The company is the only overseas listing platform under China Gold Group. Currently, the company's resource volume and output dimensions are relatively underestimated, while its business model focusing on copper and gold mining has given the company higher copper prices and gold price flexibility.

With the gradual resumption of production at Jiama Mine, the company's performance is expected to fully benefit from the resounding rise in copper and gold prices. We expect the company's net profit from 2023-2025 to be -0.31/1.64/US$306 million, respectively. The company was given 13 times PE valuation in 2024, corresponding to the target price of HK$42 per share. It covered and gave the company a “buy” rating for the first time.

A medium-sized mining enterprise focusing on copper and gold mining, the short-term performance of Jiama Mine turned a loss due to the cessation of production at Jiama Mine. The company is the only overseas listing platform under China Gold Group. It mainly engages in copper and gold mining and owns two medium to large domestic copper and gold mines, Jiama Mine and Changshan Tou Mine. We estimate that the company's copper/gold gross profit ratio in 2022 was 71%/29%, respectively.

In 2021-2022, as the company entered a harvest period of stable production and was boosted by rising copper and gold prices, the company's revenue and net profit remained at historical peak periods of more than 1.1 billion US dollars and net profit of more than 200 million US dollars, respectively. In 2023, due to the cessation of production at Jiama Mine, the main mine, the company's performance turned to loss.

In anticipation of improved liquidity, copper and gold prices are expected to resonate upward. As US inflation falls and there are frequent signs of economic recession, the current round of interest rate hikes by the Federal Reserve may be nearing its end. In anticipation of improved liquidity, as the US dollar index and the actual yield of US bonds decline, the price of gold and copper, which has strong financial attributes, is expected to resonate upward. At the same time, it is expected that copper prices will also benefit from long-term supply and demand mismatch expectations, while gold prices will continue to be supported by risk aversion and global de-dollarization trends. We expect the average price of copper from 2023-2025 to be 8500/9000/10,000 US dollars/ton, respectively, and the average price of gold is 1950/2050/2,100 US dollars/ounce, respectively.

Endogenous storage growth and group asset injection guarantee the company's resource advantages and long-term growth. By the end of 2022, the company had an equity amount of copper/gold resources of 6.81 million tons/344 tons, ranking 6th and 5th respectively among domestic listed mining enterprises. In terms of endogenous storage growth, the Jiama mine is rich in resource reserves. At the end of 2022, the amount of gold resources in the Changshan Trench Mine increased by nearly 70% year-on-year, supporting a further extension of the mine's service life. In terms of asset injection, the controlling shareholder China Gold Group has a number of high-quality overseas copper and gold assets, and has promised to give priority to injection into the company. If all of the group's assets are injected, the company's copper/gold production will increase by 49%/110% respectively compared to 2022, with outstanding growth.

The company has outstanding production and operation capabilities, and the resumption of production at Jiama Mine will drive the recovery of the company's performance. In 2011-2021, with the Changshan Trench Mine and Jiama Mine Phase II successively reaching production, the company's copper/gold production CAGR was 24%/6%, respectively.

During the two rounds of capacity release in 2011-2013 and 2018-2020, the company's production guidelines were completed by more than 120%, demonstrating the company's excellent production and operation capabilities. The 2023Q2 Jiama mine was discontinued due to damage to the tailings dam. Currently, the tailings dam repair and reinforcement construction have been completed. Under measures such as tailings backfilling+phase III tailings depot construction, the resumption of production of the Jiama mine can be expected, and the company's performance is expected to return to the high level before it was discontinued.

The company's resource volume and production dimensions are underestimated, and the future is expected to benefit from a resounding rise in copper and gold prices. As of the close of trading on December 1, the company's market value compared to the volume of copper/gold resources was 43%/23% of the industry average, and the ratio of copper/gold production was 52%/35% of the industry average, respectively, indicating that the company's current market value is significantly underestimated. The company focuses on copper and gold mining, and has outstanding performance and stock price flexibility during the cycle of rising copper and gold prices. We believe that a resounding rise in copper and gold prices in the future is expected to enhance the company's investment appeal.

Risk factors: risk of performance fluctuations due to large fluctuations in copper prices and gold prices; risk that the resumption of production of the Jiama mine is slower than expected; risk that cost control falls short of expectations; risk that mine storage will not increase as expected; risk that mining will stop production or reduce production due to environmental protection and safety disturbances; risk of asset injection falling short of expectations.

Profit forecast, valuation and rating: The company is the only overseas listing platform under China Gold Group. Currently, the company's resource volume and output dimensions are relatively underestimated, while its business model focusing on copper and gold mining has given the company higher copper prices and gold price flexibility. With the gradual resumption of production at Jiama Mine, the company's performance is expected to fully benefit from the resounding rise in copper and gold prices. We expect the company's net profit from 2023-2025 to be -0.31/1.64/US$306 million, respectively. Considering that the company's performance in 2023 was affected by the discontinuation of production at the Jiama Mine and that the performance reference is low, we base our valuation on the expected performance of 2024. Using the PE valuation method, referring to the average valuation levels of the comparable companies Zijin Mining, CICC Gold, Minmetals Resources, China Nonferrous Mining, and Zhaojin Mining (Wande unanimously expected the average PE of 12.9 times in 2024), the company was given a PE valuation of 13 times in 2024, corresponding to the target price of HK$42 per share.

It covered and gave the company a “buy” rating for the first time.