High quality Hong Kong stock gold mining enterprise. The company is a comprehensive gold producer and gold smelting enterprise integrating exploration, development, mineral processing and smelting operations, focusing on developing the gold industry. On the resource side, the company's core production mines include the Xiadian Gold Mine and the Dayingezhuang Gold Mine. The core mines under construction are offshore gold mines, and recent mergers and acquisitions include the Abuja Gold Mine and the Sierra Leone Gold Mine.

Join hands with Zijin to open a new chapter, and the “Five Major Collaborations” are in depth cooperation. In November '22, Zijin Mining acquired 20% of the company's shares for HK$4.395 billion and became the company's second-largest shareholder. According to the official website of Zhaojin Group, the company will collaborate with Zijin Mining to carry out in-depth cooperation in five areas, including institutional mechanism collaboration, investment and development collaboration, technological innovation collaboration, talent co-building collaboration, and industrial development collaboration. We believe that the “Five Major Collaborations” strategy may have a long-term impact on driving the company to improve its resource layout and optimize its corporate governance structure.

Domestic mines have great potential. By the end of '23, the company had a total of 1185.01 tons of gold resources, with an average grade of 3.54 grams; the amount of equity resources was 949.09 tons, with an average grade of 3.47 grams/ton. The company has excellent mine endowments. Subsequent growth points are: 1) Increase production capacity in production mines through resource integration and capacity expansion. Some of the company's main production mines have been included in the Zhaoyuan mineral resource integration and optimization plan, mainly including the Sanzhuang Gold Mine, the Dayingezhuang Mining Area, and the Xiadian Mining Area. We believe that under the company's measures to actively promote the expansion and capacity expansion of the Xiadian Gold Mine and the Dayingezhuang Gold Mine, the company's mineral gold production may usher in a period of rapid growth. 2) Offshore gold mines are about to be put into operation. The company owns 70% of Ruihai Mining's shares. Ruihai Mining's main asset is gold mining rights in the northern waters of Sanshan Island. The mine has a cumulative total of 134 million tons of ore resources, 562 tons of gold resources, and an average grade of 4.20 g/ton of gold. The total construction investment of the offshore gold mine project is about 6 billion yuan. It is expected to be completed and put into operation in 25 years. After delivery, the total cost per unit of ore extraction is 340 yuan/ton, and the annual output is about 15-20 tons.

The internationalization strategy has paid off. The company has set a strategic goal of internationalization. On the basis of achieving “half within the province and half outside the province”, the company strives to create a new strategic development situation of “half domestic, half foreign” and build a world-class gold mining company with international competitiveness. Zhaojin Mining successfully held 100% of Tietto Mineral's shares through an offer, thereby indirectly holding 88% of the Abujar mine shares. By the end of '23, the mine had 124 million tons of ore resources, a grade of 1.0 g/ton, and 119 tons of gold. The mine is expected to produce 5.3 tons of gold per year during the service period, with a total maintenance cost of 982 US dollars/ounce.

Profit forecasting and ratings. Considering that the offshore gold mine is still under construction, we selected the PB valuation method to value the company and comprehensively consider the impact of the acquisition of Tietto Mineral. We expect the company's 24-26 BPS to be 5.89, 6.38, and 7.26 yuan/share, respectively. Referring to comparable company valuations and the company's historical valuation level, we will give a 24-year PB valuation of 2.6-2.8 times, corresponding to a reasonable RMB value range of 15.30-16.48 yuan/share, corresponding to HK$16.46-17.72 per share (according to 7) (The exchange rate of HKD/CNY=0.93 is calculated on the 1st of the month), and the first coverage gave it an “superior to the market” rating.

Risk warning: Project construction progress falls short of expectations; risk of gold price correction; risk of fluctuations in raw material prices.