Dengyun officially included 100% equity in Beijing Huanglong, marking the company's successful entry into the field of gold mining and opening up a new world of growth. On the evening of March 29, 2021, the company announced that Beijing Huanglong Jintai Mining Co., Ltd. had completed the industrial and commercial change registration procedures and obtained the "Business license". Combined with the announcement on the acquisition of 99% equity interest and related party transactions of Beijing Huanglong Jintai Mining Co., Ltd., disclosed on February 4, 2021 and March 3, 2021.

And the announcement of the first interim shareholders' meeting in 2021, the company now holds a 100% stake in Beijing Huanglong. The main asset of Beijing Huanglong is 100% equity of Shaanxi Hanyin Huanglong Gold Mine Co., Ltd. Hanyin Huanglong has the mining rights of Huanglong Gold Mine in Hanyin County, the detailed exploration rights of deep gold deposits in the Jingou section of Huanglong Gold Mine, and the detailed exploration rights of gold deposits in the peripheral mining areas of Huanglong Gold Mine.

The company's main automotive engine exhaust valve products, market share and profit level is relatively stable. The company was founded in May 1971 and listed on the Shenzhen Stock Exchange in February 2014. Its main business is R & D, production and sales of automotive engine intake and exhaust valves. The market share and profit level of the company's valve products are relatively stable. From 2018 to 2020, the company's return net profit is 10.2662 million, 3.7304 million and 15.3393 million respectively, the gross profit margin is 25.89%, 24.30% and 25.63% respectively, and the net profit rate is 2.9%, 1.11% and 4.12% respectively.

The company will enter the gold mining and dressing business and will open up new growth space on the basis of continuing to consolidate and develop the original business. The only produced Yinhan Huanglong gold deposit in Beijing Huanglong has the following four characteristics. First, it is a medium-sized gold mine, and its grade is at the national average level. As of September 2020, the amount of gold metal retained within the scope of mining rights is 4.82t, with an average grade of 1.69g / t, and the amount of gold metal discovered within the scope of exploration rights is 2.38t, with an average grade of 1.74g/t. Second, the existing mining scale is relatively small, but it is expected to expand production to 300,000 tons / year. The designed production capacity of the mine is 105 000 tons per year. From 2018 to 2019, the amount of ore mined within the mining rights of Huanglong Gold Mine in Hanyin County is 81600 tons and 81700 tons respectively, and the gold output is 100.21 kg. According to the Feasibility study report of 300000 t Compact a Mining and expansion Project of Shaanxi Hanyin Huanglong Gold Mine Co., Ltd., 2021 is the time reserved for examination and approval and qualification acquisition, 2022 and 2023 are the time for capital construction, and the mining volume will reach 300,000 tons per year in 2024. According to our estimates, the gold output of the mine is expected to increase to 432kg after the expansion, an increase of 390% over 2019. Third, a number of production indicators are higher than the national average, and there is still room for improvement. According to the company announcement, in the past five years, the mining recovery of the mine is 91.6% (lower than the domestic average of 94.2%), the dilution rate is 9.93% (the domestic average is 11.4%), and the mineral processing recovery is 88% (the domestic average is 84%). In the future, with the upgrading and expansion of the existing mining system, the production efficiency is expected to be further improved. Fourth, the production cost is relatively high, and the performance is more flexible in the process of rising gold price. According to the company announcement, the net profit of Hanyin Huanglong in 2018-2020 is-5.1443 million, 1.1198 million and 8.3384 million respectively. According to our estimation, the sales price of gold in 2017-2019 is 274yuan / g, 274yuan / g and 330yuan / g respectively, and the complete cost (including three fees) is 238yuan / g, 198yuan / g and 313yuan / g respectively. The total cost in 2019 is as high as 313 yuan / g, which may be related to the small output of gold. considering the company's higher production costs, the company's performance will show greater flexibility in the process of rising gold prices.

The controlling shareholder of the company is the minority shareholder of the sea gold mine of the domestic high-quality gold mine, and the controlling shareholder is expected to obtain rich investment income after the sea gold mine is put into production. Yike Zhengrun, the company's controlling shareholder, and its related parties directly and indirectly own 36.14% of the shares of Shandong UBS, and Ruihai Mining Co., Ltd., Laizhou City, a subsidiary of Shandong UBS, controls 100% of the gold deposits in the domestic high-quality mining area. First, there are huge reserves of gold resources in the sea area. As of December 31, 2018, the average grade of the mine is 4.3 grams / ton, and the proved + inferred gold resources are expected to be about 570 tons of metal. Second, the output of gold deposits in the sea area is large, the cost advantage is significant, and the cash flow creation ability is excellent. According to the announcement of Zhaojin Mining, the design scale of the mine is 12000 tons per day, the annual output of gold is 15.6 tons after the project is completed, and the total service life of the mine is about 22 years. It is expected to be gradually put into production in 2022 and reach production in 2024, with excellent cash flow creation ability. The mine is controlled and operated by Zhaojin Mining, and Yike Zhengrun shares the investment income as a financial investor.

Investment advice: "neutral-A" investment rating. According to our estimation, if the company successfully acquires Beijing Huanglong this time, the company is expected to increase its gold production by 144 kg, 144 kg and 216 kg respectively in 2021 and 2023. In the medium term, the global vaccine will accelerate and superimpose US fiscal stimulus, and US inflation expectations will rise rapidly, leading to a rapid rise in US bond yields, an upward risk in real interest rates, and gold prices are expected to be suppressed to some extent. Under the assumption that the gold price is 360 yuan / g, we expect the company's net profit from 2021 to 2023 to be 22.6 million, 25 million and 32.3 million respectively. Considering that the company will cut into the new gold mining track from the traditional processing industry, although the initial profit increment is small, but there is room for further development, the company's valuation level is expected to be further improved. Give a "neutral-A" investment rating, it is recommended to continue to pay attention.

Risk tips: 1) the gold price is lower than expected; 2) the company's project progress is not as expected; 3) the company's gold output is lower than expected.