Media Reports, page-2193

It's a small operation hoping to expand. The 159kt in 1H 2023 was unprocessed graphite ore (what they mined), not graphite concentrate. It is from a new mine being ramped up I think which means most of the 159kt could be overburden. According to the Chairman's Report for the 1st half (an interesting read, see below) sales volume of flake graphite concentrate was 3,689 tonnes, representing a decrease of 56.8% over the corresponding period of last year. For 1H 2023, the sales volume of spherical graphite was 1,899 tonnes, representing a decrease of 42.9% over the corresponding period of last year.

He did say demand in the 3rd qtr is picking up. In July 2023, the Group recorded a total revenue of over RMB20.0 million, which alone accounted for more than 42.0% of the total revenue in the first half of the year.


CHAIRMAN’S STATEMENT FOR THE 2023 INTERIM RESULTS
Dear Shareholders,
In the first half of 2023, China made a smooth transition in pandemic prevention and
control that saw social life gradually reverted to normal. China’s economic development is
under a lengthy recovery period after combating the pandemic for three years. As for the
new energy vehicles (NEVs) industry, it has entered a periodic adjustment stage after
experiencing a surge in the last few years. In the first half of 2023, the price cut in NEVs was
caused by the declining raw material price of lithium batteries, and coupled with the
active price reduction and sales promotion by traditional fuel vehicle manufacturers, the
NEVs industry embarked on an unprecedented price war amid the pressure. The price
reduction pressure was directly diverted to the cost of anode materials. The growth of the
anode material market was lower than expected owing to the general “destocking” of the
battery industry chain during the first half of the year, which dragged down the overall
performance of the domestic natural graphite market significantly.
The Group was caught in a complex and challenging business environment during the
first half of the year. Given the sluggish operating rate of the industry in general, the Group
made the best use of the situation and turned adversities into opportunities by prioritizing
the reinforcement in research and development investment to refine products and
improve technology, and actively consolidating our competitiveness to embrace the
future industry development. Meanwhile, the Group devoted our collective efforts to
overcome all challenges, and operated at full capacity upon resuming production to see
our results rebound and improve.
Performance
In the first half of 2023, the Group recorded a total revenue of RMB47.2 million,
representing a decrease of 49.6% over the corresponding period of last year, which was
mainly attributable to the weak downstream demand for natural graphite in general. The
revenue from the sales of spherical graphite and its by-products amounted to RMB34.9
million, representing a decrease of 43.1% over the corresponding period of last year, and
the revenue from the sale of flake graphite concentrate amounted to RMB11.9 million,
representing a decrease of 61.2% over the corresponding period of last year. Our results
continued to improve as, after the second quarter, downstream demand rebounded in
tandem with the development of the electric vehicle industry, and the graphite industry
has entered its annual peak production season. In July 2023, the Group recorded a total
revenue of over RMB20.0 million, which alone accounted for more than 42.0% of the total
revenue in the first half of the year.

In the first half of the year, the weak demand and supply of the natural graphite industry
significantly impeded the Group’s profitability. During the period, the Group recorded a
gross profit of RMB16.9 million, representing a decrease of 59.1% over the corresponding
period of last year, and a gross profit margin of 35.8%, representing a decrease of 8.3%. As
of 30 June 2023, the Group recorded a net loss of RMB3.3 million whereas a net profit of
RMB13.2 million was recorded in the corresponding period of last year.
Production and business operation have stabilized and recovered
Both production and business operation endured significant challenges in 1H 2023 as the
graphite enterprises in Luobei County customarily suspended their productions during
the first quarter and the industry demand was feeble in the second quarter. As
downstream orders kept increasing amid revitalized industry demand, the Group
concentrated on production and kept strengthening efforts in mining graphite ore and
enhancing the production efficiency of graphite products. The Group believes the overall
production and business operation would keep improving in the second half of the year.
For 1H 2023, the sales volume of spherical graphite was 1,899 tonnes, representing a
decrease of 42.9% over the corresponding period of last year. The gross profit margin of
the spherical graphite sales segment was 33.0%, representing a decrease of 9.2 percentage
points over the corresponding period of last year, which was mainly attributable to the
continuous weak demand for anode material causing a drop in the price and demand of
natural graphite.
For 1H 2023, the sales volume of flake graphite concentrate was 3,689 tonnes,
representing a decrease of 56.8% over the corresponding period of last year. The gross
profit margin of the flake graphite concentrate sales segment was 44.6%, representing a
decrease of 5.4 percentage points over the corresponding period of last year. In addition
to being affected by the poor performance of the anode material industry, it was also hit
by the underwhelming economic benefits of refractory materials as dragged down by the
downturn of steel industry.
Despite the slowdown of the graphite market in the first half of 2023, the Group believes
such was temporary and we are optimistic about the future development of the graphite
industry. During 1H 2023, the Group had altered the purification station into rounding
station in our existing processing plant and such alternation enabled us to produce at
least 10,000 tonnes unpurified spherical graphite per annum. Currently, we outsource the
purification process to independent third-party subcontractors. In the future, we plan to
move our graphite purification business to Weihai, Shandong Province after considering
the cost, geographical conditions and governmental policies advantages in the area. With
the reasons above and the current market conditions, the Group will not proceed with the
acquisition of the target company as announced on 5 June 2023. As at the date of this
interim report, the Group had secured bank facility of approximately RMB140.0 million to
support our future development and at the same time we are communicating with certain
independent third parties with a view of cooperating to develop the purification business.
Our Group will promptly inform our Shareholders when there is concrete development of
our plan.
Implement reserve expansion plan to unleash mine potential
In 2019, the Group obtained the mining rights to our Beishan Mine. With the abundance
of graphite resources in our Beishan Mine, the use of graphite ores from our own mines
would, as compared to purchasing graphite ore from third parties, allow us to create
upstream and downstream synergies that reduces costs while securing a continuous and
stable supply of quality graphite, thereby putting us in an advantageous position in our
production and operation. For 2023, the Group plans to increase the mining capacity to
500,000 tonnes per annum, reaching the prevailing cap permitted by the Chinese
government. The Group is planning to apply for extracting resources below 150 meters
above sea level and lifting the cap as stipulated in the mining permit. At present, the
required drilling works have been completed and relevant resource report is under
preparation. The Group will keep the investors informed of the relevant progress.
As the only private enterprise with mine resources in Luobei County, the Group is actively
seeking more resources at our Beishan Mine while strengthening our mining capacity.
Currently, the mining elevation as permitted by the Chinese government is between
150–274 meters above sea level. As of 31 December 2022, the graphite ore reserve within
such elevation amounted to 9,174 kilotonnes. In the first half of 2023, the Group extracted
approximately 159,000 tonnes of unprocessed graphite ore, as compared to approximately
6,000 tonnes of that of the same period last year, representing a significant growth in our
mine’s extraction volume. The Group is formulating a reserve expansion plan to put in
more mining efforts on a continuous basis. We believe such plan would lay a solid
foundation for our future development.