Shenghe Resources adds another overseas acquisition plan.

On the evening of February 11,Shenghe Resources announced that the company intends to sign an agreement letter with Appian Company through its wholly-owned subsidiary—Leshan Shenghe Rare Earth Co., Ltd., which holds 100% of Shenghe Singapore.The agreement stipulates that Shenghe Singapore will acquire 39,644,620 shares of common stock of Peak Company held by Appian at a price of AUD 0.99 per share, accounting for approximately 19.9% of Peak Company's total issued shares, with a total acquisition amount of approximately AUD 39.25 million, equivalent to about RMB 180 million.

The announcement shows that the target company Peak is a listed company in Australia, mainly operating the Ngualla rare earth mine project located in Tanzania and the Teesside refinery project planned to be built in the UK. The company's financial situation in 2021 was poor, with data showing a net profit loss of approximately AUD 4.77 million.

Shenghe Resources stated that the company adheres to rare earth business as its core, insisting on both domestic and foreign resources and markets, with the aim of maintaining the stable supply of the global rare earth industry chain. If this acquisition can be successfully implemented, it will help further consolidate the company's development foundation and optimize the company's global business layout.

Image source: Company announcementNgualla Rare Earth Mine Project

 

The announcement shows that the Ngualla rare earth mine project is one of Peak Company's core assets, owned through its wholly-owned subsidiary in Tanzania, PR NG Minerals Ltd (hereinafter referred to as "PR NG"). The project is located in southern Tanzania, covering an area of 18.14 square kilometers. According to JORC (2012) standards, with a 1% cut-off grade,

the project has an ore resource of 214 million tons, with an average grade of 2.15%, equivalent to approximately 4.61 million tons of REO;.The rare earth reserves are 18.5 million tons,with an average grade of 4.8%, equivalent to approximately 887,000 tons of REO; the proportion of praseodymium-neodymium oxide in rare earth oxides is about 21.26%.It is understood that the project is currently applying for a Special Mining Licence (SML). In July 2021, PR NG's application for a Special Mining Licence (SML) was approved by the Tanzanian government cabinet and is awaiting formal granting by the Minister of Mines. PR NG has promised the Tanzanian government that, upon formal granting of the SML by the Minister of Mines, Peak Company will jointly establish a Tanzanian registered joint venture with the government, and PR NG will transfer the SML to this company, with the joint venture being 84% owned by Peak Company (through a wholly-owned entity) and 16% owned by the Tanzanian government. According to Tanzanian law, the Tanzanian government's equity in the joint venture will exist in the form of non-dilutable free equity shares. Next, Peak Company needs to negotiate and sign an economic framework agreement and a shareholders' agreement with the Tanzanian government.The Ngualla rare earth mine project is expected to invest approximately USD 200 million, processing about 800,000 tons of raw ore annually, producing approximately 37,200 tons of rare earth concentrate (45% REO).

Teesside Rare Earth Refinery

The announcement shows that Peak Company also plans to build a rare earth refinery near the Wilton International Base in Middlesbrough, Tees Valley, UK,

 

with an annual production of various rare earth products ranging from 9,900 tons to 11,600 tons,

and the construction and development expenditure for this project is expected to be approximately USD 165 million. Peak Company has obtained a 250-year lease for 19 hectares of project land and has obtained environmental and planning permits for project construction.Shenghe Resources expects good performance in 2021.Driven by the development of new energy and other industries, the rare earth sector has now become a "hot cake" in the capital market.

 

On the one hand, the rare earth market has seen both volume and price increases, while on the other hand, the performance of related listed companies has reported good news, confirming the prosperity logic.

Shenghe Resources released a performance forecast announcement for 2021 on the evening of January 14, one month ago,stating that the company expects to achieve a net profit attributable to shareholders of the listed company of 1.05 billion to 1.2 billion yuan in 2021,

an increase of 727 million to 877 million yuan compared to the same period last year, a year-on-year increase of 225% to 271%; it is expected that the net profit after deducting non-recurring gains and losses will increase by 948 million to 1.098 billion yuan compared to the same period last year, a year-on-year increase of 1323% to 1532%.Shenghe Resources stated that the main reason for the expected good performance in 2021 is that, influenced by market supply and demand factors, the prices of major rare earth products have increased year-on-year, coupled with the company's year-on-year increase in production and sales, resulting in a significant increase in profits.▲ Shenghe Resources' stock price K-line chart over the past year (source: wind)

What is the trend of rare earth prices in the new year?

On the eve of the Spring Festival, the Ministry of Industry and Information Technology and the Ministry of Natural Resources issued the first batch of total control indicators for rare earth mining and smelting separation in 2022, among which the total amount of rare earth mineral products is 100,800 tons, and the total amount of rare earth smelting and separation products is 97,200 tons, both of which have increased by 20% compared to the first batch in 2021. From the structure, the light rare earth mining indicator in this batch is 89,300 tons, an increase of 23.17% year-on-year, while the medium and heavy rare earth is 11,500 tons, which is flat year-on-year, and among the increased 16,800 tons of mining indicators, 16,100 tons are concentrated in northern rare earths, accounting for 96%.

 

▲ Rare earth price index over the past year (source: wind)

In this regard, Wang Hongyan, a researcher at Huahuan Securities, stated that from the perspective of healthy industry development, China's rare earth quotas match demand. Before 2020, demand growth was slow, and rare earth quotas also showed zero growth. However, with the rapid growth of demand for new energy and energy-saving motors, rare earth quotas have also increased accordingly, which is in line with market expectations.

Regarding global supply, Wang Hongyan stated that according to the 2021 global rare earth production data released by the US Geological Survey (USGS), the production in the United States and Myanmar was 43,000 tons and 26,000 tons, respectively, with year-on-year increases of 10% and decreases of 16%.

"US production capacity has peaked, and the impact of Myanmar's pandemic lockdown on China's rare earth imports is significant, making it difficult to see an increase in volume under the unclear pandemic situation. As demand for low-carbon needs such as new energy vehicles, industrial energy-saving motors, and wind power generation fully opens up, rare earth demand will grow rapidly, and the supply-demand pattern may be reshaped, which will also drive rare earth prices to remain high."

Wang Hongyan stated.The production capacity in the United States has reached its peak, and the closure of Myanmar's epidemic has had a significant impact on China's imports of rare earths. It is difficult to increase in the situation where the epidemic is not yet clear. With the full opening of low-carbon demand such as new energy vehicles, industrial energy-saving motors, and wind power generation, the demand for rare earths will rapidly increase, and the supply and demand pattern may be reshaped, which will also drive rare earth prices to remain high, "said Wang Hongyan.