PwC’s “Mine 2016” report, based on market capitalization as of December 31, 2015, identified the world’s 40 largest mining companies for 2015. Among these companies, 12 were Chinese firms, and companies from emerging market countries accounted for 18—nearly half of the total.

This also marks PwC’s 13th annual global mining report. In 2015, the mining industry hit rock bottom: the world’s top 40 mining companies experienced their first-ever collective net loss, and their debt-to-equity ratio reached an all-time high.

As shown in the table above, China Shenhua’s profit in 2016 reached as high as 17.3 billion yuan. Although the increase compared to the same period last year was relatively small, its profit was nearly 20 times that of China National Coal Energy!

Especially during the first three quarters of 2015, when many other coal companies were suffering losses, Shenhua not only managed to turn a profit but also achieved a total profit of as much as 17.193 billion yuan. So why was Shenhua, as the “big brother” in the industry, able to attain such high profitability?

Because Shenhua hasn't put all its eggs in the coal basket.

Shenhua Group is a state-owned, wholly-owned enterprise established in 1995 with the approval of the State Council. Its business scope covers sectors including coal mining, power generation, railways, ports, shipping, and coal chemical industries. The group’s consolidated subsidiaries at the second-level total 20 companies. Therefore, the coal industry is an important business segment for Shenhua, but it is by no means the only one.

Currently, the coal and power businesses are the primary sources of revenue for Shenhua Group. Shenhua Group operates 62 coal mines, and its Shen Dong mining area is China’s first large-scale, modern coal production base with an annual output exceeding 100 million tons. This area includes six mega-mine complexes—Bulianta, Daliuta, Yujialiang, Shangwan, Hala Gou, and Kangjiatan—all with annual capacities of over 10 million tons.

In addition to its coal business, the massive Shenhua Group also encompasses power generation, railway transportation, port operations, and pilot projects for coal-to-oil conversion. All these businesses continue to generate profits, effectively offsetting the losses caused by the sharp decline in coal revenues. Thus, while most coal companies are facing losses, Shenhua has managed to remain unscathed and continue turning a profit—a testament to its diversified portfolio and robust financial resilience.

Tianqi Lithium’s profit has increased by 20 times.

As the only lithium company listed, Tianqi Lithium’s third-quarter 2016 results were also remarkably impressive, with a net profit of 1.203 billion yuan—an increase of nearly 20 times compared to the same period last year. The primary reason for this surge lies in the substantial rise in global demand for lithium products.

1. Increased demand for lithium ore

In recent years, the industrial chain related to new-energy vehicles has been highly favored in the capital market. Lithium mines and lithium salt products have made a significant contribution to Tianqi Lithium, China's largest lithium product manufacturer and the world's leading company in lithium extraction from ore.

Due to the rapid growth of new-energy vehicles in China, upstream raw materials are in short supply. Last year, the global lithium supply and demand gap exceeded 5,000 tons. As a result, the price of lithium carbonate has surged significantly since October last year: it stood at 50,000 yuan per ton in early October last year, jumped to 110,000 yuan per ton by the end of December last year, and reached as high as 200,000 yuan per ton at the market’s peak.

Tianqi Lithium’s lithium carbonate supply accounts for nearly 47% of the domestic market share. The continued rise in lithium carbonate prices has significantly boosted the gross profit margins of lithium salt products, thereby driving up the company’s performance.

Moreover, Talison—wholly owned indirectly by the company through its acquisition of a 51% stake in Wensfield—holds the Greenbush spodumene mine, which boasts the world’s highest grade and largest reserves, accounting for approximately 35% of the global lithium resource supply. Thanks to this strategic move, Tianqi Lithium has successfully joined the ranks of the world’s “oligopolists” in the lithium resource sector.

2. Actively acquire and rationally plan the layout.

Tianqi Lithium has completed the acquisitions of Wenshi Field and Tianqi Mining, establishing an integrated industrial chain covering lithium ore exploration, sales, and processing. At the same time, the company has successfully taken a stake in Zhariye in Shigatse, further enhancing its upstream resource deployment.

Tianqi Lithium has been actively promoting the acquisition of Galaxy Lithium International. Upon completion of the acquisition, the company will rapidly establish production and processing capabilities that are well-matched with upstream resources, and its regional layout will become increasingly rational.

In recent years, Tianqi Lithium’s series of mergers and acquisitions—both domestically and internationally—has drawn widespread attention from the market. The company pointed out that Tianqi Lithium’s industrial chain is expanding upstream and downstream, its value chain is moving toward the high-end, and its core competitiveness has significantly improved. This is reflected in the company’s advantages across the entire industry chain, its resource strengths, and its technological edge. According to available information, in addition to the series of acquisitions already completed—and including the recently acquired Jiangsu Yinhe Lithium—Tianqi Lithium will have a refined processing capacity of over 30,000 tons of lithium salt products, thereby becoming a leading supplier of core materials for new-energy lithium batteries, integrating upstream resource reserves and development with mid- and downstream lithium product processing.

The uniquely distinctive Northern Rare Earths

Unlike other companies, which saw either a rise or a slight decline in profits in 2016, Northern Rare Earth’s profit for the first three quarters was only 34 million yuan—nearly one-tenth of the profit from the same period last year, representing the largest decline among the companies mentioned above.

1. The downturn in the rare earth market

The company stated that in the first three quarters of 2016, the rare-earth market remained sluggish, with prices of major rare-earth products declining year-on-year. Sales volume of the company’s key products also decreased year-on-year, resulting in a substantial year-on-year drop in net profit attributable to shareholders of the listed company.

2. Medical projects are operating at a loss.

Faced with sluggish performance in its core business, Northern Rare Earth recently issued, alongside its semiannual report, an “Announcement Regarding the Investment and Construction of a Rare Earth Medical Industry Base Project.” In line with the company’s strategic shift—from primarily supplying raw materials to gradually expanding and strengthening its capabilities in functional materials and end-use products—Northern Rare Earth plans to invest 200 million yuan to build a rare earth medical industry base, thereby extending the application of rare earths into high-tech end-use products.

In fact, since 2013, the name Xibao Medical has already appeared in Northern Rare Earth’s annual report; at that time, the investment amount was also 200 million yuan. Even more noteworthy is that from 2013 to 2015, Xibao Medical reported net losses. Specifically, in 2013, the company suffered a loss of 24.3589 million yuan; in 2014, its net loss reached 43.9476 million yuan; and in 2015, the loss amounted to 18.4159 million yuan. Fortunately, the company’s operating revenue grew steadily, rising from 50.2542 million yuan in 2013 to 103 million yuan in 2015.

Regarding this “bet” on so-called “rare-earth medical applications,” although Northern Rare Earths boasts advantages in technology and raw materials, it remains highly uncertain whether this venture can actually bring about new growth drivers for the company.