Continued acquisition of high-quality mines, silver reserves+mining capacity ranked among the highest in China
The company has successively acquired Yindu Mining, Everbright Mining, Jindu Mining, Dongsheng Mining, Jinshan Mining, and Honglin Mining, and increased its capital to become the controlling shareholder of Gold Industry Environmental Protection in 2020, forming the current “7 mining subsidiaries+1 urban mining subsidiary” business layout with a silver reserve of nearly 10,000 tons at the top of A-shares, and an annual selection capacity of nearly 2 million tons.
Existing mines have strong resource advantages, and there is great potential for prospecting and storage growth. The company has large geological reserves and high grade mineral resources. Yindu, Everbright, and Jindu all belong to the “Daxinganling Xipo Silver, Lead, and Zinc Metallurgical Subbelt”. The region is concentrated in mines, and the mining area has high metal grade, and the potential for storage growth is huge. Currently, all of the company's mines are steadily carrying out prospecting and storage expansion work, and it is expected that there will be a significant increase in 2025.
The company Yindu Mining (North Mining Area) passed the February 2024 exploration report and is promoting the integration of mining rights; Dongsheng Mining obtained administrative permits for the use of woodland and grassland in 2023 and is currently undergoing relevant construction procedures before mine construction; the newly acquired Honglin Mining construction project is carrying out tailings depot construction work and is expected to complete mine construction in 2025. The above projects are expected to be completed and entered into mining nodes one after another during the period 2024-2025, and additional gold and silver production is expected to effectively help release the company's performance.
Historical business performance has fluctuated, negative factors are about to be eliminated, and the company is about to face difficulties. The company's historical operating performance has fluctuated, and the overall revenue of the core business (procurement industry) is rising. The company's revenue mainly comes from the non-ferrous metal ore mining and non-ferrous metals trading industry. The mining and processing industry achieved revenue of 1,268 billion yuan in 2023, which was mainly due to a year-on-year decrease in silver ingot and gold production due to technological transformation in Jinshan Mining; net profit of 148 million yuan, or -59.41% year-on-year, mainly due to the year-on-year decrease in silver ingot and gold production due to the year-on-year decrease in silver ingot and gold production due to the year-on-year decline in zinc metal prices and payment of additional mining rights concession proceeds. We believe that Jinshan Mining's production will be effectively restored after completing technical transformation and acceptance at the end of the third quarter of 2024. Combined, Yindu Mining's Bayern Daba (North Mining Area) is expected to enter a state of commencement of production during the year. With increased production and commodity prices, the company's performance may return to an upward trend.
Supported by monetary/financial+commodity attributes, the silver price center is expected to continue to move higher at the May FOMC meeting, and Federal Reserve Chairman Powell will maintain the attitude of stopping interest rate hikes. We believe that the Fed's interest rate cut point may arrive during the year. Silver's monetary/financial (investment) attributes determine that the silver price center will enter an upward range during the interest rate cut cycle; affected by the continued high growth in demand for photovoltaic banking, it is estimated that the total global demand for silver will be 37,918 tons in 2024, and the supply-demand gap will widen from 5732 tons in 2023 to 6695 tons. The commodity properties of silver determine that its price will be affected by the relationship between supply and demand, and the current widening gap between supply and demand will be a strong support for the upward trend in silver prices.
Profit forecast: We believe that as a domestic silver leader, the company has basically escaped the adverse factors of 2023 and is about to reverse the difficult situation. At the same time, the construction of multiple projects will speed up the release of gold and silver production. It is expected that it will benefit from the rise in the silver price center to achieve a sharp rise in volume and price, and the performance may be released at an accelerated pace. It is predicted that in 2024-2026, the company will achieve operating income of 20.73/28.23/3.677 billion yuan, net profit to mother of 3.22/584/823 million yuan, corresponding PE of 25.93/16.10/11.42x, giving it a “recommended” rating.
Risk warning: the risk of metal price fluctuations, the risk of production safety, and the risk that the construction progress of the mine to be produced falls short of expectations.