Zangge Mining (000408.SZ) Update Note: Copper, Lithium and Potash All Delivering, Valuation Shifts from "Fair but Cheap" to "Fair but Expensive"

I. Summary of Core Conclusions

Over the past four months, Zangge Mining has accomplished three major things: Julong Copper Phase II volume ramp-up delivered (2026H1 net profit attributable to parent of RMB 3.638 billion, +102% YoY, within the preannounced range); Mamicuo Phase I 50kt lithium carbonate obtained trial production approval on schedule; and it signed a USD 171 million acquisition agreement for the Kanga potash mine in the Republic of Congo (1.989 billion tonnes of KCl resources). Operations are improving across the board, but the stock has fallen 6.4% since the last report (2026-06-05) — the reason lies not with the company but with commodities: lithium carbonate futures hit a year-to-date low in October (RMB 109k/tonne, nearly halved from the May peak), while LME copper at approx. USD 14,500 sits in a historically extreme zone at roughly the 94th percentile of the past 52 weeks.

This report shifts its judgment from the previous "cautiously bullish" to "Neutral": SOTP base-case fair value is RMB 60–68 (midpoint 63.9), with the current price of 71.20 about 10% above the midpoint and about 4.5% above the top of the range — valuation is fair-to-expensive, with no margin of safety. The current price implies LME copper staying above USD 14,000 (back-solving the SOTP, the Julong segment is valued at approx. RMB 76.9 billion, implying full-caliber net profit of approx. RMB 25 billion, vs. RMB 21.5 billion under this report's base-case assumption of copper reverting to USD 12,500). It must be emphasized that this judgment is highly sensitive to the copper price assumption: for every USD 1,000 rise in copper, the fair-value midpoint rises by approx. RMB 4/share; if Goldman Sachs' end-2026 target of USD 13,735 is used as the midpoint, fair value is approx. RMB 68.8, narrowing the overvaluation to approx. 3%. Separating quality from price: asset quality is first-rate (all three commodities sit at low percentiles of the global cost curve, ample net cash, TTM dividend yield of 3.5%), but at the current price investors are paying in full for cyclical-peak earnings and multiple growth options. The Q3 report in five days (scheduled for disclosure on 10-17) is the nearest two-way validation point.

II. Changes from the Previous Conclusion

Status of the five watchlist catalysts from last time:

• K1 Julong H1 results → Delivered: H1 mined copper of 134kt, net profit of RMB 9.223 billion; Zangge recognized investment income of RMB 2.839 billion.
• K2 Mamicuo trial production → Delivered: Trial production approval obtained in July–August 2026 and trial production organized; full-year target of 20–25kt.
• K5 H1 results → Delivered: Net profit attributable to parent of RMB 3.638 billion, within the preannounced range of RMB 3.55–3.75 billion.
• K3 2027 potash contract → Not yet due: Negotiation window opens from November 2026; continue tracking.
• K4 Lithium carbonate seasonal surge → Failed: Did not reach the RMB 200k–250k target zone; October instead set a year-to-date low.

III. Investment Opportunity Assessment

In one sentence: Three globally low-cost-percentile resource lines (potash/lithium/Julong copper equity) + high dividends + an intensive catalyst validation window have arrived, but the current price of 71.20 is approx. 10% above the probability-weighted fair value, and the twin headwinds of a new lithium low and extreme copper prices remain — this is an observation period; reassess after the stock pulls back into the base-case fair range (RMB 60–68) or after signals such as "lithium price stabilization + Q3 report validating Julong's ramp" appear.

What changes ahead: The next six months are an intensive validation window — Q3 report (10-17), 2027 potash contract (from November), confirmation of Mamicuo's formal commissioning, Kanga closing and approvals, FY2026 dividend plan (March–April 2027). High-probability catalysts (Q3 report, Julong dividends) are confirmation-type rather than surprise-type.

Ranking of primary share-price drivers: ① Copper price path and Julong's per-tonne profitability (investment income accounts for 78% of attributable profit — the largest single swing factor; falsification line: LME below USD 13,000 and per-tonne net profit below RMB 55k); ② Lithium carbonate price and supply clearing (the largest current source of pressure; falsification line: front-month contract below RMB 90k); ③ 2027 potash contract (348 → ? USD).

Expectation gap: Direction is negative for the bulls — the current price already pays in full for "extreme copper prices persisting + lithium price bottoming." The sell-side consensus target price median is RMB 93 (n=9, +31% vs. current price), mostly formed before lithium halved; consensus has still been revised up over the past 90 days (+4.2%), lagging the Q4 lithium price trend, and 2027E carries downward- rather than upward-revision risk.

IV. Investment Thesis

C1 — Julong Copper Phase II ramp-up and high copper prices drive 2026 attributable net profit of RMB 7.5–8.7 billion (2026H1 already achieved RMB 3.638 billion, +102% YoY, of which equity-method investment income from Julong was RMB 2.839 billion, 78.03%); but nearly 80% of attributable profit is tied to copper, and LME copper at approx. USD 14,500 is at a historical extreme (approx. 94th percentile over 52 weeks); if copper falls back to USD 12,500 already in 2026Q4, the full year would land at RMB 7.2–7.5 billion (confidence 0.60)

Key evidence:

• Zangge Mining 2026 Semi-Annual Report / Section II Key Accounting Data: attributable net profit of RMB 3.638 billion, +102.09% YoY; excluding non-recurring items, RMB 3.706 billion, +104.92% YoY
• Zangge Mining 2026 Semi-Annual Report / Major Subsidiaries and Associates: Julong Copper H1 revenue of RMB 15.004 billion, net profit of RMB 9.223 billion; the company recognized investment income of RMB 2.839 billion, or 78.03% of attributable net profit
• Zangge Mining Announcement 2026-10-08 / Dividend Basics: cumulative cash dividends received from Julong this year of RMB 4.617 billion; Julong H1 mined copper of 134kt
• Zangge Mining Earnings Preannouncement 2026-07-07: H1 attributable profit range of RMB 3.55–3.75 billion (actual RMB 3.638 billion, within the range)

Precision on the range: RMB 7.5–8.7 billion implies H2 attributable profit of RMB 3.86–5.06 billion. A neutral decomposition (Julong H2 volume approx. 165kt × per-tonne net profit approx. RMB 72k × 30.78% ≈ RMB 3.66 billion + own business approx. RMB 0.8 billion) corresponds to approx. RMB 8.1 billion for the full year — achievability is well supported; but the RMB 8.7 billion upper bound requires Julong H2 per-tonne net profit of approx. RMB 84k, a further 21% rise from H1's RMB 69.1k, i.e., copper staying near USD 14,500 in Q4 — exactly the assumption flagged in this thesis's risk warning. H1 own business (consolidated potash + lithium) was only RMB 0.799 billion, while Q4 lithium prices (futures at RMB 109k) are down approx. 34% from the H1 average lithium price (RMB 164.9k incl. tax), making it hard for own business to beat H1 in H2; the lower half of the range hinges almost entirely on the sequential trajectory of Julong's per-tonne profitability. Sell-side reference points: 2026E consensus approx. RMB 8.17 billion (n=17 median); Sinolink at RMB 8.589 billion (2026-08-02, target price RMB 93.02).

C2 — The Mamicuo Phase I 50kt lithium carbonate project obtained trial production approval in July–August 2026 and organized trial production (delivering the original 2026Q3 commissioning commitment); the company cites a production cost of approx. RMB 31k/tonne at full capacity (fully loaded cost excluding period expenses undisclosed), at the lowest percentile of the global brine cost curve; but Zangge's look-through equity is only approx. 26.95% (calculated as Zangge's 47.08% stake in the Zangqing Fund × the Fund's holding in Mamicuo; not consolidated), and lithium carbonate futures hit a year-to-date low in October (RMB 109k/tonne, nearly halved from the May peak), so the lithium segment's actual profit contribution in 2026–2027 will be limited (confidence 0.55)

Key evidence:

• Zangge Mining 2026 Semi-Annual Report / Key Projects: Mamicuo project "completed commissioning tests, obtained trial production approval, met trial production conditions; Mamicuo Mining has promptly organized trial production"
• SZSE Interactive (company response 2026-08-28): approx. 20–25kt lithium carbonate contribution expected this year; production cost at full capacity approx. RMB 31k/tonne; January–February are the coldest months with simultaneous declines in membrane and adsorbent efficiency — capacity design has accounted for this
• Zangge Mining 2025 Annual Report / Major Projects Under Construction: the Zangqing Fund holds 57.24% of Mamicuo Mining; the company's look-through stake is approx. 26.95%; Mamicuo lithium chloride resource of 2.5011 million tonnes (approx. 2.1774 million tonnes LCE)
• Phoenix News Flash 2026-10-12: GFEX front-month LC2701 closed at RMB 108,890/tonne (-11.79%), falling below RMB 110k intraday for a year-to-date low; spot approx. RMB 120k/tonne

Two definitional points must be made clear. First, the "26.95% look-through equity" is calculated as Zangge's 47.08% holding in Jiangsu Zangqing Fund (disclosed under equity method in the semi-annual report) × the Fund's 57.24% in Mamicuo; no independent disclosure covers the intermediate step, and after formal commissioning Zangge holds preemptive rights over the Fund's stake in Mamicuo — exercising them would raise the equity ratio but require cash consideration in the tens of billions of RMB, squeezing net cash and dividend capacity. Second, extrapolating profit from the full-caliber 20–25kt or the Zangqing Fund's share would overstate by approx. RMB 200–400 million/year. At the current lithium price of RMB 109k, Mamicuo's equity-attributable profit is on the order of RMB 200 million — the real hedging effect of "volume offsetting lithium price declines" is more than half weaker than it appears. If lithium falls below RMB 80k, combined equity profit from Qarhan + Mamicuo shrinks to RMB 200–300 million.

C3 — Potash is a stable volume-and-price, globally low-cost-percentile cash foundation — 2026H1 selling price RMB 3,055/tonne, unit cost RMB 976/tonne, gross margin 65.19%; but domestic port inventories are at historical highs, IFA-basis global nameplate capacity grows approx. 20% over 2024–2029 (increments from Laos / Republic of Congo / Russia-Belarus / Canada), and if the 2027 contract falls below USD 300, segment after-tax profit would contract by approx. 25–30% (confidence 0.60)

Key evidence:

• Zangge Mining 2026 Semi-Annual Report / Qarhan MOP business: H1 production of 510.3kt, sales of 525.3kt; average selling price (incl. tax) RMB 3,055.25/tonne (+7.40%), average sales cost RMB 975.75/tonne, gross margin 65.19% (+3.35pp)
• Zangge Mining 2026 Semi-Annual Report / MOP industry: Jan–Jun 2026 domestic MOP imports of 8.80 million tonnes (+40.18%), of which 1.67 million tonnes from Laos, a 19% share; domestic output 2.41 million tonnes (-17.5%)
• Baichuan Yingfu 2026-10-10: MOP market average price flat at RMB 3,089/tonne; port and social inventories at historical highs, imports continuing to arrive; 2026 contract at USD 348/tonne in execution
• IFA (as cited by DTN): global potash nameplate capacity grows approx. 20% over 2024–2029 to approx. 77.4 million tonnes

The supply ramp timeline is real: Asia-Potash International's Laos capacity of 3 million tonnes (third million tonnes fed by end-2025) → planned 5 million tonnes by end-2026; East Tower's Laos Kaikai 1 million tonnes plus expansion; a Chinese-funded Congo project Phase I of 600kt targeted for 2027; Russia-Belarus restarts and Canada's Bethune ramp. The tight-balance landscape underpinned by China's 65%+ import dependence will loosen medium-term. The "-25–30%" sensitivity is calculated on 348→USD 300, domestic incl.-tax price following down by approx. RMB 390–500/tonne, 1 million tonnes of sales, 25% income tax (approx. -RMB 350 to -500 million after tax); if domestic potash does not fully follow import parity thanks to its freight advantage, the impact will be smaller; conversely, if high port inventories trigger an overshoot, larger. Positive reference on price: India's 2026 contract at USD 383/tonne (USD 35 above China); historically the Chinese contract converges to international prices, so the 2027 contract could catch up to USD 365–385 — this is an upside scenario, not the base case.

C4 — The USD 171 million acquisition of Kanga Potash (United Resources holds 92%; Zangge indirectly holds 69% and bears approx. 75% of the consideration; 1.989 billion tonnes of KCl resources, 59% inferred) plus the Laos 2-million-tonne plan constitute options on a second overseas potash growth engine, at an extremely low unit resource acquisition cost of approx. RMB 0.6–0.7/tonne; but neither will contribute profit within 12 months — the Laos permit remains blocked by Resolution 182, and Kanga awaits approvals from both China and Congo, so valuation should treat them only as options (confidence 0.50)

Key evidence:

• Zangge Mining Announcement 2026-09-18 / Target's mining rights: Kanga mining license measured resources of 810 million tonnes @17.12% plus inferred 1.179 billion tonnes @16.47%, totaling 1.989 billion tonnes; mining license valid until June 2047; KP company revenue of 0 and net loss of USD 1.645 million for Jan–Aug 2026
• Zangge Mining Announcement 2026-09-22: SPA signed with 12 sellers; still subject to review by the Congolese Ministry of Mines and domestic approvals including NDRC and MOFCOM
• Zangge Mining 2026 Semi-Annual Report / Vientiane, Laos potash project: permit processing "faces challenges" due to the Lao National Assembly Standing Committee's Resolution 182; the China-Laos joint statement of 2026-06-05 has included the project in the scope of support

The correct reading of this deal is "buying a greenfield option at an extremely low unit price": on Zangge's borne consideration (approx. RMB 868 million) ÷ indirectly attributable resources, the unit cost is approx. RMB 0.67/tonne of KCl — far below industry resource M&A unit prices. But two discounts are required. First, of the 1.989 billion tonnes, 59% is inferred, and the NI 43-101 report dates from 2018 (not updated for 8 years) — the denominator of "cheap" carries significant water. Second, the JV governance arrangement with a subsidiary of Yuntianhua-controlled Yuntu Holdings (at the United Resources level) means development decisions are not solely Zangge's. The Laos project has repeatedly promised permit progress since 2024 without delivery; Resolution 182 is an institutional, not technical, obstacle. In this report's valuation both are treated only at option value (in the base SOTP, Kanga at consideration cost of RMB 0.87 billion and Laos at RMB 1 billion).

C5 — The current price of RMB 71.20 (close on 2026-10-12) is above the SOTP base-case fair value of RMB 60–68 (midpoint 63.9, approx. -10% vs. current price); valuation is fair-to-expensive — P/B of 6.5x sits at the 80th percentile of the past 5 years, and the current price implies LME copper staying above USD 14,000; this judgment is highly sensitive to the copper assumption (each +USD 1,000 adds approx. RMB 4/share to the fair midpoint; on Goldman's USD 13,735 midpoint, overvaluation narrows to approx. 3%); the TTM dividend yield of 3.5% (approx. 4.4% forward at high payout) and 2026E P/E of 13.7x provide partial downside protection, but high dividends depend on the continuation of Julong's dividend policy (confidence 0.50)

Key evidence:

• This report's SOTP calculation (see valuation chapter): base-case sum-of-parts approx. RMB 100.2 billion = RMB 63.9/share; back-solving the SOTP, the current price implies a Julong segment of approx. RMB 76.9 billion (full-caliber net profit approx. RMB 25 billion) vs. an implied fair value of approx. RMB 65.5 billion under the USD 12,500 copper assumption (corresponding to RMB 21.5 billion)
• This report's multiple calculations (at 2026-10-12 close): P/E (TTM) 19.63x (approx. 49th percentile over 5 years); P/B (MRQ) 6.5x (approx. 80th percentile over 5 years); forward P/E 2026E 13.7x / 2027E 11.7x
• Sell-side consensus summary (17 covering, retrieved 2026-10-12): target price median RMB 93.0 (n=9); ratings: 42 Buy / 12 Overweight; consensus revised up +4.2% over the past 90 days
• Zangge Mining Announcement 2026-10-08: cumulative Julong dividends received this year of RMB 4.617 billion (equivalent to 4.1% of market cap received in cash)

The full meaning of "fair but expensive": the deviation ranges from -3% (Goldman copper basis) to -11% (this report's USD 12,500 basis) — moderate in both cases, but directionally the current price leaves no buffer for mean reversion. Percentile data must be interpreted cautiously: TTM earnings include contributions from historically extreme copper prices (Julong investment income is 76.6% of TTM attributable profit), mechanically distorting the P/E percentile; the 6.5x P/B percentile is likewise affected by a low book net asset value (Julong booked under equity method at only RMB 7.695 billion vs. a market-implied approx. RMB 65.5 billion) — the apparent expensiveness vs. Qinghai Salt Lake at 2.6x / Asia-Potash at 2.2x essentially reflects the huge scissors gap between the market's pricing of the Julong asset and its book value. Two sides of the dividend yield: TTM 3.5% is delivered fact, but the forward 4.4% requires a 60% payout and continuation of Julong's payout ratio (currently approx. 54%; RMB 15 billion paid within 2026, over 80% annualized) — once Julong Phase III (planned 600kt/year) is approved and enters a capex cycle, dividends will most likely be deprioritized (precedent: peer Western Mining cut cash dividends by 90% in 2025 to protect capex), and the dividend policy is controlled by Zijin, with Zangge's 30.78% stake carrying no say.

V. Key Financial Data and Latest Earnings Review

Key Financial Data Table

¹ Net margin >100% is a structural feature: equity-method investment income (Julong) is excluded from operating revenue — not a data error. ² FCF = operating cash flow − consolidated CapEx (RMB 82mn in 2025, RMB 88mn in 2026H1); Mamicuo/Laos/Kanga investments are made via the Zangqing Fund and offshore entities, and are not included in consolidated CapEx. ³ As of 2026-06-30: cash 28.35 + trading financial assets 1.05 + debt investments 2.38 + non-current assets due within one year 2.40 = RMB 3,418mn; after Julong dividends of RMB 2,155mn received in August and October and the company's interim dividend payout of RMB 1,564mn, the latest net cash is approximately RMB 3.55bn (this report's measurement).

Reasons for metric changes (items with YoY ≥ ±20%): ① 2024FY revenue −37.8%: falling potash prices compounded by the lithium price collapse; ② 2025FY attributable profit +49.32%: Julong investment income +44.34% (both copper volume and price up) + potash gross margin +19.81pp; ③ 2026H1 attributable profit +102.09%: per the company, "the associate Julong Copper benefited from rising copper prices and the commissioning of Phase II, with investment income of RMB 2.839bn (+124.57%)"; ④ 2025FY operating cash flow +128.49%: higher sales collections and tax refunds upon final settlement (the prior period included back payment of brine taxes); ⑤ 2025FY R&D expenses +211.82%: increase in R&D projects; ⑥ 2026H1 financing cash flow −1134.67%: a sharp rise of RMB 2.357bn in cash dividends paid; ⑦ 2025FY lithium carbonate revenue −41.98%: Zangge Lithium's 87-day suspension (2025-07-16 to 10-10) due to mineral-type change procedures + lithium price −12%.

Latest Results Commentary (2026H1)

2026H1: revenue RMB 2.065bn (+23.05%), attributable net profit RMB 3.638bn (+102.09%), recurring net profit RMB 3.706bn (+104.92%; recurring exceeds attributable by RMB 68mn due to a RMB 79mn loss on disposal of non-current assets classified as non-recurring). Earnings structure: Julong investment income of RMB 2.839bn contributed 78%, with the consolidated own business (potash + lithium) around RMB 800mn. All three commodity lines are trending positively—

• Potassium chloride: stable volume (sold 525.3k tonnes, 53% of the annual plan of 1mn tonnes), higher price (RMB 3,055/tonne incl. VAT, +7.4%), stable cost (RMB 976/tonne), gross margin 65.19%. Q3 spot at RMB 3,089/tonne, flat; volume-price certainty for the full year is high.
• Lithium carbonate: shrinking volume (sold 3,990 tonnes, −10.7%), but H1 average price RMB 164.9k/tonne (incl. VAT), up +144% YoY, with gross margin surging to 71.08%. Note the structural risk: the high H1 average was driven by the May spike to RMB 200k/tonne; Q3 average is around RMB 135–140k, and Q4 futures have fallen to RMB 109k — the lithium segment's H2 revenue and gross profit will be significantly below H1, a gap not yet fully reflected in consensus.
• Julong Copper: H1 copper output 134.0k tonnes (Q1 60.4k → Q2 73.6k, ramping quarter by quarter), net profit RMB 9.223bn, approximately RMB 69.1k net profit per tonne (based on sales of 133.5k tonnes). Against the 300k-tonne annual plan, H1 achieved 45%; H2 requires 166k tonnes (83k per quarter) — Q2 already reached 73.6k tonnes, and the ramp slope is supportive but needs Q3 validation.

Versus consensus: the full-year median of RMB 8.17bn implies H2 of roughly RMB 4.53bn, with H2's lithium price drag coexisting with the copper price tailwind; this report forecasts RMB 7.5–8.7bn (see the valuation chapter). H1 operating cash flow of RMB 984mn was only 27% of attributable profit — due to the non-cash nature of equity-method income — but Julong dividends of RMB 4.617bn were actually received within the year (recorded in investing cash flow), so true cash generation is far better than the headline OCF.

VI. Special Analysis

6.1 Business Model and Earnings Quality

Business model: asset-light salt lake resource development plus a stake in a world-class copper mine. The Qarhan Salt Lake (724 km² mining rights, renewal completed in 2025-09 with new lithium/magnesium/boron mineral types) produces potassium chloride and lithium carbonate; consolidated CapEx is extremely low (RMB 82mn in 2025, CapEx/depreciation only 0.18). The 30.78% stake in Julong Copper is accounted for under the equity method — not consolidated, no capital expenditure obligations, with cash returned via dividends. Revenue has no recurring contracts (product sales at market prices), but resource-side costs are rigidly low — potash unit costs fell from RMB 1,089 to RMB 962 over three years and have stabilized at RMB 976, a quantitative manifestation of the moat. No independent pricing power (potash follows the bulk contract, lithium and copper follow commodity markets), but zero upstream dependence (brine self-supply).

Cash content of earnings: OCF/attributable net profit was 0.87 → 0.36 → 0.55 → 0.27 from 2023 to 2026H1, persistently below the 0.8 warning line — but this is mainly a function of the equity-method structure (Julong income of RMB 2.839bn is non-cash) rather than receivables buildup; adding back Julong dividend cash, the ratio was about 0.94 in 2025 and far above 1 for the first three quarters of 2026 (dividends of RMB 4.617bn received in the year vs. annualized attributable profit of roughly RMB 8bn). FCF/net profit was 0.30/0.52/0.25 for 2024/2025/2026H1. Conclusion: cash conversion of book profit depends on Julong's dividend rhythm, which is determined by Zijin's capital expenditure plans — the largest structural weakness of this business model (see 6.2 and C5).

Recurring earnings test: 2026H1 recurring net profit (RMB 3.706bn) exceeded attributable profit (RMB 3.638bn), with non-recurring items being a net loss (asset disposal −RMB 79mn) — attributable profit contains no one-off gains flattery. The contrary signal is three consecutive periods of scrapping losses on non-current assets (see 6.4).

Return on capital: ROIC approximately 23.3% (2025, net profit/(attributable net assets + interest-bearing debt)), far above the 15% moat threshold — but in the denominator Julong is carried at only RMB 7.695bn book value under the equity method; on a market-value basis, ROIC would fall significantly; the true economic return lies between the two, supported by the low cost of the salt lake assets and Julong's world-class grade.

CapEx quality: consolidated CapEx cannot reveal true expansion spending (Mamicuo via the Zangqing Fund; Laos/Kanga via offshore entities); maintenance CapEx is estimated at RMB 100–200mn per year (technical upgrades + equipment replacement), which cannot be split from the consolidated figures — this report honestly flags "maintenance spending cannot be determined from consolidated data." Incremental capital returns depend on Mamicuo (RMB 31k/tonne cost vs. current lithium price of RMB 109k; ~RMB 40–50k profit per tonne post-commissioning) and Kanga (greenfield, returns pending feasibility study validation).

Red flags: ① single-point profit concentration (Julong's share rising from 72% to 78%, deepening year by year); ② consecutive contraction in lithium carbonate output and sales (13,582 → 8,957 → H1 3,990 tonnes), with the 2025 87-day shutdown exposing sensitivity to Qinghai regulation; ③ top-five customer concentration of 42.26% (largest customer 18.19%), a concentrated potash distribution system.

6.2 Management Assessment

Track record of words vs. deeds: overall "largely delivered, except for overseas projects." Commitments vs. delivery: ① Julong Phase II "commissioned by end-2025" → actually commissioned 2026-01-23, delayed by about 3 weeks — largely delivered; ② Mamicuo "commissioned in 2026Q3" → trial production approval in July–August, delivered (this project was repeatedly delayed since 2024 and has finally landed); ③ 2026 operating plan (potash 1mn tonnes / lithium carbonate 16.4k tonnes / Julong 300k tonnes) → H1 progress roughly 50%, with lithium volume (H1 output 5,400 tonnes vs. the 16.4k-tonne annual plan) clearly lagging; ④ Laos project permits "actively advancing" → still not obtained, judged not delivered. Overall: pragmatic domestically, with overseas commitments tending toward optimistic expectations.

Shareholder friendliness: has turned significantly friendlier since Zijin took control. FY2023 dividend RMB 1.256bn (payout 36.7%) → FY2024 interim only RMB 408mn (15.8%) → FY2025 total RMB 3.922bn (payout approximately 101.7%, drawing on accumulated undistributed profits) → 2026 interim another RMB 1.564bn (RMB 10 per 10 shares). From March to May 2026, the company repurchased 5.0256mn shares for RMB 400mn (reaching the plan's cap; execution range RMB 73.63–81.31 — the current price of RMB 71.20 is already below the lower bound of that repurchase cost), with a cumulative 11.52mn shares cancelled across 2025/2026. No share issuance or rights offering; share count fell from 1.580bn to 1.569bn shares. Verdict: shareholder-friendly, with dividend capacity directly supported by Julong dividends (RMB 4.617bn received within the year).

Risk signals: ① The former controlling shareholder camp (Zangge Venture Capital + Yonghong + Xiao Yongming, combined stake 20.15%) has a pledge ratio of 47.27%, representing 9.52% of total share capital, of which 19.71mn shares are judicially frozen (6.83mn shares of Xiao Yongming's frozen by the Haixi Intermediate Court until 2029-08), with new pledges added as recently as August — tail disposal risk is not resolved, but with Zijin's 26.01% controlling stake firm, this is a share supply risk rather than a governance breakdown; ② Deposits with the related-party Zijin Finance Company rose from RMB 239mn to RMB 1.589bn within six months (interest rates 0.65%–1.1%; regulatory metrics met, risk assessment report conclusions normal) — the concentration of funds within the controlling shareholder system warrants ongoing monitoring; ③ Zijin has committed to resolving horizontal competition in the lithium business within 60 months (by 2030); the plan is undecided — a long-term variable.

6.3 Segment Breakdown

The profit engine is Julong Copper, not potash, which is 71% of revenue: on 2026H1 figures, Julong investment income of RMB 2.839bn vs. combined potash + lithium consolidated profit of roughly RMB 800mn — copper contributes about 78% of group profit. Potash is the profit mainstay within the consolidated statements (gross profit ~RMB 790mn vs. lithium's RMB 410mn), but its role is the "cash bedrock"; what truly determines profit elasticity and the valuation anchor is Julong. The gross margin gap (lithium 71% vs. potash 65%) is small, and both stem from brine resources; the difference lies mainly in price volatility — lithium prices swung nearly 100% within the year, potash about 10%.

Single-business verdict: the company is a three-line potash + lithium + copper structure, not a single business; but on a consolidated basis it is essentially "a dual-product potash-lithium company plus one copper equity stake."

6.4 Accounting Techniques and Cross-Period Consistency

Accounting red flags (4 items, all with documentary evidence):

1. Change in accounting estimates (announced 2026-08-11, effective 2026-07-01): machinery depreciation life adjusted from 10 years to 6–10 years; mining area structures / decommissioning costs / mining rights amortization changed from straight-line to units-of-production method — expected to increase 2026 depreciation and amortization by approximately RMB 37.1mn. Conservative direction (more depreciation), low severity, but the timing — the first half-year after Zijin took control — warrants tracking of subsequent treatment.
2. Investment income is non-cash and extremely high-proportioned (medium): investment income of RMB 2.814bn is 74.13% of total profit; equity-method income generates no operating cash flow, and profit monetization depends on Julong's dividend rhythm.
3. Rapid rise in deposits with the related-party finance company (low): Zijin Finance Company deposits rose from RMB 239mn at the start of the period to RMB 1.589bn at period-end, equal to 56% of cash.
4. Scrapping losses on non-current assets for three consecutive periods (medium): RMB 49mn in 2024 → RMB 144mn in 2025 → RMB 78mn in 2026H1 (annualized ~RMB 160mn); the annual report attributes them only to "scrapping losses" without disclosing asset details — unexplained by the company, a signal to watch regarding asset quality and the authenticity of historical capital expenditure.

Cross-period consistency: ① OCF/attributable profit 0.87→0.36→0.55→0.27, consistent with the equity-method structure explanation (the company honestly disclosed the non-cash impact of investment income in its cash flow commentary — judged "consistent"); ② Julong investment income as % of attributable profit 74.7%→72.2%→78.0%, deepening the concentration of profit sources; the company checked "sustainable — yes," on which this report reserves judgment (dependence on copper prices); ③ scrapping losses rising over three periods without explanation (inconsistent/unexplained).

Overall verdict: no signs of earnings-management-oriented accounting techniques found (estimate changes skew conservative, no goodwill, zero R&D capitalization), but the missing detail on scrapping losses and the dependence on non-cash profit are two disclosure weaknesses requiring continuous monitoring.

6.5 Resource Stock Special: Reserves, Costs, Sensitivity, and NAV

Reserves and production table:

Reserve replacement ratio not disclosed; resource growth relies entirely on external expansion (Kanga added 1.989bn tonnes of KCl in one stroke). Hedging positions: no hedging arrangements disclosed in any reporting period; potash, lithium, and copper exposures are fully unhedged.

Unit economics and cost-curve position: potash cost of RMB 976/tonne (~USD 137) sits in the global top 20–25% percentile (Canadian/Russian-Belarusian FOB cash costs of ~USD 60–100 are lower, but Zangge pays no seafreight and realizes domestic premium prices); lithium carbonate at RMB 42.2k/tonne, with Mamicuo guidance of RMB 31k/tonne, is in the global lowest ~5–10% percentile (vs. spodumene integrated 60–70k, lepidolite 60–90k); Julong's per-tonne net profit of RMB 69.1k implies a C1 cost in the global lowest 10–15% percentile (estimated).

Price sensitivity (±10%): potash price ±10% → pre-tax profit ±~RMB 284mn (attributable ±7%); lithium price ±10% (annualized sales ~8,000 tonnes + Mamicuo equity) → pre-tax ±~RMB 120mn; copper price ±10% → investment income ±~RMB 393mn (attributable ±10.8%). Copper is the king of elasticity.

Geopolitical and mining rights risks: Laos (institutional obstacle from Resolution 182; included in the China-Laos joint statement but without a timetable); Republic of Congo (closing pending China-Congo approvals; Loango exploration permit renewal in process; CFA franc exchange rate and mining code renegotiation risks); Tibet (Mamicuo winter efficiency, ecological red lines, and the 2026-06 Mineral Resources Law Implementation Regulations tightening whole-chain management); Qinghai (a track record: 2025 mining license regulation caused the 87-day lithium plant shutdown); Qarhan (mining license renewed with new mineral types; potential resource tax/royalty increases are a long-term variable).

NAV perspective: SOTP segment sum (base case) of approximately RMB 100.2bn = RMB 63.9/share (see 6.6 for composition); book net assets of RMB 17.197bn (RMB 10.96/share) are severely undervalued — Julong is carried at only RMB 7.695bn under the equity method vs. a market-value basis of roughly RMB 65.5bn. The true asset floor is referenced by the bear-case SOTP of approximately RMB 52.3bn (RMB 33.3/share).

6.6 Valuation and Odds

Current market data and multiple percentiles (frozen anchor: RMB 71.20, close of 2026-10-12, market cap RMB 111.7 billion): PE(TTM) 19.63x (41st percentile over the past 3 years / 49th over 5 years); PE (static 2025) 29.0x; PB (MRQ) 6.5x (80th percentile over 5 years); forward PE 2026E 13.7x (consensus RMB 8.17 billion) / 13.0x (Sinolink RMB 8.589 billion), 2027E 11.7x. Percentiles are for reference only: 76.6% of TTM earnings come from Julong's investment income, embedding an extreme LME copper price of USD 14,543; PE percentiles are mechanically distorted low at peak-cycle earnings; PB's book base (Julong booked under the equity method) is likewise distorted. For cyclical resource stocks, the correct anchor is normalized earnings × mid-cycle multiple + asset revaluation.

Peer comparison:

Market-implied expectations: Reverse-solving the SOTP at the current RMB 111.7 billion market cap yields the following payment structure — Julong segment ~RMB 76.9 billion (69%), consolidated potash-lithium business ~RMB 23.8 billion (21%), option portfolio ~RMB 7.4 billion (7%), net cash RMB 3.55 billion (3%). Implied Julong full-scope net profit of ~RMB 25 billion (sustaining copper above USD 14,000), vs. this report's normalized assumptions (copper USD 12,500 / lithium RMB 110,000 / potash RMB 2,950), under which 2027E attributable net profit is ~RMB 8.7 billion and Julong full-scope RMB 21.5 billion. In one sentence: the current price requires copper to hold above USD 14,000 and lithium to stop falling, whereas lithium futures have nearly halved from the May peak and copper sits at the 94th percentile of its 52-week range. Divergence among external reference points itself is telling: in January 2026 Goldman Sachs forecast copper falling back to USD 11,000 by December 2026, then revised up to USD 13,735 in June (a 24% swing within half a year); in October UBS just cut its 2027 lithium price assumption to RMB 120,000/tonne.

Three-layer value (EPV): Zero-growth sustainable FCFE estimate — own operating cash flow ~RMB 2.1 billion + Julong dividend cash ~RMB 4.6 billion − maintenance capex ~RMB 0.3 billion ≈ RMB 6.4 billion/year; cost of equity 9% → EPV ~RMB 45.3/share (range RMB 45–51). The residual of the current price of RMB 71.20 over EPV is ~RMB 25.9/share, about 36% of the current price — of which the growth options (Mami Co / Tibet lakes / Laos / Kanga) account for only ~RMB 7.4 billion in the SOTP base; the remaining ~RMB 33 billion is essentially a "cyclical premium of copper above normalized levels," a mean-reverting component rather than durable growth protected by a moat. Asset value (floor) reference: book value of RMB 11.0/share is severely distorted by Julong's booking basis; the bear-case SOTP of RMB 33.3/share is a more realistic asset-revaluation floor. Conclusion: the current price is mainly supported by "the cyclical premium above EPV plus options"; zero-growth value covers only about 60% of the current price.

Three scenarios and odds (12 months):

Exit multiple rationale: the Julong segment uses Zijin's PE(TTM) of 11.9x (market pricing at peak-cycle earnings, a conservatively mid-cycle proxy) discounted 0.9x (unlisted + minority stake + dividend dependence); potash at 11x sits between Salt Lake's 10.2x and Asia-Potash's 14.9x; lithium at 15x reflects its option-like position at the left end of the cost curve. Sensitivity must be disclosed: every +USD 1,000 in copper → +RMB 768 million in Julong equity investment income → +RMB 3.97/share to the fair midpoint; using Goldman's USD 13,735 as the midpoint, base-case fair value is ~RMB 68.8 and the premium to the current price narrows from 11% to ~3%. This is the largest single variable in this valuation.

In-house earnings forecasts:

Conclusion: fairly valued but on the expensive side. The current price is ~10% above the base-case fair midpoint and ~4.5% above the upper bound. Separate quality from price — the assets are first-rate (cost curve + resource base + net cash + dividends), but the current price already pays in full. Probability-weighted fair value is ~RMB 64.5, -9.4% vs. the current price; the odds structure is skewed negative (downside to bear midpoint -53% vs. upside to bull midpoint +23%, though bear probability is only 20%). Strategic implication: do not chase highs, do not short quality assets; wait for a re-entry window in the RMB 60–68 range or confirmation that commodity prices have stabilized.

6.7 Industry Landscape and Competitive Positioning

Potash: the tail end of a tight balance, global supply shifting east. Scale and demand: 2025 global shipments hit a record ~74.5 Mt KCl (Nutrien); the global market is ~USD 65.1 billion (2025, Grand View basis, aggregated data pending verification); China's 2025 apparent consumption was 19.103 Mt (China Inorganic Salts Industry Association), worth roughly RMB 51.6 billion/year at ~RMB 2,700/tonne. Demand grows ~2–3% annually (IFA medium-term outlook), underpinned by food security and rigid restocking — volume is a dull story; price hinges on supply. Supply structure: highly oligopolistic globally (Nutrien + Mosaic + Uralkali + Belaruskali; traditional CR4 ~60–70%, eroding in recent years); China's import-source CR4: Russia 33.9% / Canada 18.6% / Laos 17.0% / Belarus 12.7% (2026H1). The key marginal change is global capacity +20% during 2024–2029 (IFA, via DTN): Laos (Asia-Potash 3.0→5.0 Mt, Dongfang Iron Tower 1 Mt + expansion), Congo-Brazzaville Chinese-funded Phase I 600kt (2027), Russian/Belarusian restarts, Canada Bethune ramp-up — the tight balance behind China's 65%+ import dependence will loosen from 2027, a long-term constraint on the potash segment's valuation ceiling. Domestic landscape: Salt Lake Industry (5.3 Mt capacity) + Zangge (1.2 Mt design / 1.03 Mt actual) together account for over 80% of domestic output; Zangge ranks second domestically, ~16% of domestic production and 5.4% of China's apparent consumption. Price position: the 2026 contract price is USD 348/tonne (up two years running), around the 29th percentile of the 5-year contract range (USD 247–590) and -41% from the 2022 peak — not a cycle top, but the USD 35 spread between India's 383 and China's 348, plus historically high port inventories, make the direction of the 2027 contract a point of contention between bulls and bears. Regulation: the state fertilizer commercial reserve + centralized contract procurement mechanism + NDRC spring-planting supply-and-price stabilization — the mechanism suppresses extreme prices while confirming the strategic scarcity of domestic potash; Qinghai's "world-class salt-lake industrial base" plan and the 5% resource tax on potassium chloride are an incumbent's policy dividend and cost item, respectively.

Lithium: early stage of a new cycle post-clearing, with violent price swings. Demand: ~2.16 Mt LCE globally in 2025; 2026 growth forecasts +17% to +30% (Reuters, four institutions aggregated); the structural change is in energy storage — China's storage cell output rose +104% YoY in 2026H1 (Guolian Futures); AI data centers plus renewable-paired storage give lithium demand a second growth curve; IEA long-term scenarios put 2040 demand at up to 42x 2020 levels. Supply: global supply +19% to 34% in 2026; domestic June lithium carbonate output 115.3kt (+45.8%, SMM); salt-lake (Salt Lake Industry's 40kt new capacity commissioned 2025-09, Zijin's Laguocuo), African ore, and Australian mine restarts releasing in concentrated fashion, with a nationwide smelting glut (monthly capacity 165kt as of 2026-07). Balance: shifting from surplus to tight balance; domestic deficit of ~84kt LCE in 2026 (Guolian Futures), potentially structurally short after 2028 (Shanghai Metals Market, secondary source pending verification). Price: GFEX main contract closed 10-12 at RMB 108,900/tonne — +85% from the 2025-05 low of RMB 58,900, -45% from the 2026-05 peak of RMB 199,800, ~9th percentile of the full cycle since 2021, ~28th percentile over 52 weeks. Near-term pressure: Jianxiawo's Q4 restart (monthly output 7,000–8,000t before suspension, annual capacity 100kt LCE) + Xikeng's approval; support: the cost curve of high-cost lepidolite capacity (global 90th-percentile full cost ~RMB 90,000/tonne). Zangge's position: limited volume elasticity (2026 plan 16.4kt, <1% of global supply), but costs of RMB 42,200 / Mami Co 31,000 per tonne sit in the global lowest 5–10% percentile — lithium above RMB 80,000 sustains high gross margins, an asymmetric structure of "locked-in bottom profits + rebound option." Sodium-battery substitution in storage/e-bikes is a low-probability, long-dated variable.

Copper: structural shortage narrative + historically high price zone. Demand: driven by electrification and grid/AI compute; Wood Mackenzie's base case sees global demand at 42.7 Mtpa by 2035 (+24% vs. 2024), with electrification adding ~+2Mtpa per decade; an EV uses 3–4x the copper of an ICE vehicle, and AI data center power distribution significantly raises unit copper intensity. Supply: declining global ore grades + insufficient capex, annual growth ~2.3% (ICSG basis); new supply is highly concentrated — Tibet (Julong Phase II commissioned 2026-01) as the core increment region. Divergent balance views: ICGS's 2026-04 forecast shows a modest 96kt surplus in 2026 (previously a 150kt deficit — direction reversal warrants tracking); WoodMac maintains a structural shortage from 2026. Price: LME 3-month futures at USD 14,543 (close 2026-10-09), ~94th percentile of 52 weeks, +34% vs. the 2022 peak — record-high territory; Goldman's end-2026 target USD 13,735 (revised up from 12,465 in June), Citi 2027 at USD 15,000. Julong's position: China's largest proven porphyry copper deposit (25.88 Mt contained copper); at full Phase II ramp, 300–350kt/year is nearly 20% of China's mined copper, with Zangge's equity at 90–110kt; per-tonne net profit of RMB 69,100 sits in the global lowest 10–15% percentile (including molybdenum/silver by-products). Risk: trade-flow reconfiguration and regional spread volatility triggered by the US Section 232 50% copper tariff.

Value chain and value distribution (three lines in one): In the potash chain, money stays at the resource end (Zangge's gross margin ~RMB 2,080/tonne vs. razor-thin distribution margins); China's consumption-side location exempts it from seaborne freight — a unique locational premium in global potash trade. In the lithium chain, resources and smelting are sharply polarized (smelting oversupplied; resource-self-sufficient players capture the full cost dividend). In the copper chain, mines dominate smelters (TC/RCs extremely low or even negative). Zangge sits at the thickest value segment — "resources + mining/beneficiation" — on all three lines, with zero upstream dependence and acting as a price taker downstream — determining that its profit model is "cost-curve position × commodity price," not share or pricing power.

Peer comparison (operational basis):

Company industry positioning: No. 2 in domestic potash (stable share trend) + top-tier salt-lake lithium extraction costs + a copper equity elasticity platform, now within the Zijin system (took control 2025-01). Moat sources: unreplicable resource endowment (Charhan east section mining rights + Tibet salt-lake cluster + Julong stake), location (freight exemption), cost (globally low percentiles across three commodities). Basis caveat: there is no discrepancy between Zangge's self-reported and third-party output rankings (No. 2 domestic potash), but the gap between "Charhan capacity of 1.2 Mt vs. actual output of 1.03 Mt" reflects real constraints from brine grade and mining-rights boundaries — capacity figures should not be directly extrapolated to output.

VII. Overall Conclusion and Monitoring

Overall rating: Neutral, confidence 0.55, time horizon 12 months. Zangge Mining is a rare A-share resource portfolio with "globally low-percentile cost curves across three commodities," with extremely high 2026 earnings delivery (H1 already achieved 45% of consensus) and a shareholder-return pivot toward friendliness (payout 101.7% + buyback-and-cancellation); however, the current price of RMB 71.20 is above this report's base-case fair value of RMB 60–68, and the valuation's margin of safety rests on the unproven assumption that "copper does not revert." New lithium price lows (lithium segment weakening significantly QoQ in Q4) and copper at the ~94th percentile of its 52-week range create an asymmetric two-way risk: earnings upgrades require copper prices to hold, while a valuation downgrade requires only mean reversion in copper.

Strategy: Holders may continue to hold (dividend yield 3.5% + dense catalysts provide time value); new positions should wait for one of two signals — the stock falling back into the RMB 60–68 base-case fair range (-4.5% to -16% from the current price), or a combination confirmation of lithium price stabilization (main contract back above RMB 130,000) + Q3 results validating Julong's ramp (Q3 quarterly mined copper ≥75kt, per-tonne net profit ≥RMB 72,000). Avoid chasing at the current price.

Risk and catalyst alerts (formal summary): Key milestones over the next 6–12 months — Q3 results (10-17, validating the gap between Julong's Q3 and the lithium segment), 2027 potash contract negotiations (from November, direction of the USD 348 price), confirmation of Mami Co's official commissioning and winter ramp (January–February 2027 as the first verification window), Kanga closing approvals (Chinese MOFCOM filing + Congo-Brazzaville Ministry of Mines), Julong's Q4 dividend resolution and 2026 annual dividend plan (March–April 2027). Falsification conditions — LME copper breaking below USD 13,000 alongside Julong's per-tonne net profit falling below RMB 55,000 (investment-income thesis broken); lithium carbonate main contract breaking below RMB 90,000 (lithium option narrative invalidated); 2027 contract ≤USD 300 (potash floor shrinks); Julong's payout ratio falling below 30% (high-dividend anchor loosening; watch the capex cycle after Julong Phase III approval); judicial disposal progress on shares pledged/frozen by the former controlling shareholder camp (chip-supply shock); if the asset scrapping losses of three consecutive periods are itemized in the 2026 annual report as pointing to recently built projects (capex effectiveness falsified).

This report is based on the frozen closing-price anchor of 2026-10-12 (RMB 71.20) and public information as of that date. Data sources: the company's 2023–2025 annual reports, 2026 Q1/interim reports, ad hoc announcements (earnings preannouncements, Kanga acquisition, Julong dividends, accounting estimate changes, share pledge/freezes), SZSE Interaction Platform and investor relations records, Baichuan Yingfu, Nutrien/IFA/ICSG/Wood Mackenzie/USGS industry data, research from Sinolink/Guotai Haitong/Soochow, and aggregated sell-side consensus. This report does not constitute investment advice.