Mining capacity utilization increased, and natural uranium prices cyclically increased
We expect the CAGR of the company's natural uranium equity production output from 2022 to 2025 due to the increase in the utilization rate of the production capacity of Xie Mine, Yikang, and China Mining, and the increase in mining production capacity. The conflict between supply and demand for natural uranium is evident, and uranium prices are expected to usher in an upward cycle. We expect the company's net profit to be HK$6.75, 13.25, and HK$1,652 million, respectively, and EPS of HK$0.09, 0.17, and 0.22, respectively; PE corresponding to the closing price on January 19, 2024 will be 21.9, 11.1, and 8.9 times, respectively, covered for the first time, and given a “buy” rating.
Backed by CGN Group, it has a stable downstream market
CGN Mining is one of the listed subsidiaries under the CGN Group, the number one nuclear power group in China and the third largest in the world. The actual controller is the State Assets Administration Commission. The company's main business is self-production and underwriting of natural uranium. The CGN Group's annual demand for natural uranium is 5000-6000 tU, and there is still a big gap compared to the company's current annual equity production capacity of 1,300 tU. The company signed a new agreement framework with the group. During the period of decline in uranium prices, the group cedes benefits to the company; during the period when uranium prices rise, the company will fully benefit from self-production trade and subsidiary equity income.
Natural uranium production is growing steadily, and low-cost mines help improve performance. The company's mines include Xie Mine, Yi Mine, China Mine, and PLS projects (pending production). The company's equity uranium production volume reached 1,238 tU in 2022, and the increase in the capacity utilization rate of Xie Mine, Yi Mine, and China Ore's production capacity increased. We expect the company's annual equity uranium production volume to reach 1,800 tU in 2025, and the compound growth rate is expected to reach 13.3% in 2022. The company's mines are all located in Kazakhstan. The sandstone geology is suitable for ground leaching of uranium. The production cost is within 10% of the world's mines, and the low cost helps improve performance flexibility.
Demand for nuclear power continues to expand, and natural uranium supply and demand are facing a gap
On the demand side, regional conflicts and “dual carbon goals” have prompted the world to gradually pay attention to the development and use of nuclear energy. According to the IAEA's optimistic forecast, demand for natural uranium will reach 76592 tU in 2030, with a compound growth rate of 2.5% between 2020 and 2030.
On the supply side, since 2016, global natural uranium production has declined year by year, exploration investment has been sluggish, natural uranium stocks are low, and there is demand for replenishment. In the long run, the supply of natural uranium is tight, demand is expanding, and the gap between supply and demand is gradually widening, and natural uranium prices are expected to usher in an upward cycle.
Risk warning: Nuclear safety incidents, implementation of nuclear power plant plans falling short of expectations, company production guidelines falling short of expectations.