Affected by the downcycle in the lithium industry, the prices of lithium salts and lithium battery products continue to fall, leading to a significant year-on-year decline in the operating performance of lithium mining companies.

Ganfeng Lithium (002460.SZ, 01772.HK), one of the domestic lithium mining giants with a market value once exceeding 300 billion yuan, has seen its performance decline since 2023, and this predicament continues into 2024.

On July 10, Ganfeng Lithium released its semi-annual performance forecast for 2024. Affected by the loss from fair value changes and the downcycle in the lithium industry, the company expects a loss of over 760 million yuan in the first half of the year, with a net profit loss of over 100 million yuan after deducting non-recurring gains and losses. In the same period of the previous year, the company's net profit after deducting non-recurring gains and losses exceeded 4.1 billion yuan.

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In 2023, the company's operating income fell by 21.16% year-on-year to 32.972 billion yuan, and the net profit attributable to shareholders of the listed company and the net profit after deducting non-recurring gains and losses were 4.947 billion yuan and 2.676 billion yuan, respectively, with a year-on-year decline of more than 70%.

In response to the performance loss, what measures is the company taking? "At present, the company is gradually accelerating the construction of projects both domestically and internationally, aiming to convert resources into products as soon as possible to improve the self-sufficiency of raw materials; upgrading technology and production lines, continuously developing extraction processes with lower energy consumption and higher returns, and conducting research on topics such as the recycling and utilization of lithium slag." Ganfeng Lithium told Caijing, adding that the company is also vigorously implementing a smart manufacturing strategy to enhance enterprise production efficiency.

Wind data shows that in the first quarter of 2024, among the 19 listed companies in the A-share lithium mining sector, Ganfeng Lithium's total operating income ranked second only to Western Mining (601168.SH), while its net profit attributable to the parent company was a loss of 439 million yuan, only better than Tianqi Lithium (002466.SZ), ranking second to last. In the peak year of 2022, Ganfeng Lithium's total operating income and net profit attributable to the parent company were ranked first and second in the industry, respectively. In 2021, the company's net profit attributable to the parent company was at the top of the industry.

Affected by factors such as declining performance, Ganfeng Lithium's stock price has also been falling. Wind data shows that as of July 11, 2024, the company's A-share stock price has fallen by more than 80% from its peak in 2021, with a market value evaporation of over 260 billion yuan. Another lithium industry giant, Tianqi Lithium, has also seen its stock price fall by nearly 80% from its historical high in July 2022. On July 11, Ganfeng Lithium's stock closed at 29.19 yuan per share, up 4.92%, with a market value of 58.9 billion yuan, ranking second in the industry.

In addition to the performance loss, Ganfeng Lithium and its chairman were also penalized for insider trading. On July 5, the company received the "Administrative Penalty Decision" issued by the Jiangxi Regulatory Bureau of the China Securities Regulatory Commission. The company was confiscated of illegal income and fined for insider trading involving Jiangte Electric (002176.SZ, formerly known as *ST Jiangte). The chairman of the company, Li Liangbin, who was the president at the time, and the then secretary of the board, Ouyang Ming, were both given warnings and fines.

It is worth mentioning that in October 2021, Li Liangbin ranked 108th on the "2021 Hurun Rich List" with a net worth of 54.5 billion yuan, becoming the richest man in Jiangxi. However, after the continuous decline in the company's stock price in recent years, his position as the richest man in Jiangxi has been taken over by someone else.In response to the aforementioned insider trading, Ganfeng Lithium told Caijing that although it was an unintentional mistake, it ultimately stemmed from a lack of clear understanding of the regulations and operational errors at the execution level. The company is strengthening its study of relevant rules and regulations, and continuously improving its corporate compliance management capabilities through measures such as perfecting organizational structures and management processes.

Despite sluggish performance, Ganfeng Lithium continues to strategically deploy lithium mining resources. In May 2024, the company announced its intention to acquire the remaining 40% stake in Mali Lithium, which would be beneficial for the company to obtain the management rights of the Goulamina lithium spodumene project.

Performance continues to decline

After the performance downturn in 2023, Ganfeng Lithium's performance in the first half of 2024 has not shown signs of improvement.

According to Ganfeng Lithium's 2024 semi-annual performance forecast, the company expects a net loss attributable to shareholders of the listed company of 760 million to 1.25 billion yuan, with a net loss of 100 million to 200 million yuan after deducting non-recurring gains and losses. In the same period of the previous year, the company's figures were 5.85 billion yuan and 4.113 billion yuan, respectively.

Regarding the reasons for the loss, Ganfeng Lithium stated that the decline in the stock price of the financial asset Pilbara Minerals Limited (referred to as "Pilbara") resulted in a significant loss from fair value changes. "Affected by the downward cycle of the lithium industry, the prices of lithium salts and lithium battery products continue to fall. Although the product shipment volume has increased year-on-year, the company's operating performance has declined significantly year-on-year."

In the first quarter of 2024, Ganfeng Lithium's net profit attributable to shareholders of the listed company was a loss of 439 million yuan, with a net loss of 254 million yuan after deducting non-recurring gains and losses. Based on this calculation, in the second quarter, the company's net profit attributable to shareholders after listing was a loss of more than 300 million yuan, with a net profit of more than 50 million yuan after deducting non-recurring gains and losses. The main business profitability has improved quarter-on-quarter, and the loss is mainly caused by non-recurring gains and losses.

A person in the lithium mining industry told Caijing that Pilbara's main business is focused on lithium mining, and the company's stock price is related to lithium prices to some extent. Currently, lithium prices are relatively low, which therefore affects the overall stock price.

Ganfeng Lithium's relationship with Pilbara began in 2019. In March of that year, Ganfeng Lithium's subsidiary, Ganfeng International, signed a share subscription agreement with Pilbara, investing 50 million Australian dollars in the latter's private placement of 77,633,900 shares. After this transaction, Ganfeng International held 8.37% of Pilbara's shares, making it the single largest shareholder of Pilbara. In 2019, the company's loss from fair value changes was 395 million yuan, mainly due to the decline in Pilbara's stock price, resulting in fair value changes.

Ganfeng Lithium's 2023 annual report shows that the Pilbara Pilgangoora tantalum lithium mine project is located 120 kilometers outside the Port of Port Hedland in Western Australia and is one of the world's largest lithium spodumene mines. The total lithium resource of the tantalum lithium mine project is approximately 11.87 million tons of LCE (lithium carbonate equivalent, a unit of lithium calculation), with an average lithium content of 1.15%. The project is currently wholly owned by Pilbara. As of the disclosure date of the 2023 annual report, the company held 5.74% of Pilbara's shares.Ganfeng Lithium Industry started from the manufacturing of lithium compounds and metallic lithium in the midstream, and its business has expanded to the upstream and downstream of the industrial value chain. Currently, the company's business covers the development of upstream lithium resources, deep processing of lithium salts and smelting of metallic lithium in the midstream, and the manufacturing of lithium batteries and comprehensive recycling of retired lithium batteries in the downstream. The products are mainly used in electric vehicles, energy storage, aerospace, functional materials, and pharmaceutical applications.

Looking at the products, in 2023, Ganfeng Lithium Industry's revenue from lithium series products and lithium battery series products was 24.465 billion yuan and 7.708 billion yuan, respectively, accounting for 70% and 20% of the total revenue.

As another giant in the lithium mining industry, Tianqi Lithium Industry is also facing a huge loss. The company estimates that the net profit attributable to shareholders of the listed company in the first half of 2024 will be a loss of 4.88 billion to 5.53 billion yuan, and the net profit after deducting non-recurring gains and losses will be a loss of 4.9 billion to 5.55 billion yuan. In the same period of the previous year, the company's aforementioned data was positive and exceeded 6 billion yuan.

Tianqi Lithium Industry stated that the main reason for the performance loss is the fluctuation of the lithium product market. The sales price of the company's lithium products has decreased significantly compared to the same period of the previous year, and the gross profit of lithium products has also decreased significantly. At the same time, the semi-annual performance of the company's important associated company SQM (Sociedad Química y Minera de Chile) is expected to decrease significantly year-on-year, leading to a significant decrease in the company's confirmed investment income year-on-year.

In the first quarter, the net profit attributable to shareholders of the listed company of Tianqi Lithium Industry was a loss of 3.897 billion yuan, and the net profit after deducting non-recurring gains and losses was a loss of 3.917 billion yuan. Based on this calculation, the loss amount of the aforementioned data in the second quarter of the company exceeded 983 million yuan.

"The decline in lithium salt prices in the first half of the year is mainly due to the rapid increase in supply, coupled with the rapid recovery of long-term agreements and customer supply ratios. In addition, the cost of hedging in the upstream is different, leading to differences in the actual profit of lithium carbonate, making it more difficult for manufacturers to actively cooperate to reduce production and support prices." Li Pan, an analyst at the Lithium Industry Division of Shanghai Steel Union New Energy, told "Finance and Economics" that in the supply side, salt lake companies gradually increased production efficiency to the peak with the high temperature in summer, and pyrite companies basically maintained full production after completing production line maintenance. Companies such as mica end and other production enterprises also maintained normal production according to their long-term orders and hedging situations. The output of lithium carbonate has increased significantly after upstream companies have hedged. "The proportion of new long-term agreements has rapidly increased from 40% in March to the current 70%. After the downstream demand slightly weakened, it led to insufficient demand for spot orders, suppressing the spot price."

Penalty for insider trading

In addition to the low performance, Ganfeng Lithium Industry and the company's chairman were also penalized for involvement in insider trading.

In January 2022, the China Securities Regulatory Commission decided to file a case against Ganfeng Lithium Industry for suspected insider trading in the secondary market of a listed company's stock. The company involved in Ganfeng Lithium Industry's insider trading was Jiangte Motor.

In April 2020, Jiangte Motor disclosed an announcement stating that due to the company's audited annual net profit for 2018 and 2019 being negative for two consecutive years, the company's stock would be subject to "delisting risk warning".On June 8th of the same year, Jiangte Electric reported to the People's Government of Yuanzhou District, Yichun City, Jiangxi Province, a "Report on Measures to Resolve the Risk of Delisting of Jiangte Electric," mentioning several "measures to prevent delisting due to a share price below 1 yuan," including "introducing strategic investors."

In the same month, under the promotion of the Yuanzhou District Government, Ganfeng Lithium Industry contacted Jiangte Electric. Liangbin Li, the chairman of Ganfeng Lithium Industry and then-president, and Ouyang Ming, the then-secretary of the board, visited Jiangte Electric for inspection, and the two parties exchanged views on cooperation matters.

On July 4th, 2020, Ganfeng Lithium Industry proposed to the Yuanzhou District Government the demand to acquire Jiangte Electric.

On August 12th of the same year, Jiangte Electric and Ganfeng Lithium Industry signed a "Memorandum of Cooperation," agreeing that Ganfeng Lithium Industry would exclusively subscribe to all the non-publicly issued shares of Jiangte Electric, becoming the controlling shareholder of Jiangte Electric, with Liangbin Li becoming the actual controller of Jiangte Electric. The next day, Jiangte Electric announced a suspension of trading due to planning a private placement.

However, a week later, due to the failure of both parties to reach a consensus on key terms such as the resolution of competition within the same industry, Jiangte Electric terminated the aforementioned private placement.

The sensitive period for the aforementioned insider information was from June 9th, 2020, to August 13th, 2020. Liangbin Li and Ouyang Ming of Ganfeng Lithium Industry were insiders aware of the information. Among them, Liangbin Li and Ouyang Ming were aware of the information no later than June 18th, 2020.

Under the decision and arrangement of Liangbin Li, Ouyang Ming was specifically responsible, and the securities department staff operated the "Ganfeng Lithium Industry" securities account to trade in "*ST Jiangte" stocks during the sensitive period of insider information.

On June 22nd, 2020, Ganfeng Lithium Industry transferred 30 million yuan to the "Ganfeng Lithium Industry" securities account. From June 23rd to July 2nd of the same year, the "Ganfeng Lithium Industry" securities account purchased 15,677,700 shares of *ST Jiangte, with a purchase amount of 26,483,800 yuan; from July 8th to 9th, all were sold, with a selling amount of 27,633,000 yuan, making a profit of 1.11 million yuan.

The aforementioned actions of Ganfeng Lithium Industry constitute insider trading. Liangbin Li is the person directly responsible and in charge, and Ouyang Ming is another person directly responsible.

On July 5th, 2024, the company received the "Administrative Penalty Decision" issued by the Jiangxi Regulatory Bureau of the China Securities Regulatory Commission, which shows that Ganfeng Lithium Industry's illegal income of 1.11 million yuan was confiscated, and a fine of 3.32 million yuan was imposed; Liangbin Li and Ouyang Ming were warned and fined 600,000 yuan and 200,000 yuan, respectively.Ganfeng Lithium Industry stated that the "Administrative Penalty Decision" received this time does not constitute or trigger a situation of mandatory delisting for serious illegal violations.

In fact, on December 6, 2022, due to the aforementioned insider trading matter, Ganfeng Lithium Industry received a "Pre-penalty Notification" from the Jiangxi Regulatory Bureau of the China Securities Regulatory Commission.

It is worth noting that before and after receiving the "Pre-penalty Notification," there were changes in the senior management of Ganfeng Lithium Industry. In August 2022, due to the adjustment of work focus, Ouyang Ming applied to resign from the position of Secretary of the Board of Directors; in February 2023, Li Liangbin applied to resign from the position of President of the company.

Continuously increasing overseas investment

Despite the decline in Pilbara's stock price, which affected Ganfeng Lithium Industry's performance in the first half of the year, the company's investment pace continues.

In May 2024, the board of directors of Ganfeng Lithium Industry agreed that its wholly-owned subsidiary, Ganfeng International, intends to use its own funds of $342 million to acquire the remaining 40% equity in Mali Lithium from Leo Lithium. In January of the same year, the company's board of directors agreed that Ganfeng International intends to use its own funds of $65 million to acquire 5% equity in Mali Lithium from Leo Lithium. After the completion of all the aforementioned equity acquisition matters, Ganfeng International will hold 100% equity in Mali Lithium.

Leo Lithium is a company established in 2022 and listed on the Australian Securities Exchange and the Frankfurt Stock Exchange. Mali Lithium was jointly funded by Leo Lithium and Ganfeng International and was registered in the Netherlands, with its main business being mineral resource investment and trade.

From 2022 to 2023, Mali Lithium's net profit was a loss of $470,000 and $940,000, respectively. Ganfeng Lithium Industry believes that Ganfeng International's acquisition of 40% equity in the company is beneficial for the company to obtain the management rights of the Goulamina lithium spodumene project and plays a positive role in promoting the development and construction of the lithium spodumene project.

Data shows that after the completion of the aforementioned transaction and the Malian government's acquisition of a 10% stake at the project level, Mali Lithium and the Malian government hold all the equity in the Goulamina lithium spodumene project through Lithium du Mali SA. The project is located in the southern region of Mali, Africa, with a mining area of 100 square kilometers. The main product of the mine is spodumene, which is mainly used as the raw material for basic lithium salt products. The sales of the products are completed by directly or indirectly supplying raw materials to enterprises that produce basic lithium salt products.

According to the JORC standard estimated by Leo Lithium, the measured, indicated, and inferred resources of the Goulamina lithium spodumene mine are calculated. The total resource volume of the Goulamina lithium spodumene project's ore is 211 million tons, the total resource volume of lithium oxide is 2.89 million tons, and the average grade is 1.37%."The company believes that the global energy transition is irreversible, and the demand will continue to rise, with only minor fluctuations in the process," Ganfeng Lithium told Caijing. "The company will continue to focus on high-quality mineral projects both domestically and internationally, to increase its own resource reserves and improve the company's resource layout. The Goulamina spodumene project, located in southern Mali, Africa, is currently under construction with a planned annual production capacity of 506,000 tons of spodumene concentrate for the first phase, and it is expected to go into production this year."

The company further stated that this acquisition is beneficial for further enhancing the self-sufficiency of raw materials, improving the full industry chain layout, optimizing the supply chain traceability capabilities, and strengthening ESG management, thereby forming a "top-down" product advantage, providing global customers with a more stable supply of lithium compounds and other raw materials.

It is worth noting that in June 2024, Ganfeng Lithium decided to increase its capital in Ganfeng International by $600 million of its own funds, which will increase its registered capital from $2.643 billion to $3.243 billion.

Regarding the reason for the capital increase, Ganfeng Lithium stated that it is to obtain more high-quality overseas lithium resources and to promote the development and construction of the company's overseas upstream resource projects.

Although Ganfeng Lithium's expansion continues, the market holds different views on the future trend of the industry.

"The price rhythm of lithium carbonate in the second half of the year is expected to hit a low in July-August, rebound in September-October, and peak and fall back in November-December," Li Pan told Caijing. Looking at the whole year, it is still dominated by the oversupply of the fundamentals. Although the new energy production and sales peak season starting at the end of the third quarter corresponds to the downstream restocking, which will have a certain upward momentum on the raw material prices, in the second half of the year, with the supply side projects starting up and production climbing, and the import volume remaining high, coupled with the pressure of high battery inventory, the long line still treats it with a bearish mindset.

The aforementioned lithium mining industry insider told Caijing that the industry is expected to reach an inflection point in 2025 for three main reasons: First, the demand from the European and American markets will increase as their electric vehicle market grows, requiring batteries from China; second, under this year's industry downturn cycle, lithium mining companies will reduce production, some small mines may shut down, reducing supply and helping the industry's supply and demand balance; third, energy storage is still a large market, and there is still a significant demand for the production of lithium-ion batteries for anode materials, cathode materials, and electrolytes.