Will lithium mining stocks fall back to 2019? Viewing the Value of Lithium Mining Stocks from the Perspective of Value Quantity



Will lithium mining stocks fall back to 2019? Viewing the Value of Lithium Mining Stocks from the Perspective of Value Quantity

Recently, the price of lithium carbonate has continued to decline, with prices dropping to 170000 yuan per ton on September 25th. Currently, the price has fallen below the low point of April this year. According to the quotation of lithium carbonate futures from Guangzhou Futures Exchange, the contract price for January 2024 was 150000 yuan per ton on September 25th. That is to say, it has become a consensus that the lithium carbonate grid has fallen below 150000 in this round.

Now someone is asking, if the price of lithium carbonate falls back to 40000 yuan/ton, will lithium mining stocks fall back to their 2019 prices? This type of extreme problem is only mentioned under pessimistic expectations during bear markets and industry downturns. Everyone imagines extreme situations with the most pessimistic expectations. Although I personally think the probability of falling to 40000 per ton is very low, it does not mean it is impossible. Therefore, I also look at this problem with the most pessimistic expectations.

Buffett said that in the short term, the stock market is a voting machine, and in the long term, it is a weighing machine. The weighing here refers to the change in company value, and I also analyze lithium mining companies from the perspective of company value.

A company grows continuously with the development of the industry, and its effective production capacity is the most intuitive value change (value change represents the company's value growth, becoming heavier). Although the industry has a low period, after the low period, it will return to normal levels. In this process, the growth of the company's effective production capacity means the improvement of the company's profitability under normal circumstances. For lithium mining companies, The growth of effective production capacity is the value growth indicator that is most closely related to profitability. Note that what I am referring to here is only a lithium mining company, and it is a company with its own mineral source. Of course, for lithium mining companies, the increase in lithium reserves can also be seen as an increase in value, but it is not as intuitive as effective production capacity.

Next, let's conduct an extreme situation analysis, with the following steps:

1、 We have selected Ganfeng Lithium Industry as the reference target. This is because Ganfeng, as a leading company, has shown the most stable performance and already had stable lithium carbonate production capacity in the previous lithium price cycle. However, in the previous lithium price cycle (2018-2020), there were not many companies that truly had a large amount of production capacity, such as Koda Manufacturing, Yongxing Materials, and China Mining Resources, which have all been established in recent years. In the previous lithium mining cycle, Koda Manufacturing mainly engaged in ceramic machinery, while Yongxing was a special steel company, Zhongkuang is a leader in cesium rubidium production, and these companies have little to do with the previous lithium mining cycle, so their reference value is not significant. Tianqi Lithium Industry is not very suitable because it has more production capacity than lithium salts.

2、 What was the market value low point corresponding to Ganfeng Lithium during the last round of lithium price trough? What is the effective production capacity of Ganfeng? This can provide us with a market value ratio corresponding to the production capacity of lithium mines during low periods, or it can be seen as the ratio of value to market value.

From the above chart, it can be seen that Ganfeng's stock price bottomed out before the price of lithium carbonate. At the end of August 2019, Ganfeng's lowest market value was 24.5 billion yuan, and lithium carbonate bottomed out in August 2020. Ganfeng's stock price is approximately one year ahead of lithium carbonate. The market value of Ganfeng in this round is about 300 billion yuan, which means that from the lowest point, Ganfeng has increased by 11 times. Now, Ganfeng Lithium has less than 90 billion yuan, a decline of 71%. In the previous lithium price cycle, Ganfeng's decline from the highest point to the lowest point in 2019 was only 73%.

What is the effective production capacity of Ganfeng in 2019? We use the 2019 annual report data of Ganfeng as a reference.

In 2019, Ganfeng's effective production capacity was approximately 50000 tons, and the market value corresponding to each 10000 tons of production capacity was 4.9 billion yuan. I calculated it at 5 billion yuan, which is already the market valuation given under the lowest expectations.

3、 The relationship between the increase in effective production capacity in 2025 can be inferred from the value of production capacity during the low period of lithium prices in the previous round.

The low period of this lithium price cycle is approximately from 2014 to 2025

In 2024, Ganfeng has a production capacity of 290000 tons. What we are referring to here is only nominal production capacity, because some new production capacity cannot be fully produced in the same year. However, by 2025, Ganfeng's effective production capacity is likely to reach 300000 tons (if not, it will be postponed for one year).

The production capacity corresponding to the lowest point of Ganfeng in the previous lithium price cycle was 50000 tons, with a market value of 24.5 billion yuan. If there is 300000 tons of production capacity in 2025, Ganfeng's corresponding market value is 150 billion yuan. Note that the market value here is valued based on the lowest point of the previous cycle.

And now the market value of Ganfeng Lithium is less than 90 billion. It can be said that from a value perspective, Ganfeng's valuation is lower than that of Ganfeng during the previous round of lithium price downturn!

Of course, this is from the perspective of value, which does not necessarily mean it is correct, nor is it recommended to buy immediately. Looking at the essence of investment companies from different perspectives may lead to different gains.

Also, I am planning to create a lithium mine investment portfolio. Originally, I wanted to wait for the lithium carbonate price to drop below 100000 yuan to build a position in the lithium mine. However, the value of the lithium mine stock has become prominent, and this round of stock price should be more than a year ahead of the lithium price. Anyway, it has fallen into the buying range. Therefore, I consider buying some in batches, and then buying some again after the lithium carbonate price drops below 100000 yuan in the future.

The above is only for personal investment consideration and does not make any recommendations