's net profit attributable to the parent has reached 540 million yuan, exceeding the net profit attributable to the parent company in the past five years, a year-on-year increase of 136.2%.
Zinc concentrate powder contributed to the main performance, and the proportion of silver and tin continued to increase.
In the past five years, zinc concentrate powder has been the company's main source of performance, and in recent years, the company has continued to balance the industrial structure and increase the proportion of silver and tin business. As of the 2023 interim report, the company's zinc concentrate powder revenue accounted for 26.2% of the total revenue, silver concentrate powder (containing copper and silver concentrate powder + leaded silver fine powder) accounted for 28.0%, tin concentrate powder accounted for 22.1%, and the total proportion of zinc, silver and tin concentrate powder accounted for 76.3% of the total revenue, the gross profit of the company's zinc concentrate powder accounted for 23.7% of the total gross profit, silver concentrate powder (copper and silver concentrate powder + leaded silver fine powder) accounted for 28.5%, tin concentrate accounted for 25.7%, and zinc, silver and tin concentrate accounted for 77.9% of gross profit.
The self-owned mine reserves are abundant, and the gross profit margin remains stable.
The gross profit margin of IB Yintin performed well among listed companies in the same industry, with gross profit margins of 62.1%, 48.8%, 48.8%, 49.2% and 44.5% respectively from 2018 to 2022, and the company's gross profit margin was generally stable and at a high level, reaching 48.5% as of the first three quarters of 2023.
Among them, in the first half of 2023, the gross profit margins of zinc concentrate, tin concentrate, copper-containing silver concentrate and lead-containing silver concentrate were 36.4%, 47.0%, 46.1% and 31.9%, respectively. The stability of the company's gross profit margin in recent years is mainly due to the abundant reserves of its own mines, and the company is able to directly reduce costs from ore raw materials.
During the period, the expense ratio continued to decline, and the asset-liability ratio was at a safe level.
The company's period expense ratio has continued to decline after 2019, from 48.7% in 2019 to 12.5% in the first three quarters of 2023, the lowest in the past five years. In addition to the impact of the resumption and restructuring of its subsidiary Yinman Mining in 2020, the company's asset-liability ratio has remained around 42% since 2018, with good credit, corporate vitality and anti-risk ability.
2 With the rigidity of supply and the improvement of demand, tin prices are expected to enter an upward cycle
2.1 The global tin resources are relatively concentrated, and the domestic tin resources are mainly concentrated in Yunnan
The world's tin resources are mainly distributed in Indonesia, China and Myanmar, which account for about 50% of the world's total reserves. According to the USGS, global tin reserves stood at 4.6 million tonnes in 2022.
Among them, Indonesia has 800,000 tons of tin reserves, accounting for 17.3% of the world's total reserves, ranking first in the world. China and Myanmar ranked second and third respectively in terms of tin reserves, with 720,000 tons and 700,000 tons respectively, accounting for 15.6% and 15.1% of the reserves.
Global tin production in 2022 is mainly distributed in China, Indonesia, Peru, Myanmar and Brazil, which account for 72% of global production. In 2022, China still topped the world with an annual output of 95,000 tons, accounting for 30% of the world's total output. Indonesia and Myanmar produce 74,000 tonnes (23% of the world's total) and 31,000 tonnes (9% of the world's total) each year.
Global tin concentrate production rose slightly, while refined tin production declined. In 2022, global mine production gradually recovered, and the annual mine supply increased, according to ITA data, the global tin concentrate production in 2022 was 304,000 tons, a year-on-year increase of +2.0%. On the smelting side, the output of domestic smelters has declined due to the impact of large-scale shutdown and maintenance, and the global refined tin output in 2022 will be 375,000 tons, a year-on-year increase of -1.6%.
2.2 Supply: The "Big Three" at the mine end dominate, and the supply is becoming increasingly weak
2.2.1 Myanmar: The peak of capacity release has passed, and tin production is gradually declining
Since 2013, Myanmar's tin mines have been expanding their production capacity in a disorderly manner. Myanmar's two mining areas have good natural conditions, but due to the poor supervision of tin mining by the local government, Myanmar's tin mines have seen a disorderly expansion of production capacity since 2013. The continuous expansion of tin ore energy is in contradiction with the imperfect local smelting industry system, which leads to the intensification of the export of upstream raw materials such as tin ore.
Due to the close proximity between China and Myanmar, Myanmar's tin ore and concentrate products have continued to be imported to China since 2013. By the end of 2022, the local tin ore grade had dropped to 1-2%, and only a few ore bodies could maintain a grade of around 3%.
The decline in the grade of tin ore has led to an increase in mining costs. Myanmar began a complete ban on tin mining on August 1, 2023, leading to a precipitous decline in tin ore imports from the mainland in September. According to the data released by the General Administration of Customs, the total amount of tin ore and concentrate imported by the mainland in September was 1,421.0 tons, a decrease of 93.8% compared with August
Since 2019, Myanmar's tin production has dropped significantly.
According to USGS data, Myanmar's tin production in 2019 was 54,000 tons, and in 2021, it was only 28,000 tons, down 48.2% from 2019.
The reason for this is that, on the one hand, the tin mining in Myanmar has been hindered in the context of the new crown epidemic, and on the other hand, the tin ore grade in Myanmar has declined, which has increased the mining cost.
In 2022, Myanmar's tin ore output was 31,000 tons, +10.7% year-on-year. In 2023, due to Myanmar's complete ban on tin mining on August 1, 2023, tin mine production will decline significantly.
2.2.2 Indonesia: A significant disruptor of global tin supply, tin production is on a downward trend
Indonesia's tin ore reserves are 800,000 tons, accounting for 17.3% of the world's total.
At present, the depth of tin ore in Indonesia has reached 100-150 meters underground, and the deposit is deeper, which is more difficult to mine, and the decline in the grade of tin ore in Indonesia has severely limited the production of tin ore.
According to historical data, Indonesia's tin mine production has shown a downward trend in recent years, compared with a peak of 85,000 tons in 2018, and 74,000 tons in 2022, a year-on-year increase of -12.9%. Although it is still the world's second largest supplier of tin ore, its share of global production has dropped from 35% in 2011 to 21.6% in 2022.
Indonesia is the world's second largest producer of refined tin, and its total refined tin supply and supply elasticity are gradually declining.
On the one hand, Indonesia's tin ore export policy continues to tighten. As early as 2014, Indonesia issued Document No. 44/2014 to prohibit the export of crude tin. After the implementation of Circular No. 44, Indonesia's tin mine production began to enter a downward period. This is because Indonesia's smelting capacity is lower than that of tin ore, and domestic smelting capacity is difficult to digest tin ore originally used for export in the short term, so tin ore production has declined. In late 2021, Indonesia's president announced that he would stop tin ore exports in 2024.
2.2.3 China: There is a shortage of tin ore resources, and domestic smelters are not willing to increase production
The output of tin ore in mainland China is stable to weak.
Since 2010, the domestic tin production has been relatively stable, but the resource endowment has gradually declined, and the overall output has remained at 8-100,000 tons, accounting for about 30% of the global total, and the domestic tin output will be 95,000 tons in 2022, accounting for 30.2% of the world. According to ITA data, China's tin concentrate production is expected to remain at the level of 8.5-90,000 tons in the next five years.
China's tin concentrate demand is mainly dependent on imports.
Although China is the largest producer of refined tin, most of the tin mines have entered the underground mining stage, and the ore grade has decreased significantly, which has increased the mining cost and reduced the refined tin production capacity. In addition, the distribution of tin ore resources on the mainland is scattered, the newly identified resource reserves are limited, and many small mines that do not meet environmental protection standards have been shut down.
Therefore, at present, the mainland mainly relies on imports, and in 2022, China imported a total of 244,000 tons of tin ore and its concentrate, a year-on-year increase of +32.3%. From January to September 2023, China imported a total of 179,000 tons of tin ore and its concentrate, a year-on-year increase of -2.8%.
By 2025, there will be only one new tin mine project in China.
From 2022 to 2025, only the Yinman Mining Technical Transformation Project can be put into operation among China's new tin mine projects, and after the project is realized, it can add 7,500 metal tons of tin per year. Globally, there is a lack of investment in new tin projects, with limited global new projects in 2022-2025, and most projects will be put into production after 2025.
According to incomplete statistics from SMM and ITA, the only new projects in 2023 are the Bisie Mpama South project in Congo and the Massangana Tin Tailings project in Brazil, with a production capacity of 7,200 tons/year and 3,600 tons/year respectively, so it is difficult for the supply of tin ore to increase significantly in the next two years.
2.3 Demand: The recovery of consumer electronics has raised the demand space for tin
2.3.1 The downstream structure is stable, and photovoltaic + semiconductor provides new kinetic energy
According to the data of the International Tin Association, the downstream demand for tin in 2022 will be dominated by solder. The consumption structure of tin is mainly based on solder, accounting for 49%. According to the end market, the proportion of tin solder used in consumer electronics, communications, computers, and automotive electronics is 26%, 24%, 19%, and 16%, respectively.
2.3.2 Solder: The demand for consumer electronics is picking up, and the semiconductor industry is expected to usher in a boom cycle
The development prospects of the semiconductor industry are relatively broad. Nowadays, electronic products are more small and thin, although the tin consumption of a single product has decreased, but based on the overall growth rate of the industry, the amount of tin solder still continues to rise. Therefore, with the development of automotive electronics, 5G and other industries, the development of semiconductor consumption has broad prospects, and the demand for tin solder is expected to maintain growth.
According to the American Semiconductor Industry Association, global semiconductor sales in 2023Q3 reached $134.7 billion, +8.2% month-on-month. As an important part of semiconductors, the output of integrated circuits from January to September 2023 will reach 211.29 billion pieces, a year-on-year increase of +11.9%, and demand will gradually pick up.
Smart electronics are expected to usher in a recovery cycle.
Tin powder and solder paste are mainly used in 3C products such as mobile phones, computers, and automotive electronics. From January to September 2023, global smartphone shipments were 160 million units, -6.6% year-on-year, while laptops and tablets were -19.5% and -0.1% year-on-year, respectively.
The consumer electronics industry is currently at a low level of downstream inventories after a year of continuous terminal destocking, and demand is expected to recover marginally with the economic recovery and the release of new models.
As of October 30, the consumer electronics Shenwan industry index was 5724.4, +15.2% from the beginning of 2023.
According to the latest data from the World Semiconductor Trade Statistics Organization, global semiconductor sales in August 2023 will be 44.04 billion US dollars, -6.8% year-on-year and +1.9% month-on-month, -4.5% year-on-year and +1.9% month-on-month in September.
MR emerging demand is expected to be the main driver of the upward cycle of tin prices in the future.
On June 6, 2023, Apple released the blockbuster Vision Pro at the WWDC developer conference, which is expected to be officially released in early 2024.
The subversive experience of the product may bring about a new understanding of the market on the penetration rate of the product, and the blessing of the popular live interactive game + mobile phone ecology is also expected to accelerate the penetration of MR.
In the past, each round of tin price upward cycle has been accompanied by a decline in supply from major producing areas and an explosion of emerging demand, and we believe that the headset market is expected to be the main driver of the tin price upward cycle in the future.
The high production of new energy vehicles has increased the demand for tin.
Since 2021, China's NEV production has increased significantly, with 6.872 million units in 2022, +95.9% year-on-year, and 6.09 million units as of September 2023, +25.9% year-on-year.
Compared with traditional fuel vehicles, new energy vehicles have more electronic equipment, and the tin consumption of a single vehicle has increased significantly. With the continuous high growth of new energy vehicle production and the increase in penetration, the demand for tin consumption will further increase.
2.3.3 Photovoltaic ribbon: open up new growth space for tin demand
Photovoltaic welding strips open up new growth space for tin consumption. Photovoltaic ribbon is composed of a substrate and a surface coating, the substrate is copper of different sizes, and the surface coating is mainly tin alloy. The quality of photovoltaic ribbon directly affects the efficiency of current collection in photovoltaic modules.
The amount of tin metal required for 1MW of PV modules is about 105kg.
According to ITA data, about 500kg of photovoltaic ribbon is required for 1MW photovoltaic cells, and solder accounts for about 35% of the weight of the welding strip. Considering that tin accounts for about 60% of the mainstream solder, the amount of tin metal required for 1MW of PV modules is about 105kg.
Based on this calculation, in 2022, the tin consumption of the photovoltaic industry will reach 26,000 tons, reach 55,000 tons by 2025, and the CAGR of photovoltaic tin consumption will reach 27.7% from 2022 to 2025, and the demand for tin consumption will continue to grow.
2.4 Supply and demand pattern: The supply gap continues to widen, which is expected to push tin prices into an upward cycle
From the perspective of price trends, from 2009 to the present, tin prices have seen several obvious cyclical fluctuations.
In 2009, the rise of smart phones led to the rapid growth of semiconductor consumption, the decline in tin ore taste, and the widening of the supply-demand gap drove up tin prices; since 2011, Myanmar ore hit the global market, resulting in a sharp drop in tin prices; in 2016, the rise of electronic smart wearable devices, China, Indonesia and other major tin producing countries have fallen sharply, and tin prices have risen; in 2017, the global economy has been developing steadily and improving, and the demand for base metals has increased steadily.
In 2018-2020, the expected decline in Myanmar tin supply, the introduction of China's environmental protection policy, and the change of Indonesia's export policy led to the high fluctuation of tin prices throughout the year; In 2021, the new crown epidemic in Myanmar intensified, China's import ports were affected by the epidemic, and the cost of raw materials skyrocketed, which had a great impact on the global tin supply side. In addition, under the background of the epidemic, online office has boosted demand growth, and tin inventory consumption has accelerated, and in this context, tin prices have skyrocketed.
In 2022, tin prices will rise first and then decline, with large fluctuations.
In the first quarter, the abundant liquidity provided by the global accommodative monetary policy allowed base metals to continue their 2021 rally. However, as international high inflation continues, the Federal Reserve continues to raise interest rates, global liquidity tightens, and global recession expectations strengthen. Coupled with the recurrence of the domestic new crown epidemic, since the third quarter of 2022, the commodity market has entered a phased bear market, and tin prices have also plunged sharply after the "London nickel" incident and started a downward cycle.
Tin prices rebounded at the beginning of 2023 due to the Fed's slowdown in interest rate hikes to 50bp, and in March, tin prices rebounded sharply due to the Fed's monetary policy tightening and the resumption of production by Peruvian Minsu companies.
We expect that under the background of future supply rigidity, domestic downstream terminal consumption will gradually recover, ChatGPT computing power chip + MR industry trend, and tin prices are expected to usher in an upward cycle in 24 years.
On the supply side, the global resource endowment at the mining end has declined, and the supply side is inelastic.
Considering the increase in the volume of industrial silver and tin, China's output will increase slightly, the output in Myanmar will decline sharply due to the ban, and the capacity release of new projects in other regions will be concentrated in 23 and 24 years, so we expect the global tin supply growth rate to be -1.2%/2.3%/2.5% respectively from 2023 to 2025.
On the demand side, photovoltaic ribbons and semiconductors have added new vitality to tin consumption, and according to the ITA's forecast, the CAGR of demand from 2022 to 2025 is about 3.9%, so the supply gap of tin will persist for a long time. According to estimates, it is estimated that the balance of tin supply and demand from 2023 to 2025 will be 0.2/-0.2/-0.4 thousand tons, respectively.
We believe that the further widening of the supply-demand gap in the next three years is expected to drive tin prices to continue to rise.
2.4.1 The cost curve of tin ore continues to rise, and the elasticity of tin price can be expected
Affected by the shortage of reserve resources and the decline in grades, the tin cost curve continues to rise. According to ITA data, the 90th percentile complete cost of tin ore in 2022 will be 25,581 US dollars/ton, and in 2030, the 90th percentile complete cost will reach 53,974 US dollars/ton, +111.0% compared with 2022. Rising costs have supported tin prices.
2.4.2 High inventories inhibit the upward momentum of tin prices, and the speed of destocking may be faster than expected
The epidemic in the early stage led to low inventory, and the inventory will be replenished in 2023. As of the end of October 2023, the total tin inventory of LME+ in the previous period was 13,691 tons, +57.1% from the beginning of the year.
In the short term, the accumulation of tin inventories has made the upward momentum of tin prices insufficient, but due to the impact of terminal replenishment + Myanmar ban, the speed of destocking may be faster than expected, and the start of tin prices will lag behind the recovery of consumer electronics.
3 The end of the Fed's interest rate hike is superimposed on the high gold-silver ratio, and silver may enter an upward cycle
The supply of mine silver is stable, and the recycled silver is steadily increasing. In 2022, global mined silver production edged down 0.6% to 822.4 million ounces. Mainly due to a 3.5% decline in by-product production of lead and zinc ore to 248.2 million ounces. Recycled silver production grew for the third consecutive year, with a 3% increase bringing total recycling to a 10-year high of 180.6 million ounces.
Silver demand is mainly divided into three parts: industrial manufacturing, jewelry and silverware, and physical investment, of which industrial demand accounts for more than 50% of the total demand. Silver for photovoltaics is growing rapidly, accounting for 11.3% in 2022, and the demand for silver may increase significantly as the market share of N-type cells increases.
Fed rate cut expectations strengthened, and silver's financial attributes supported prices.
Silver has both financial and commodity properties, and its price is highly correlated with gold and copper. The gold-silver ratio has a significant negative correlation with inflation expectations, the Fed's interest rate hike has come to an end, and the real yield of long-end U.S. bonds and the U.S. dollar are still downward in the context of the switch of the monetary cycle, and the allocation status of silver has improved.
The industrial attributes of silver are highlighted, and the gold-silver ratio is expected to fall from a high level.
Since August 22, the negative correlation between the gold-silver ratio and inflation expectations has diverged, indicating that the logic of silver pricing has regressed to the physical end, largely due to the industrial nature of silver.
With limited silver supply capacity in the medium to long term, demand is growing steadily, and inventories are at a five-year low, if the silver shortage continues, silver will be more resilient relative to gold as the precious metal enters an upward cycle.
According to the World Silver Council, silver has been in a demand gap for three consecutive years, with an expected shortfall of 142.1 million ounces in 2023, and the increase in industrial demand has been the biggest bright spot in silver demand in the past three years.
4. With the three-pronged approach of resumption of production + technological transformation + expansion of major mines, the production capacity has entered an explosive period
4.1 Yinman Mining: The main mine of silver and tin, and the amount of technical transformation is imminent
Yinman Mining's output rebounded, and profitability continued to improve. In 2019, the subsidiary Yinman Mining suspended production and business for rectification due to an accident, which led to a sharp decline in net profit in 2019.
At the end of 2020, Yinman Mining achieved a full resumption of work and production, and its performance continued to grow rapidly. As of 2023H1, Yinman Mining's net profit was 140 million yuan, a year-on-year increase of +27.6%.
After the completion of the technical transformation, the output has increased significantly.
Yinman Mining will suspend the technical transformation project in June 2023 and resume production in July. The technical transformation is mainly to improve the recovery rate and selected grade of tin, after the technical transformation, the recovery rate of tin in Yinman Mining has increased from the original 50% to 60%, and will gradually increase to 70% in the future. The output of silver and tin will reach 42 tons and 3,583 tons respectively in a single quarter.
The second phase of the project is progressing steadily, and the long-term production capacity is expected to double.
The production scale of the first phase of Yinman Mining is 1.65 million tons, and the total production capacity of the first and second phases is 2.97 million tons/year. According to the company's statement on the investor interactive platform in June 2023, the second phase of Yinman is expected to invest 1.8 billion yuan, with a construction period of two years, and is expected to be put into operation in 2026. According to the company's statement on the investor interactive platform in November 2023, the feasibility study report of Yinman Phase II has passed the expert review and finalization, and is still going through the relevant approval procedures.
4.2 Xilin and Rongguan Mining: The main iron and zinc mines, with relatively stable operation
Part of Xilin Mining's stopes have reached the state of exploitation, and profitability has begun to recover.
Xilin Mining has 10.195 million tons of ore, 224,000 tons of zinc with an average grade of 2.2% zinc, and 2.929 million tons of iron with an average grade of 28.7%. At present, the annual mining scale of ore is 720,000 tons, with an annual output of 190,000 tons of iron, 16,000 tons of zinc and 936 tons of bismuth. Xilin Mining's net profit in the first half of 2023 increased by 12.723 million yuan year-on-year, mainly because the company began to mine high-grade ore that has reached a mineable state in 2023, so that the ore grade of the concentrator treatment plant in the first half of 2023 has been improved. At present, it is still in the stage of filling stope, the production capacity can not be released, the filling investment is high, and the stope can increase the production capacity and reduce the cost after the stope is formed.
Rongguan Mining's profitability is relatively stable, but due to the decline in grade, there is a weakening trend in future earnings.
Rongguan Mining has one mining right and one prospecting right, and holds 11.731 million tons of ore, 524,000 tons of zinc with an average grade of 5.4% zinc, and 3.148 million tons of iron with an average grade of 29.9% iron. The production scale is 1.35 million tons per year, and the main products are zinc concentrate and iron ore concentrate. At present, the annual output is 300,000 tons of iron and 41,000 tons of zinc. Due to the phased shutdown in 2019 at the request of the government for the shutdown of non-coal mines, the performance of Rongguan Mining fell briefly in 2019, but the performance rebounded steadily after the resumption of production.
As of 2023H1, Rongguan Mining's net profit was 50 million yuan, a year-on-year increase of -44.3%, mainly due to the deepening of ore body mining, the increase in underground mining and transportation costs, the increase in costs due to the increase in the purchase price of some bulk materials, and the year-on-year decline in product sales prices.
4.3 Qianjinda and Rongbang Mining: The technical transformation project has been completed, and it is expected to be in full production in 24 years
The technical transformation of Rongbang Mining has been completed, and the long-term beneficiation scale is 600,000 tons/year.
The main products of Rongbang Mining are silver, copper, lead and zinc, with a total recoverable ore volume of 12.104 million tons and a service life of 21 years. It included 147.3 tonnes of silver grading 111 g/t silver, 38,164.2 tonnes of lead grading 1.2% lead, 139,849.2 tonnes grading 1.7% zinc and 8,382.6 tonnes grading 0.6% copper. In 2023, the planned processing capacity is 429,000 tons, and the long-term plan is 600,000 tons, of which 300,000 tons are purchased Ruineng mines.
Rongbang Mining's net profit in the first half of 2023 increased by 14.481 million yuan year-on-year, mainly due to: 1. The mineral processing volume after technical transformation increased from 300,000 tons/year to 450,000 tons/year;2. Rongbang Mining obtained the safety production license in the deep middle section in January 2023, and the metal grade of the ore in the deep middle section was higher, and the ore incoming grade increased year-on-year.
Qianjinda Mining will reach production in 2023Q2, with a mining scale of 300,000 tons/year.
Qianjinda has achieved production in the second quarter of 2023, but due to the lack of production in the first quarter, it plans to process 240,000 tons of ore for the whole year, and it is expected to achieve full production operation in 2024. The main products of Qianjinda Mining are silver, copper, lead and zinc, with an annual production capacity of 300,000 tons of ore and a service life of 10 years.
After the above projects are put into production, they can produce 120 tons of silver, 12,000 tons of zinc, 1,000 tons of copper and 13,000 tons of lead metal. Qianjinda Mining has 1.652 million tonnes of silver ore and 616.3 tonnes of silver metal with an average grade of 373.1 g/t silver.
The net profit of Qianjinda Mining in the first half of 2023 decreased by 22.015 million yuan year-on-year, mainly due to the impact of the construction of the second phase of the mining area in 2022, the lack of ore inventory at the end of 2022, and the superposition of factors such as the Spring Festival holiday and the delay in resumption of work, resulting in insufficient ore reserves in the first quarter of 2023, and the shutdown of the concentrator in the first quarter (the resumption of production in the mining area on March 20, 2023, and the resumption of production in the concentrator on April 1, 2023), resulting in a year-on-year decline in profit in the first half of 2023.
4.4 Tang River Era, Bosheng Mining: Nickel and gold reserve mines, with promising volume
Tanghe Times is an important nickel and gold reserve mine of the company, which is expected to increase in 24 years. At present, Tanghe Times Mining is mainly engaged in the exploration of Zhou'an copper-nickel mining area in Tanghe, Henan Province, and currently has proved 97.54 million tons of ore resources in two ore bodies, 74.33 million tons of designed ore, and the average ore grade is 0.35% nickel and 0.13% copper.
There are 324,000 tons of nickel metal reserves, 115,000 tons of copper metal reserves, 12.2 tons of gold metal, 402.2 tons of silver, 18.4 tons of platinum, 15.7 tons of palladium and 13,090 tons of cobalt. The subsidiary obtained a mining license in August 2014. In October 2020, according to the company's overall operating situation and financial situation, in line with the principle of reasonable capital planning and priority construction of key projects, the company suspended the construction of the Tanghe era project. In June 2021, as the company's important copper and nickel reserve resources, the company decided to restart the Tanghe era project. According to the company's reply on the investor communication platform in July 2023, it is expected that Tanghe Times will not be able to put into production by the end of 2023.
Acquired Bosheng Mining to deepen the layout of precious metals.
Bosheng Mining has a mining right and a prospecting right in Bangbuyan Gold Mine, with a resource reserve of 4.595 million tons of ore, 31.0 tons of silver and an average grade of 6.74g/t, and is one of the few enterprises in Tibet with a gold mining license.
According to the company's announcement, in October 2023, Bosheng Mining has changed its name to Tibet Gold. Tibet Gold's existing concentrator plant has a scale of 480t/d and an annual work of 300d, according to the company's November 7 investor interactive platform, Tibet Gold plans to increase its production scale to 300,000 tons/year in the future, and has begun to resume production on November 24, 2023.
4.5 In the future, the production capacity will continue to increase, and the performance growth can be expected
According to our forecast, in 2023, the company's annual output of silver will reach 252 tons, and the annual output of tin/zinc/iron/lead will reach 0.6/7.1/41/20,000 tons respectively.
5 Earnings Forecasts and Valuations
5.1 Profit Forecast
Key assumptions:
Zinc concentrate powder: According to the company's production capacity release rhythm, it is expected that the company's output from 2023 to 2025 will be 7.5/8.9/107,000 tons. Considering the gradual recovery of downstream demand, it is expected that the unit price growth rate in 2023-2025 will be -5%/3%/5%, and the corresponding gross profit margin will be 44.0%/45.1%/46.2% respectively.
Tin fine powder: According to the company's production capacity release rhythm, it is estimated that the company's output from 2023 to 2025 will be 6067/12134/14561 tons. Considering the gradual recovery of the downstream consumer electronics field, it is expected that the unit price growth rate will be -8%/5%/5% from 2023 to 2025, and the corresponding gross profit margin will be 43.2%/44.8%/46.4% respectively.
Copper and silver fine powder: According to the company's production capacity release rhythm, it is expected that the company's output from 2023 to 2025 will be 12.8/13.5/141,000 tons, respectively. Considering the gradual recovery of downstream demand, it is expected that the unit price growth rate from 2023 to 2025 will be -2%/5%/5%, and the corresponding gross profit margin will be 48.6%/50.0%/51.0% respectively.
Lead concentrate powder: According to the company's production capacity release rhythm, the company's output is expected to be 1.2/1.3/13,000 tons from 2023 to 2025. Considering the gradual recovery of downstream demand, it is expected that the unit price growth rate from 2023 to 2025 will be -2%/2%/2%, respectively, and the corresponding gross profit margin will be 25.5%/26.2%/27.0% respectively.
Lead and silver fine powder: According to the company's production capacity release rhythm, it is expected that the company's output from 2023 to 2025 will be 4.1/4.5/47,000 tons respectively. Considering the gradual recovery of downstream demand, it is expected that the unit price growth rate from 2023 to 2025 will be 10%/5%/5% respectively, and the corresponding gross profit margin will be 43.8%/45.4%/46.5% respectively.
Iron fine powder: According to the company's production capacity, it is estimated that the company's output from 2023 to 2025 will be 38.7/40.6/42.7 tons. Considering the gradual recovery of downstream demand, it is expected that the unit price growth rate from 2023 to 2025 will be 10%/2%/2% respectively, and the corresponding gross profit margin will be 46.6%/47.1%/47.6% respectively.
Tin fine powder: According to the company's production capacity, it is estimated that the company's output from 2023 to 2025 will be 625.8/1001.3/1101.4 tons respectively. Considering the low quality of sub-refined powder and small price fluctuations, it is estimated that the unit price growth rate from 2023 to 2025 will be 1%/1%/1%, and the corresponding gross profit margin will be 47.2%/47.7%/48.3% respectively.
Based on the above assumptions, we forecast the company's 2023-2025 revenue cost by business as follows:
5.2 Relative Valuation
We have selected the three companies in the industry that are most similar to IB Yintin's business, such as Tin Industry Co., Ltd., Huaxi Nonferrous Metals, and Shengda Resources, with an average PE of 18/14/12 times from 2023 to 2025.
There are two biggest highlights of IB Silver Tin in the future: 1) the company's production capacity has been greatly released, and the performance growth is expected, and 2) the recovery of downstream consumer electronics is expected to promote the upward trend of tin prices.
Combined with the valuation of the benchmark company, the company is given 12 times PE in 2024, corresponding to a target price of 11.04 yuan.
6 Risk Warning
Macroeconomic downside risks, downstream demand recovery or less than expected, Myanmar's resumption of production more than expected risk, tin prices or a sharp decline and other risks
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