Key points of investment:
Zinc prices fell, product gross profit declined, and 2023H1 performance fell short of expectations. The company issued a performance announcement. In the first half of 2023, it achieved revenue of 817 million yuan, an increase of 35% over the previous year, and net profit of 61 million yuan, a year-on-year decline of 41%. The performance growth for the first half of 2023 fell short of expectations. According to Baichuan Yingfu data, the average price of 2023H1 domestic zinc ingots fell 14.3% year on year to 22,200 yuan/ton. At the same time, due to the rise in the prices of some low-grade ore segments and mining consumables, the company's mining costs rose, and the gross margin of 2023H1 zinc powder (containing silver) products fell 14.6% year on year, causing a drag on performance.
Clarify the copper and gold mine acquisition plan. The target mine to be purchased has resources of 17 tons of gold and 29,000 tons of copper. According to the company's announcement, it is proposed to acquire no less than 53% of Honglin Mining's shares with no more than 300 million yuan in cash. The core asset of Honglin Mining is the Caiyuanzi copper and gold mine mining rights. The Caiyuanzi Copper and Gold Mine is located in Liangshan Prefecture, Sichuan Province. According to the exploration report, a total of 17 tons of gold and 29,000 tons of copper have been identified. Of these, the gold taste is about 2.62 to 3.11 g/ton. The average taste of copper metal is about 0.49%. The gold taste is high and the reserves are rich.
Investment attributes resonate with industrial demand, and there is a high degree of certainty that silver prices will rise. From the perspective of commodity attributes, it is expected that the global silver supply and demand balance for 23-25 will be -92.2/-150.1/-220.6 million oz, respectively. The main driving force comes from a significant increase in PV installed capacity combined with the release of high-silver consumption TopCon production. At the same time, silver has a value preservation function as a precious metal. It is expected that the Fed's interest rate hike cycle will come to an end, and it is expected that real interest rates will decline, and precious metals such as silver will receive upward support. Investment attributes are compounded by supply and demand, and the price of silver is expected to usher in upward support.
The price of zinc fell, and the company's gross profit of zinc powder products declined, profit forecasts were lowered, and the rating for increasing holdings was maintained. The company has high-quality silver resources, with silver reserves of nearly 10,000 tons. It has 6 high-quality silver polymetallic mines, 4 of which are in production. In addition, the exploration, mining and investment processes of Jinshan Mining, Yindu Mining, Deyun Mining, and Dongsheng Mining are progressing in an orderly manner. Future business will still focus on the direction of precious metal resource mining, and is expected to fully benefit from the upward cycle of silver prices. Considering the decline in domestic zinc prices, the gross margin of the company's zinc concentrate products has declined, the price of zinc ingots is expected to be lowered to 2.2/2.2/22,000 yuan per ton in 23-25, and the company's net return profit from 2023-2025 to 4.15/531/667 million yuan (the original forecast for 2023-2025 net profit was 4.7/5.6/701 million yuan), corresponding PE was 24/19/15 times, respectively. On August 29, the company announced that it had signed a framework cooperation agreement to acquire gold and copper mining rights in Caiyuanzi, Sichuan. The potential increase in performance brought about by completion, and maintain the rating for increasing holdings.
Key points of investment:
Risk warning: Production capacity planning falls short of expectations, risk of safety accidents in mining areas, risk of a rapid fall in inflation, risk of rapid decline in inflation, risk of asset impairment risk (according to the “Shengda Metal Resources Co., Ltd. Plan for Issuing Shares to Purchase Assets and Raise Supporting Funds and Related Transactions (Revised Draft)” announced by the company on November 27, 2021, the company paid 500 million yuan in deposit to counterparties Dong Ying and Bai Guanghui on March 1, 2021, and has already paid a deposit of 100 million yuan after obtaining the right to pledge 20% of the shares of the target company. On January 19, 2023, the company announced that the Jinggongtang lead-zinc mine failed to complete approval procedures such as construction project approval, land acquisition, relocation and resettlement of residents in the mining area, mine construction, safety and environmental protection within the prescribed period in accordance with the agreement, and decided to terminate this restructuring. The company will urge Dong Ying and Bai Guanghui to return the 600 million yuan deposit paid by the company within 5 working days from the date they received the notice of cancellation of the agreement issued by the company. On March 28, 2023, the company announced that it would file a lawsuit with the Beijing No. 3 Intermediate People's Court regarding the contract dispute with Dong Ying and Bai Guanghui. According to the progress disclosed on July 17, the lawsuit is currently still under trial. If one of the following scenarios occurs: (1) the underlying company's equity depreciation is insufficient to cover the deposit amount; (2) the counterparty has many other debts and is unable to fully repay the deposit; (3) other situations where the listed company is unable to receive priority payment, it is not ruled out that the company will lose asset impairment or lose profits in the future.)