On the evening of August 14, China Mining Resources, which has seen a significant increase in its own mining output over the past two years, officially disclosed its semi-annual report. During the period, the company achieved a revenue of 2.12 billion yuan, a year-on-year decrease of 32.76%, and a net profit attributable to shareholders of listed companies of 473 million yuan, a decrease of 68.52% compared to the same period last year.

The aforementioned decline began to align with the industry, failing to reproduce the performance of outperforming peer companies as seen before.

Behind this, it may be related to changes in the company's raw material self-sufficiency rate. Last year, this key production indicator had already reached 86%, and the room for further improvement this year has correspondingly narrowed, leading to a decrease in the effect of cost reduction compared to the previous year.

In the semi-annual report, although China Mining Resources did not disclose the overall production and sales volume, judging from the average market price of lithium carbonate in the first half of the year and the sales prices of peer companies, the company's lithium salt cost in the first half of the year is likely to have been reduced to 61,000 yuan/ton, reaching the cost level of a few other "integrated" leaders.

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This is crucial in the current market environment where the futures and spot prices of lithium carbonate continue to decline.

"Integration" fully penetrates

Whether it is stock price or performance, China Mining Resources once outperformed peer companies, and the key was the cost reduction driven by the increase in its own mining output.

In 2022, the company initiated the acquisition of the Bikita mine in Zimbabwe and carried out the construction and expansion of a 2 million tons/year lithium spodumene and 2 million tons/year petalite project.

In July 2023, the above-mentioned project was completed and officially started trial production. In November of the same year, stable production was achieved, meeting the production targets.

With the addition of the lithium spodumene concentrator at the Tanco mine in Canada, China Mining Resources' raw material self-sufficiency rate for lithium salt products surged last year."The self-sufficiency rate increased from 21% in 2022 to 86% in 2023," as indicated in the company's 2023 annual report.

The improvement in the raw material self-sufficiency rate has led to a significant reduction in the company's lithium salt production costs and achieved performance that outperforms the industry.

According to statistics, in 2023, the average net profit decline of the 18 sample companies included in the Wind lithium mining sector reached -79%, while the profit decline of China Mining Resources was only -33%, with a noticeable difference.

However, due to the company's raw material self-sufficiency rate already reaching a high of 86% last year, coupled with the stable release of production capacity from the Bikita mine this year, the room for improvement in China Mining Resources' self-sufficiency rate and cost reduction effects has noticeably declined compared to last year.

It should be noted that China Mining Resources did not disclose specific data such as production and sales volume, self-sufficiency rate, etc., in its semi-annual report, only announcing lithium salt sales of 16,800 tons achieved by its own mines.

The sales volume achieved by the aforementioned own mines may be roughly equivalent to the company's overall production and sales scale for the period.

This is because, at the end of last year, the company's lithium salt inventory was only 17,000 tons, with extremely limited inventory available for sales in the first half of the year. At the same time, the company's current total lithium salt production capacity is 66,000 tons/year, and the domestic lithium salt industry's operating rate in the first half of the year remained around 50%. Based on this estimate, China Mining Resources' lithium salt production is around 16,500 tons.

Further comparison from the product price perspective can also find other supporting evidence. Wind data statistics show that the average market price of domestic battery-grade lithium carbonate in the first half of 2024 was 103,700 yuan/ton.

During the period, China Mining Resources' revenue from "lithium battery new energy material development and utilization" was 1.59 billion yuan, estimating the company's lithium salt sales price to be around 94,600 yuan/ton.

It is normal for the actual sales price to be lower than the market average, and the sales unit price of 94,600 yuan is similar to other peer companies, such as Tibet Mining, which disclosed more complete production and sales and cost data, with a sales price of 93,900 yuan/ton (including tax) in the first half of the year.This implies that the self-sufficiency rate of raw materials for China Minmetals Resources in the first half of the year may have already reached or approached 100%.

The company's semi-annual report states, "With the full integration of the company's 60,000 tons/year of battery-grade lithium salt raw material mining, ore dressing, and smelting capacity, the strategic planning expectations for the company's lithium salt sector have been met..."

Lithium salt costs have been reduced for three consecutive years.

From the perspective of lithium salt production, the costs of China Minmetals Resources have also reached the level of other "integrated" industry leaders.

Based on the estimated operating costs and sales volume of lithium salts, in 2023, Tianqi Lithium and Yongxing Material's lithium salt production costs were 53,000 yuan/ton and 61,000 yuan/ton, respectively.

In the same year, benefiting from a significant increase in the self-sufficiency rate of raw materials, China Minmetals Resources reduced the unit production cost of lithium salt from 121,000 yuan/ton in the previous year to 103,000 yuan/ton.

"To counteract the adverse effects of declining lithium salt product prices, the company has been continuously reducing the production costs of lithium concentrate by adjusting the structure of raw material products, constructing photovoltaic power stations, and expanding the capacity of municipal power supply," China Minmetals Resources pointed out.

The decline in lithium concentrate costs, combined with the increased integration of lithium mines and lithium salts, further reduced the lithium salt costs of China Minmetals Resources in the first half of the year.

According to the above-mentioned sales volume of 16,800 tons of self-owned mine lithium salts and the operating cost of 1.025 billion yuan for "lithium battery new energy raw material development and utilization," the company's lithium salt cost in the first half of the year has been reduced to 61,000 yuan/ton.

At this point, the cost level of China Minmetals Resources may have reached the first echelon of domestic lithium extraction enterprises using ore. This is crucial in the current market environment and may bring the possibility for the company to navigate through the industry's trough in the future.As of August 15th, the average spot market price for domestic battery-grade lithium carbonate was 75,400 yuan/ton, while the settlement price for the futures contract 2409, which is about to be delivered, was less than 72,000 yuan/ton.

The aforementioned prices have already pierced through the cost line of most non-integrated lithium extraction companies using ore, and these lithium salt companies are facing losses due to the cost and product price inversion, as well as the risk of capacity withdrawal due to the inability to bear long-term losses.

In contrast, China Minmetals Resources, although its profits are inevitably reduced, can still achieve a gross profit of 10,000 to 15,000 yuan/ton, and the company's main business's risk resistance has been greatly improved compared to last year.

Even if the market shows extreme conditions in the future, such as lithium carbonate falling to 60,000 yuan/ton, almost all ore-based lithium extraction companies will face the risk of capacity withdrawal, except for those with naturally low-cost brine-based lithium extraction companies.

With the large-scale reduction of ore-based lithium extraction capacity, it will support lithium salts through the supply and demand relationship. From this perspective, the further decline of lithium prices in the near future is not only bearish for integrated companies like China Minmetals Resources, but also constitutes a medium to long-term benefit.

The faster the lithium price falls, the faster the industry's capacity reduction speed, and the sooner the industry bottom comes.