Lingbao Gold's 2011 interim results fell slightly short of our expectations due to lower mining gold production than expected. Mining gold production in the first half of the year fell 8.9% year over year to 1.355 tons, which is 26.8% lower than our estimate. The failure of Kyrgyz gold mines to start production on schedule is the main reason why ore production fell short of expectations.

Since the construction progress of the Kyrgyz gold mine fell short of expectations, we lowered our assumptions about gold production at the Lingbao Gold Mine. The limited gold reserves in the company's existing mines have limited production growth. Future increases in gold production are mainly due to Kyrgyz gold mines, but mine construction is often interrupted by internal political turmoil in Kyrgyzstan, and the current progress has lagged behind the original plan.

Lingbao Gold plans to issue A-shares domestically, but we think that due to the current unfavorable market conditions, the additional issuance plan will be postponed until next year. The company plans to issue 300 million A-shares, accounting for 38.95% of the current share capital. The amount of financing is expected to exceed 1 billion yuan.

The company's target price was adjusted to HK$4.10 to maintain the collection rating. We lowered the company's production assumption, but also raised the gold price assumption. In addition to this, we think the company will benefit from the increase in A-shares.