Due to the high price-earnings ratio valuation level, we raised the target price of China Gold International (the “Company”) to HK$56.10 and maintained a “collection” rating. Our price targets correspond to 16.4 times, 9.0 times, and 7.6 times the 2024-2026 price-earnings ratio. We forecast that the company's net profit will grow steadily from 2024-2026, mainly driven by rising metal prices and increased mineral production.

The company recorded a loss of $25.5 million in 2023. Production at the Jiama mine was discontinued on March 27, 2023 due to tailings overflow from tailings depots. As a result, the company's total mineral production declined sharply, and the company did not record any revenue from the Jiama mine since the second quarter of 2023. The company's total mineral copper production fell 76% year on year to 20,051 tons in 2023, which was the main cause of losses. Total mineral gold production also declined 38% year over year to 147,963 oz.

We predict that the price of gold will rise in 2024 as the Federal Reserve cuts interest rates. During the period when the Federal Reserve cut interest rates, gold assets had a high value. If we review the performance of gold prices in the cycle from interest rate hikes to interest rate cuts, we will find that during the period of major changes in the Federal Reserve's monetary policy, gold assets are highly valuable.

When the market confirms that the Federal Reserve will start cutting interest rates, the price of gold will experience another round of increases. The market generally expects the Federal Reserve to cut interest rates in 2024. The only difference is the timing and frequency of interest rate cuts, but these two factors will not affect the trend of gold prices.

The company expects production at the Jiama mine to return to normal by mid-2024. In 2023, the company completed the tailings depot dam repair and reinforcement work as required. The company expects that the resumption of production at the Jiama mine may be approved by the government in May. The company plans to produce 43,200-44,500 tons of mineral copper and 148,536-157,861 ounces of mineral gold in 2024.

Catalysts: Gold and copper prices rose; Jiama mine production returned to normal.

Risk: Gold prices fall; mineral gold and mineral copper production are affected by external factors.