The 'wind' of A+H dual listing has blown into the gold market.

On August 30th, Chifeng Jilong Gold Mining Co., Ltd. (referred to as "Chifeng Gold") submitted an application for listing on the Hong Kong Stock Exchange, intending to list on the main board of the Hong Kong Stock Exchange, with CITIC Securities as the exclusive sponsor. The company is China's largest private gold producer, mainly engaged in the mining, selection, and sales of gold.

It is worth mentioning that Chifeng Gold (600988.SH) was listed on the main board of the Shanghai Stock Exchange in April 2004, with a current stock price in the range of 16 yuan and a total market value of approximately 28 billion yuan.

Regarding the purpose of this secondary listing in Hong Kong, the company stated that the raised funds will mainly be used for the transformation and exploration of existing mines, potential acquisitions, and general corporate purposes. From this, it is not difficult to see the company's determination to further improve its corporate governance and core competitiveness.

So, what is the real strength of Chifeng Gold?

With seven gold mines in hand, performance relies on the price of gold.

As a leader in the domestic gold industry, Chifeng Gold is undoubtedly an outstanding "gold digging expert".

According to the data in the prospectus, as of the final feasible date, the company owns and operates 7 gold and multi-metal mines, distributed in China, Southeast Asia, West Africa, and other parts of the world.

According to the Fraser Sullivan report, Chifeng Jilong Gold Mining ranks fifth among gold producers in China. As of March 31, 2024, the company's gold resources amount to 14.6 million ounces, and in terms of gold production, it ranks fifth among listed gold producers in China, with a gold production of 461.5 thousand ounces in 2023.

At the same time, the company is also the fastest-growing gold producer among listed domestic peers. From 2021 to 2023, Chifeng Jilong Gold Mining achieved a compound annual growth rate of 33.1% in gold production, far exceeding the average growth rate of 16.4% for major listed gold producers in China. It still has considerable growth potential.

However, despite its accomplishments in the gold mining business, Chifeng Jilong Gold Mining relies heavily on gold prices for its performance.

The reason behind this is that Chifeng Jilong Gold Mining's fundamentals are easily influenced by fluctuations in gold prices.

According to the Wisdom Finance app, the fluctuations in spot gold prices are mainly affected by the depreciation of the Renminbi, global gold supply and demand forecasts, and political conditions and uncertainties. In recent years, due to increasing geopolitical and economic uncertainties globally, such as sustained inflation leading to a strong US dollar, major central banks aggressively raising interest rates, and conflicts like the Russia-Ukraine war and the Israeli-Palestinian conflict, gold prices have experienced significant fluctuations.

According to Fraser Sullivan's data, the average spot gold prices on the Shanghai Gold Exchange from 2021 to 2023 were 374.3 yuan per gram, 392.1 yuan per gram, and 449.6 yuan per gram, while the London Bullion Market Association's afternoon spot gold prices were $1,798.9 per ounce, $1,801.3 per ounce, and $1,942.1 per ounce.

Affected by the aforementioned fluctuations in gold prices, Chifeng Jilong Gold Mining's average selling prices for gold products during the period were 381 yuan per gram, 383 yuan per gram, 436 yuan per gram, and 467 yuan per gram.

It should be noted that the impact of fluctuating gold prices is also reflected in the operating performance of Chifeng Jilong Gold Mining.

According to the data in the prospectus, from 2021 to March 31, 2024, the company's revenue was approximately 3.783 billion yuan, 6.267 billion yuan, 7.221 billion yuan, and 1.854 billion yuan, with net income of approximately 0.613 billion yuan, 0.494 billion yuan, 0.872 billion yuan, and 0.238 billion yuan during the period. Among them, in 2022, the net income growth rate declined mainly due to the higher statutory income tax rates in Ghana (35.0%) and Laos (33.3%), which led to a significant decline in net income due to a 109.0% year-on-year increase in income tax expenses.

Based on this, Chifeng Jilong Gold Mining also explicitly states in the risk warning that the fluctuation of gold prices may affect the company's earnings and profitability, and this impact may continue. If the gold price falls close to or below the cost of producing gold for the company, the company may suffer losses, and if the gold price remains at such levels for any sustained period, the company's revenue and income may be significantly adversely affected.

The gold industry is steadily advancing, but it suffers from a dependence on large customers.

Throughout human history, almost all civilizations have had one thing in common, that is their love for gold.

In 2013, middle-aged women in China purchased a large amount of gold, resulting in the largest single-day increase in international gold prices that year, shocking the international market with the purchasing power of middle-aged women in China, to the extent that The Wall Street Journal even coined the English word "dama" to describe the purchasing power of "Chinese Aunties".

Looking at the entire gold consumption market, in recent years, the overall demand for gold has shown a steady growth trend.

From 2019 to 2023, the compound annual growth rate of China's gold demand was 1.3%. During this period, China's gold demand fluctuated, mainly due to changes in demand for jewelry consumption. In 2020, the decline in gold demand was mainly due to the lasting impact of the epidemic on consumer economics, leading to a sharp decrease in demand for gold jewelry. In 2021, driven by economic recovery, there was a significant increase in demand for gold jewelry, and China's gold consumption experienced strong recovery. In 2023, due to a significant increase in China's central bank's gold reserves, China's gold demand achieved a year-on-year growth of 10.9%, reaching a total of 37.5 million ounces.

Looking ahead in the long term, concerns about future economic uncertainty may dampen consumer demand for jewelry, while also stimulating central bank reserve growth and investment demand. Therefore, in the future, the demand for gold jewelry will decrease, while investment and central bank gold demand will increase, and China's gold demand will remain stable.

Of course, not only is China one of the world's largest gold consumer countries, but it is also the world's largest gold producer.

It is reported that as the world's largest gold producer, China's gold resources are distributed throughout regions like Shandong, Tibet, Gansu, etc. In 2023, Shandong province's gold resource amount is 1.4 million ounces, accounting for 27.6% of the total national resources.

In terms of supply, although production decreased by about 10% in 2021, by 2022, production is recovering as companies resume operations after safety checks. Benefiting from technological advancements, equipment upgrades, and steady increase in gold demand across various industries, it is expected that China's gold production will increase by 12.3% from 2024 to 2028.

In this production environment, Chifeng JiLong Gold Mining has the fastest growth in gold production among the top five listed gold producers in China. As of December 31, 2023, the company ranks fifth in China in terms of gold production and reserves. Overall, its strength is quite impressive.

However, it is important to note that despite the promising industry outlook and solid capabilities, Chifeng JiLong Gold Mining still suffers from a significant 'dependence on major customers.'

According to the prospectus disclosure, Chifeng JiLong Gold Mining's top five customers are precious metals and other nonferrous metal refining companies, as well as trading companies. Due to the nature of its business and industry management, the company's customer base is limited, and the majority of its income is highly concentrated among a few customers. During each reporting period, the income contributed by the top five customers of Chifeng JiLong Gold Mining was 2.946 billion yuan, 5.346 billion yuan, 5.566 billion yuan, and 15.91 billion yuan, accounting for 77.9%, 85.4%, 77.1%, and 85.8% of the company's total income respectively.

In the period, the revenue contributed by the largest customer of Chifeng Jilong Gold Mining was 2.127 billion yuan, 2.602 billion yuan, 2.672 billion yuan, and 723 million yuan, accounting for 56.2%, 41.5%, 37.0%, and 39.0% of the company's total revenue respectively. It is reported that the company's largest customer is a company in Australia, which is a large-scale precious metals testing, refining, and minting factory in the global.

In this regard, the company also cautions that changes in the customer base may affect the company's revenue and profitability, especially in the case of a decrease or termination of business with major customers.

In general, high customer concentration poses risks to the company's risk resistance capabilities. For example, when the company depends on a few large customers, these large customers may have more bargaining power in negotiations, which may weaken the company's bargaining power and affect the company's profitability. In addition, high customer concentration may also increase the company's operational risks, as changes in the demands or buying behavior of these large customers can have a significant impact on the company's revenue and profits.

Overall, although Chifeng Jilong Gold Mining has performed well in its listing, there are also some hidden concerns.