Key points of investment:

The company is a leading non-ferrous metals enterprise in the industry. The company has the ability to collect, smelt, process and trade various non-ferrous metals and precious metals such as copper, lead, zinc, gold, silver, etc., and its business covers the entire industrial chain integrating exploration, mining, mineral processing, smelting and processing of non-ferrous metals, involving many regions in China, South Africa, Peru, Kazakhstan, the Congo (DRC), the Philippines, etc.

The company has abundant resources at home and abroad. Domestic: The company has 16 mines in China, located in Gansu, Xinjiang, Shaanxi, Tibet and other resource-rich provinces and regions, and has 16 mining rights and 3 prospecting rights. The amount of copper-lead-zinc metal was 8,837,500 tons, of which: 329,000 tons of copper metal, 1,721,500 tons of lead metal, 6.787 million tons of zinc metal, 16.75 tons of gold metal, 1960 tons of silver metal, and 15,500 tons of molybdenum metal. The company's zinc resource reserves rank among the highest in the country. Among them, the main mine, the Changba Lead-Zinc Mine, is one of the largest lead-zinc deposits in China. It is a national key planned exploration area. It is the second largest lead-zinc deposit that has been discovered in China. The total amount of ore is 118 million tons, the total amount of proven lead+zinc metals is 7.8861 million tons, and the overall average grade is 6.67%. Overseas: The wholly-owned company No. 1 Gold has gold resources of 26.010,200 ounces (equivalent to 809 tons), with gold reserves of 2.282,700 ounces (about 71 tons). The company, which holds 16.81% of the company's shares, currently has gold resources of 104,221 million ounces (about 3,241.6 tons), gold reserves of 165.84 million ounces (about 515.8 tons), platinum-type metal resources of 38,4373 million ounces (about 11,923.6 tons), and platinum metal reserves of 76.062 million ounces (about 2422.7 tons). Banlow, which holds about 34.42% of the company's shares, currently has gold resources of 13.12 million ounces (equivalent to about 408 tons) and 3.11 million ounces (equivalent to 97 tons) of gold reserves.

The company's overall production continued to grow, and production of zinc and precious metals increased rapidly. In terms of sampling, in the first half of 2019, the company's sampling system produced 91,300 tons of concentrated copper, lead, zinc, and molybdenum metals, an increase of 0.78 million tons (+9.29%) over the previous year. Among them, the concentrate contained 22,000 tons of copper, a year-on-year decrease of 511 tons (-2.27%); the concentrate contained 59,700 tons of zinc, an increase of 0.87 million tons (+17.16%); the concentrate contained 0.96 million tons of lead, a decrease of 407 tons (-4.07%); and the concentrate contained 40 tons of molybdenum, a decrease of 62 tons (-60.82%) over the previous year. The main reason for the year-on-year increase in the company's concentrate metal volume was the increase in zinc concentrate metal content in Shouxin Peru's mining industry compared to the previous year. In terms of smelting, the smelting system produced 68,900 tons of cathode copper, a year-on-year decrease of 80,000 tons (-10.35%); produced 13,300 tons of electric lead, an increase of 0.42 million tons (+47.58%); produced 165,800 tons of zinc products, an increase of 45,800 tons (+38.13%); produced 4,119 kilograms of gold, an increase of 794 kilograms (+23.88%) over the previous year; produced 91 tons of silver, an increase of 29 (+46.77%); produced 517,700 tons of sulfuric acid, an increase of 517,700 tons over the previous year 88,800 tons (+20.15%). The year-on-year increase in the company's metal products and by-products was mainly due to the launch of the new system at the Northwest Lead and Zinc Plant in the second half of 2018.

The company's performance is coming out of a slump. In the first half of 2019, the company achieved revenue of 26.688 billion yuan, an increase of 19.31% over the previous year; achieved net profit of 4.78 million yuan to shareholders of the parent company, an increase of 104.93% over the previous year; and achieved net profit attributable to shareholders of the parent company after deduction of 2.33 million yuan, an increase of 82.58% over the previous year. The improvement in performance was mainly due to the increase in operating income, while taxes and surcharges (-7.33%) and financial expenses declined (-6.11%), and the increase in sales expenses (+6.84%) and management expenses (+7.57%) was limited.

The company has about 809 tons of gold resources. As of April 2019, South Africa's No.1 Gold Company became a wholly-owned subsidiary of the company, and the China-Africa Development Fund became one of the company's shareholders. First Gold Company develops and operates shallow, low-technology risk and high-profit gold mines in South Africa. It is South Africa's leading low-cost gold producer. It holds 3 mining rights, 3 mining licenses and 21 prospecting rights. In total, it has about 809 tons of gold resources. The company benefits from rising gold prices.

The company's indirect holding company, Sibanyi, is the second largest platinum supplier in the world. The company owns Sban 1 company through First Gold Company, which is the largest shareholder of Sban 1. Spane 1 is the number one gold company in South Africa, the ninth largest gold company in the world, and the second largest platinum metal company (after acquiring Shizui and Lomin in 2017). The company is headquartered in Johannesburg, South Africa. Its stock is traded on the Johannesburg Stock Exchange in South Africa and the New York Stock Exchange in the United States. Sban 1 has gold resources of about 3,241.6 tons, with gold reserves of about 515.8 tons. The resources of platinum-series metals are about 6,356.6 tons, and the reserves of platinum-series metals are about 1,432.7 tons.

Platinum may be the next important energy metal. Platinum is mainly used in automotive catalysts, jewelry, and industry. According to data from the International Platinum Association, the consumption of the three in 2018 was 88.6 tons (-6.2%), 65.9 tons (-5.5%), and 54.4 tons (+14.3%), respectively. In addition, there was a small investment requirement of 0.4 tons (-94.5%). Affected by the downturn in the automobile and jewelry industry in 2018, the usage of platinum showed a declining trend, but industrial demand grew rapidly, and investment demand was also very sluggish. Constrained by the current oversupply of platinum (total supply in 2018 was about 229 tons, total demand was about 210 tons), the price of platinum is at a historically low level, and its performance is far worse than gold and palladium. However, the outlook for platinum demand is positive. Electrolysis of water uses electric current to break water into oxygen and hydrogen, and the conductivity of platinum makes it an ideal material for hydrogen production. The characteristics of platinum make it an ideal surface for proton exchange membrane PEM in fuel cells, and hydrogen energy fuel cells are becoming a new direction for power cell development. Hydrogen energy is an ideal and pollution-free ultimate energy source. In 2019, hydrogen energy was first included in the “Report on the Work of the Government”, which called for “promoting the construction of facilities such as charging and hydrogenation.” In March 2019, the Ministry of Finance and four other ministries and commissions jointly issued the “Notice on Further Improving Financial Subsidy Policies for the Promotion and Application of New Energy Vehicles”, stating that local authorities should improve their policies. After the transition period, new energy vehicles (excluding new energy buses and fuel cell vehicles) will no longer be subsidized for the purchase of new energy vehicles (with the exception of new energy buses and fuel cell vehicles), and will instead be used to support the “shortfall” construction of charging (hydrogenation) infrastructure and supporting operation services. Local governments have successively introduced many policies, and in the first half of 2019, Guangdong, Jiangsu and other places also introduced specific policies to promote the development of the local hydrogen energy vehicle industry. The domestic “New Energy Vehicle Industry Development Plan (2021-2035)” is being formulated, and relevant ministries and departments are investigating and listening to opinions in various regions. Hydrogen energy may be one of the important topics. Demand for platinum is expected to open rapidly due to the development of hydrogen energy vehicles. In terms of demand for traditional automobile catalysts, demand is expected to improve and recover as China's national six automobile emission standards begin to be implemented and the EU's new emission standards are implemented. As the price of platinum recovers, investment demand is also expected to increase.

Profit forecast and valuation: The company's EPS after full dilution in 2019-2021 is expected to be 0.04 yuan, 0.05 yuan and 0.06 yuan respectively. Based on the September 23 closing price of 4.30 yuan, the corresponding PE is 120.5 times, 86.1 times, and 71.0 times respectively. Considering that the company is one of the largest shareholders of Span and an important participant in the platinum market, the company was given an “increase in holdings” investment rating for the first time.

Risk warning: (1) the development of the hydrogen energy industry fell short of expectations; (2) the progress of the company's projects fell short of expectations; (3) metal prices fell sharply due to economic downturn and weak demand