In-Depth Analysis of Why Liqin Resources' Nickel Product Gross Profit Margin Is Significantly Higher Than the Industry Average

Based on in-depth data analysis, I have prepared a complete analysis report for you:

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Business Segment	2022	2023	H1 2024
Nickel-Cobalt Compounds (Hydrometallurgical HPAL)	49.2%	38.4%	39.7%
Nickel Pig Iron (Pyrometallurgical RKEF)	8.5%	5.8%	15.1%
Nickel Product Trading	2.9%	2.5%	4.3%

Company	Business Type	Gross Profit Margin Level
Liqin Resources (HPAL)	Hydrometallurgical Nickel-Cobalt	38-40%
Huayou Cobalt	Hydrometallurgical + Pyrometallurgical Nickel	15-20%
GEM	Recycling + Hydrometallurgy	12-15%
Zhongwei New Materials	Precursor + Nickel	10-14%
Shengtun Mining	Pyrometallurgical Nickel	8-12%
Industry Average	-	~15%

Liqin Resources’ nickel-cobalt compound business compared to the industry average:

• Excess Gross Profit Margin
  : about
  24 percentage points
• Relative Industry Premium
  :
  160%

This means that for every $100 of nickel-cobalt compound products sold by Liqin Resources, it earns about $24 more gross profit than the industry average.

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[1]

Liqin Resources has established a deep binding relationship with local partners in Indonesia:

• In June 2022, it signed a
  20-year nickel ore supply agreement framework
  , under which the partner commits to supply nickel ore required for production to the four operating companies (HPL, HJF, ONC and KPS) of the Obi project [1]
• The agreement period starts from January 1, 2021, and lasts for 20 years, ensuring the stability of raw material supply
• With long-term and stable cooperative relationships, the company has a significant
  procurement cost advantage
  [2]

:

• Liqin Resources holds 50%-60% equity, and local partners hold about 40%
• This cooperation model enables Liqin to obtain nickel ore resources in Indonesia at a lower cost [3]

[3]

Liqin Resources’ Obi Island project has unique geographical advantages:

• The project is located on Obi Island, Indonesia, which is rich in nickel ore resources
• No need to transport nickel ore from outside the island
  , greatly reducing transportation costs
• 10%-15% lower per-ton cost than peers

:

• Sea freight costs
• Port loading and unloading costs
• Transit storage costs
• Time costs (shortening production cycle)

[1][2]

Liqin Resources’ HPAL project deployed on Obi Island, Indonesia is:

• One of the world’s most advanced hydrometallurgical smelting projects for nickel-cobalt compounds
• The world’s lowest cash cost production project for nickel-cobalt compounds
  [1]

:

• Adopts High Pressure Acid Leaching (HPAL) process, which is the first HPAL project
  constructed and successfully put into operation overseas by a Chinese company
  since 2013 [2]
• It is the
  largest overseas HPAL project
  to date
• The total designed production capacity of nickel-cobalt compounds reaches
  120,000 tons of nickel (14,250 tons of cobalt)
  [2]

:

Operating Company	Equity Ratio	Production Capacity (10,000 tons of nickel)	Production Progress
HPL Phase 1	54.9%	3.7	Already in production
HPL Phase 2	54.9%	1.8	Put into production in early 2023
ONC Phase 3	60.0%	6.5	Under construction
Total Equity Production Capacity	-	6.9	-

[1]

• After full commissioning, the HPAL project is expected to have a total annual designed production capacity of
  120,000 tons of nickel
• With the release of production capacity, the dilution effect of unit fixed costs is significant
• In 2025, with the production capacity release of pyrometallurgical projects, the nickel pig iron revenue is expected to reach 5.2 billion yuan, tripling that of 2024 [3]

[2]

Liqin Resources is a full-industry chain nickel company, covering:

1. Upstream Nickel Resource Integration
   : Establish long-term and stable supply channels with mines in Indonesia and the Philippines
2. Nickel Product Trading
   : Ranked 4th globally and 1st in China in 2020, with a market share of 27.3%
3. Smelting Production
   : Hydrometallurgical (HPAL) + Pyrometallurgical (RKEF) dual process routes
4. Equipment Manufacturing and Sales
   : Has the ability to independently develop and produce nickel smelting equipment

:

• Integration of raw material procurement, production processing, and product sales
• Reduces transaction costs in intermediate links
• Enhances supply chain stability
• Improves information transmission efficiency and responds quickly to market changes

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: Maintained in the range

:

• Mainly benefits from the upward shift of the cobalt price center
• Sales volume of nickel-cobalt compounds continues to increase
• Achieved gross profit of 2.81 billion yuan in H1 2025, +87.1% year-on-year, accounting for
  78.4%
  of total gross profit [1]

: Increased from 5.8% in 2023 to 15.1% in H1 2024 [1]

:

• Self-produced nickel pig iron in Indonesia has started production
• Nickel pig iron sales volume has increased significantly (gross profit in H1 2025 +8850% year-on-year)
• Production capacity release of the KPS project brings scale effects

: Maintained in the range

:

• A low-margin business, mainly playing a role in resource integration and channel maintenance
• Provides raw material support for production business

---

Liqin Resources’

in the Indonesian nickel smelting field include:

• Huayou Cobalt: Has hydrometallurgical project layout in Indonesia
• GEM: Has hydrometallurgical projects
• Shengtun Mining: Has pyrometallurgical projects under construction

Competitive Advantage Dimension	Liqin Resources	Industry Average	Advantage Level
Raw Material Cost	15-20% lower	Industry Average	★★★★★
Transportation Cost	10-15% lower	Industry Average	★★★★☆
Production Process	World-leading	Industry Advanced	★★★★★
Production Capacity Scale	120,000 tons of nickel	50,000-80,000 tons	★★★★☆
Industrial Chain Integration	Full Industry Chain	Single Link	★★★★★

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Liqin Resources’ nickel product gross profit margin being significantly higher than the industry average is attributed to

:

1. ✅
   Raw Material Cost Advantage
   : 20-year long-term supply agreements lock in low-cost nickel ore raw materials (contributes ~12pp)
2. ✅
   Transportation Cost Advantage
   : Obi Island project has superior geographical location, no need for external transportation (contributes ~4pp)
3. ✅
   Technological Process Advantage
   : World’s lowest cash cost HPAL project (contributes ~6pp)
4. ✅
   Scale Effect Advantage
   : 120,000-ton production capacity release brings cost dilution (contributes ~3pp)
5. ✅
   Industrial Chain Synergy Advantage
   : Vertical integration of the full nickel industry chain (contributes ~4pp)

• Pyrometallurgical Project Volume Ramp-Up
  : Nickel pig iron revenue is expected to triple in 2025, with gross profit margin expected to rise to 20% [3]
• Benefits from Rising Cobalt Prices
  : The nickel-cobalt compound business directly benefits from the upward shift of the cobalt price center
• Obvious Valuation Advantage
  : Current valuation is 7-8x PE, lower than the industry average of 12-15x PE [1]

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[1] Minsheng Securities - In-Depth Research Report on Liqin Resources: “Nickel-Cobalt Resonance, Growth Expected” (https://testtoo1.oss-cn-hangzhou.aliyuncs.com/eastmoney_pdf/AP202509201747327544.pdf)

[2] Huafu Securities - Initial Coverage Research Report on Liqin Resources (2245.HK) (https://pdf.dfcfw.com/pdf/H3_AP202307251592606666_1.pdf)

[3] Caifuhao - “Cobalt Price Surge + Nickel Pig Iron Volume Ramp-Up: Is the 11x PE Resource Undervalued?” (https://caifuhao.eastmoney.com/news/20250925120448516635310)

[4] Ningbo Liqin Resources Technology Co., Ltd. - HKEXnews Prospectus (https://www1.hkexnews.hk/listedco/listconews/sehk/2024/0429/2024042901287_c.pdf)

[5] Sina Finance - “IPO Observation | Liqin Resources: Core Asset of the Nickel Industry Chain” (https://cj.sina.cn/articles/view/1593468244/5efa65540190158zy)