Shenghe Resources’ 2021 Semi-annual Board Operation Review

Shenghe Resources (600392) 2021 semi-annual board management review content is as follows:

XNUMX. Description of the company’s industry and main business during the reporting period

(1) Main business During the reporting period, the company was mainly engaged in rare earth ore mining and dressing, smelting separation, metal processing, and zirconium-titanium ore dressing.The company’s main products include rare earth concentrates, rare earth oxides, rare earth salts, rare earth metals, monazite, zircon sand, titanium concentrate, rutile, etc. (1) Business model The company currently has two main businesses: rare earth and zirconium and titanium.The rare earth business has formed a relatively complete industrial chain from mining, smelting and separation to deep processing, realizing a dual layout at home and abroad.The zirconium-titanium business is currently mainly concentrated on the beneficiation end. 2. Rare earth business (3) Rare earth mining.At present, the company has hosted the Sichuan Continental Cao Rare Earth Mine owned by Hedi Mining in China, and has invested in Mianli Rare Earth and Shandong Iron and Steel Research China Aluminum Rare Earth Technology Co., Ltd.Domestic mines carry out production and operation in accordance with the production indicators issued by the state. The concentrates produced by the managed mines are mainly used by the company, and part of them will be sold according to market conditions. Mining companies that share shares operate in a market-oriented manner.The company has invested in the Mountain Pass rare earth mine in the United States and the Kovanne Bay rare earth mine in Greenland outside of China, and underwrites the rare earth mineral products of the Mountain Pass rare earth mine. (2) Rare earth smelting and separation.At present, the company has two rare earth smelting and separation bases in Sichuan and Jiangxi. Sichuan uses light rare earth ore as the main raw material, and Jiangxi uses southern ion-type rare earth ore, monazite chlorinated flakes, neodymium iron boron and phosphor waste as its main raw materials.There is also a permit for rare earth waste recycling in Vietnam.The company is currently promoting the construction of a new rare earth smelting and separation production base in Lianyungang City, Jiangsu Province.The company conducts rare earth smelting and separation business strictly in accordance with the production indicators issued by the state. Some of the rare earth oxides and other products produced are processed into rare earth metals and other products through the company’s subsidiaries before selling to the outside world, and some are directly sold to the outside world. (1) Rare earth metals.At present, the company has rare earth metal processing plants in Sichuan, Jiangxi, Vietnam and other places, which mainly process the rare earth oxides produced and purchased by the company into rare earth metals for external sales, and will also engage in processing services based on market conditions. 2016. Zirconium and Titanium Business The company’s zirconium and titanium beneficiation business is located in Wenchang City, Hainan Province, and is currently promoting the construction of a new beneficiation base in Lianyungang City, Jiangsu Province.The company imports seashore placer such as zirconium-titanium wool ore and Zhongkuang from overseas, and sorts it domestically to produce zircon sand, titanium concentrate, rutile, monazite, etc., which are sold abroad.During the reporting period, the company’s business model did not undergo major changes. (2020) Industry situation 2016. Rare earth is an important strategic mineral resource listed in my country’s “National Mineral Resources Planning (2-1)” strategic mineral resources, and rare earth functional materials are listed in the national “Key Products and Strategic Emerging Industries” Service Guidance Catalog (2016 Edition)” strategic emerging industries.Because rare earth elements have rich magnetic, optical, electrical and other characteristics, they can be used in permanent magnetism, catalysis, hydrogen storage, polishing, precision ceramics, fluorescence, laser, optical fiber and other materials. The applications in aerospace, military industry, electronic information and other fields are becoming more and more extensive.China has abundant rare earth resources and a complete rare earth industry chain, and is currently the world’s largest producer, application, and exporter of rare earth material products.In recent years, the national policy level has continued to exert efforts to form six rare earth groups, implement total production control, strengthen safety and environmental protection inspections, establish a corporate publicity system, improve product traceability mechanisms, and gradually improve the industry management system, and violations of laws and regulations have been effectively curbed , The structure and layout of the rare earth industry continued to be optimized.Looking at the world, with the successive commissioning of rare earth mines and smelting and separation projects in Australia, the United States, Southeast Asia, Africa and other places, the global supply of rare earths has become increasingly diversified. 2020. Zirconium and titanium (2016) Zirconium and zirconium are important strategic mineral resources listed in my country’s “National Mineral Resources Planning (2-XNUMX)” strategic mineral resources. They are widely used in military and civilian industries. Zirconia, nuclear-grade sponge zirconium, zirconia toughened ceramics, molybdenum-titanium-zirconium alloys, etc. are also important materials for strategic emerging industries listed in the national “Strategic Emerging Industry Key Products and Service Guidance Catalog (XNUMX Edition)”.Zirconium has excellent physical and chemical properties and is mainly used in consumer sectors such as zirconium silicate, zirconium chemicals, fused zirconium, precision casting industry, and glass refractories.The demand for zirconium products in the high-end manufacturing industry is gradually increasing, including the market demand for metallic zirconium, composite zirconium, and nuclear-grade sponge zirconium.At present, the main producing areas of global zircon sand are in Australia and Africa.China is a major demand country for zirconium, but zirconium resources are scarce and it has long been dependent on imports. (XNUMX) Titanium Titanium has the reputation of “space metal”, “future metal” and “ocean metal”. It is the metal element with the lowest density among refractory metals. It has two major advantages of high specific strength and strong corrosion resistance. It has a wide range of applications in aerospace, military industry, marine engineering, medicine, chemical pigments, metallurgy, electric power and other fields.Although China has relatively rich titanium ore resources, due to the lack of high-grade, low-impurity titanium ore resources, it cannot achieve self-sufficiency and needs to import a large amount of titanium ore every year.

XNUMX. Discussion and analysis of operating conditions

This year is the first year of the country’s “2021th Five-Year Plan”, and the rare earth industry is also undergoing major historic changes.Since the National Congress of the People’s Republic of China, General Secretary Xi Jinping has repeatedly emphasized the need to accelerate the formation of a new development pattern in which the domestic and international cycles are the mainstay and the domestic and international dual cycles promote each other.The forthcoming “Regulations on Rare Earth Management” set clear requirements for regulating the order of rare earth production and operation in accordance with the law and strengthening the management of the entire industry chain of the rare earth industry, providing basic compliance for the sustainable and healthy development of my country’s rare earth industry.As new energy vehicles, carbon neutral, and green environmental protection industries enter the fast lane, the application scenarios of rare earths have undergone more positive changes, which will promote the transformation of rare earths from “industrial vitamins” to key materials for the industrial revolution, giving the rare earth industry Bring broad development space and major development opportunities.Since the beginning of this year, affected by factors such as market supply and demand, the prices of major rare earth products have reversed the downward trend in the past few years and achieved value restoration.However, in the context of the general rise in the prices of bulk commodities and raw materials, the excessively rapid rise in the prices of major rare earth products has also brought certain pressure to downstream customers, and there have been staged difficulties in price transmission, and relatively large prices have appeared in the second quarter. Callback.However, with the continuous growth of downstream industry demand and the gradual acceptance of prices by customers, and the supply side is restricted by factors such as production capacity and indicators, the prices of major rare earth products are expected to continue to reflect the value of strategic resources.During the reporting period, the company earnestly studied and judged the situation, seized market opportunities, grasped endogenous growth on the one hand, and investment and mergers on the other, successfully fulfilling the business objectives in the first half of the year and at the same time cultivating new growth points for the future development of the company. From January to June 1, the company achieved operating income of 6 yuan, a year-on-year increase of 486,363.01%, and net profit attributable to shareholders of listed companies was 37.08 yuan, a year-on-year increase of 54,292.63%.Focus on the following aspects: (1,195.58) Be prepared for danger in times of peace and consolidate the foundation for the company’s development. The company has maintained a high degree of crisis awareness for a long time, earnestly conducts self-analysis, carefully analyzes its own strengths and weaknesses, and strives to make up for its own shortcomings, and lay a solid foundation for the company’s development.During the reporting period, the company continued to strive to expand diversified raw material supply channels, further enrich the content of cooperation with relevant business partners, and strengthen business partnerships; accelerate the upgrading and transformation of old production equipment, optimize production processes, and improve the technical level of environmental protection equipment and facilities. Promote the green upgrade of the industry; increase R&D investment, prepare to build company R&D and information centers, develop rare earth green intelligent production equipment, processes and new products, and build a rare earth technology innovation platform. In the first half of the year, the Jiangxi business segment completed independent research and development of rare earth metal automation In the finalization of the electrolysis furnace, the rare earth metal automatic feeding system independently developed by the Sichuan business segment was put into operation. (2021) Carefully plan and establish the company’s business development goals. In order to better guide the company’s development in the next two years, the company is based on reality, focuses on the future, and carefully plans. At the beginning of this year, it formulated the 2022-12000 business development plan and established the company’s future. Two-year production and sales targets, profitability targets, investment development targets, etc. of major products have been put forward with clear and specific safeguard measures.It points out the direction for the company’s development in the next two years. (6000) Overcoming difficulties and speeding up the construction of new projects During the reporting period, the company overcame the impact of unfavorable factors such as repeated epidemics and rising commodity prices, and actively promoted the construction of new projects.The Lianyungang zirconium-titanium beneficiation project has been approved by the environmental assessment, and the pile foundation project has been fully launched; Chenguang Rare Earth’s “2000 tons of rare earth metal and alloy intelligent technological transformation project” has completed the main plant project and the finalization of the automated electrolytic furnace; The 5000-ton rare-earth metal technology upgrade project and the Dechang 20-ton/year rare-earth metal project have started; the Lianyungang rare earth smelting and separation project has completed the preparation of the feasibility study report, project application report, energy saving report and other preliminary work data, and is actively developing Preparatory work for project approval and environmental impact assessment. (5000) Seizing opportunities and investing in mergers and acquisitions to help future development Under the guidance of the national industrial policy, the company seized opportunities, actively sought high-quality targets, carried out investment mergers and acquisitions, expanded the company’s production capacity, cultivated new growth points, and helped the company’s future development.During the reporting period, the company carried out equity investment in Guangxi Yuxi Jun Rare Earth Functional Materials Co., Ltd. and Hengyang Gudao New Material Technology Co., Ltd.Guangxi Yuxiaoxijun Rare Earth Functional Materials Co., Ltd. is mainly engaged in rare earth smelting and separation business. It has a production capacity of 39 tons/year of rare earth oxides. The company has obtained XNUMX% of its shares by subscribing to newly added registered capital. The industrial and commercial change has been completed. Register.Hengyang Gudao New Material Technology Co., Ltd. is mainly engaged in the business of chlorinated rare earths. The XNUMX tons of chlorinated rare earths project has been completed and is undergoing trial production. It will form an important supplement to the company’s industrial chain. The company obtains XNUMX% of it through equity acquisition. The company’s shareholding has been registered for industrial and commercial changes. (XNUMX) Improving quality and efficiency, and optimizing internal management of enterprises. Improving the quality of enterprise operations and optimizing internal management of enterprises have always been important issues for the company’s development. The company continues to review existing mechanisms for internal control, budget management, incentives and constraints, and talent training. Summarize and improve, on the basis of coordinating the public interest, company development, and employee rights and interests, further optimize the internal management of the enterprise, improve the incentive and restraint mechanism, and promote the high-quality development of the company.Significant changes in the company’s operations during the reporting period, as well as events that have a significant impact on the company’s operations during the reporting period and are expected to have a significant impact in the future

XNUMX. Possible risks

1. Product price fluctuation risk The company’s main raw materials are rare earth concentrates and seashore placers, and the main products are rare earth oxides, rare earth salts, rare earth metals, zircon sands, titanium concentrates, etc.At present, the company has the self-sufficiency capacity of light rare earth ore, and heavy rare earth ore and seashore placer need to be purchased out.Changes in the supply-demand relationship of raw materials and products and price fluctuations will have an important impact on the company’s profitability.Countermeasures: The company will continue to base itself on cost management, through technological innovation, energy conservation and consumption reduction, increase resource utilization, increase staff and equipment efficiency, and reduce unit costs.At the same time, we will strengthen industry research, price trend analysis, extension of the industrial chain, and strengthen upstream and downstream collaboration, and enhance our grasp of the overall market situation to formulate reasonable production and business strategies. 2. Global economic and environmental risks The impact of the new crown pneumonia epidemic on the global economy is still continuing, and the international situation and geopolitics have also brought new challenges to global economic and trade exchanges.If the global economic situation cannot develop well, it will have an adverse impact on the company’s operations.Response measures: The company will continue to pay attention to the international situation, keep a close eye on the global economic situation, and actively take measures to deal with risks. 3. Environmental protection risk The company is mainly engaged in the mining, smelting and separation and deep processing of rare earth mines. Although there is no major pollution in actual production and operation, there are still factors that may cause environmental pollution, including: waste water, waste gas, Waste slag and tailings treatment, and noise generated during the operation of various equipment.Response measures: In recent years, the company has been committed to pollution prevention and control. In accordance with the requirements of national and local laws and regulations, necessary environmental protection facilities have been built, and production processes and environmental protection treatment facilities have been continuously reformed and improved, and the “three wastes” are discharged It fully complies with the requirements of current national and local environmental protection laws and regulations, and no environmental pollution accidents have occurred. 4. The company’s controlling shareholder’s comprehensive research institute (state-owned) holds 14.04% of the risk of control changes. If a listed company suffers from a hostile takeover or other reasons, the controlling shareholder’s holding position is unstable, it will cause a comparison between the company’s business and management. The big impact will bring certain risks to the company’s future business development.Countermeasures: The company’s shareholders Wang Quangen, Yexing Group, and Geology & Minerals Co., Ltd. will continue to implement the “Statement and Commitment on the Non-Existence of Concerted Action” during the major asset reorganization in 2012. The three shareholders will respect and recognize the comprehensive Regarding the status of controlling shareholders of listed companies, the Institute independently performs shareholder duties and exercises shareholder rights, and will not form a concerted action relationship with any other shareholders of listed companies. In 2016, when the company’s major asset reorganization, related parties issued a commitment, Huang Ping and Woben New Materials have a concerted action relationship, Dong Wen, Wensheng Investment, and Wenwubei Investment have a concerted action relationship. After the transaction is completed, the promiser does not have a relationship with Shenghe The agreement, behavior or fact that other shareholders of Resources jointly expand the number of voting rights of Shenghe Resources’ shares at the disposal of the promiser, and independently perform shareholder duties, and will not seek or seek or implement the shareholdings of Shenghe Resources and other shareholders of Shenghe Resources based on the shares held by Shenghe Resources. Form a concerted action relationship.The company will further improve the corporate governance structure, standardize the major decision-making mechanisms and procedures of the board of directors, and ensure that major decisions of the company are transparent and open; give full play to the supervisory and control functions of the board of supervisors and internal audit institutions; and do a good job in the company’s investor relations and information disclosure. , Accept the supervision of investors, and fully protect the legitimate rights and interests of small and medium shareholders. 5. Stock market risks. Changes in the macroeconomic situation, changes in the prosperity of the rare earth industry, changes in company operating conditions, changes in investor psychology, and other unpredictable factors will all have an impact on stock prices.The company reminds investors that they should fully understand the risks of the stock market. When investing in company stocks, they should comprehensively consider various factors affecting stock prices and face up to the risks of stock price fluctuations.Response strategy: The company will strictly follow the requirements of the China Securities Regulatory Commission and the Exchange for listed companies, improve governance, standardize operations, operate steadily, strengthen internal control and risk management, continuously improve profitability, and strive to return investors with good performance and reduce investment者risk.At the same time, the company will strictly implement the information disclosure system of listed companies, accept the supervision of regulatory agencies and investors, improve the transparency of operations and decision-making, strengthen investor relations management, and ensure that investors understand the changes in the company’s operating conditions in a timely and accurate manner. Prudent decision-making provides effective information.

XNUMX. Analysis of core competitiveness during the reporting period

In the long-term development process, the company has gradually formed its own core competitiveness, as follows: 1. Flexible operating mechanism.The company is a unique mixed-ownership listed company in the domestic rare earth industry.After years of continuous cooperation between shareholders with different ownerships and between shareholders and the management team, a collaborative development mechanism with consistent concepts, high trust, close cooperation, and mutual creation and sharing has been established, which has injected the company’s long-term and healthy development. Continuous kinetic energy. 2. Diversified raw material guarantee.The company has established a diversified supply channel of rare earth concentrates by hosting the Dechang Continental Trough Rare Earth Mine and selling the Mountain Pass rare earth mine in the United States, etc., providing sufficient raw material guarantee for the company’s downstream businesses such as rare earth smelting and separation.Due to the abundant rare earth resources associated with seaside placers, the company’s zirconium-titanium ore beneficiation business will also provide further protection for the company’s rare earth raw materials.The company has also invested in rare earth mining companies at home and abroad, such as Mianli Rare Earth and Greenland Company, and has become its single largest shareholder, which has reserved abundant rare earth resources for the company’s development. 3. Dual layout at home and abroad.In recent years, the company has continuously optimized and improved its industrial layout, and formed a relatively complete industrial chain from rare earth mining, smelting and separation to deep processing in China. Its business scale is at the forefront of the industry and is a rare domestic rare earth business in the north and south (light and heavy) rare earths. An integrated rare earth enterprise.In foreign countries, the company has basically formed the industrial layout of rare earth mining, smelting and separation and metal processing through controlling acquisitions, equity participation, and cooperation, and has established a good reputation in the industry.With the increasingly diversified global supply of rare earths, the company has broad room for growth in the future. 4. Continuously innovative process technology.The company attaches great importance to technological innovation.The company has a provincial-level enterprise technology center, a provincial-level engineering technology research center, and a number of high-tech enterprises.Through years of accumulation, the company has formed a unique process technology in the production links of rare earth and zirconium-titanium beneficiation, rare earth smelting and separation, and rare earth metal processing. First prize for science and technology. 5. Excellent management team.The company’s management team has rich business and management experience in rare earth mining, smelting and separation, and deep processing. Based on a deep understanding of the development of the industry, it is able to formulate timely and efficient The development strategy and business policy lead the way for the company’s sustainable and healthy development. 6. Sound sales channels and excellent customer base.After nearly two decades of operation and management, the company has established a sound sales channel, able to grasp the changes in domestic and foreign market demand in a timely manner, adopt flexible and appropriate sales strategies and sales models, and guide production through sales.Relying on the advantages of high-quality product performance, strong supply capacity, good business reputation and comprehensive customer service, the company has formed a high-quality customer group with large enterprises as the main body, and built a benign interactive system for collaborative development with customers.