Key points of investment:

An established lead-zinc smelting leader, with the highest zinc and zinc alloy production capacity in the country. The company has more than 60 years of experience in zinc smelting production and management. It has a zinc ingot production capacity of 300,000 tons and a zinc alloy production capacity of 380,000 tons. It ranks first in the country, and the process energy consumption level has reached the advanced level in China.

Backed by Minmetals Group to guarantee growth potential. In 2011, Minmetals Group became the actual controller of the company through capital increase and share expansion. As an important listing platform for Minmetals Group, it successively integrated the relevant assets of the Group and completed share acquisitions of Shuikoushan Co., Ltd. and Zhuye Nonferrous Metals. Minmetals Copper has been suspended but is still possible in the long term. In addition, the company also managed the group's lead-zinc assets, Huangshaping Mining, Jinxin Lead, etc., to guarantee resource potential.

Acquire Shuikoushan Limited to improve resource allocation. Shuikoushan Co., Ltd. has 2 mining rights and 3 prospecting rights. It has 15.978 million tons of ore, 457,700 tons of lead, 509,000 tons of zinc, 41.87 tons of gold, and 1,333 tons of silver. The certified mining scale has reached 800,000 tons/year. According to the “Development and Utilization Plan” estimates, the mine can produce 18,600 tons of lead and 183,000 tons of zinc concentrate, 1.9 tons of gold concentrate and 50.3 tons of silver concentrate, with a smelting capacity of 100,000 tons/year for lead ingots and lead alloys, 609.3 tons/year of silver, and 8.26 tons/year of gold.

Mt. Mizuguchi was also listed, and profitability increased dramatically. The gross margin of Mizukoushan Limited reached 16.8% from January to August 2022, significantly higher than the original company's 4.2% in 2022. Among them, the gross margin of zinc concentrate reached 76.8% and gold 37.6%, all of which will significantly increase the company's profitability. After completing a major restructuring in the first half of 2023, it achieved production of 320,000 tons of zinc ingots and zinc alloys, 50,000 tons of lead and lead alloys, 1.45 tons of gold, and 145 tons of silver. According to the company's performance forecast, it is expected to achieve net profit of 60 to 72 million yuan in 2023, an increase of 967.4% to 1180.9% over the previous year.

Profit forecast and investment advice: The company's net profit for 2023-2025 is expected to be 70/889/9.1 billion yuan, corresponding to the current share capital EPS of 0.65/0.83/0.85 yuan/share, which is 16/12/12 times the current stock price, which is significantly lower than the industry average. In 2024, the company was given a valuation of 17XPE, corresponding to a target price of 13.89 yuan/share. It was covered for the first time, and a “buy” rating was given.

Risk warning: changes in metal prices fall short of expectations; risk of exchange rate fluctuations; risk of mine safety