Overview of Yuanxing Energy’s Yingen Mine Inspection

From August 19th to August 20th (in fact, it takes three days to drive back and forth), organized by Zhang Yansheng, chief chemical officer of Cinda Securities, including the CEO of Cinda Assets Inner Mongolia Branch, researcher of China Universal Fund, Ruiyuan Central Europe, etc. More than a dozen people, including investment directors or fund managers, researchers and two individual investors, drove 2,000 kilometers back and forth from Ordos to participate in the inspection. The directors of the company, the general commander of the construction site of Yingen Mine, Mr. Dai, and the secretary of the board of directors, Mr. Ji, participated in the reception.

To summarize the gains:

1. The mining area has evolved from “just a few large pits” last autumn to a spectacularly huge plant area with many facilities in or completed or in various stages of construction.

2. The company has drilled about 20 wells. From the sampling results of drilled wells, the resource endowment is better than expected.

3. The project plans to put the first line into production in May next year, and other production lines will be put into operation one after another.

4. The factory is only 23km away from the nearest railway line. The company will build a railway branch line connection. The branch line construction cost has been included in the project budget.

5. The company will import high-quality thermal coal from Mongolia through the Ceke port about 270 kilometers away and the Uliji port about 170 kilometers away. The cost of procurement, transportation and customs clearance is expected to be less than 400 yuan per ton. We also inspected the Wuliji Port this time. After the Wuliji port is put into operation, the fuel coal should be mainly shipped from the Wuliji port.

6. The production water of the project will be diverted from the Yellow River about 300km away. Water treatment will be done near the water intake, and it can be used directly after the project. The treatment and water pipeline project is under construction, and the water supply can be started by the end of the year.

7. The company’s Yellow River water use target is being solved. According to the policies of water distribution and trona projects in various leagues and cities in Inner Mongolia and the income-generating scale of Yingen Mine, it should not be a problem to finally solve all the indicators.

8. In order to solve the water consumption in the development and construction stage, the company has dug a well from 30km away and completed the water supply to the project (in the past, it cost 100 yuan per cubic meter to pull water from the outside).

9. The largest direct cost per ton of alkali for Yingen Mine Phase I and Phase II is fuel expense, followed by depreciation.

10. The construction period of the second phase of the project is expected to be 24-25 years, and the difficulty of development and construction is much lower than that of the first phase. Personally, it is expected that the production time should be significantly earlier than the end of 25.

11. Yingen Mine employs about 700 people and about 1,000 people after the completion of the second level. In addition to the external workers, there are about 14,500 people in total. The average salary is more than 9,000, so it should not be difficult to recruit.

12. After the Yingen Mine is put into production, the company plans to sell it to the markets of Inner Mongolia and Northeast China, and to a large part of the Hebei market. The company also plans to build a warehouse of 300,000 tons on the coast of the Bohai Sea and may even set up a warehouse in Wuhan to meet the company’s plan to penetrate into East China and even Southeast Asia.

13. I think the biggest gain of this inspection and the biggest unexpected gain is the direct and preliminary in-depth understanding of the management of Yuanxing. Now judge that the management of the company is honest and pragmatic.

None of the company surveys we have ever experienced have been as hard as this one, and the results were worth it. The Gobi desert in Alxa Right Banner is a vast expanse and is close to Mongolia. Not to mention, few people even pass by. However, the rich mineral resources and the advantage of arguably no land use problems here provide huge business opportunities. Yuanxing has seized this rare resource endowment super opportunity among all listed companies in the country, which is very rare. Second, but definitely not secondary, Yuanxing has a group of people who are professional and diligent, and can materialize this business opportunity in a relatively short period of time.

Focus on the new understanding of management. The initial knowledge is indirect, mainly from written data. We judge that the two biggest risks of domestic investment are the management’s reputation risk and the policy risk. In terms of policy, Yuanxing leads the production of trona, and Yingen is the largest trona project in the country, so the company is a prominent beneficiary, and we are of course not worried about it. We used to worry most about credibility. The predicament of the major shareholder and the substantial increase in value of the money project from the transfer of the major shareholder naturally raise suspicions. This time, I learned from the general manager of Yansheng that Boyuan’s mining rights were not due to government relations as people guessed, but because they were professional and willing to take business risks, so they chose to carry out preliminary research here, so as to further carry out A comprehensive exploration has confirmed the mineral reserves here. Therefore, it should be taken for granted that Boyuan obtained the mining rights of Yingen.

Regarding the predicament of major shareholders, Mr. Yan Sheng said that it is almost impossible for a Chinese company to get into trouble with two major assets like Boyuan (a very scarce natural resource and a listed company that is not just a shell company). Boyuan fell into such a predicament, which itself shows that they are not only not liars, but also not good at cheating.

By the way, I repeatedly mention Yan Sheng not because I know him well. We met for the first time. But I say two facts that I think everyone will find unusual. First, Director Chen of Yuanxing Securities Department told me that General Manager Yansheng was organizing fund research because I repeatedly tried to organize research, and provided me with the contact information of General Manager Yansheng. After talking little, Mr. Yan Sheng agreed that I could participate, but emphasized that due to the limited reception facilities in Yingen, others should check the participation of the fund. About ten days later, Mr. Yan Sheng told me that other people had no chance to participate, not even Cinda’s individual clients. Frankly speaking, I worried several times whether we would also be rejected at any time, after all, we are not Cinda’s customers. When I met Mr. Yan Sheng, I frankly confessed this concern. He smiled and said, “You can’t lose your trust, (I have already promised you first), the rule is to come first, then come.” Second, Baofeng Energy organized a survey in August 2020, and hundreds of people participated. Mr. Yan Sheng went to Yingen to investigate alone (checked it, the stock price at that time was about 2 yuan and 4). He said there was only one big sign there at the time. At that time, Yuanxing was generally not so recognized in the market.

I think Mr. Yan Sheng is honest. His research on target companies is also in-depth and rigorous. It can be said that Yansheng has further reduced Yuanxing’s reputation risk with his integrity and professional endorsement.

In this direct face-to-face communication with Mr. Dai, my observation is that he is professional, honest and dedicated, and he does not have the publicity of many big bosses and the arrogance of his subordinates. The communication with Zhang Yanan, deputy commander-in-chief of Yingen, also had similar feelings.

For more details and pictures of the mining area, please refer to the website link of Yan Sheng’s inspection record

Disclosure: Yuanxing Energy is one of our top holdings.

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