(Report Producer/Analyst: China Merchants Securities, Liu Wenping, Liu Weijie, Lai Ruchuan)
1. Basic information: change of state-owned assets holding, and the transformation of the main business into gold mining
1. Historical evolution
At the beginning of the company's listing, it was mainly engaged in steel pipe business, and in 2019, it switched to bulk commodity trading business. Shandong Yulong Gold Co., Ltd., formerly known as Jiangsu Yulong Steel Pipe Co., Ltd., was incorporated in December 1999, changed to a joint stock limited company in March 2007, renamed Jiangsu Yulong Steel Pipe Co., Ltd., and was listed on the Shanghai Stock Exchange in November 2011. In 2018, he briefly tried to enter the new energy track, acquired a 33.34% stake in Tianjin Yuhanyao, and laid out the cathode material business. In 2019, it divested its steel pipe and new energy businesses, transferred 33.34% of the equity of Tianjin Yuhanyao to Langsen Company, and at the same time implemented the disposal of steel pipe business, transferred trademarks and patents, machinery and equipment, receivables and other assets related to the steel pipe business, and established a wholly-owned subsidiary, Shanghai Juku, to carry out bulk commodity trading business such as coal, natural rubber and chemicals.
In 2021, state-owned assets will become the owner and transform the mining business. In August 2020, the company planned to acquire 100% of the equity of Barto Gold Mining Pty Ltd held by Batuo Industrial in cash, and changed its name to Shandong Yulong Gold Co., Ltd., but terminated in April 2021. In July 2021, Houhao Technology transferred 5% of its equity to Jigao Holdings, and the actual controller was changed to the State-owned Assets Supervision and Administration Commission of Jinan High-tech Zone, with a shareholding ratio of 29%, gradually forming a "two-wheel drive" industrial pattern of gold and precious metals and new energy and new material minerals.
Ø Gold and precious metals: At the end of 2021, the company plans to acquire 100% of the equity of NQM, and at the end of 2022, NQM will be officially included in the company's consolidated financial statements, obtain control of the Parkingo gold mine in eastern Australia, and add gold and precious metals mining and dressing business.
Ø In terms of new energy and new materials: In March 2023, the company invested 25.75 million yuan to increase its capital to become a shareholder of Dengta Shuangli Silica Mining Co., Ltd., with a shareholding ratio of 35%, and completed the acquisition of 67% of the equity of Shaanxi Shanjin on March 31, and obtained the mining rights of Loufanggou vanadium mine project in Shangnan County, Shaanxi Province, and in May 2023, it subscribed for the private placement of shares of Catalyst Mining to complete the share registration, becoming the second largest shareholder of Catalyst Company and entering the graphite mining business.
2. Equity structure
The actual controlling shareholder of the company is the State-owned Assets Management Commission of Jinan High-tech Industrial Development Zone. As of 2023H1, Jinan High-tech Holding Group Co., Ltd. is the largest shareholder of the Company, holding 29.38% of the company's shares, Jinan High-tech Zone SASAC holds 100% of the shares of Jigao Holdings, and Hainan Houhao Technology Co., Ltd. is the second largest shareholder of the Company, holding 17.22% of the shares. The company directly holds three wholly-owned subsidiaries, namely Jiangsu Houneng Mining Co., Ltd., Shandong Lanjing Mining Co., Ltd., and Shanghai Juku Energy Co., Ltd., and two holding subsidiaries, namely Shaanxi Shanjin Mining Co., Ltd. and Zhejiang Fengjing Energy Co., Ltd., and holds 35% of the equity of Lighthouse Silica.
3. Main business
Establish a "two-wheel drive" development strategy of gold and precious metals + new energy and new materials minerals. In the first half of 2022, the company put forward the development idea of "two-wheel drive" of gold mining + new energy and new materials related minerals, supplemented by mineral trade and non-metallic minerals, and exploring the integration of high-quality mineral resources by extending the cooperation of the industrial chain, transforming from trade business to diversified mineral business, and adding gold and new energy and new materials related mineral mining and dressing business. Silica mine (35%) and graphite mine (11.44%).
From 2008 to 2018, the company's main business was the steel pipe business in the metal products industry, and its main products include longitudinal submerged arc welded pipes, spiral submerged arc welded pipes, longitudinal high-frequency welded pipes, rectangular pipes, etc. The gross profit margin level was basically maintained at about 15% in 2016 and before, and the net profit was basically about 150 million, and the substantial loss of 640 million yuan in 2016 was mainly due to the lack of domestic demand and the decline in the profit of the main business caused by the anti-dumping of the steel pipe industry by overseas countries and regions, the provision for asset impairment, and the loss caused by the transfer of equity of subsidiaries.
In 2019, the company made its first transformation, strategically disposing of the new energy business and divesting the steel pipe business, and the company's business was mainly in bulk commodity trading. In 2022, the company achieved operating income of 10.94 billion yuan, a year-on-year increase of -3.67%, a gross profit margin of 4.8% in the trading sector, and a net profit attributable to the parent company of 290 million yuan, a year-on-year increase of -20.04%.
In 23H1, the gold mining and dressing business contributed nearly 9% of the net profit attributable to the parent company. At the end of 2022, the company transformed for the second time and laid out the gold mining and dressing business, and in December, NQM was officially included in the scope of consolidated statements, contributing operating income and net profit attributable to the parent company of 140 million yuan and 75 million yuan respectively, accounting for 1.3% and 25.7% respectively, with a gross profit margin of 47%. In the first half of 2023, the gold mining and dressing business contributed operating income and net profit attributable to the parent company of RMB670 million and RMB230 million, accounting for 16.7% and 88.2% respectively.
4. Controlling shareholders and management increase their holdings & the company buys back
On December 29 and 30, 2022, the Company issued the "Announcement on the Share Increase Plan of Directors, Senior Management and Middle Management" and the "Announcement on the Share Increase Plan of the Controlling Shareholder" respectively, which have been completed by the end of May 2023. The controlling shareholder increased his holdings of 3 million shares of the company through centralized bidding transactions, accounting for 0.38% of the company's total share capital, and the shareholding ratio increased to 29.38%, and a total of 17 directors, senior managers and middle-level managers of the company increased their holdings of 823,000 shares of the company through centralized bidding transactions with their own funds, with a cumulative increase of 10.2317 million yuan and an average increase price of 12.43 yuan per share.
The company buys back shares for future employee stock ownership or equity incentives. On September 8, 2023, the company issued the "Announcement on the Plan to Repurchase the Company's Shares by Centralized Bidding Transaction", the company intends to repurchase shares within 6 months with its own funds of 0.5-100 million yuan, and the repurchase price shall not exceed RMB 15 per share (inclusive), which shall not be higher than 150% of the average trading price of the company's shares in the 30 trading days before the board of directors of the company passes the repurchase resolution, and will be used for employee stock ownership plans or equity incentives at an appropriate time in the future.
As of the end of November 2023, the company has repurchased a total of 951,100 shares, accounting for 0.121% of the total share capital, and the total amount paid is 9,991,799 yuan (excluding stamp duty, transaction commissions and other transaction costs), the purchase price range is 9.73-11.41 yuan per share, and the average price is 10.51 yuan per share.
2. Gold mining business: the core asset of Pajingo gold mine has strong profitability and large space for prospecting and increasing reserves
Completion of the acquisition of the Parkingo gold mine at the end of 2022. In October 2021, Yurun Gold, a wholly-owned subsidiary of the company, signed the "Acquisition Intent Agreement" with CQT Holdings Co., Ltd., a subsidiary of Jinan High-tech, to acquire 100% of the equity of NQM in cash, and finally landed in December 2022, and 100% of the equity of NQM completed all transfer registration, with a transaction consideration of 902.8 million yuan.
NQM integrates prospecting, mining and beneficiation, mainly focusing on the Pajingo project to carry out gold mining and dressing business, producing crude gold ingots and entrusting local mints to process and purify and sell.
NQM Gold 2 Pty Ltd was incorporated on 21 December 2007 and is incorporated in Queensland, Australia. The Company holds the Parkingo Gold Project in Queensland, 50 kilometres south of Chartersborough and 134 kilometres southwest of the town of Townsville. Gold mining activities commenced in 1983 and continue to this day.
NQM owns the Parkingo Mine in Queensland, which mainly produces ore through underground mining, including rock drilling, tunneling, blasting, transportation and other mining links, and then through the full mud cyanide carbon slurry process, including crushing, grinding, cyanidation, carbon slurry adsorption, desorption electrowinning, After the gold ingots are produced, the local Perth Mint is entrusted to process and purify the high-purity gold ingots, and then sold to the Perth Mint in Australia at the closing price of the Australian international gold price on the same day.
The Pajingo Gold Mine currently contains 63 tonnes of gold metal, with high grade and high prospecting potential.
The Parkingo Gold Mine is located in Queensland, Australia, with an area of 1,690.4 square kilometres of exploration rights and 62.57 square kilometres of mining rights, with a total of 18 near-surface gold ore bodies, 29 deep gold ore bodies and 3 high-grade sporadic gold ore bodies, according to the 2023 semi-annual report. According to the latest Annual Mineral Resource Statement issued by Yuxin Holdings, as of June 30, 2023, the Parkingo gold mine had 10.908 million tonnes of JORC-compliant ore, an increase of 3.025 million tonnes over the same period last year, and 2.021 million ounces (62.86 tonnes) of gold, an increase of 315,000 ounces (9.80 tonnes) over the same period last year, with an average grade of 5.8 g/t.
The ore mining capacity has been increased to 700,000 tons/year and is expected to produce 3 tons of gold in 2023.
From 2019 to 2021, the Pajingo mine produced 1.96/1.74/1.82 tonnes of gold, 710,000 tonnes of ore in 2022, and 83,500 ounces (2.6 tonnes) of gold in 2022, and 10,800 ounces (334.86 kg) of gold per month in December 2022, the highest monthly and annual gold production in the past five years.
In the first half of 2023, the gold production is 1.56 tons, the average mining grade is 4.53 g/t, the incoming grade is 5.05 g/t, the beneficiation recovery rate is 93%, and the current mining and dressing capacity is 700,000 tons of raw ore/year, which has reached full production.
The cost reduction effect is remarkable, and the profitability of the mine is strong. In the first half of 2023, NQM (Pajingo Mining Area) achieved a net profit of 227 million yuan, a significant increase from 31 million yuan in 2020.
From the perspective of cost, the company's overseas professional management team has achieved remarkable results in cost reduction, efficiency improvement, quality improvement and production expansion through continuous optimization of personnel, equipment and production plans in the Parkingo mining area, with the unit operating cost from 242 yuan/g in 2019 to 220 yuan/g in 23H1, and the unit complete cost from 361 yuan/g in 2020 to 223 yuan/g in 23H1.
Ø Personnel optimization: In 2022, it will mainly be reflected in structural layoffs and department mergers, the cancellation of some repetitive positions and the change of mining contracting operation to mine self-operated production, and in 2023, it will mainly improve work efficiency through the application of SAP management and control system. The number of front-line mine personnel in the Pajingo gold mine is less than 300, and most of the local foreigners are working in two shifts.
Ø Equipment upgrading: the company's main equipment was mostly in the form of external leasing, but this year, in the case of sufficient cash flow, a large-scale purchase was carried out, which greatly reduced the cost of equipment use. At the same time, the company has formulated a number of safeguard measures and emergency measures, so that the equipment utilization rate and operation rate have been greatly improved.
Ø In terms of technical indicators: the company has been committed to continuous optimization and improvement, and the production indicators have been significantly improved, and the recovery rate of mineral processing this year has increased by two percentage points compared with previous years.
NQM's committed cumulative net profit for 2022, 2023 and 2024 totalled approximately $116 million, with a minimum of $36 million in 2022, $39 million in 2023 and $41 million in 2024, respectively.
During the performance commitment period, if NQM does not realize the promised net profit, Jinan High-tech City Construction and Development Co., Ltd., the performance commitment party, will compensate for the uncompleted part. In 2022, NQM achieved a net profit of A$71,853,600, completing 199.59% of the 2022 annual performance commitment target.
3. New energy and new materials and minerals business: diversified layout
1. Vanadium ore
In December 2022, the company acquired 67% of the equity of Shaanxi Shanjin in cash for a transaction consideration of 131 million yuan, so as to obtain the mining rights of the Loufanggou vanadium mine project in Shangnan County, Shaanxi Province. In March 2023, Shaanxi Shanjin obtained the Mining License for the Loufanggou Vanadium Mine Project issued by the Shaanxi Provincial Department of Natural Resources, which is valid from February 7, 2023 to February 7, 2031. In the same month, 67% of the equity of Shaanxi Shanjin completed the registration procedures for the change of equity transfer, became a holding subsidiary of the company, and was included in the company's consolidated financial statements.
As of 23H1, the company has completed the preparation of the project feasibility study report, obtained the municipal bureau land pre-approval document, the mining project EIA continues to be valid approval documents, the mining project application report has been issued official documents, and is expected to start the construction of the mining project in the second half of this year.
The V2O5 resource is about 500,000 tons.
The core asset of Shaanxi Shanjin is the Loufanggou vanadium mine in Shangnan County, Shaanxi Province, with an annual production scale of 660,000 tons, a mining area of 2.5131 square kilometers, a mining depth of 1,270 meters to 600 meters, and a product plan of 98% vanadium pentoxide. As of November 30, 2022, the retained resource reserves within the assessment scope are 46,102,900 tons of ore, 499,900 tons of V2O5 minerals with an average grade of 1.08%, recoverable reserves of 32,176,600 tons of ore, 343,500 tons of V2O5 minerals with a grade of 1.07%, a dilution rate of 15.00%, and a mine service life of 57.36 years.
It is estimated that the complete cost per ton and operating cost per ton of V2O5 after stable production will be about 7.9 and 62,000 yuan respectively. According to the project evaluation report, the Loufanggou vanadium mine is expected to be put into trial production in 2025, and the output in the year of operation is 60% of the design capacity, that is, 396,000 tons/year, and the output of V2O5 is expected to be about 2,888 tons, and it will start to reach production in the second year, and it is expected to process and produce about 4,814 tons of V2O5 per year after entering the stable production period, and the complete cost of a single ton is expected to be 79,000 yuan/ton of V2O5, and the operating cost of a single ton is expected to be 62,000 yuan/ton of V2O5.
98% V2O5 yield
= ore production × geological grade × (1-ore dilution rate) × beneficiation recovery
= 660,000 tons ×1.0675%× (1-15%)× 78.78%÷98%
= 4814.22 tons
Vanadium is mainly used in the steel industry, and the energy storage application market has broad prospects.
In 2021, vanadium consumption in the world and China accounted for 91.4% and 91.45% of the steel consumption, and the proportion of energy storage in the field was 2.44% and 3.92%, respectively.
Compared with lithium batteries, all-vanadium flow batteries have the technical characteristics of safety, long cycle life, high cost performance and high energy efficiency, which can store unstable renewable energy and achieve stable output and utilization.
In the future, with the innovation of technology, the problem of vanadium electric energy density and capacity will be solved, so that vanadium batteries can not only be applied to large-scale energy storage power stations, but also to small application scenarios of electric vehicles. With the strong demand in the field of new energy and the continuous growth of the market scale, vanadium power may usher in a blowout development in the next few years, bringing a new performance growth curve to the company.
With the gradual increase in the share of wind and solar renewable energy in the energy field, the amount of vanadium used in all-vanadium flow batteries is expected to achieve a big breakthrough in the next five years.
Hand in hand with all-vanadium flow battery energy storage faucet.
The company has signed a strategic cooperation agreement with Dalian Rongke Energy Storage Group Co., Ltd., the world's leading manufacturer of all-vanadium flow battery energy storage, high-purity vanadium chemicals and alloy materials and technical service provider, and will cooperate on the investment and development of vanadium ore resources at home and abroad, vanadium product procurement, all-vanadium flow energy storage market development and customer development layout. Dalian Rongke Energy Storage was first initiated and established by the Dalian Institute of Chemical Physics, Chinese Academy of Sciences, and is the world's leading all-vanadium flow battery energy storage system service provider, and one of the earliest enterprises involved in all-vanadium flow battery energy storage, with its operating projects accounting for about 50% of the world's vanadium energy storage power stations.
2. Graphite ore
In September 2022, the company announced that it intends to invest 5 million Australian dollars through a wholly-owned subsidiary of NQM to subscribe for the private placement of shares of Triton Minerals Limited (stock code: TON), a company listed on the Australian Securities Exchange, and in May 2023, the two parties will complete the share registration procedures, and the number of shares held by NQM will be 178,571,429 shares, with a shareholding ratio of 11.44%.
In addition, NQM was awarded 178,571,429 Cathement Mining call options with an exercise price of $0.04 per share and an exercise expiration date of 31 December 2025. In addition, Jigao International Investment and Development, a wholly-owned subsidiary of the parent company Jinan High-tech Holding Group, holds 24.71% of the shares of Catalyst Mining, and the company (and its affiliates) holds a total of 36.15% of the shares of Catalyst Mining.
The core asset of Catalyst Mining is the Anquabe graphite mine.
Catalyst Mining is engaged in the exploration and exploitation of graphite projects, and its core assets include the Ancuabe Project, The Balama North Project and The Balama South Project in Cabo Delgado Province in northern Mozambique, Africa. Among them, the Baramabei and Balamanan graphite ore projects are still in the resource exploration stage, and the Anquabe graphite mine project is a large-scale and super-large new flake graphite mine with a large flake content of more than 60%, with a graphite ore resource of about 46.1 million tons and recoverable reserves of 24.895 million tons in accordance with JORC standards: 11.17 million tons of recoverable reserves in the T16 mining area, with an average fixed carbon grade of 7.28%; The T12 mine has recoverable reserves of 13.725 million tonnes at an average fixed carbon grade of 5.32%. The environmental permit for the Anquabe Graphite Project has been approved by the government authorities, with the completion of the Project Feasibility Study (DFS) in December 2017 and the 25-year mining licence in June 2019.
It is planned to produce more than 60,000 tons of natural flake graphite concentrate annually, and it is expected to be put into production in 2025. In the first half of this year, the company signed a FEED (pre-section engineering design) contract with Yantai Dongfang Metallurgical Design and Research Institute to further optimize the design of the concentrator plant and reduce capital investment. At present, it is planned to have an annual processing capacity of more than 1 million tons of raw ore and an annual output of more than 60,000 tons of natural flake graphite concentrate, which is expected to be put into operation in 2025. As of June 2023, the Anquabe project has obtained administrative permits such as road use permits, road construction permits, camp construction permits, and construction permits, and is ready for the official start of construction, and the project site has completed the rehabilitation of about 18 kilometers of roads from the main road to the temporary camp.
At present, the main application field of natural flake graphite is lithium-ion battery anode materials, and it is also widely used in the production of corrosion-resistant, wear-resistant and energy-saving materials such as expanded graphite. The continuous growth of the metallurgical steel industry in mainland China and the rapid development of lithium-ion batteries in the world have stimulated the demand for graphite raw materials, and at the same time, the industry and the government have paid more and more attention to the role of graphite strategic resources, and it is expected that the graphite anode materials and energy storage market will usher in a new development cycle.
3. Silica mine
In March 2023, the company invested 25.75 million yuan to increase its capital to invest in Dengta Shuangli Silica Mining Co., Ltd., located in Liaoyang City, Liaoning Province, with a shareholding ratio of 35%. Lighthouse Silica was established on November 1, 2012, holds a mining license, and mines metallurgical quartzite in an open-pit manner, with a production scale of 150,000 tons/year, and is valid from January 28, 2017 to March 28, 2029.
The construction of the Shuangli silica mine project has entered a substantial stage and is expected to reach production in 2024. In July 2023, the groundbreaking ceremony of the first phase of the concentrator plant was held, with a design capacity of 500,000 tons/year in the first phase, covering an area of more than 60 acres, a construction plant area of 12,000 square meters, 1 design crushing line, 2 mineral processing production lines, and a construction period of about 8 months, and it is expected that the main construction and equipment installation of the plant will be completed by the end of November 2023, and the design capacity will be officially reached in March 2024.
5. Risk Warning
1. Precious metal prices are falling
The company's main product is gold, and the price of gold will greatly affect the company's profits. If the Fed's easing is less than expected, or risk aversion fades quickly, it will put greater pressure on precious metal prices, which will have a greater negative impact on corporate earnings.
2. Mine safety accident risk
As an upstream enterprise in the development of mineral resources, the nature of the enterprise determines the risk of safety accidents. If a safety production accident occurs, it will have a great impact on the company's production, operation and reputation.
3. The progress of the project put into production does not meet expectations
A number of the company's planned or under-construction projects have great uncertainty, and if the production progress and operating conditions cannot meet expectations, the company's future profitability will be affected.
4. Geopolitical risks
Geopolitics will have a greater impact on the construction progress of overseas projects.
5. Exchange rate fluctuation risk
The company's overseas assets account for a high proportion, and exchange rate fluctuations will affect the company's profit and loss.
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The report comes from [Foresight Think Tank]