The company's performance in the first half of the year fell significantly short of our expectations and experienced losses. Due to the increase in refined gold sales, the company's revenue rose sharply by 70.1% to RMB 3.93 billion over the same period last year, but the company experienced a significant loss in profit to RMB 375.4 million.

Inventory impairment will continue to put pressure on the company's profits. If the price of gold remains at the current level of 280 yuan/gram, we estimate that the impairment of the company's inventory will exceed RMB 300 million.

The assumption that ore gold production was lowered is due to the suspension of gold production in Kyrgyzstan. The Kyrgyz gold mine was discontinued in the first half of 2013 because recycling rates did not meet design targets.

Gold price assumptions were lowered as more investors sold off gold assets. We lowered our assumption of the average price of gold in 2013 to 285 yuan/gram, and expect international gold prices to fluctuate in the range of 1,200-1,800 US dollars/ounce.

Maintain the target price of HK$1.65 and maintain the “reduced holdings” investment rating.