China Northern Rare Earth: The Pricing Mechanism for Rare Earth Concentrate Transactions with Baogang Group Remains Stable, with Medium- and Long-Term Agreements Accounting for Over 50% of Rare Earth Product Sales.

SMM March 4 News:

The investor relations activity record (February 17, 2025) disclosed by China Northern Rare Earth on March 3 shows:

Q: What is the pricing mechanism for rare earth concentrate transactions between the company and Baotou Steel?

China Northern Rare Earth responded: The pricing mechanism for rare earth concentrate transactions between the company and Baotou Steel is implemented in accordance with the proposal on the "Pricing Mechanism for Routine Related Transactions of Rare Earth Concentrates and the Execution for 2022 and Forecast for 2023," approved at the company's first extraordinary general meeting in 2023. Starting from April 1, 2023, under the unchanged pricing formula for rare earth concentrates, the company calculates and adjusts the prices of rare earth concentrates based on the pricing formula in the first ten days of the first month of each quarter, re-signs the supply contracts or supplementary agreements for rare earth concentrates, and makes announcements. Currently, this pricing mechanism is operating stably.

Q: Will the inventory cycle of rare earth concentrates affect the company's profits?

China Northern Rare Earth responded: Last year, rare earth prices were relatively stable, and the prices of rare earth concentrates also remained stable at around 16,000 yuan/mt to 20,000 yuan/mt. The inventory cycle of rare earth concentrates had a relatively small impact on the current period's profits.

Q: Will the allocation of total control indicators for light rare earths and smelting and separation indicators gradually concentrate on the company? What is the expected increase in indicators this year?

China Northern Rare Earth responded: Article 10 of the "Rare Earth Management Regulations" clearly states: "The state implements total volume control and optimizes dynamic management of rare earth mining and smelting and separation based on factors such as rare earth resource reserves and type differences, industrial development, ecological protection, and market demand." The state issues indicators in accordance with the factors specified in the "Regulations," such as rare earth resource reserves and type differences, industrial development, etc., to implement total volume control and optimize dynamic management of rare earth mining and smelting and separation. The specific increase in indicators still needs to comprehensively consider market conditions and other factors.

Q: Is there a difference between the company's actual production and the total control indicators for rare earths?

China Northern Rare Earth responded: The company strictly organizes production in accordance with the total control indicators issued by the state, while supplementing with a small amount of imported ore to meet market demand.

Q: How does the company allocate smelting and separation indicators among its subsidiaries responsible for rare earth smelting and separation?

China Northern Rare Earth responded: The company allocates smelting and separation indicators based on factors such as the production cost control and environmental protection performance of its subsidiaries. Indicators are not allocated to enterprises that fail to meet environmental protection standards.

Q: What is the sales model for the company's rare earth products? What is the approximate proportion of long-term agreements and spot sales?

China Northern Rare Earth responded: The company currently sells rare earth products to downstream magnetic material enterprises through long-term agreements, retail, and auctions. Long-term agreements account for more than 50%.

Q: In the company's layout of the rare earth magnetic material business, what types of products are mainly sold? What application fields and customers are covered? Are all raw materials self-supplied?

China Northern Rare Earth responded: Since its listing, the company has extended, supplemented, and strengthened its chain in downstream high-end, high-value-added industries through capital operations. In recent years, it has professionally integrated four magnetic material enterprises under its umbrella—Baotou Magnetic Material, Ningbo Zhanhao, Beijing Sanjili, and Anhui Permanent Magnet—to establish Inner Mongolia Northern Rare Earth Magnetic Material Co., Ltd. (hereinafter referred to as Northern Magnetic Material), enhancing the competitiveness and value creation of the magnetic material industry. Northern Magnetic Material specializes in the R&D, production, and sales of high-quality NdFeB rapid-quenching thin-strip alloys and bonded NdFeB (MQ powder), with a capacity of 90,000 mt. It possesses industry-leading rapid-quenching alloy production equipment and state-of-the-art automated and intelligent production lines, along with over 60 patents related to rapid-quenching alloy preparation. Its high-quality magnetic alloy products are widely used in NEVs, wind power generation, servo motors, air conditioner compressors, robots, speakers, hard disk drives, sensors, and other fields. The company has established a joint venture, Antai Northern Technology Co., Ltd., with Antai Technology and its subsidiary Northern Magnetic Material, building a magnet production line to enrich magnet product varieties, improve product quality, expand the scale of magnetic material production capacity, enhance product profitability, and improve the development quality of the magnetic material industry. It has also jointly invested with Ningbo Zhaobao Magnetic Industry Co., Ltd., Suzhou Tongrun Drive Equipment Co., Ltd., and Ningbo Xici Technology Development Co., Ltd. to establish Northern Zhaobao Magnetic Industry (Inner Mongolia) Co., Ltd., enhancing the production capacity and technical level of magnetic materials, strengthening the market competitiveness of magnetic material products, and increasing the value creation of the industry chain. The company has established strategic partnerships with multiple downstream magnet enterprises, with JL MAG Rare-Earth, Ningbo Yunsheng, Zhenghai Magnetic Material, and Zhongke Sanhuan being its major customers, continuously deepening and expanding overseas markets. The raw materials for Northern Magnetic Material are partly self-supplied and partly purchased externally.

Q: What is the company's current capital expenditure situation? Are there any plans for future dividends?

China Northern Rare Earth responded: The company's major capital expenditure currently involves investing no more than 7.8 billion yuan in the construction of a new-generation green mining, beneficiation, and smelting rare earth green smelting upgrade project. Other equity investments and infrastructure technological transformation investments are progressing steadily as planned. Each year, the company formulates investment plans based on market conditions, its own development, financial situation, and related industrial policies, and implements investments and project construction according to the plans.

The company values shareholder returns, with cumulative dividends of 5.419 billion yuan since its listing. From 2012 to 2021, the company's annual dividend ratio exceeded 30% for 10 consecutive years. The dividend ratio for 2023 was below 30%, mainly due to retaining undistributed profits for the construction of the green smelting upgrade project. The company will adhere to the principle of "investor-oriented," and in accordance with the "Articles of Association" and the "Shareholder Return Plan (2023–2025)," it will comprehensively consider factors such as the company's profitability, cash flow status, development stage, and capital operation funding needs to formulate and implement a cash dividend policy, creating greater value for shareholders and investors and enhancing their sense of gain.

Q: Please introduce the green smelting upgrade project.

China Northern Rare Earth responded: To fully, accurately, and comprehensively implement the new development philosophy, adapt to and build a new development pattern, seize market opportunities, and further enhance the resilience of China's rare earth industry chain and supply chain, as well as resource supply security and safety levels, the company relies on advanced concepts, technologies, equipment, and management to build its rare earth smelting and separation industry segment into the world's largest, technologically advanced, energy-efficient, and environmentally friendly industry-leading intelligent green factory. This aims to fully leverage scale efficiency and effectiveness, promote the formation of an intensive, modernized, and base-oriented production model, further enhance the company's core competitiveness, and drive high-quality development. In March 2023, after approval by the company's general meeting of shareholders, it was decided to invest no more than 7.8 billion yuan through its wholly-owned subsidiary Baotou Huamei Rare Earth Hi-Tech Co., Ltd. to implement the rare earth green smelting upgrade project.

This project is the largest investment, most technologically advanced, and highest green development level new-generation rare earth green mining, beneficiation, and smelting landmark project since the company's establishment. It is an important measure for the company to promote the high-end, intelligent, and green transformation of the rare earth industry. The project officially started in April 2023, with over 90 units participating in its construction. After more than 440 days of effort, the first phase was completed and put into operation in October 2024. This project replaces outdated production lines with new capacity, representing a key element of new quality productive forces. The production line's process technology, equipment, environmental protection, and production capacity all lead the industry. It can flexibly switch product specifications and models according to customer needs, maximizing the ability to meet downstream demand for various raw material products. Through independent innovation and technology introduction, the company strives to build a modern, world-class rare earth raw material production enterprise integrating digitalization, intelligence, and greenness.

Next, the company will continue to accelerate the completion of supporting works for the first phase of the project, further optimize equipment and processes, ensure efficient and smooth operation of the production line, and prepare in advance for the construction of the second phase based on the operation of the first phase and market conditions. Once the entire project is completed, the company will have the capacity to process 198,000 mt/year of mixed rare earth concentrate with 58.09% REO, equivalent to 115,000 mt/year of REO; extraction and separation capacity of 107,000 mt/year (REO basis); precipitation and crystallization capacity of 140,000 mt/year (REO basis); and calcination capacity of 39,000 mt/year (REO basis). After the replacement and integration of new and old production lines, the project will positively impact the company's overall operational performance, cost control, and raw material process improvement. Currently, the rare earth market is seeing new demand from downstream sectors such as robotics. The company remains optimistic about the industry's future. The green smelting upgrade project is a proactive measure to empower the construction of the "two rare earth bases" and serves as a model for transformation and upgrading.

The quarterly price adjustments for rare earth concentrate related transactions between China Northern Rare Earth and Baotou Steel have always been a focus of market attention. In 2025, the Q1 rare earth concentrate transaction price between China Northern Rare Earth and Baotou Steel was adjusted to 18,618 yuan/mt (dry basis, REO=50%, excluding tax), up 836 yuan/mt QoQ, an increase of 4.7%. Reviewing the changes in rare earth concentrate transaction prices in 2024, it can be observed that in Q1 2024, the transaction price slightly increased QoQ; in Q2, the transaction price saw a significant QoQ decline; in Q3, the transaction price slightly decreased QoQ, remaining nearly flat; and in Q4, the transaction price increased QoQ. Specifically: In Q1 2024, the rare earth concentrate transaction price was adjusted to 20,737 yuan/mt (dry basis, REO=50%, excluding tax), up 201 yuan/mt from Q4 2023, an increase of 0.98% QoQ. In Q2 2024, the transaction price was adjusted to 16,792 yuan/mt (dry basis, REO=50%, excluding tax), with a price adjustment of 335.84 yuan/mt for every 1% change in REO. This represented a decrease of 3,945 yuan/mt from Q1 2024, a decline of 19.02% QoQ. In Q3 2024, the transaction price was adjusted to 16,741 yuan/mt (dry basis, REO=50%, excluding tax), with a price adjustment of 334.82 yuan/mt for every 1% change in REO. This was a decrease of 51 yuan/mt from Q2 2024, a decline of 0.3% QoQ. In Q4 2024, the transaction price was adjusted to 17,782 yuan/mt (dry basis, REO=50%, excluding tax), with a price adjustment of 355.64 yuan/mt for every 1% change in REO. This was an increase of 1,041 yuan/mt from Q3 2024, an increase of 6.22% QoQ.

The 2024 performance forecast previously disclosed by China Northern Rare Earth shows: Based on preliminary estimates by the company's financial department, the net profit attributable to shareholders of the parent company for 2024 is expected to be 950 million yuan to 1.08 billion yuan, a decrease of 1.29 billion yuan to 1.42 billion yuan compared to the same period last year (statutory disclosure data), representing a YoY decrease of 54.41% to 59.90%. The net profit attributable to shareholders of the parent company, excluding non-recurring gains and losses, is expected to be 820 million yuan to 950 million yuan, a decrease of 1.37 billion yuan to 1.5 billion yuan compared to the same period last year (statutory disclosure data), representing a YoY decrease of 59.10% to 64.71%.

Regarding the main reasons for the performance decline in this period, China Northern Rare Earth stated: In 2024, due to factors such as weak global economic growth and downstream demand growth falling short of expectations, the overall prices of major rare earth products, represented by Pr-Nd products, fluctuated downward, with average prices declining YoY. Supply side, the two batches of total rare earth control quotas issued by the state increased YoY but at a slower growth rate. The capacity for recycling rare earth resources in the market continued to expand, and imported ores impacted market supply and demand. The supply of rare earth products in the market remained stable with slight growth. Demand side, competition intensified in major application fields such as downstream rare earth magnetic materials. The rapid development of industries like NEVs, humanoid robots, and industrial motors, along with the implementation of the "program of large-scale equipment upgrades and consumer goods trade-ins" and the "implementation of major national strategies and the development of security capabilities in key areas" policies, boosted consumption. However, the growth in demand and its boosting effect fell short of expectations, leading to an overall weak performance in the rare earth market. Facing the unfavorable market situation of declining rare earth product prices, the company focused on its annual production and operation targets, deeply implemented the new development philosophy, and built a new development pattern. It took on the responsibility of being the main force in constructing the "two rare earth bases," achieving new results in high-quality development. The company strengthened comprehensive budget management, strictly implemented total control quotas, optimized its operating model, further improved capacity utilization rate, actively ensured supply and stabilized prices, and maintained healthy and stable industry development. In 2024, the company's production of rare earth smelting and separation products is expected to grow by approximately 1.63% YoY; rare earth metal production by about 20.78% YoY; magnetic material production by about 10.42% YoY; polishing material production by about 0.26% YoY; and hydrogen storage material production by about 19.78% YoY. The application fields will achieve mass production of rare earth permanent magnet motors. The company will strengthen marketing system reforms, optimize product structure, and achieve record-high sales of rare earth lanthanum-cerium and Pr-Nd products, with market share continuously increasing. Sales of rare earth functional materials are expected to grow by about 7.40% YoY, while trading volume on the Baotou Rare Earth Products Exchange is expected to grow by about 11.37% YoY, with price influence continuing to improve. The company will enhance internal and external benchmarking to improve performance, deepen cost reduction and efficiency enhancement, and reduce the processing cost per mt of rare earth by 5.1% YoY. It will strengthen financing management, optimize financing structure, and further lower the comprehensive financing cost of interest-bearing liabilities. The company will strictly control expenses for key project construction, increase income and reduce expenditure to improve operational quality. Key construction projects and industry chain acquisitions will proceed in an orderly manner. The first phase of the company's new-generation green mining, beneficiation, and smelting rare earth green smelting upgrade project has been completed and put into operation. The company has invested in a recycling resource landfill project to provide strong support for its production and operations. It has restructured Baotou Zhongxin Antai Magnetic Industry Co., Ltd., filling the gap in rare earth lanthanum-cerium metal production and leveraging complementary advantages to strengthen and expand its rare earth metal industry. The company has established a new joint venture with Ningbo Zhaobao Magnetic Industry Co., Ltd. to construct a high-performance NdFeB magnetic material project, extending, supplementing, and strengthening the chain to enhance its magnetic material capacity and technological level. Additionally, it has formed a joint venture with Fujian Golden Dragon Rare-Earth Co., Ltd. to build a rare earth oxide separation production line project, further enhancing its control over rare earth resources and its supply capacity for rare earth raw material products. The company will accelerate its transformation and upgrade towards high-end, digital, and green development, deepen reform and innovation, promote ESG management improvements, increase R&D investment, optimize the scientific research system and mechanism, strengthen performance evaluation and risk control, and expedite the construction of the "two rare earth bases." Through comprehensive planning and coordinated measures, the company will continuously enhance the quality and efficiency of its high-quality development, striving to build a "world-class leading rare earth enterprise." Despite the company's multiple efforts to mitigate the impact of unfavorable factors on its operating performance, the decline in rare earth product prices and other factors are expected to result in a YoY decrease in net profit attributable to the parent company in 2024.

Reviewing the price trend of Pr-Nd oxide in 2024:

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The average price of Pr-Nd oxide on December 31, 2024, was 398,000 yuan/mt, compared to 442,500 yuan/mt on December 29, 2023, reflecting a decrease of 44,500 yuan/mt, or 10.06%. The annual daily average price of Pr-Nd oxide in 2024 was 391,871.9 yuan/mt, compared to 529,274.79 yuan/mt in 2023, representing a decrease of 137,402.89 yuan/mt, or 25.96% YoY.

On March 4, rare earth market prices continued to fluctuate slightly. Specifically, the price of Pr-Nd oxide adjusted to 439,000–442,000 yuan/mt, dysprosium oxide slightly decreased to 1.69–1.71 million yuan/mt, while terbium oxide continued to rise to 6.55–6.6 million yuan/mt. Overall, the trading atmosphere in the rare earth market on the 4th was relatively subdued. Some traders actively offered low prices, while separation plants maintained firm quotations. However, with more low-priced supplies from traders, high-price transactions became more challenging. Metal plants lowered their quotations following the oxide price adjustments, and magnetic material enterprises showed low purchase willingness, with market sentiment leaning towards a wait-and-see approach.