Description of the event
On October 30, the company issued an announcement stating that its wholly-owned subsidiary, Chaojin Capital, has submitted an offeror statement to acquire the remaining shares not yet held by the target company Tietuo Mining at a price of 0.58 Australian dollars per share. Currently, the company holds 7.02% of Tietuo's issued share capital, and the corresponding maximum acquisition cost is about 629 million Australian dollars (about 2.93 billion yuan). The consideration will be paid in the form of its own cash.
Incident comments
Asset description: The core asset is the Abuja gold mine, which has now achieved production. Tietuo Mining accounts for 88% of its interest in the Abuja gold mine. It is located in Côte d'Ivoire, West Africa, and has an excellent geographical location, which is conducive to mine exploration and development. At the resource level, through continuous exploration and storage, the amount of gold resources in the Abuja Gold Mine has increased from 22 tons in '18 to about 119 tons now, with a cumulative increase of 447%. Currently, Abuja has a total gold resource volume of 3.83 million ounces (119.1 tons), corresponding grade of 1.0 g/ton; and gold reserves of 1.36 million ounces (42.3 tons), corresponding grade of 1.15 g/ton. In addition, the Abuja gold mine consists of three major mining areas, with a total land area of 1,114 square kilometers, of which less than 10% has been explored, and there is still plenty of room for additional storage. At the production level, the Abuja gold mine mining method is open pit mining. The ore mainly comes from the AG and APG deposits. It began operation in January 2023 and produced gold for the first time, and production was reached in July. According to the plan, the Abuja gold mine has a service period of 10 years, the ore processing volume during the service period is 5.37 million tons/year, the selected grade is 1.04 g/t, and the recovery rate is 94.26%. The average annual gold production is expected to reach 170,000 ounces (5.3 tons) over the next 9 years, and the main treatment of low-grade tailings in 2033. At the performance level, based on gold price assumptions and the disclosed total maintenance costs during the mine service period ($982 per ounce), it is estimated that the average annual gross profit of the Abuja gold mine will reach about 1,582 billion yuan in the next 7 years.
Acquisition description: The premium level is relatively reasonable, and sufficient cash protection is in place. Based on a price comparison perspective and based on the amount of value/equity resources, the price per ton offered for this purchase is 30 yuan/gram, which is basically at the average level of consideration for resources purchased in the gold mining industry since this year. Considering that the current gold price is still at a historically high level, the premium level of this acquisition is relatively reasonable. However, starting from the company's own circumstances, consideration for this acquisition is within a manageable range. On the one hand, the company's own production and operation are progressing well. In Q3 of 2023, the gross profit was 1.13 billion yuan, an increase of 42%/51% over the same period last month. On the other hand, as of Q3 of 2023, the company had a monetary capital of 5.4 billion yuan, which is higher than the maximum acquisition cost, and the balance ratio has been stable over the years, which is expected to guarantee the smooth implementation of the acquisition.
Investment advice: With internal and external support, the company is gradually entering a new stage of growth. Based on the present, there is a clear pattern of improvement in the company's operations. On the one hand, this tender acquisition is the first step in the company's overseas layout, demonstrating the company's determination to implement the “Double H” strategy. If implemented, it will increase resource reserves and enhance growth potential, which is beneficial to the company's long-term development; on the other hand, the company is actively working to expand the mining rights of its main mines, Xiatian Gold Mine and Dayin Gezhuang Gold Mine. After success, the level of domestic self-production may rise to the next level. Looking ahead, it is recommended to continue to pay attention to the two major marginal changes in Zhaojin Mining: 1) Join hands with Zijin, a deep alliance of the two giants. Through the acquisition of shares to become the company's second largest shareholder, Zijin will jointly develop marine gold mines in the future and enter into in-depth cooperation in the five areas of institutional system, investment and development, technological innovation, talent co-building, and industrial development. The integration of mutual comparative advantages will accelerate fund-raising optimization. 2) When production is put into operation in the sea area, it is better to focus on the long term. After ten years, the largest single gold mine in Asia was officially built. It is expected to be put into operation in 2025. The design and selection scale is 12,000 tons/day, which can contribute 15-20 tons of gold to an annual output after delivery. Overall, the company's medium- to long-term fundamentals are good, and internal management is optimized, and has high allocation value. Considering the implementation of this acquisition, it is estimated that the net profit of the mother for 2023-2025 will be 6.0/14.3/2.25 billion yuan, corresponding to PE48/20/13X.
Risk warning
1. The acquisition progress fell short of expectations; 2. The production situation of Tietuo Mining fell short of expectations 2. The price of gold fluctuated greatly; 4. The progress of marine mining construction fell short of expectations