Core views
1. Gansu Jiaxin (80% of the company's shares) plans to invest no more than 588 million yuan to build a mineral resource utilization project in the Gansu Jiaxin-Yidinan mining area. After the project is completed, it is expected to achieve an average annual net profit of 56 million yuan after tax. The IRR is expected to be 10.57%, and the payback period (including construction period) is 9.08 years.
2. Prospecting increases in reserves+high quality asset injection expectations are expected to become an additional growth point for the company's own gold production.
3. Since the beginning of the year, the price of SHFE gold has risen 15.3%, the price of antimony ingots has risen sharply by 39.6%, and the price of gold and antimony has risen sharply. The overall cost trend during the superposition period has shown a downward trend, and the company is expected to fully benefit.
occurrences
The company issued the “Notice on Investing in the Construction of Mineral Resources Utilization Projects in the Dianan Mining Area of Jiaxin, Gansu”
In order to meet the development needs of the holding subsidiary Gansu Jiaxin Mining Co., Ltd., further enhance the production scale of the company's gold products and enhance the company's core competitiveness, Gansu Jiaxin plans to invest no more than 588.158 million yuan to build a mineral resource utilization project in the mining area south of Jiaxin, Gansu.
Brief review
1. Construction of the Gansu Jiaxin project commenced. Chenzhou Mining, a subsidiary of the company, holds 80% of Gansu Jiaxin's shares. The company successfully obtained mining licenses for Yidinan Copper and Gold Mine and Xiaganmucang Gold Mine in November 2023. Construction of this project commenced. The estimated infrastructure period is 2 years, the procurement design scale is 500,000 tons/year, and the product is gold concentrate.
According to the company's estimates, after delivery, the project is expected to achieve an average annual sales revenue of 319 million yuan, a total annual average profit of 92 million yuan, and an average annual net profit of 56 million yuan after tax.
The estimated internal return on investment finance after income tax is 10.57%, and the payback period (including construction period) after income tax is 9.08 years. We believe that according to the current price of gold and the judgment on subsequent prices, the company's estimates are conservative, and the benefits of the project are expected to exceed expectations.
The construction of this project will help transform the resource assets of Jiaxin, Gansu into economic benefits, and the company's self-produced gold production is expected to increase significantly.
2. Expectations for increased exploration and reserves+high-quality asset injection are expected to become an additional growth point for the company's self-produced gold production. The company's self-produced gold production is expected to continue to grow in the future, mainly through the following measures:
(1) The company continues to promote prospecting in the deep edge of the old mine to extend the service life of the mine and ensure the continuous supply of resources; (2) In July 2022, the former Hunan Gold Group and the former Hunan Nonferrous Environmental Protection Research Institute were integrated and reorganized into the Hunan Nonferrous Industry Investment Group; Hunan Nonferrous Metals obtained 60% of the shares in the Gold Group through a free transfer, and then indirectly controlled 40% of Hunan Gold's shares through the Gold Group, becoming the indirect controlling shareholder of Hunan Gold. By focusing on integrating high-quality non-ferrous metal resources in the province, Hunan Nonferrous Metals has built a mining, ore smelting, material processing, non-ferrous metal recycling, solid waste treatment, and investment and financing asset industry chain around the nonferrous metals industry, and has become the main enterprise in the nonferrous industry chain. As a listing platform under Hunan Nonferrous Metals, the company is expected to receive high-quality asset injections and achieve high-quality development in the nonferrous industry. According to the company's annual report, the company currently has a peer competition issue with the controlling shareholder Hunan Gold Group over the “Pingjiang County Wangu Mining Area”. The company has signed an “Industry Cultivation Agreement” with it, and the controlling shareholder will cultivate assets and bear investment risks on their behalf, and agreed that after cultivating the maturity of the target, the company will enjoy priority purchasing rights under the same conditions.
3. The price of gold and antimony has risen sharply, and the company is expected to fully benefit
Gold: High real interest rates will continue to drive up gold prices in the future, and the main upward trend of gold in the early stages of interest rate cuts is still worth looking forward to. Since the beginning of 2024 (as of May 14, same below), the price of SHFE gold has risen from 482.4 yuan/gram to 556.1 yuan/gram, a sharp increase of 15.3%; antimony: on the supply side, the scarcity of antimony ore is high, global antimony ore production is declining year by year, and raw materials for antimony concentrate are scarce in the market; on the demand side, global demand for photovoltaic installations continues to rise in 2024. Demand for photovoltaic glass clarifiers is expected to increase dramatically in global demand for antimony. Demand for flame retardants is expected to increase dramatically in the context of the recovery of the electronic cycle, and the military industry. Demand in fields such as antimony batteries, mineral antimony The industry is expected to usher in an era of boom. Since the beginning of 2024, the price of antimony ingots has risen from 84,500 yuan/ton to 118,000 yuan/ton, a sharp increase of 39.6%.
4. Cost reduction and efficiency are beginning to bear fruit. Overall expenses during the period showed a downward trend in 2023. The company's management expenses were about 587 million yuan (-11%), R&D expenses were about 345 million yuan (+15%), and sales expenses were about 23 million yuan (+14%).
Using the “Year of Deepening Cost Control” as a starting point, the company comprehensively promoted cost control, and saw initial results in reducing costs and increasing efficiency. We expect expenses to continue to decline steadily during the 2024 corporate period.
Investment advice: Considering that the prices of gold and antimony have all risen sharply compared to our previous assumptions, we raised the company's profit forecast. Under the benchmark assumption that gold prices in 2024-2026 were 530 yuan/gram, 550 yuan/gram, and 570 yuan/gram, respectively, and the prices of antimony ingots were 120,000 yuan/ton, 140,000 yuan/ton, and 160,000 yuan/ton, respectively, the company's net profit to the mother for 2024 to 2026 is expected to be 1,386 billion yuan, 1,783 billion yuan, and 2,225 billion yuan, respectively. 11.53 and 9.24 times give the company a “buy” rating considering the company's position and growth in the gold and antimony industry.
Risk analysis
1. Affected by factors such as environmental protection or production restrictions, the output of the company's main products falls short of the expected risk.
2. The global economy has declined sharply, and traditional consumption of antimony has shrunk in a cliff-style manner; or demand for photovoltaic installations falls short of expectations, causing antimony prices to fall. In its newly released Global Economic Outlook, the World Bank expects global GDP growth of 3.1% in 2024 and 3.2% in 2025. The agency believes that as inflation slows and growth stabilizes, the global economy is on the path to a soft landing, but risks remain. European and American economic data are already showing a downward trend. If it falls into a deep recession, the impact on non-ferrous metal consumption will be huge.
3. The price of gold fell sharply; if US inflation gets out of control, the Fed's monetary tightening exceeds expectations, and a strong dollar will suppress the price of gold.
4. Risk of rising raw material prices.
5. The profit forecast falls short of the expected risk; we expect the company's net profit from 2024 to 2026 to be 1,386 billion yuan, 1,783 billion yuan and 2,225 million yuan respectively, which deviates greatly from Wind's agreed expectations. Our more optimistic profit forecast is mainly based on (1) continued optimism about gold and antimony prices. At the beginning of 2024, the price of SHFE gold and antimony ingots was 482.4 yuan/gram and 84,500 yuan/ton, respectively. As of May 14, the price of SHFE gold had risen to 556.1 Yuan/gram, the price of antimony ingots has risen to 118,000 yuan/ton. We expect the average price of gold to reach 530 yuan/gram, 550 yuan/gram, and 570 yuan/gram respectively in 2024-2026. The price of antimony ingots will be 120,000 yuan/ton, 140,000 yuan/ton, and 160,000 yuan/ton respectively; (2) The company's own gold and antimony production will return to normal levels. We expect the company's self-produced gold and antimony production to reach 4.6 tons in 2024-2026, respectively. , 5.0, and 5.9 tons (production growth is mainly described in paragraphs 1 and 2 of the text), and self-produced antimony production is expected to reach 1.8, 1.8, and 18,000 tons; (3) The company continues to promote cost reduction and efficiency, and costs will drop during 2024. Under the assumption that self-produced gold and antimony production in 2024 will be 4.6 tons and 18,000 tons, respectively, if the price of gold and antimony falls by 10 yuan/gram and 10,000 yuan/ton compared to our assumed value, it may cause the company's net profit to fall by 40 million yuan and 140 million yuan compared to our forecast.