Author: Yulin Zizhou Date: October 13, 2022
Thanks for the advice of investment friends, I wrote “Thinking about Shaanxi Coal Industry” for the first time in January 2022, which has also been recognized by everyone. After a lapse of 10 months, some positive changes have taken place in the international and domestic coal supply, industry policies, and the production and operation of the Shaanxi coal industry. Therefore, this article is written to track and re-estimate the Shaanxi coal industry for the reference of friends.
(1) Changes in international and domestic coal supply and industry policies
(1) International and domestic coal supply
Beginning this year, domestic coal supply has shifted from emergency supply guarantee to normal supply guarantee. While stepping up the release of advanced production capacity, some integrated mines and old mines have been able to continue mining. In terms of data from the first seven months of 2022, my country has produced a total of 2.56 billion tons of coal, a year-on-year increase of 11.5%, and imports fell to 130 million tons, a year-on-year decrease of 18.2%. At the same time, the coal market price remains high. In October 2022, the quotation for 5,500 kcal thermal coal in Beifang Port is about 1,500 yuan (tax included), and the quotation for 5,800 kcal thermal foam in Yulin is about 1,180 yuan (tax included). The quotation of 6400 kcal 38 lump coal from Yulin origin is about 1350 yuan (excluding tax).
Due to the impact of the global coal production cycle and the substitution of coal for gas in Europe, Japan and South Korea, the prices of major coal exporters Australia and Indonesia have soared. Taking the index of a certain week in October 2022 as an example, the global coal Newcastle index is $400/ton, and the API5 index For 161 US dollars / ton. Here, I will give an explanation of index knowledge. The Global Coal Newcastle Index refers to the FOB price of Newcastle, Australia, with a low calorific value of 6000 kcal, high calorific value, low sulfur and high volatility thermal coal. The API5 index refers to the FOB price of Newcastle, Australia, with a low calorific value of 5,500 kcal of medium and high calorific value and high ash thermal coal. It is the same coal, but the price is completely different. To read news reports, you have to look at the coal type.
(2) Industry policy situation
This year, the focus is on clarifying the medium and long-term prices of thermal coal in ports and in various regions, and the upper limit of the market price of thermal coal in various regions. Since August, industry regulation has tended to ease, and no new policies have been issued.
As a result, thermal coal has three types of prices. One is the medium and long-term price range of thermal coal. For example, the mining link of 5500 kcal thermal coal in Shaanxi is 320-520 yuan. The second is the upper limit of the market price of thermal coal. For example, Shaanxi should not exceed 1.5 times the price of thermal coal, which is 780 yuan. The third is lump coal and pulverized coal above 6,000 kcal, and you can go to the city with you. Supplement: Since May, the long-term price of 5,500 kcal thermal coal in Northern Port has been 719 yuan.
(3) Trend of domestic production and consumption of thermal coal
This year, the domestic thermal coal production volume has increased significantly, and the price control is effective, which ensures the normal production of power users and chemical building materials users. From the second half of the year, the discussion of the soaring coal price in the public opinion gradually dissipated. It should be seen that the supply of thermal coal is better guaranteed, and electricity consumption is also growing rapidly. I personally judge that the normal supply guarantee will last for 2-3 years. The specific factors are as follows: First , due to the influence of the coal production capacity cycle, from 2017 to 2021, the newly approved coal mine capacity will be less than 100 million tons each year. In 2017, 2 coal mine projects were approved with a production capacity of 28 million tons. In 2018, 16 coal mine projects were approved with a production capacity of 93 million tons. In 2019, 39 coal mine projects were approved with a production capacity of 198.4 million tons. In 2020, 23 coal mine projects will be approved with a production capacity of 48.6 million tons. In 2021, 8 coal mine projects will be approved with a production capacity of 29.2 million tons. From January to May 2022, 7 coal mine projects have been approved with a production capacity of 37.9 million tons, with a total of 435 million tons. The second is the replacement of electric vehicles and household energy consumption, which will stimulate the growth of electricity consumption. I have not calculated this part of the data. Generally, it will bring about an annual increase of 5%-10% in the electricity consumption of the tertiary industry and residents.
(2) Re-understanding of Shaanxi Coal Industry
In the last article, I described it as follows: Shaanxi Coal Industry focuses on the coal mining industry, mainly engaged in coal mining, washing, transportation, sales and production services. The company’s coal resource reserves, annual production scale, and staff efficiency all rank in the forefront of the domestic coal industry. Now I will add: In the first half of this year, 12 pairs of mines including Hongliulin and Zhangjiamao of Shaanxi Coal Industry have reached the national first-class safety production standardization mine. Profit ranks first among thermal coal companies.
(1) Shaanxi Coal Industry Coal Mining Capacity Improvement
The last article mentioned that the total equity production capacity is 87.09 million tons, which has been slightly increased to about 90 million tons. The main reason is that the approved production capacity of 5 pairs of mines including Ningtiao Pagoda and Hong Liulin has increased. Due to the impact of the guaranteed supply, the actual output of some mines has exceeded the actual production capacity, and the data reflected is 109.6 million tons of self-produced coal in the first three quarters of 2022, a year-on-year increase of 6.8%. The increase in output is due to abundant reserves and advanced production equipment. The release of the production capacity of Shaanxi Coal’s young and middle-aged mines of 10 million tons also highlights the cramped constraints of domestic counterparts and old mines. Here, let me make an explanation. It does not mean that all existing mines can increase production, nor does it mean that the company’s overall coal production cannot be increased without newly developed mines. The key lies in the geological conditions, production equipment, management level and the ambition of the enterprise.
(2) Shaanxi Coal Industry has obvious competitive advantages in coal quality
The competitive advantage of Shaanxi Coal Industry is concentrated in the high quality of resources. Excellent coal quality determines the sales structure of Shaanxi Coal and also determines the profit range. Looking back at the international coal price, the price difference between 6,000 kcal of high-quality coal and 5,500 kcal of thermal coal is huge. Under the three-coal price system this year, the coal price elasticity of Shaanxi Coal Industry has been reduced, that is, thermal coal and coal at the end of the market have a stable foundation, and coking coal and chemical lump coal provide flexibility. In October 2022, when the 5800 kcal foam coal in Yulin area is about 1150 yuan, the market coal price will be reduced by 300 yuan, which will not affect the sales price of Shaanxi coal at the end of the market price.
(3) The advantages of the reserve reserves of the Shaanxi coal industry are reflected
In the last article, I mentioned that outside the listed company system, there are the established Caojiatan Coal Mine and the backup Erlintu and Xiaohaotu mines, which fully guarantees the reserve reserve advantage of Shaanxi Coal Industry. At present, the Xiaohaotu mine field is about to be injected, as will the Xiaozhuang and Mengcun mines in the Binchang mining area. While Xiaozhuang and Mengcun provide an annual incremental net profit of 1.5 billion, the gradual advancement of Xiaohaotu Jingtian provides future increments for Shaanxi Coal Industry.
(3) Shaanxi Coal Industry re-understands the valuation system of Shaanxi Coal Industry
There are many valuation methods for Shaanxi Coal’s investment. Some are valued according to cyclical stocks, some are valued according to the number of mines, and some are valued according to cash flow.
(1) Calculate profit based on volume, price, tax, cost, and profit, and value it.
I apply the previous calculation method. Valuation is carried out according to volume, price, tax, cost and profit. The amount is based on the equity output, the price is based on the long-term benchmark price of the year (to consider the advantages of Shaanxi Coal’s coking coal and chemical coal), the tax is based on the current taxes and fees, and the total cost of the year is based on the current year’s net profit.
According to the equity output of Shaanxi Coal Industry of about 94 million tons, the pit price of 650 yuan without tax, various current taxes (for every 100 yuan increase in the tax-excluded coal price, the net profit increases by 70 yuan), and the complete cost is 240 yuan. The exact net profit is about 30 billion deducted from non-net profit. Adding Mengcun and Xiaozhuang to the calculation, the deducted non-net profit reaches 31.5 billion.
(2) Valuation based on several coal mines.
Shaanxi Coal 5 gives a valuation of 150 billion yuan to the 10 million-ton mine rights (the actual output is about 50 million tons), the rest of the mine rights are valued at 100 billion (including Xiaozhuang, Mengcun), and the remaining assets are valued at 50-100 billion , giving a valuation of 300-350 billion.
Note : The more conservative Zizhou is also aggressive, because maybe in 5 years, you will see Shaanxi Coal with a net profit of 35-40 billion. Rewards for this article are welcome, and the author’s motivation for writing and sharing also comes from the encouragement of readers.
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