2024 and 1Q25 earnings in line with our expectations

Sinomine Resource Group announced its 2024 and 1Q25 results: In 2024, the firm’s revenue fell 10.8% YoY to Rmb5.36bn, net profit attributable to shareholders was Rmb0.76bn and recurring net profit was Rmb0.6bn. In 1Q25, the firm’s revenue rose 36.4% YoY but fell 14.4% QoQ to Rmb1.54bn, and its net profit attributable to shareholders fell 47.4% YoY and 36.2% QoQ to Rmb0.14bn, in line with our expectations.

Lithium prices fell markedly in 2024; rubidium and cesium salts supported earnings. First, the average price of battery-grade lithium carbonate fell 64% YoY to about Rmb90,000/t in 2024 and a marked decline in lithium prices weighed on earnings. Second, the firm's lithium carbonate sales volume grew 145% YoY to about 43,000t in 2024, as the ramp-up of the Bikita mine in Zimbabwe boosted production of the firm’s own mines. Third, gross profit of the firm's rubidium and cesium business rose 51% YoY to Rmb1.09bn, while sales volume of rubidium and cesium salts fell YoY but product price hikes boosted profit margin, with gross margin rising from 64.4% in 2023 to 78.3% in 2025.

Falling lithium prices and copper smelting business weighed on earnings in 1Q25; uptrend of rubidium and cesium business continued. First, the firm's sales volume of lithium products rose 13% YoY to 8,964t, and the average price of electrical carbon fell 26% YoY to about Rmb75,000/t. Profit of the lithium business declined due to falling lithium prices. Second, the firm’s smelter in Namibia suffered a net loss of Rmb0.1bn due to pressure on global copper processing fees, temporarily weighing on the firm’s earnings. Third, the uptrend of the rubidium and cesium business continued. In 1Q25, the gross profit of the rubidium and cesium business rose 92% to Rmb0.23bn, with sales volume of rubidium and cesium fine chemicals growing 78% YoY.

Trends to watch

Lithium business still has room for cost reduction; efforts to expand presence in multiple metal-related businesses gradually paying off. For the lithium business, the firm strived to reduce production costs by adjusting the structure of raw materials, expanding municipal power supply capacity, and building solar power stations in 2024, and it plans to　implement various cost-cutting measures in 2025 to withstand the risk of possible market downturns. In terms of minor metals, the firm invested in the construction of a 0.2mnt/year comprehensive metal recycling project in Namibia in 2024 with designed capacity of 33t/year germanium. The main equipment for the first rotary kiln of the project has been shipped from Tianjin Port, and the progress of the project is in line with expectations. In terms of copper, preliminary design has been completed for the first phase of the Kitumba copper mine’s mining, processing and smelting project, and mining has started in March. The processing and smelting plant for the project is scheduled to start construction in early May. Overall construction of the project is progressing as planned. As the germanium recycling project in Namibia and the copper mine project in Zambia are gradually completed and put into operation over 2025-2026, we believe the firm's transformation towards multiple metal-related businesses will enter a critical stage, which we think will boost long-term earnings growth and enhance earnings stability for the firm.

Financials and valuation

Due to accelerated declines in lithium salt prices, we lower our 2025 and 2026 net profit forecasts by 33% and 18% to Rmb668mn and Rmb974mn. The stock is trading at 31.2x 2025e P/E and 21.4x 2026e P/E. We maintain an OUTPERFORM rating. As the firm's minor metal and copper businesses are likely to boost its growth potential, we keep our target price unchanged at Rmb42.01, implying 45.4x 2025e P/E and 31.1x 2026e P/E, offering 45% upside.

Risks

Sharper-than-expected declines in lithium prices; disappointing progress of copper project; policy headwinds for overseas resources.