On April 24, the A-share and H-share shares of Tianqi Lithium, a leading lithium mine, plunged. As of the close of the day, Tianqi Lithium's A-share share price fell to 40.63 yuan per share, and H-share price fell 19.15% to HK$28.5 per share.
The reason for this abnormal fluctuation is that Tianqi Lithium announced on the evening of April 23 that it expects a net loss of 3.6 billion yuan to 4.3 billion yuan in the first quarter of 2024, a decrease of more than 173.85% from the same period last year. Regarding the reason for the loss, Tianqi Lithium mentioned that it was affected by the volatility of the lithium product market and the tax dispute ruling of the associate Chile Mining & Chemical (SQM).
In the evening, the Shenzhen Stock Exchange also urgently issued a letter of concern to Tianqi Lithium, requiring it to quantitatively analyze the reasons for the sharp increase in losses in the first quarter and the risk of subsequent losses, and assess the impact of the memorandum of understanding signed between SQM and Chile's National Copper Company on the company, and explain the countermeasures to be taken.
Huge losses in the first quarter
On the evening of April 23, Tianqi Lithium disclosed its performance forecast for the first quarter of 2024, expecting a net loss of 3.6 billion yuan to 4.3 billion yuan in the first quarter of this year, compared with a net profit of 4.875 billion yuan in the same period last year, a year-on-year decrease of more than 173.85%.
Regarding the reasons for the loss, Tianqi Lithium explained that on the one hand, due to the impact of fluctuations in the lithium product market, the company's lithium product sales price decreased significantly compared with the same period last year, and the gross profit of lithium products fell sharply, on the other hand, combined with the impact of the tax dispute ruling of its important associate company SQM, it is expected that SQM's net profit in the first quarter will decrease by about US$1.1 billion, so the company's investment income in the associated company recognized in the reporting period decreased significantly compared with the same period last year.
This announcement immediately attracted inquiries from the Shenzhen Stock Exchange, requiring the company to quantitatively analyze the reasons for the significant increase in losses in the first quarter of 2024 compared with the fourth quarter of 2023 in combination with the specific changes in factors such as the development of its main business, product production and sales, product prices, raw material purchase prices, costs and expenses, and impairment provisions, and explain whether there is a risk of continuous losses.
As a leading lithium mine, Tianqi Lithium's performance is closely related to the lithium product market. Judging from the company's 2023 performance report, the revenue of lithium mineral products has accounted for nearly seventy percent of last year's total revenue. However, affected by the collapse of lithium prices in 2023, Tianqi Lithium has a net loss of 801 million yuan in the fourth quarter of last year alone.
As early as last year's financial report, a number of brokerages have revised their profit forecasts for Tianqi Lithium. Among them, Guosen Securities expects that Tianqi Lithium's net profit attributable to the parent company from 2024 to 2026 will be 4.527 billion yuan, 5.303 billion yuan and 6.208 billion yuan respectively, and the original forecast value from 2024 to 2025 will be 8.483 billion yuan and 9.298 billion yuan, while Huafu Securities expects that the company's net profit attributable to the parent company from 2024 to 2026 will be 3.295 billion yuan, 3.920 billion yuan and 5.148 billion yuan, and the original forecast value from 2024 to 2025 will be 7.06 billion yuan. 7.43 billion yuan.
Despite this, the market's doubts about Tianqi Lithium still exist, and many investors have asked why Tianqi Lithium's losses in the first quarter of this year have increased sharply since lithium prices fell to a relatively low point in the fourth quarter of last year, according to Zhuochuang Information data, in the first quarter of 2024, the average price of battery-grade lithium carbonate was 100,000 yuan/ton, down 24.5% from the fourth quarter of 2023.
Looking ahead, Kaiyuan Securities pointed out in the latest research report that the supply and demand pattern has turned to surplus, and it is expected that lithium prices will be in the bottoming stage in 2024. The brokerage believes that the bottom of lithium prices will increase the impact of costs on profitability, and companies with output elasticity and cost on the left, or with room for cost reduction, have certain advantages.
Uncertainty about overseas investment has soared
In addition to the huge loss in the first quarter, another concern of the market is that the uncertainty of Tianqi Lithium's huge overseas investment is also soaring.
In the letter of concern, the Shenzhen Stock Exchange asked Tianqi Lithium to assess the impact of the signing of a memorandum of understanding between SQM and Chile's national copper company on the company, and explain the proposed countermeasures.
According to public information, the formal cooperation between Tianqi Lithium and SQM originated in 2018. At that time, Tianqi Lithium signed a share purchase agreement with Nutrien Group, the largest shareholder of SQM, to acquire 43.80% of the SQMA shares held by Nutrien Group for self-raised funds of about US$4.066 billion, accounting for 23.77% of the total share capital.
Tianqi Lithium has invested nearly US$4.1 billion to expand its overseas lithium resource reserves. Roskill statistics show that in 2017, SQM supplied 16% of the world's lithium resources and 19% of lithium compound products, making it the world's second largest supplier of lithium resources and the second largest supplier of lithium compound products.
However, since the end of last year, there have been frequent uncertainties in this investment. According to Alpha Works, on December 27, 2023, SQM and Chile's National Copper Company jointly announced that the two companies have reached a memorandum of understanding to form a government-controlled joint venture to jointly develop lithium resources, and SQM's lithium business will be divested into a joint venture with Codelco, which will hold 50% plus one share.
According to the analysis, the joint venture could dilute Tianqi Lithium's existing interest in SQM's lithium business and could deprive it of further exposure to high-quality lithium resources. If the deal goes ahead, Tianqi Lithium will hold a diluted stake in the lithium joint venture, which will limit its influence over the company.
On April 10, SQM announced that the company's shareholder of more than 10% of the company's shares, Tianqi Chile (Inversiones TLC SpA), requested an extraordinary general meeting of shareholders to discuss and vote on the transactions involved in the above-mentioned memorandum. However, SQM's board of directors refused to vote on the matter, citing the fact that the partnership agreement had not yet been finalized, and stressed that "the views expressed by shareholders are not binding on the management of the company and shall not be relieved of the management's responsibility." ”
In this regard, Tianqi Lithium said that it has paid attention to the recent announcement issued by the company's shareholding company SQM, and its specific content is subject to the relevant information of SQM's announcement. As a shareholder of SQM, the Company had previously sent a request to SQM to convene an informative general meeting to hear details of matters relating to the Memorandum of Understanding (MoU) between SQM and the Chilean state-owned enterprise Codelco. The general meeting was held on March 21, 2024. Tianqi Lithium understands that the relevant matter is still under study and negotiation, and the company has no information to share at present, and will continue to pay attention to the progress of this matter in the future, and do a good job in relevant analysis and judgment.
In addition, the SQM tax dispute decision mentioned in this earnings announcement has also caused the expected return on this huge investment to decline.
According to Tianqi Lithium, SQM previously announced that the Santiago Court in Chile ruled on its tax proceedings for the 2017 and 2018 tax years in April 2024, revoking the conclusion of the tax and customs court's decision on the case on November 7, 2022. SQM expects its net profit for the first quarter of 2024 to likely decline by about $1.1 billion.
At this time, SQM has not announced its first quarter 2024 earnings report. Tianqi Lithium said that the company comprehensively considered the reliable information that could be obtained, and continued to use the information such as earnings per share in the first quarter of SQM2024 predicted by Bloomberg to calculate the company's investment income on SQM for the same period, and believed that this matter is expected to reduce the company's net profit attributable to the parent company.
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