Good News & Bad News, page-204

Not a bad summary of the lay of lithium land from Yahua, customers of GXY and CXO.

Minutes of Yahua Group's Online Communication Meeting

Date: 20210316

Company's recent situation introduction:

Yahua Group has been in the civil explosives market for more than 60 years. It is a field we are very familiar with. At present, we have corresponding companies and production sites in more than 20 provinces and cities across the country, covering many market areas across the country, about 20~ 30% business scale growth rate. Due to the epidemic, the country has increased infrastructure construction and started construction of key projects. We have already won several contracts for the Sichuan-Tibet Railway started. Recently, six contracts have been awarded. The projects will be completed one month after winning the bids with several Chinese prefixes. Subcontract to a construction unit like us. The Sichuan-Tibet railway project will last for 10 years, and the future contribution to our performance is still very important. In addition, our civilian explosives equipment also produces detonators in addition to explosives. At present, the Ministry of Industry and Information Technology promotes electronic detonators. The profit is high. The country advocates that each electronic detonator should not be less than 15 yuan. We acquired a detonator company in Jiyang, Changchun, to expand our scale. In the next few years, the entire civil explosives business will also move upwards.

Regarding the lithium sector, we entered in 13 years and entered the industry through the acquisition of Guoli and Xingsheng. At present, the overall production capacity is 43,000 tons, and the planned increase has just been released, and the construction of the second phase of the Ya'an project will be launched immediately. Later, we will plan to produce more than 100,000 tons by 2025. We currently have three production sites for lithium salts: National Lithium is the first batch of companies to produce lithium salts in China, Xingsheng Lithium’s production capacity is concentrated in lithium hydroxide, and Ya’an Lithium’s annual output of 20,000 tons of battery-grade lithium hydroxide, which has basically reached The designed production capacity is currently 15 million tons per month, which is mainly supplied to Tesla. Lithium Technology is our wholly-owned company and our sales platform, helping us purchase, compare costs, search for more overseas lithium resources, and connect our products to overseas customers.

question Time:

1. Our metal lithium production capacity?

What we disclosed is 20,000 tons of lithium hydroxide + 10,000 tons of lithium chloride, and supporting 1 to 2,000 tons of metal lithium. Recent changes in fund-raising projects, 10,000 tons of lithium chloride and metal lithium will be postponed, and 30,000 tons of lithium hydroxide will be launched immediately, for a total of 50,000 tons of battery-grade lithium hydroxide, so the corresponding project environmental assessment will be required in the future. Our main advantage is the production of lithium hydroxide. We must retain our position in the industry and retain customers through increased production capacity.

1. Why did we enter the lithium industry in the first place?

The civil explosion industry is relatively stable, but the scale of the industry has a ceiling. The overall supply exceeds demand. The Ministry of Industry and Information Technology has raised the barriers to entry. The country does not approve new production capacity. We only want to do large-scale mergers and acquisitions. We acquired a blasting company in New Zealand. The volume is small but it already accounts for 70% of the New Zealand market. In the future, the domestic economic development will turn, and the investment in infrastructure construction may not increase significantly, so we are also looking for other industries. We were the last investor at the time. After investigating the entire industry chain, we decided to enter the lithium salt processing industry based on our regional advantages.

1. What are our current sources of resources?

1. Australia Galaxy Resources: the annual supply of no less than 120,000 tons from 2021 to 2025, this year should reach 150,000 tons, this is the main channel, we have stored low-priced lithium concentrate for more than half a year; 2. Lijiagou Lithium mine: The reserves and grades are both high-quality in China. We have cooperated with Sichuan Energy Investment, and now Sichuan Energy Investment has transferred the equity to Sichuan Energy Power. At present, they have invested more than RMB 400 million. Tailings and main mine equipment have been transported in for construction. It is expected that the construction will be completed by the end of this year and production will be reached next year. The annual production of lithium concentrate is about 180,000 to 200,000 tons. It is produced in Aba Prefecture. There are local regulations that the mine cannot be exported. The National Lithium Company is located in Aba Prefecture. We have an agreement with Chuanneng Power. The agreement is to meet the requirements after the mine is produced. National lithium production capacity of more than 10,000 tons, and how to allocate the surplus. Although we do not currently have a controlling stake, we still have limited purchase rights; 3. We are the largest shareholder in Australia’s core lithium industry, with a shareholding ratio of close to 10%: we have just completed a 40 million Australian dollar fundraising, and we are expected to start construction at the end of this year. In this area, the first area has proven reserves. The underwriting agreement we signed is 75,000 tons of lithium concentrate for one year. In the future, we will have further cooperation, including increasing the underwriting volume. We are also looking for opportunities to acquire other resources, and there should be other landings this year.

1. What are our advantages in the lithium industry?

National Lithium and Xingsheng have a group of people. National Lithium has established a factory in the 1990s and has been producing lithium salts for more than 20 years. It has accumulated a lot of production experience and industry experts. The company has two experts who participated in the formulation of lithium hydroxide standards.

1. In the long run, what are the positioning of our two major industries?

Last year, 70% of the income from the public popped up, and 30% of the lithium salt. The ratio of the two may be reversed in the future. According to the direction of the civil explosion, the ratio of mines, infrastructure construction, water conservancy and hydropower construction is 4:3:3. The Sichuan-Tibet line belongs to the infrastructure construction. The investment in 10 years is relatively large, but the annual distribution of it will not have a great impact on the scale of our income. .

1. What is the proportion of lithium revenue from 2013 to 2015?

At the beginning, there was almost no income contribution. National Lithium did not operate well at the time. The industry is in a downturn. If Yahua does not enter, National Lithium may die. Prior to 2014, the national price limit for civilian explosions, and the gross profit margin could reach 50-60%. After the marketization in 2014, the price came down, and the gross profit margin fell to 30-40%. In the civil explosives business, we have gradually shifted the simple sales of civilian explosives to a production + transportation + blasting service method.

1. 2020 profit structure?

A total of more than 300 million yuan in net profit, basically all of the civilian explosions, the lithium business contributes a tail.

1. What is the scale of our investment in the lithium industry?

Ya'an first and second phases invested 8+1.5 billion yuan, and will continue to invest in the future to achieve a scale of 100,000 tons. Our current production line is relatively advanced in the industry, and the leaders in the industry have recognized it. In the industry, a 20,000-ton production line generally requires 2 to 300 people. We have achieved more than 100 people and have a high degree of automation. In terms of cost, the processing cost of the new production line is also several thousand yuan less than the industry average. We will continue to build 50,000 tons of production capacity for domestic and foreign customers, and many overseas customer contracts should be issued one after another. After we have entered the Tesla supply chain, we should be relatively smooth in connecting overseas, so we It is necessary to build new production capacity as soon as possible to meet market demand. Our ability to receive orders from domestic customers is also very strong, and we did not disclose the contracts of several thousand tons that did not meet the major contract standards. 30,000 tons will be invested first next year, and construction has already begun.

1. From the perspective of current customers and ourselves, what are our strengths and weaknesses?

The disadvantage is that our current scale is not as large as Ganfeng, but it should be second only to Ganfeng in terms of the scale of lithium hydroxide. Because lithium hydroxide customers have high requirements for products, such as the proportion of sodium, potassium, calcium, carbonate, sulfate, etc., and the construction of the production system, including ESG, we have issued an ESG report to the customer, and we have also received 16,949 total With the vehicle system certification, only these overseas customers can recognize you and continue to cooperate with you for a long time. Another advantage of overseas customers is that it will give you a reasonable profit margin, but the domestic downstream is more like a snipe and clam competing for profit.

1. What is the approximate price of the order we cooperated with Tesla?

We negotiated with Tesla for a year. They were the first company between China and us to determine the quantity and price. Other markets are more of a framework agreement. We are determining the five-year quantity and pricing mechanism. They do not want to let the outside world. Knowing this model, we have a heavier liability for breach of contract in the agreement and cannot disclose anything to the outside world. We also hope that the market can rest assured that we will not do anything to lose money. When we negotiated a contract with Tesla, the industry price did not rise, and overseas prices are also very advantageous compared to domestic prices. Tesla’s price is based on two mechanisms. 1 Price lock, 2 is the quarterly price adjustment, we have taken both aspects into consideration, which is very iconic to us.

1. What is the difference between Ganfeng and our lithium salt profitability?

We also have a price adjustment mechanism for our base price every year. Our low prices are gradually rising every year. This model has advantages for us.

1. What is the reason for the impairment of more than 1 billion in 2019?

It should be the impairment of lithium concentrate. At that time, we purchased the goods at the agreed price. We locked the price in 2019, about 900 US dollars / ton, and now the price is no longer locked. After 2019, it will not be locked.

1. Lithium salt production plan in the next few years?

There will be more than 10,000 tons in 2020, and more than 30,000 tons this year, and it will definitely increase gradually along with the upper limit of production capacity. In 2022, we will release a new production capacity of 30,000 tons.

1. How do we expect the price of lithium ore to change?

The rise in the price of lithium salt started at the end of 20th was caused by lithium carbonate. We judge that the price of lithium carbonate in June should be a test period. Some new production capacity will be released and should not rise sharply. Lithium hydroxide is different. Now the price difference between the two is too large, so lithium hydroxide has more room for price increase.

1. How do you see the follow-up lithium carbonate price trend?

We think it will rise to June, and the high point may be around 100,000. Now the average market price is 80,000 yuan, and individual loose orders can reach 95,000 yuan. The performance of lithium hydroxide in the second half of the year will be higher than that of lithium carbonate.

1. The current supply and demand situation of lithium hydroxide?

I think it's still in a tightly balanced state, and it may be more tense in the future.

1. Meng always, who is currently in charge of the lithium business?

Mr. Meng is now the vice president in charge of our lithium sector. He used to be the marketing leader of a district at P&G. He was responsible for the production and sales of lithium. Joined our company in 2015. We also recruited senior personnel in the lithium industry as consultants, including the lithium metal production team, which we also did for Ganfeng before.

1. The future development strategy of the lithium sector?

We now propose two connections: connecting internationally + connecting terminals. In the past, our production capacity was insufficient and we could not connect with customers. We could only sell through the middleman model. Now, when we increase in mass, we will open up car companies, and open up battery factories LG, Panasonic, and so on.

1. Lithium's R&D and operation center?

We have a lithium industry operation center at the group level, which is mainly responsible for the safety, environmental protection, and technology of the three production bases. Last year, we built a technology research and development center in Ya'an Lithium Industry to solve technical problems and product solutions. At present, there are almost 10 teams.

1. Have we seen the domestic salt lakes?

After reading a lot, Qinghai has visited many times, and we have not finalized the cooperation method. This is our mid-to-long-term strategic layout. The resource we are more anxious about is lithium concentrate.

1. What are the changes in our strategic development in history?

There hasn't been much change in history, and the civil explosion has not changed. To create an internationally competitive civil explosion group, it is also the first domestic civil explosion enterprise to go global. Every year, Red Bull's net profit grows by more than 10%. Our total output value is among the top five in the country, the top three in profitability, and the first in the country for electronic detonators. When I first entered the lithium industry in 2013 and 2014, the development goals of the lithium industry were not clear. I decided to cooperate with Sichuan Energy Investment after mining, because private enterprises have no advantage in domestic mining and need to cooperate with the local government. It was only after 2015 that the dual-main business model of civilian explosion + lithium was gradually clarified, and lithium must exceed the scale of civilian explosion in the future.

1. What is the profit level of lithium hydroxide?

10,000 to 20,000 yuan. Now the industry's processing costs are basically the same, and our new production capacity is below 20,000.