Risk Analysis of the Lack of Lithium Carbonate Hedging in Dazhong Mining

Based on the latest market data and company information, I will conduct an in-depth analysis of the impact of Dazhong Mining’s non-participation in lithium carbonate hedging business from multiple dimensions.

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Dazhong Mining (001203.SZ) is mainly engaged in iron ore mining and dressing, as well as production and sales of iron concentrate and pellets. In 2023, the company began its strategic layout of lithium ore resources, and entered the ranks of lithium ore concept stocks by acquiring two core assets: Hunan Jijiaoshan Lithium Mine and Sichuan Jada Lithium Mine [1]. However, according to the company’s recent clarification on the interactive platform,

[2].

From the perspective of business revenue structure, the company achieved operating revenue of RMB 3.025 billion in the first three quarters of 2025, but the revenue from lithium carbonate business was only about RMB 20 million, accounting for about 0.72%, with a negligible contribution [1]. Among the company’s two lithium mine projects, Hunan Jijiaoshan Lithium Mine has an annual mining and dressing capacity of 20 million tons (corresponding to an annual output of 80,000 tons of lithium carbonate), and Sichuan Jada Lithium Mine has an annual output of about 50,000 tons of lithium carbonate, which are still in the construction promotion stage.

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The 2025 lithium carbonate market showed a typical “V-shaped reversal” trend:

Time Node	Price Level	Volatility Characteristics
Early 2025	RMB 75,000/ton	Fluctuating downward
June 24 (year-low)	RMB 59,000/ton	Down 21.3% from early 2025
End of December	RMB 126,800/ton	Rebounded 115% from the low
January 6, 2026	RMB 137,400/ton	Continuous upward trend [3][4]

Market institutions have reached a consensus on the 2026 lithium carbonate price trend:

will be the main feature.

Forecasting Institution	2026 Price Range	Core Logic
Guangzhou Futures Exchange (GFEX)	RMB 70,000-130,000/ton	Both supply and demand increase, price center moves up
Huatai Futures	RMB 70,000-130,000/ton	Surplus narrows, focus lifts
COFCO Futures	RMB 70,000-150,000/ton (extreme)	Phased intensification of supply-demand mismatch [3][4]

• Supply Side
  : The bottom of RMB 60,000/ton in 2025 has been confirmed, but the industry is still in a stage of oversupply
• Demand Side
  : Energy storage demand is expected to grow by 55%, power battery demand by 25%, with an overall growth rate of about 30%
• Seasonality
  : In the first quarter, affected by low inventory, energy storage orders, and lower-than-expected resumption of overseas mines, prices may hit a high of RMB 150,000/ton

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The core risk currently faced by Dazhong Mining is

. Assuming the company achieves an annual lithium carbonate production capacity of 80,000 + 50,000 = 130,000 tons in the future, based on an average price of RMB 100,000/ton, annual sales revenue can reach RMB 13 billion. Each RMB 10,000/ton price fluctuation will directly affect RMB 1.3 billion in revenue and corresponding profits.

Price Scenario	Lithium Carbonate Price	Estimated Impact on 130,000-ton Annual Output
Optimistic Scenario	RMB 130,000/ton	Annual sales revenue of RMB 16.9 billion
Neutral Scenario	RMB 100,000/ton	Annual sales revenue of RMB 13 billion
Pessimistic Scenario	RMB 70,000/ton	Annual sales revenue of RMB 9.1 billion
Extreme Scenario	RMB 59,000/ton	Annual sales revenue of RMB 7.67 billion

If the price falls to the lower limit of RMB 60,000/ton in 2026, compared with the central price of RMB 100,000/ton, the company’s potential revenue loss will reach RMB 5.2 billion.

The company’s financial indicators show certain vulnerabilities:

Financial Indicator	Dazhong Mining	Industry Benchmark	Risk Assessment
Current Ratio	0.44	1.5	High Risk
Quick Ratio	0.32	1.0	High Risk
Debt Risk Rating	High Risk	Medium	High Risk
Asset-Liability Ratio	Not Disclosed	55%	Need Attention [5]

Financial analysis shows that the company adopts

and has the characteristics of a high depreciation/capital expenditure ratio [5]. In an environment of violent lithium price fluctuations, weak liquidity means that when prices fall, the company may face the dual challenges of and .

1. Increased Profit Volatility
   : The company’s net profit attributable to shareholders has declined year-on-year for six consecutive quarters, with a year-on-year decrease of 10.28% in the first three quarters of 2025 [1]. The lack of hedging means that profits will be further under pressure during the lithium carbonate price decline cycle.

2. Valuation Pressure
   : The company’s current P/E ratio reaches 63.01x, and P/B ratio reaches 6.46x, with valuation fully reflecting the market’s optimistic expectations for its lithium business [5]. If price fluctuations lead to underperformance, valuation may face pullback pressure.

3. Project Construction Uncertainty
   : The two lithium mine projects are in a critical construction period, and continuous price fluctuations may affect the project financing progress and production commissioning rhythm.

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In the face of lithium carbonate price fluctuations, industrial chain enterprises generally adopt response measures:

• Upstream Enterprises
  : Shengxin Lithium Energy signed a 2026-2030 procurement agreement with CALB to lock in 200,000 tons of lithium salt products [3]
• Midstream Enterprises
  : Longpan Technology invested RMB 2 billion to build a 240,000-ton high-compaction lithium iron phosphate production base [4]
• Hedging Participation
  : Multiple lithium salt enterprises conduct price risk management through the futures market

In contrast,

, forming a risk exposure structure of .

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Risk Dimension	Risk Level	Description
Lithium Carbonate Price Fluctuation Risk	High (90/100)	No hedging at all, full exposure
Liquidity Risk	High (75/100)	Current ratio of 0.44, significantly lower than industry benchmark
Debt Default Risk	High (70/100)	Debt risk rating is High Risk
Project Production Commissioning Risk	Medium-High (80/100)	Price fluctuations affect financing and progress
Operational Stability	Medium-High (70/100)	Profit decline for six consecutive quarters

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1. Establish Futures Hedging Positions
   : It is recommended that the company establish short hedging positions in the GFEX lithium carbonate futures market as soon as possible to hedge against price decline risks
2. Sign Long-Term Sales Agreements
   : Referring to industry practices, sign 3-5 year long-term supply agreements with downstream battery or vehicle enterprises to lock in sales prices for part of the production capacity

1. Improve Hedging Systems
   : Establish a professional futures hedging management system, clarifying key parameters such as hedging ratio and stop-loss lines
2. Combine Financial Hedging with Operational Hedging
   : Integrate futures hedging with production capacity construction and sales strategies to form a systematic risk management framework
3. Strengthen Investor Communication
   : Provide more transparent information disclosure in response to investors’ concerns about hedging

Dazhong Mining has not carried out lithium carbonate hedging business. In the current market environment of lithium carbonate prices

, it will face the following core impacts:

• Direct Risk Exposure
  : Full exposure to price fluctuations, with 130,000-ton/year production capacity corresponding to approximately RMB 13 billion in revenue, and each RMB 10,000/ton price fluctuation affecting RMB 1.3 billion in revenue
• Operational Stability Challenges
  : Coupled with the company’s high leverage status with a current ratio of only 0.44, price declines may lead to tight cash flow
• Valuation Pressure
  : The current high valuation (63x P/E) is based on optimistic expectations for the lithium business; if performance is under pressure due to price fluctuations, valuation may pull back

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[1] Eastmoney - “Iron Ore Miner Transforms into a Dark Horse in Lithium Battery Sector: The Story Behind Dazhong Mining’s 200% Surge” (https://caifuhao.eastmoney.com/news/20251229130958766548420)

[2] Investor Interactive Platform - Dazhong Mining’s Clarification on Hedging Business

[3] Jiemian News - “Phased Opportunities Arrive, Should You Buy Lithium Stocks? | A-Share 2026 Investment Strategy ⑪” (https://m.jiemian.com/article/13836668.html)

[4] Hstong - “Lithium Carbonate Surges at the Start of the Year, How Much Room Is Left in 2026?” (https://www.hstong.com/news/detail/26010611102645479)

[5] Jinling AI - Company Financial Data API