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This article first appeared on Trend Investing on August 13, 2021, but has been updated for this article.
Jiangxi Ganfeng Lithium [SHE:002460] [HK: 1772] (OTC:GNENF) (OTCPK:GNENY) - Price = CNY 191.05, HKD 158.50, USD 20.55
For a background on Jiangxi Ganfeng Lithium [SHE:002460] [HK: 1772] (OTC:GNENF)(OTCPK:GNENY) ("Ganfeng") you can read my past article:
Ganfeng's principal products include lithium chloride, lithium fluoride, lithium carbonate, lithium hydroxide, lithium magnesium alloy, butyl lithium, butyl chloride, catalyst metal lithium, battery metal lithium, and other products (including some lithium batteries).
Ganfeng was ranked the 3rd largest lithium chemicals producer in 2020 with 17.3% market share. 2019 production was 54,000 tonnes of LCE (including 23,000t LiCarb, 24,000t LiOH).
An August 2021 Argus Media report quoted:
(Ganfeng) produced 15,000t of lithium carbonate, 27,000t of lithium hydroxide and 1,600t of lithium metal in 2020, with plans to more than double its lithium hydroxide output in 2021.
Ganfeng is extremely vertically integrated and also makes lithium-ion batteries. Ganfeng has interests in lithium mines and projects globally as well as significant lithium refining capacity in China. During the past 5 years Ganfeng has been the most aggressive buyer of global lithium assets and this should pay off handsomely this decade.
Estimated 2020 lithium production market share by company
Ganfeng breaks down their business and assets into three parts:
Ganfeng's summary of lithium assets (needs to be updated soon to add in Sal de Puna, Goulamina, and Pastos Grandes)
The Mt Marion Lithium Mine JV is a significant lithium source for Ganfeng
Cauchari-Olaroz is set to become a new large contributor to Ganfeng's lithium production starting about mid 2022 (JV with LAC) - August 2021 update pics below
Source: Lithium Americas company presentation
Ganfeng's latest acquisition - 50% of the Goulamina Project in Mali (JV with Firefinch)
Conversion from lithium raw materials (spodumene, lithium carbonate (if required), lithium chloride) is all done in China as shown below.
As of the end of 2020, Ganfeng had 1 GWh/yr of capacity for lithium iron phosphate [LFP] batteries. Ganfeng's products include multiple models of LFP batteries and modules, power battery systems for electric buses, electric special vehicles, electric forklifts, AGVs and other vehicles.
As shown below this is all done in China. You can view some of Ganfeng's batteries here.
Ganfeng's global assets by location - Processing in China and mines/projects in China, Australia, Argentina, Mexico, and Ireland (+ soon Mali)
As quoted from my exclusive Trend Investing article from Dec. 2019 "Choosing EV Metal Miners And Battery Manufacturers By Connecting The Supply Chain - December 2019":
(Ganfeng) Supplies Tesla, Volkswagen, BMW Group, LG Chem. Ganfeng sources lithium from several Australian spodumene projects (Mineral Resources JV at Mt Marion, PLS, AJM, and soon LAC and Bacanora).
The Chinese company in March announced an ambitious plan to increase its lithium production capacity roughly fivefold to 600,000 tonnes of lithium carbonate equivalent a year.
On June 11, Mining.com reported:
Ganfeng Lithium... The Chinese company in March announced an ambitious plan to increase its lithium production capacity roughly fivefold to 600,000 tonnes of lithium carbonate equivalent a year.
No timeline appears to be given. My end 2030 lithium demand forecast is for ~3.53 million tonnes pa (assumes EV market share is 75% by then). If Ganfeng was to simply maintain their 17.3% market share then in 2030 they would be producing 610,000 tpa LCE (17.3% x 3.53m).
China's Ganfeng Lithium to invest $1.3 bln in battery production. Ganfeng Lithium, the world's biggest lithium company by market capitalisation, said on Thursday its subsidiary would invest a total 8.4 billion yuan ($1.3 billion) in two projects that will make "new-type" lithium batteries. China's Ganfeng is best known as a supplier of battery-grade lithium to clients including electric vehicle (EV) maker Tesla, but also makes batteries and last week secured 973.1 million yuan of investment in battery unit Ganfeng LiEnergy, including from electronics giant Xiaomi. Ganfeng LiEnergy will spend 5.4 billion yuan to set up an industrial park in Chongqing, southwest China, with annual battery production capacity of 10 gigawatt hours (GWh) and an advanced battery research institute, Ganfeng said in a filing. It did not elaborate on what the "new-type" batteries would be, although it said the institute would provide technical support for "various solid-state batteries," which use solid electrolytes rather than flammable liquid ones. First production is expected within two years of the start of construction, which is slated to begin within three months, said Ganfeng. The second project will see Ganfeng LiEnergy spend another 3 billion yuan on a 5 GWh battery plant in Ganfeng's home province of Jiangxi, which will be put into operation in October 2023. The 15 GWh total planned capacity marks a major escalation in Ganfeng's battery ambitions as demand for EVs grows.
Ganfeng's current market cap is CNY 257b (~US$40.0b). 2021 net debt is forecast at CNY 3.998b (~US$620m).
2021 PE is 99, 2022 is 72, 2023 is 52. 2021 yield is 0.30%. 2021 net profit margin is a healthy 26.09%. See chart below for a historical PE comparison.
Current consensus analyst recommendation is a "buy" with a price target of CNY 196.59, representing 3% upside.
Valuation looks a bit stretched for now; however given Ganfeng's tremendous assets, revenue and profits are likely to grow very fast for several years to come.
Ganfeng's financials and forecast financials
Ganfeng is already a top 3 lithium chemicals producer due mostly to their lithium conversion facilities in China. Over the past 5 years, Ganfeng has been by far the biggest acquirer of multiple lithium investments as I discussed in the section on Ganfeng's assets. This means that in future years Ganfeng has enormous lithium expansion potential, potentially greater than any other lithium company.
For the first time, it was recently published that Ganfeng intends to grow the lithium production capacity to a massive 600,000 t pa LCE. That would be almost double the total lithium produced in 2019.
Furthermore, Ganfeng now has plans to grow their lithium battery business from 1GWh today to 15GWh, ramping up from 2023/24. They are also working on advanced batteries such as various solid-state batteries using solid electrolytes.
Valuation looks a bit stretched for now; however, given Ganfeng's tremendous assets, revenue and profits are likely to grow very fast for several years to come. Overall, Ganfeng already has a leading lithium business but also has enormous expansion potential (both in lithium and battery production) and thereby deserves to trade at a premium.
I rate the stock as a long term hold, or accumulate on any significant dips.
As usual, all comments are welcome.
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Disclosure: I/we have a beneficial long position in the shares of GANFENG LITHIUM [SHE: 002460] , PILBARA MINERALS [ASX:PLS] , LITHIUM AMERICAS [TSX:LAC], INTERNATIONAL LITHIUM [TSXV:ILC], TSLA, BYD CO [HK:1211] either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The information in this article is general in nature and should not be relied upon as personal financial advice.