Core views

The company produces more than 200 tons of silver per year, has reserves of nearly 10,000 tons of silver resources, high quality, low cost, and outstanding scale and cost advantages. It is the leading silver resource in China. The company is actively expanding production, increasing capital to hold the vegetable garden copper and gold mine, becoming a gold upstart, strengthening its precious metals strategy, and is expected to grow steadily in the future.

The Fed's interest rate hike is coming to an end. Lower real interest rates constitute an upward driving force for precious metals. At the same time, the credit of the US dollar is weakening. The central bank's gold spot reserves will help keep gold prices high in the future. Demand in the silver industry is strong, and it is expected that short-term supply in 2023 will open up room for gold and silver prices. The company, as a leader in silver and an upstart in gold, will fully benefit from the sharp rise in the volume and price of gold and silver, and accelerate its performance.

occurrences

Net profit from Gimo fell 40.97% in the first half of the year

On the evening of August 29, Shengda Resources released its semi-annual performance report, stating that revenue for the first half of 2023 was about 817 million yuan, an increase of 35.04% over the previous year; net profit attributable to shareholders of listed companies was about 61.1529 million yuan, a year-on-year decrease of 40.97%; and basic earnings per share of 0.0886 yuan, a year-on-year decrease of 41.01%.

It is proposed to increase capital to hold the Caiyuanzi copper and gold mine to strengthen the precious metals strategy

On the evening of August 29, Shengda Resources announced that the company or through its subsidiaries plans to obtain no less than 53% of Honglin Mining's shares with a cash increase of no more than 300 million yuan to achieve a controlling interest in Honglin Mining. Honglin Mining's core asset is the Caiyuanzi copper and gold mine, located in Muli Tibetan Autonomous County, Liangshan Yi Autonomous Prefecture, Sichuan Province. The Caiyuanzi Copper and Gold Mine has 17.05 tons of industrial-grade gold resources, with an average grade of 2.82 g/t, with an average copper resource of 0.48%.

Brief performance review

The decline in zinc prices dragged down performance in the first half of the year

1) Looking at the business sector, out of the company's revenue of 817 million in the first half of the year, the trade business contributed 304 million yuan in revenue. It was difficult to increase revenue and profit, with a gross profit margin of -0.08%; the metal mining and selection industry had revenue of 436 million yuan, -18.52% year-on-year, with a gross profit margin of 55.14%. The decline in the company's overall gross margin in the first half of the year was mainly due to an increase in the share of trade business.

2) By product, zinc concentrate (including silver) had revenue of 171 million, -20.3%, gross profit of 67 million yuan, -58.0%, gross profit margin of 39.0%, year-on-year -14.6 pct; lead concentrate (including silver) had revenue of 261 million, -16.1%, gross profit margin of 174 million, -15.3%, and gross profit margin of 66.8%, +0.4%.

3) The decline in zinc prices was a drag. According to Baichuan information, in the first half of the year, the average price of zinc concentrate was 15,500 yuan/ton, -20.0%, compared to 13,600 yuan/ton, lead concentrate was 13,600 yuan/ton, -0.5% year on year, and the average price of silver was 5.30 yuan/g, +8.7% year on year.

Yindu is still the main force. Jinshan's performance was released in the second half of the year. Everbright was the main factor that dragged down performance in the first half of the year. The company has 6 mining subsidiaries, of which 4 are in production. Among them, Jinshan Mining was the main drag on its performance in the first half of this year. 1) In the first half of the year, Yindu Mining had revenue of 243 million yuan and net profit of 105 million yuan, +1.1%/-2.5%, respectively; 2) Everbright Mining had revenue of 387 million yuan and net profit of 2.774 million yuan, respectively, +92.5%/-95.7%; 3) Jindu Mining had revenue of 108 million yuan, net profit of 26.144 million yuan, -11.4%/8.2%, respectively; 4) Jinshan Mining had revenue of 2,537 million yuan, net profit - 34.72.1 million yuan, respectively -67.5%/0% As a result, the biggest impact of the decline in performance in the first half of the year came from Everbright Mining. The net profit of a single mine decreased by 62,425 million yuan (the company's overall net profit fell by 42.25 million yuan). Yindu is still the company's main mine and the mine with the strongest profitability. As the second largest main mine, Jinshan, as the second largest main mine, had a short operating time in the first half of the year, and profits mainly contributed in the second half of the year.

Silver is leading, with outstanding resource endowment advantages, and steady progress in production capacity expansion 1) The company currently has an annual mining capacity of nearly 200 tons/year, silver resource reserves close to 10,000 tons of metal, and an annual production of more than 200 tons of silver, establishing an advantageous position in the industry. The raw silver grades of Yindu, Jindu, Jinshan, and Dongsheng all exceed 200g/t, with high raw mineral grades and outstanding cost advantages. In recent years, gross margin has remained above 50%. 2) Dongsheng Mining's 250,000-ton mine construction project is in progress. It is currently processing relevant reporting procedures such as urban and rural planning, land use, environmental protection, energy efficiency review, production safety, soil and water conservation, etc. If it progresses smoothly, it is expected that the mine construction will be completed in one to one and a half years, leading to a significant increase in silver production; Yindu Mining's 1.43 square kilometer prospecting rights will complete exploration and transfer procedures within the year; Deyun Mining has received approval for the scope of the mining area. It is currently preparing and reviewing the development and utilization plan to facilitate the processing of exploration and mining procedures.

Financial attributes and industrial attributes are double clicked, and the price of gold and silver is bullish

1) In terms of financial attributes, the Fed's interest rate hike has come to an end, and nominal interest rates have reached the highest level in nearly 15 years. Once interest rate cuts begin in the later stages, nominal interest rates drive down real interest rates and constitute the driving force for financial attributes of silver; with global de-dollarization, demand has shifted from the US dollar to physical gold, supporting future long-term and medium-term demand for precious metals. 2) In terms of industrial properties, demand in the silver industry is strong, supply increases are limited, silver supply is in short supply, the global economy and manufacturing industry have bottomed out and rebounded, and commodity attributes have given silver prices the second most momentum.

It plans to merge and acquire the vegetable garden copper and gold mine to become an up-and-coming gold mine

It plans to merge and acquire the vegetable garden copper and gold mine to become an up-and-coming gold mine

The company plans to acquire no less than 53% of Honglin Mining's shares with a capital increase of no more than 300 million yuan. The core asset of Honglin Mining is the Caiyuanzi Copper and Gold Mine in Muli County, Liangshan Prefecture, Sichuan Province. The Caiyuanzi Copper and Gold Mine is a medium to large copper-gold mine awaiting production, with a total ore volume of 6.056 million tons (331+332+333), gold and metal resources of 17,049 kg, average grade 2.82 g/ton, copper and metal resources 29,015 tons, with an average grade of 0.48%.

Listed as a key project in Liangshan Prefecture, it is expected to be put into production quickly

The Caiyuanzi Copper and Gold Mine obtained mining rights in 2019. The certified production scale is 396,000 tons/year. The mining method is underground mining, and the mining depth is 3162 meters to 2202 meters above sea level. The Caiyuanzi Copper and Gold Mine has been included in key projects in Liangshan Prefecture in 2023, and construction of the production roadway +2780m, +2730m and +2680m has been completed in 2020. The company expects to complete the supporting construction work of the mine beneficiation plant and tailings depot within one to one and a half years. It is expected that construction and commissioning will be achieved quickly. According to the design, mining scale and technical indicators, it will produce an average annual output of about 1 ton of gold after production.

Ore is easy to select and easy to digest, and the cost may be low

According to the “Sichuan Province Muli County Caiyuanzi Mining Area Copper and Gold Mine Exploration Report”, reviewed and filed by the Sichuan Provincial Department of Land and Resources, 6 industrial ore bodies (No. 1, 2, 3, 4, 5, and 6) have been discovered in the Caiyuanzi copper-gold mining area, of which ore bodies No. 2 and No. 3 are the main ore bodies. The main ore minerals are chalcopyrite and natural gold, while quartz and sericite minerals are mainly quartz and sericite. Copper-gold concentrate containing 17.73% copper and 92.1 g/ton of gold can be obtained through flotation. The comprehensive recovery rate is 90.28%. The ore contains no other associated beneficial elements that can be comprehensively recovered. The carbon content of the metal is low, and the arsenic content is very low. It is an easily selected metallurgical ore. The beneficiation process is simple and the cost is controllable.

Located in an important mineralizing belt, it has good prospecting potential

The land structure of the Caiyuanzi copper-gold deposit is located in the southern section of the Ganzi-Litang tectonic belt. This tectonic zone is an important colored and precious metal mineralization zone on the western Sichuan Plateau. It is also one of the important precious metal mineralization belts in China. Dozens of deposits have been discovered in the region, such as the Sologou gold mine under Sichuan Gold (more than 80 tons have been identified), as well as the Eze Gold Mine, the Agalongwa Gold Mine, and the Gala Gold Mine. It has good mineralization potential and prospecting prospects.

Profit forecast: We expect the company's revenue from 2023-2025 to be 21.0/22.6/2.97 billion yuan, respectively, with a growth rate of 11.6%/7.7%/31.6%. The company's net profit at the parent level will be 369/489/741 million yuan, a growth rate of 15.7%/30.4%/47.0%, and a purchase rating of 24/18/12 times for PE, respectively.

Risk warning: 1. The company's output growth depends on the construction or expansion of mines in Dongsheng, Yindu, Jinshan, and Deyun, but mine construction faces uncertainty from various aspects such as policy, environmental protection, natural conditions, and human factors, so there is a possibility that the construction and commissioning time of the mining project will be delayed; 2. Production in the mining production is affected by various aspects such as production time and ore grade. If production time is shortened due to natural factors or policy factors, or the grade of ore falls, production at the mining site will be affected; 3. Precious metals prices are affected by the Federal Reserve's monetary policy, domestic and foreign economic policies, etc. The situation, industrial demand, etc. have a lot of impact, if it's beautiful If the Fed's interest rate hike exceeds expectations and future interest rate cuts fall short of expectations, then the price is likely; 4. The Caiyuanzi Copper and Gold Mine has not been successfully delivered, and the speed of investment and construction has fallen short of expectations.