Shenghe Resources: Capacity Utilisation Rate of Rare Earth Smelting and Separation, and Metal Processing Remained at a High Level, with Net Profit Turning from Loss to Profit YoY in Q1

The investor relations record recently announced by Shenghe Resources shows the following:

1. What are the main considerations for the company's proposed further acquisition of Peak's equity?

Shenghe Resources responded: The company adheres to rare earth business as its core, while also considering zirconium and titanium. It leverages both domestic and international resources and markets, with the vision of becoming a responsible international supplier of key raw materials. To further consolidate the company's resource base for development, optimize its global business layout, and promote the rapid implementation and development of the Ngualla rare earth mine project, through friendly consultations, Chenguang Rare Earth, a wholly-owned subsidiary of the company, has agreed with Peak and intends to sign a "Scheme Implementation Deed" with the main content being the acquisition of all ordinary shares issued by Peak to external parties.

2. What is the latest progress of the Peak acquisition project?

Shenghe Resources responded: After the official disclosure of the project plan, the relevant internal teams of the company are accelerating the submission of project regulatory approval applications. The company will maintain close contact with all parties involved, respond promptly, and provide timely communication and feedback to steadily advance the implementation of this project.

3. How do you view the future development prospects of the industry?

Shenghe Resources responded: The company's current main products include rare earths, zirconium, and titanium.

Rare earths are important strategic mineral resources. Rare earth elements possess rich magnetic, optical, and electrical properties, and can be used in materials such as permanent magnets, catalysts, hydrogen storage, polishing, precision ceramics, fluorescence, lasers, and optical fibers. They have very wide applications in fields such as new energy, new materials, energy conservation and environmental protection, aerospace, military industry, and electronic information. With the global energy transition and the development of downstream industries such as intelligent electric vehicles and energy conservation and environmental protection, the market prospects for the rare earth industry are broad.

Zirconium has excellent physical and chemical properties and is mainly applied in consumer sectors such as zirconium silicate, zirconium chemicals, fused zirconium, precision casting, and refractory materials. The demand for zirconium products in the high-end manufacturing industry is gradually increasing, with the demand for markets such as metallic zirconium, composite zirconium, and nuclear-grade sponge zirconium rising year by year.

Titanium is the metal element with the lowest density among refractory metals, possessing the two major advantages of high specific strength and strong corrosion resistance. It has a wide range of applications in fields such as aerospace, military industry, marine engineering, medicine, chemical pigments, metallurgy, and electric power.

4. What is the current capacity utilization rate of the company?

Shenghe Resources responded: The capacity utilization rates of the company's rare earth smelting and separation, as well as metal processing, remain at a high level.

5. What is the company's current overall operating performance?

Shenghe Resources responded: The company continues to strengthen market tracking and analysis, and scientifically formulates and implements business strategies. Since the beginning of this year, the company has demonstrated strong overall profitability, with a significant increase in gross profit margin compared to the same period last year. Taking the rare earth metal processing segment as an example, the company's production costs and material ratios are at the leading level in the industry, with indicators such as production volume, qualification rate, and labor efficiency all showing substantial improvements compared to the same period last year.

Shenghe Resources disclosed its 2025 Q1 report on April 30, showing that in the first quarter of this year, the company achieved a total operating revenue of 2.992 billion yuan, up 3.66% YoY; and a net profit attributable to shareholders of 168 million yuan, turning from a loss YoY. Regarding the reasons for the increase in net profit, Shenghe Resources explained: Compared to the same period last year, the prices of major rare earth products have rebounded significantly this year, leading to an increase in sales gross profit, along with the reversal of some inventory impairment losses.

Shenghe Resources' 2024 annual report shows that in 2024, the company achieved a total operating revenue of 11.371 billion yuan, down 36.39% YoY; and a net profit attributable to shareholders of 207 million yuan, down 37.73% YoY. The main reason for the substantial decline in net profit attributable to shareholders of publicly listed firms compared to last year is that in 2024, the market prices of major rare earth products declined significantly YoY, and the market prices of zirconium-titanium products were in the doldrums, resulting in a decrease in the average selling price and sales gross profit of the company's major products compared to the same period last year, leading to a decrease in the company's profit for this reporting period compared to the same period last year.

Regarding the reasons for the change in operating revenue, Shenghe Resources stated that it was mainly due to the impact of market conditions in 2024, which led to a significant decline in the selling prices of rare earth and zirconium-titanium products compared to the previous year. Meanwhile, the scale of the company's trading business also decreased compared to the previous year.

Regarding the company's business plan, Shenghe Resources stated in its 2024 annual report that in 2025, the company will strive to leverage the synergies among its various business segments, fully utilize its mineral resource advantages, tap into potential, continuously improve production and operation efficiency, and enhance the company's development quality. In 2025, the company plans to achieve a total operating revenue of 15 billion yuan for the whole year. The above targets are only the company's planned arrangements, which are significantly influenced by market supply and demand, and there is uncertainty about whether they can be completed as scheduled. In 2025, the company will orderly advance the Leshan 15,000 mt/year polishing powder project, overseas rare earth and zirconium-titanium resource projects, as well as other investment projects of the company. Through new construction, technological transformation, quality improvement, and efficiency enhancement, the company will continuously enhance its market competitiveness.

Minsheng Securities issued a research report commenting on Shenghe Resources on May 21, pointing out that the company announced that its wholly-owned subsidiary, Ganzhou Chenguang Rare Earth New Materials Co., Ltd., intends to acquire 100% of the equity of Peak Rare Earths Limited. Peak is an Australian publicly listed firm headquartered in Perth, Western Australia, and listed on the Australian Securities Exchange (code: PEK). Its core asset is the Ngualla rare earth mine project in Tanzania (with an equity interest of 84%). Basic Information on Ngualla Rare Earth Mine: The Ngualla rare earth mine is located near Ngwala village in the Song region of Tanzania, approximately 1,000 kilometers west of Dar es Salaam (the former capital) and 150 kilometers from the city of Mbeya (near the Zambian border). It is one of the world's largest, highest-grade, and lowest-cost rare earth deposits. Mine Benefit Analysis: Upon completion of the acquisition, the company will hold 100% equity in Peak and an 84% stake in the core asset, the Ngualla rare earth mine project. The transaction is expected to be completed in early October 2025, with a total acquisition cost of AUD 158 million (RMB 743 million). According to Peak's FEED study, the total capital expenditure for the Ngualla mine is estimated at USD 287 million, including USD 182 million in direct capital expenditure and USD 105 million in indirect capital expenditure. The Ngualla project has a lifespan of 24 years, with an expected average annual REO production of 16,200 mt. The mine's annual operating cost is USD 64 million, and the total operating cost, including transportation expenses, is USD 76.7 million. Based on an annual REO production of 16,200 mt, the unit REO cost is USD 4,735/mt. Ngualla demonstrates excellent financial robustness, with all-in sustaining costs (AISC) maintained at a low level. According to the company's analysis, even as rare earth prices rise from USD 60/kg to USD 120/kg, the increase in Ngualla's costs remains insignificant. Therefore, the project can generate favorable profits even when rare earth prices are low. The company has formed a relatively complete industry chain, spanning from rare earth beneficiation, smelting and separation to deep processing, with abundant rare earth resource reserves. With the future commissioning of the company's existing projects and mines such as Ngualla, the company's rare earth production is expected to increase year by year. Coupled with the gradual stabilization and rebound of rare earth prices, the company's future performance is promising. Risk Warnings: Risks include the project acquisition and construction progress falling short of expectations, significant volatility in rare earth prices, and operational risks in overseas markets.

It can be seen from Shenghe Resources' Q1 report this year and its 2024 annual report that changes in rare earth prices are closely related to the performance of rare earth enterprises.

》Click to view the SMM Rare Earth Industry Chain Database

Taking the historical price trend of Pr-Nd oxide as an example: The price of Pr-Nd oxide generally increased in Q1 2025 compared to the end of 2024. Reviewing the price trend of SMM Pr-Nd oxide in Q1, it can be observed that the average price of Pr-Nd oxide on March 31 this year was RMB 444,500/mt, an increase of RMB 46,500/mt compared to the average price of RMB 398,000/mt on December 31, 2024, representing a Q1 increase of 11.68%. Comparing the daily average price of Pr-Nd oxide in Q1 2025 (RMB 429,605.26/mt) with that in Q1 2024 (RMB 381,646.55/mt), it can be seen that the daily average price in Q1 this year increased by 12.57% YoY.

Reviewing the historical trend of the SMM average price of Pr-Nd oxide in 2024, we can see that the average price on December 31, 2024, was 398,000 yuan/mt. Compared to the average price of 442,500 yuan/mt on December 29, 2023, the average price in 2024 fell by 44,500 yuan/mt, representing a decline of 10.06%. The annual daily average price of Pr-Nd oxide in 2024 was 391,871.9 yuan/mt. Compared to the annual daily average price of 529,274.79 yuan/mt in 2023, the annual daily average price fell by 137,402.89 yuan/mt, a YoY decline of 25.96%.

According to SMM quotes, the average price of SMM Pr-Nd oxide on May 26 was 435,000 yuan/mt, up 6,000 yuan/mt from the previous trading day, representing an increase of 1.4%. It is reported that recently, most rare earth mine suppliers are still reluctant to sell their inventory, with low enthusiasm for shipping goods, making it difficult for separation plants to purchase raw materials. Influenced by the recent procurement tenders from major producers with relatively high tender prices, the confidence of some suppliers in refusing to budge on prices has increased, leading to a tightening of low-priced supplies in the market, which in turn has supported the rise in rare earth prices. Currently, there is a strong wait-and-see sentiment in the market, with downstream buyers being cautious in purchasing. For the future market, it is necessary to continue to monitor the sustainability of tenders from major producers and whether there will be a significant increase in downstream demand.