Reporter Li Zhe reports from Beijing
Tianqi Lithium (002466. SZ), but now its performance has taken a sharp turn.
Recently, Tianqi Lithium announced that it is expected to have a net profit loss of 4.3 billion yuan to 3.6 billion yuan in the first quarter of 2024. This is equivalent to a loss of half of the net profit for the full year of 2023. In 2023, Tianqi Lithium's net profit will be 7.297 billion yuan.
This is not unrelated to the low price of lithium salts. In addition, the operating conditions and lawsuits of SQM, an associate company acquired through "snake swallowing elephants" in the past, have also dragged down Tianqi Lithium's performance.
Performance changesAccording to the performance forecast for the first quarter of 2024 released by Tianqi Lithium, its net profit is expected to lose 4.3 billion yuan to 3.6 billion yuan. In the same period last year, Tianqi Lithium's net profit was 4.875 billion yuan.
Regarding the above performance, as of press time, Tianqi Lithium has not given a clear answer to the reporter of China Business Daily. The reporter called Tianqi Lithium as an investor, and the company's securities department said that everything is subject to the announcement.
According to the performance forecast, Tianqi Lithium's net profit loss in the first quarter was mainly affected by the fluctuation of the lithium product market, and the sales price of its lithium products decreased compared with the same period last year, and the gross profit declined.
After disclosing the first quarter performance forecast, the Shenzhen Stock Exchange (hereinafter referred to as the "Shenzhen Stock Exchange") 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 based on the development of its main business, product production and sales and prices.
Subsequently, Tianqi Lithium replied to the Shenzhen Stock Exchange's concern letter, stating that it achieved revenue of 2.585 billion yuan in the first quarter of 2024, a decrease of 63.61% from the fourth quarter of 2023, and a gross profit of 1.251 billion yuan, a decrease of 77.20% from the fourth quarter of 2023. In the first quarter of 2024, the sales volume of lithium mines was 143488 tons, down 26.82% from the previous quarter, and the sales volume of lithium compounds and derivatives was 16,739 tons, an increase of 20.49% from the previous quarter. At the same time, due to the downward impact of market prices, the average sales price of lithium compounds decreased by 40.53% month-on-month, while the average sales price of lithium mines decreased by 70.24% month-on-month due to the downward trend of market prices and the adjustment of lithium ore pricing mechanism. The combination of the above factors led to a decrease of 84.27% in the gross profit of lithium mines and a 48.86% decrease in the gross profit of lithium compounds and derivatives in the previous quarter.
Tianqi Lithium mentioned in an investor relations event held on April 24 that the trend of lithium prices mainly depends on the overall supply and demand pattern of the lithium industry, market changes and economic conditions, and now it will also be affected by the futures market trading situation, the game, expectations and behavior of relevant market participants. Although there is a risk of cyclical price fluctuations in lithium prices, the high growth expectations of downstream terminals, especially the new energy vehicles, ships and energy storage industries in the future, and the tilt of relevant policies are objective and reasonably expected, so in the medium and long term, the company believes that the fundamentals of the lithium industry will continue to improve in the next few years.
Mo Ke, founder and president of True Lithium Research, said: "The price of lithium carbonate will decline faster than expected in 2023. Although lithium carbonate prices will still operate at a low level in 2024, their adjustment has been limited, and the price fluctuation pressure will be less than in 2023. From overcapacity to re-establishing the balance, this is a cruel process of survival of the fittest in the market, and only a part of the production capacity is eliminated by the market to re-establish the balance. ”
The research report of Soochow Securities pointed out that judging from the performance of Tianqi Lithium in the first quarter, it can be clearly felt that the current lithium carbonate price level is not optimistic for most companies. As one of the most profitable companies in the lithium salt industry, Tianqi Lithium's performance loss indicates that it may further affect the expansion rate of lithium salt supply in the second half of the year, and the market supply may continue to slow down.
The income from investing in SQM may drop sharplyIn addition to the depressed lithium carbonate price, the performance of Chilean Chemical Mining Company (hereinafter referred to as "SQM") has also dragged down Tianqi Lithium's performance.
Tianqi Lithium mentioned in its first quarter 2024 earnings forecast that SQM has not yet announced its first quarter 2024 earnings report. The Company has calculated the Company's investment in SQM for the same period based on information such as Bloomberg's forecast of SQM's Q1 2024 earnings per share, taking into account the reliable information available to it.
In addition, SQM issued a statement stating that the Court of Santiago, Chile, ruled in April 2024 on its tax proceedings for the 2017 and 2018 tax years. Based on the latest ruling, SQM expects to potentially reduce its net profit by approximately US$1.1 billion in the first quarter of 2024 by revisiting the accounting treatment of all tax dispute amounts.
In this regard, Tianqi Lithium mentioned in the announcement that based on the principle of prudence and repeated arguments, the company believes that the recognition of the impact of the above-mentioned SQM tax dispute ruling in the investment income of the associate company in the first quarter of 2024 is more in line with the provisions of accounting standards, which is expected to reduce the company's net profit attributable to the parent company.
According to the aforementioned Bloomberg forecast data, combined with the impact of SQM's tax dispute ruling, SQM's first-quarter 2024 results are expected to decline significantly year-on-year. As a result, Tianqi Lithium expects to recognize a significant decline in the investment income from the associated company in the first quarter of 2024 compared to the same period last year.
In this regard, Tianqi Lithium mentioned at an investor relations event held on April 24 that according to the relevant announcement disclosed by SQM, the company believes that the review of the accounting treatment by the SQM board of directors will not have a significant impact on SQM's cash flow, because it has paid about $1.1 billion in taxes to the Chilean treasury in full. In view of the fact that SQM has paid this part of the tax, on the whole, the tax controversy has a small impact on SQM's cash flow and dividends, and has an impact on the company's income statement in the first quarter of 2024, but has a limited impact on the company's overall operations.
The reporter learned that SQM is the world's important manufacturer of potassium, lithium and other products, headquartered in Santiago, Chile, and is currently listed on the New York Stock Exchange and the Santiago Stock Exchange in Chile. SQM owns the mining rights to the Atacama Salt Lake in Chile, which is a significant producer of lithium products worldwide. In January 2018, the Chilean Government's Production Promotion Agency ("Corfo"), under the Ministry of Economy, granted SQM the right to develop, process and sell a total of 2.2 million tonnes of lithium carbonate equivalent quotas during the lease term (i.e. until December 31, 2030).
MoU shock riskSQM and Tianqi Lithium originated from a joint merger in 2016. In September of that year, Potash Corp. of Saskachewan, Canada's largest potash producer, and its rival Agrium Inc confirmed a merger. The global antitrust investigation of the merger has necessitated the disposal of some of the company's assets. This includes a portion of SQM's equity.
In 2015, Tianqi Lithium acquired Australia's Talison, the world's largest lithium ore supplier, in a "snake swallowing elephant" approach, and obtained the world's largest solid lithium mine in one fell swoop. Through the merger and acquisition, Tianqi Lithium has transformed from a lithium salt distributor in Shehong County, Sichuan Province (which was withdrawn from the county in 2019) to a giant controlling the world's most important lithium resources.
In 2018, Tianqi Lithium set its sights on SQM. At the time of the merger and acquisition of SQM, Tianqi Lithium encountered the impact of falling lithium salt prices. According to Asian Metal, the price of 99.5% of lithium carbonate (including tax) dropped from about 154,000 yuan/mt in March 2018 to 48,000-51,000 yuan/mt at the end of 2019. This led to a net profit loss of 5.983 billion yuan in 2019, a year-on-year decrease of 371.96%, and a debt ratio of 80.87%.
Even so, Tianqi Lithium invested US$4.066 billion in 2018 to buy a 23.77% stake in SQM, becoming its second largest shareholder. As of now, Tianqi Lithium still holds a total of about 22.16% of the shares of SQM.
By 2023, the global lithium battery industry will flourish driven by electric vehicles, which will also allow many parties to see the value of lithium mines. Tianqi Lithium mentioned in its reply to the Shenzhen Stock Exchange's concern letter that on December 27, 2023, SQM and Chile's national copper company Codelco (hereinafter referred to as "Codelco") entered into a non-legally binding memorandum of understanding ("MoU") on the operation and development of the Atacama salt lake from 2025 to 2060.
Under the terms of the MoU, SQM and Codelco will establish a joint venture based on their partnership. The joint venture will be responsible for the production of lithium carbonate and lithium hydroxide in the Atacama salt lake region, which SQM currently leases from the Chilean Production Promotion Agency (Corfo), and will be responsible for the execution of different projects and the global sale of lithium products.
According to the MoU and related announcements publicly disclosed by SQM, SQM and Codelco have made a series of agreements and arrangements on the equity structure, corporate governance, profit distribution, mining amount, etc. of the joint venture. Once the joint venture is formed, SQM will own 50% of its shares minus 1 share and Codelco will own 50% plus 1 share.
According to the current MoU, the spearhead is directly aimed at the production and sales rights of lithium carbonate and lithium hydroxide in the Atacama salt lake area leased by SQM from Corfo, which appears to be diluting Tianqi Lithium's stake in SQM. If the MoU takes effect, will it have an impact on Tianqi Lithium? The reporter contacted Tianqi Lithium on this matter, but as of press time, no clear reply has been received. A person from the company's securities department said that everything is subject to the announcement.
Tianqi Lithium announced that according to the information it currently has, the MoU disclosed by SQM is a non-legally binding framework agreement. At the same time, SQM stated in the relevant announcement and in the informative general meeting held by SQM that it is in talks with Codelco regarding the amendment of the MoU agreement, that the negotiations are still ongoing, and that the negotiations are subject to the confidentiality agreement signed between SQM and Codelco, and that it is unable to provide further details on the content of the negotiations and the final terms and conditions of the agreement and other final documents of the joint venture. Therefore, based on the currently known information, the Company is temporarily unable to fully consider and evaluate the impact of this matter on the Company.
(Editor: Dong Shuguang Review: Wu Kezhong Proofreader: Yan Jingning)