Key points of investment

1. Core of the industry: the third round of the gold bullish market

If it is difficult for the US to meet the two conditions of “good economy+low inflation” at the same time in the medium term, the price of gold is expected to remain strong, which in turn will drive an increase in the profitability of precious metals companies.

2. Leading local state-owned enterprises, Zijin's shareholding shows potential

The controlling shareholder of the company is Zhaojin Group, and the actual controller is the Zhaoyuan Municipal People's Government; Zijin Mining, the leading A-share mining company, became the company's second-largest shareholder, demonstrating the company's deep potential for development.

3. Pure gold stocks, with strong resources, excellent yield and cost comparison among peers (1) Gold is the absolute main force: the company's gold accounts for nearly 90% of revenue and nearly 100% of gross profit.

(2) Resource side: The amount of gold resources exceeds 1,300 tons, with an average grade of 2.9 g/ton, ranking 3rd among the sample companies.

(3) Production side: 24H1 mineral gold 9.0 tons, +7% year over year, ranking 3rd among sample companies.

(4) Cost side: 24H1 In the context of rising gold prices, the cost of gold decreased by 2% year-on-year to 210 yuan/gram.

(5) Planning side: Offshore gold mine+Abuja+Komahon are expected to contribute significantly to a significant increase in gold production capacity.

4. Marginal increment: endogenous+extrinsic extension to realize resource potential

(1) Offshore gold mine: It is expected to be put into operation in 25 years, producing about 15-20 tons of gold per year after production; the total cost of ore extraction is estimated to be only 340 yuan/ton, which is expected to contribute significantly to incremental performance.

(2) Tietuo Mining: The core asset, the Abuja Gold Mine, was put into operation in '23, with an annual output of 2.9 tons, and is expected to produce an average of 5.29 tons of gold for 24-32 years; AISC is about 982 US dollars/ounce.

(3) Comahon Gold Mine: The amount of gold resources is about 22.46 tons, the average grade is 4.55g/t, and the planned annual output is 1.77 tons.

5. Profit prediction and valuation

(1) Volume and price assumptions: 24-26 annuity prices are 540, 545, and 545 yuan/gram, respectively, and the company's mineral gold production is 19.7 tons, 26.9 tons, and 33.4 tons, respectively.

(2) Profit prediction and rating: Relying on high gold prices and rising production, Zhaojin Mining is expected to embark on a fast track of rapid growth in volume and price. We expect that in 2024/2025/2026, the company will achieve net profit of approximately 1.262/1.974/2.818 billion yuan, respectively, with increases of 84%, 56%, and 43%; the corresponding EPS is 0.37, 0.58, and 0.83 yuan, respectively, and the corresponding PE is 33.28, 21.27, and 14.90 times, respectively. First coverage, giving a “buy” rating.

6. Risk warning

The Federal Reserve's interest rate hike exceeded expectations; the company's gold production growth fell short of expectations; the company's gold cost rose beyond expectations.