Following an investigation by the China Securities Regulatory Commission (CSRC) for suspected violations of information disclosure regulations, ShengTun Mining (600711.SH) has seen its stock price plummet for three consecutive trading days, with a cumulative decline exceeding 16%. As of the close on May 22, the stock price of ShengTun Mining closed at 4.34 yuan, down 4.82%.

This is not the first time ShengTun Mining has come under regulatory scrutiny this year. Last month, the company was issued a warning letter by the regulators for inaccurate financial data disclosure for two consecutive years.

The reporter has observed that since 2010, ShengTun Mining has rapidly expanded through a strategy of "financing on one hand and acquiring mines on the other." On one side, it has made substantial acquisitions of nearly 30 companies over more than a decade. On the other, it has directly raised over ten billion yuan through private placements and convertible bonds. However, recently, as performance fluctuations increase and the financial situation becomes more strained, the financial concerns following ShengTun Mining's aggressive hoarding of mines have gradually surfaced.

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Multiple Regulatory Concerns

On May 18, ShengTun Mining received a notice of investigation from the CSRC, which decided to file a case against the company for suspected illegal and irregular information disclosure.

A month prior to the filing, ShengTun Mining had been issued a warning letter by the regulators for inaccurate financial data disclosure for two consecutive years.

The administrative regulatory measures decision document from the Xiamen Securities Regulatory Bureau indicated that between 2021 and 2022, ShengTun Mining, in its cobalt hydrometallurgical intermediate product sales business with certain customers, did not substantially transfer control rights when delivering goods to the customers, and recognized revenue upon delivery, which was an inaccurate accounting treatment.

"The aforementioned sales of certain cobalt hydrometallurgical intermediate products to customers were repurchased by the company's subsidiaries for production and were not consolidated for offset," the Xiamen Securities Regulatory Bureau stated. The two aforementioned issues led to ShengTun Mining over-recognizing revenue by 359 million yuan in 2021, accounting for 0.79% of the revenue for that period, and over-recognizing profit by 193 million yuan, accounting for 7.15% of the total profit for that year; in 2022, it over-recognized revenue by 84.149 million yuan, accounting for 0.33% of the revenue for that year, and under-recognized the total profit by 139 million yuan, accounting for 18.2% of the total profit for that year. During the period from 2021 to 2022, ShengTun Mining cumulatively over-recognized approximately 443 million yuan in revenue.

The reporter noticed that ShengTun Mining basically "accepted as is" the issues raised by the regulators and quickly made corrections. On April 23, ShengTun Mining corrected the previously disclosed annual reports for 2021 and 2022, as well as the quarterly financial data for 2023, for prior period accounting errors. On May 15, ShengTun Mining published a "Rectification Report on the Administrative Regulatory Measures Decision Document of the Xiamen Securities Regulatory Bureau," once again reporting on the rectification measures and their completion status.

An industry financial analyst believes that the investigation announcement on May 18 caused a change in market sentiment, mainly due to concerns about the verification of additional fraudulent activities. However, looking at the timeline, the company published the rectification report on May 15, and the regulators filed the case on May 17, which is more inclined to be a continuous handling of existing events (i.e., the overstatement of 443 million yuan in revenue for the two years mentioned above). In response to the above viewpoint, the reporter sent an email to the securities affairs representative of ShengTun Mining for verification, and there has been no reply as of the time of publication.Financial Worries Emerge

Behind the continuous regulatory attention and being embroiled in a disclosure storm, financial concerns have surfaced for ShengTun Mining.

ShengTun Mining, formerly known as XiongZhen Group, began its foray into the mining sector in 2007. The actual controller behind the scenes, Yao Xiongjie, has been financing and acquiring at the same time, successively taking over ShengTun Mining and ShengXin Lithium Energy (002240.SZ), two listed companies, and creating a "ShengTun System" primarily focused on mining, which gained fame when the lithium battery industry took off.

According to financial reports, ShengTun Mining is committed to the development and utilization of energy metal resources, especially metal varieties required for new energy batteries, with a focus on copper, nickel, and cobalt. In 2023, the company had an annual production capacity of 102,000 tons of copper, 12,400 tons of cobalt, 332,000 tons of zinc, and 4.2 tons of nickel.

However, in recent years, the performance of ShengTun Mining has been unstable, with significant cyclical fluctuations. According to financial reports, the company's revenue slid from 44.933 billion yuan in 2021 to 24.456 billion yuan in 2023. From 2021 to 2023, ShengTun Mining's net profit attributable to the parent company fluctuated significantly, amounting to 917 million yuan, -20.892 million yuan, and 265 million yuan, respectively.

"The main reason for the revenue decline is the strategic reduction in the scale of metal trading business," ShengTun Mining explained in its annual report. In 2023, ShengTun Mining's operating income from non-ferrous metal trading and other businesses was 6.699 billion yuan, a year-on-year decrease of 18.03%, with the decline further widening.

Furthermore, upon further analysis of ShengTun Mining's revenue structure, the gross profit margin of the main products fluctuated significantly. In 2023, the gross profit margins for cobalt, nickel, and zinc products were 10.36%, 13.09%, and -2.61%, respectively, decreasing by 15.4 percentage points, 10.57 percentage points, and 3.74 percentage points compared to the previous year. Only the copper product saw a significant increase in gross profit margin, reaching 33.6%, a rise of 15.91 percentage points in 2023.

Some industry insiders have analyzed that the gross profit margin is mainly influenced by metal prices. ShengTun Mining's profitability is also closely linked to the volatility of energy metal prices, which introduces instability.

Despite unstable revenue, ShengTun Mining's financial expenses have continued to increase. In 2023, ShengTun Mining's financial expenses amounted to 388 million yuan, a significant year-on-year increase of 165.84%. This was due to increased financing by the company, leading to higher interest expenses. In 2023, interest expenses were 533 million yuan, compared to 403 million yuan in the same period of the previous year, marking a significant year-on-year increase of 32.24%.

At the same time, ShengTun Mining's funds are also under strain. As of the end of the first quarter of 2024, ShengTun Mining's cash and cash equivalents were 5.591 billion yuan, with short-term borrowings as high as 7.178 billion yuan and long-term borrowings at 4.412 billion yuan. The cash and cash equivalents on hand are no longer sufficient to cover the short-term borrowings.High interest expenses and tight funding conditions both reflect to some extent that the "aftereffects" of the aggressive mining purchases by ShengTun Mining in its early years are beginning to emerge.

As Yao Xiongjie's "base of operations," ShengTun Mining has been continuously financing and acquiring since 2007, with its scale continuously expanding. According to the data from Choice, over the past 17 years, ShengTun Mining has completed 27 mergers and acquisitions, with the transaction amount of 10 domestic mergers and acquisitions (for which data is available) reaching 4.35 billion yuan.

Perhaps due to the high cost of purchasing mines, ShengTun Mining has frequently resorted to targeted additional issues to raise funds and alleviate pressure. According to incomplete statistics by the reporter, since 2010, ShengTun Mining has successfully implemented 9 targeted additional issues and 1 convertible bond issuance, raising a total of 13.04 billion yuan. If calculated based on the 2023 net profit attributable to the parent company of 265 million yuan, the current financing amount of ShengTun Mining would require the company to operate for over 40 years to earn.