Recently, South Permanent Magnetism Technology Co., Ltd. (hereinafter referred to as “South Permanent Magnetism”), a leading enterprise in recycling and comprehensive utilization of rare earth permanent magnet waste in China, has obtained tens of millions of equity investment from Ehong Capital. This is another investment layout of Ehong in the circular economy sector, following investments in the recycling and comprehensive utilization of industrial solid hazardous waste, waste batteries, agricultural and forestry waste, waste plastics, etc.

Developing Circular Economy is of Great Significance to Safeguarding National Resource Security and Assisting the Achievement of the Nation’s “Dual Carbon” Goals

From an international perspective, green, low-carbon and circular development has become a global consensus. The world’s major economies generally take the development of circular economy as the basic pathway to break resource and environmental constraints, respond to climate change, and cultivate new economic growth. At the same time, it must be noted that the current world structure is undergoing profound adjustments, adding the impact of the global pandemic, the global industrial chain, value chain and supply chain have been severely impacted by non-economic factors, and the uncertainty and instability of international resource supply has increased, which has brought major challenges to China’s resource security. From a domestic point of view, China is striving to build a new development pattern with the domestic cycle as the main focus and the domestic and international “dual cycles” promoting each other, in building a large domestic market. During the “fourteenth five-year plan” period, China’s resource and energy demand will still grow rigidly, but some major resources are highly dependent on external sources, the overall efficiency of resource and energy utilization is still low, and resource security is under great pressure. There is an urgent need for China to develop a circular economy, improve resource utilization efficiency and the renewable resource utilization level, and there is a huge space for it.

Therefore, whether from the perspective of global green development trends and the requirements of responding to climate change, or from the perspective of domestic resource demand and utilization level, China must vigorously develop its circular economy, achieve efficient utilization and recycling of resources, and promote high-quality economic and social developments. On the other hand, achieving carbon peaking and carbon neutrality has become a major strategy for the country’s long-term development plan, and developing a circular economy is one of the important paths to achieving carbon peaking and carbon neutrality.

Circular economy takes the efficient utilization and recycling of resources as the core, takes “reduction, reuse and resource utilization” as the principle, and takes low consumption, low emission and high efficiency as the basic characteristics. Vigorously developing a circular economy can effectively reduce the processing and manufacturing steps of products, extend the life cycle of materials and products, improve the carbon sequestration capacity of products, and reduce energy consumption and carbon dioxide caused by the extraction of raw materials, primary processing of raw materials, product disposal and re-production. emission. According to preliminary estimates by the China Circular Economy Association, during the “Thirteenth Five-Year Plan” period, the comprehensive contribution rate of developing circular economy to the reduction of carbon dioxide emissions in China will exceed 25%.

Given this background, in July 2021, the National Development and Reform Commission issued the “Fourteenth Five-Year Plan for Circular Economy Development” (NDRC “2021” No. 969), proposing that by 2025, the output rate of major resources will be approximately 20% higher than that in 2020. The comprehensive utilization rate of solid waste commodity will reach 60%, the output of recycled non-ferrous metals will reach 20 million tons, and the output value of the circular economy will reach 5 trillion RMB.

Ehong Focuses on Investing in the Circular Economy

In recent years, Ehong has identified “waste management and circular economy” as an important investment theme, has conducted research on relevant sub-sectors from top to bottom, and has followed the double-bottom line principle – equal emphasis on financial, environmental and social value, in order to find investment targets. In the past few years, Ehong has invested in enterprises focusing on the disposal and comprehensive utilization of industrial solid waste and hazardous waste. This year, the fund has invested in a company dedicated to the recycling and comprehensive utilization of waste power batteries. The recycled waste is used for making power batteries in electric vehicles. In the past two years, in terms of plastic pollution prevention and waste disposal and utilization, Ehong has invested in a company that uses agricultural waste as raw materials to produce biodegradable eco-friendly packaging and tableware and a company that recycles waste plastic and wood flour to make green building. In addition, Ehong has also invested in ecological enterprises engaged in pollution testing.

Ehong’s portfolio companies in the field of circular economy have some common characteristics. From the perspective of financial growth, the growth trends and competitive landscapes are relatively clear. From the perspective of environmental and social impact, the common characteristics are more obvious. First, main activities of the companies should result in significant carbon emission reduction; secondly, their recycled products are mainly used in eco-friendly fields; thirdly, they actively fulfill social responsibilities in terms of quality jobs and labor protection, showing a positive relationship between financial value and ESG values. South Permanent Magnetism fully reflects above characteristics.

South Permanent Magnetism: Synergistic Growth of Economic and Social Value

With the rapid development of electric vehicles, wind power and other emerging downstream fields, the demand for rare earth praseodymium neodymium oxide is growing. However, the upstream rare earth mining and smelting activities are restricted by national quotas, and the government’s recycling of rare earth permanent magnet waste and comprehensive utilization of resources are also strictly supervised. Therefore, the competitive landscape of the industry is relatively stable. It is expected that, as an important channel for increasing the supply of rare earth magnetic materials, the industry of rare earth permanent magnet waste recycling is expected to enter a period of rapid growth in the next few years.

With its IP-protected processing technology and excellent operational capabilities, South Permanent Magnetism has certain competitive advantages in technology research and development, production scale and supply chain management. At present, the company can process about 3,000 tons of waste rare earth magnetic materials every year and can produce nearly 1,000 tons of rare earth oxides. Its downstream customers are mainly wind power generation, personal and industrial electric vehicles, household appliances, consumer electronics and others. The investment from Ehong Capital will effectively help South Permanent Magnetism to realize the upgrade of production lines and expansion of production capacity. The company’s performance will usher in an inflection point of growth.

The development of South Permanent Magnetism can effectively make up for the gap in the supply of rare earth raw materials, and the country’s carbon emissions reduction effort. Preliminary estimates show that the disposal and recycling of rare earth permanent magnet wastes completed each year can reduce carbon dioxide emissions by 1,200-1,300 tons; the annual output of its recycled products can meet the energy requirements for the construction of a 1.5 gigawatt (GW) power wind power station. (1GW power station can basically meet the electricity demand of a medium-sized city).

In addition to its commitment to expanding its core business, South Permanent Magnetism also attaches great importance to fulfilling its corporate social responsibilities, especially in providing high-quality skill training and employment opportunities for the disabled. One-fourth of its employees are disabled, far greater than the government requirement and the average hiring quota of its peers. The company faithfully fulfills its social mission of “employing one person to help a family”. It is worth celebrating that at the just-concluded Tokyo Paralympic Games, Feng Yan, an employee of South Permanent Magnetism, won individual gold medals in wheelchair fencing men’s saber B class and men’s foil B class.

The caring and collaborative corporate culture of South Permanent Magnetism has significantly improved the cohesion of the company. Its employee retention rate has maintained an elevated level for a long time, thereby further improving the production efficiency and innovation ability of the company. Such soft power enables the company to achieve greater output and better financial returns, fully reflecting the positive synergy between creating financial value, social value, and environmental value.

Author: Ehong Capital