We are engaged in the sale of flake graphite concentrate and spherical graphite, in the PRC and principally engaged in the processing of unprocessed graphite to flake graphite concentrate and spherical graphite. Our origins trace back to 2006 when we began our operations with Yixiang Graphite in the beneficiation and sale of flake graphite concentrate (primarily with a carbon content between 94% and 96.8%) and we expanded with Yixiang New Energy in the processing and sale of spherical graphite (primarily with a carbon content above 99%) in 2012.
Due to the high carbon content of our flake graphite concentrate, which we believe was attributable to our beneficiation capabilities, they are suitable to be used as heat resistant materials as well as to be manufactured into spherical graphite and used as anode materials in lithium-ion batteries for electronic devices and NEVs. As by-products of processing our spherical graphite, we also sell micro graphite powder and high purity graphite powder. For the three years ended December 31, 2019, 2020 and 2021, we had sold (i) approximately 18,400 tonnes, 34,100 tonnes and 37,300 tonnes of flake graphite concentrate; and (ii) approximately 8,300 tonnes, 10,400 tonnes and 13,800 tonnes of spherical graphite and its by-products, respectively. During such periods, our revenue generated from the sale of spherical graphite and its by-products amounted to approximately RMB66.4 million, RMB76.2 million and RMB98.5 million, whilst the revenue generated from the sales of flake graphite concentrate were approximately RMB57.4 million, RMB85.7 million and RMB97.7 million, respectively.
In 2019, we obtained the mining rights to our Beishan Mine as an ancillary to our Group’s core operations. Since then, the unprocessed graphite in our Beishan Mine has been extracted only for our Group’s own use, in order to supplement our procurement of unprocessed graphite from third-party suppliers. According to the Independent Technical Report, our Beishan Mine comprised approximately 14,000 kilo tonnes of Indicated Resource and approximately 1,000 kilo tonnes of Inferred Resource in relation to our graphite resources, and had an estimated life of mine of approximately 20 years as at December 31, 2021. Obtaining such mining rights has allowed us access to a secure and stable source of unprocessed graphite and to benefit from the synergies of a vertical integration such as better control of our raw materials, stable supply and more effective cost control. According to the F&S Report, we are one of the companies in Luobei County, and one of the companies in the PRC, with a vertically integrated supply chain linking a graphite processing operation to a graphite mine.
For the three years ended December 31, 2019, 2020 and 2021, we extracted approximately 255,500 tonnes, 211,200 tonnes and 258,300 tonnes of unprocessed graphite, from our Beishan Mine, at an extraction cost of approximately RMB3.0 million, RMB3.8 million and RMB4.1 million, thus approximately RMB11.5 per tonne, RMB17.8 per tonne and RMB15.8 per tonne, accounting for approximately 4.7%, 4.4% and 3.9% of our total cost of sales, respectively. Whilst we continue to source unprocessed graphite from third parties, for the three years ended December 31, 2019, 2020 and 2021, unprocessed graphite extracted from our Beishan Mine represented approximately 60.0%, 52.7% and 50.4% of our total unprocessed graphite supply.
We also begun the sale of unprocessed marble as a by-product of our extraction operations in our Beishan Mine in 2020. For the two years ended December 31, 2020 and 2021, we sold approximately 675,200 tonnes and 341,700 tonnes of unprocessed marble at extraction costs of approximately RMB4.1 million and RMB2.3 million accounting for approximately 4.8% and 2.2% of our total cost of sales of the year, respectively. Our revenue generated from the sales of unprocessed marble amounted to approximately RMB6.9 million and RMB2.2 million for the years ended December 31, 2020 and 2021, respectively.
As disclosed in the sub-section headed ‘‘Our Beneficiation and Procession Operations’’ in this section, our revenue has been generated primarily from the sales of flake graphite concentrate and the sales of spherical graphite and its by-products throughout the Track Record Period. Our Group’s gross profit has been enhanced during each year of the Track Report Period, benefitting from an effective cost structure through a vertically integrated supply chain via the acquisition of our Beishan Mine. Our gross profit increased from approximately RMB59.4 million for the year ended December 31, 2019 (corresponding gross profit margin: approximately 48.0%), to approximately RMB83.2 million for the year ended December 31, 2020 (corresponding gross profit margin: approximately 49.3%) and further to RMB93.0 million for the year ended December 31, 2021 (corresponding gross profit margin: approximately 46.9%). Moreover, our Directors are of the view that obtaining the mining rights to our Beishan Mine is ancillary to our Group’s core operations, supplementing our supply chain of unprocessed graphite and reducing the need for our procurement of unprocessed graphite from third- party suppliers. Other than sales of unprocessed marble, our Directors confirm that we did not sell other unprocessed graphite from extraction in our Beishan Mine.
Leveraging on our beneficiation and processing capabilities; our effective cost structure as a result of the synergies benefitted from vertical integration; and our proven track record performance, we believe that we are well-positioned to capture the up-and-coming growth opportunities in the PRC graphite products industry. In particular, according to the F&S Report, the sales revenue of flake graphite concentrate is expected to increase from approximately RMB2,524.7 million in 2022 to approximately RMB3,465.1 million in 2026, illustrating a CAGR of approximately 8.2% from 2022. The sales revenue of spherical graphite in the PRC increased from approximately RMB1,287.1 million in 2017 to approximately RMB2,223.0 million in 2021 at a CAGR of approximately 14.6%, and is expected to grow from approximately RMB2,610.0 million in 2022 to approximately RMB4,100.1 million in 2026 with a CAGR of 12.0%. We also benefitted from a series of favorable measures implemented by the local government authorities in Luobei County, Heilongjiang Province to support our operations and industry competitiveness, including (i) improvement of transportation and communication infrastructure; (ii) financial subsidies; and (iii) comparable electricity prices against other regions.
For the reasons above, our Group experienced moderate business growth during the Track Record Period, generating a total revenue of approximately RMB123.7 million, RMB168.7 million and RMB198.4 million, and a net profit of approximately RMB24.5 million, RMB37.9 million and RMB53.3 million, for the three years ended December 31, 2019, 2020 and 2021, respectively. The increase in our net profit for the year ended December 31, 2021 was partly contributed by the receipt of government grants of approximately RMB7.9 million, as compared to approximately RMB0.5 million and RMB0.6 million for the two years ended December 31, 2019 and 2020, respectively, as a result of our Group’s effort in achieving a target level of taxation contribution for the past years and in research and development. For details, please see ‘‘Financial Information — Principal Income Statement Components — Other income and other gains, net’’. There is no assurance that we will receive equivalent or larger sum of such government grant in the future, and if any of the government grants we currently enjoy is discontinued, our financial conditions would be adversely affected. Please see ‘‘Risk Factors — Risks relating to our business and operations — Government grants and preferential tax treatment currently available to us may not be recurring’’. Although our Group generated net profit during the Track Record Period, there is no assurance that the unprocessed graphite and unprocessed marble extracted from our Beishan Mine would ultimately be extracted at a profit in the future.
Source: China Graphite (02237) Prospectus (IPO Date : 2022/06/30) |