The company's own mine iron concentrate and pellets are the company's main sources of revenue.
At present, the company adopts the production mode of self-produced plus purchased iron ore to ensure normal production. The self-produced iron ore resources mainly come from five major mining areas, namely Tieshan Mine, Houzhuang Mine, Zhaokou Mine, Qiaopuka Mine of Jingang Mining, a wholly-owned subsidiary, and Wangwangzhuang Mine of Jinding Mining, a shareholding company. At present, the proved reserves of Tieshan Mine have been exploited and closed; the resources of Houzhuang Mine are facing depletion and production is expected to be closed in June 2020; the mining rights of subsidiary Jingang Mining Qiaopuka Mine were cancelled in 2017, and the mine policy stopped production. Production and living buildings and equipment have been dismantled. It can be seen that the company's iron ore resources are decreasing year by year, and only the iron ore mined by the Zhaokou Mine with an annual output of 850000 tons and the Wangwangzhuang Mine of Jinding Mining Company is available for use. The company as a whole faces the situation of resource depletion, but in the later stage, it is expected to ensure the output of fine powder through the injection of mine assets and external mining of iron ore.
Iron ore is heavily dependent on foreign countries as the target of local traditional iron ore, which is expected to benefit from the upward price of iron ore.
China has raw iron ore reserves of 20 billion tons, accounting for 11.76% of the world's total reserves, ranking fourth in the world and a big country in iron ore resources. Although China is rich in iron ore resources, there are more poor ore and less rich ore, and the average grade is lower than the world average. In 2019, the average grade of iron ore in China is only 34.50%, which is 13 percentage points lower than the world average. China's iron ore production (rich iron ore) is 146 million tons, accounting for 6.54% of the world's total output, but the apparent demand is 1.234 billion tons and the external dependence is 83%. The COVID-19 epidemic that broke out at the beginning of the year is still spreading overseas, and it may have an impact on the major iron ore supply countries in the later stage. As the target of local traditional iron ore, the company is expected to benefit from rising ore prices.
Investment suggestion
Combined with the company's historical PB trend, we give the company a reasonable valuation of 1.10X in 2020, corresponding to a market capitalization of 3.975 billion. According to the current equity, the corresponding target price is 6.68 yuan, covering for the first time and giving a "buy" rating.
Risk tips: overseas epidemic control led to no large-scale contraction of the supply side, demand contraction led to a decline in mineral prices, the epidemic led to an increase in mining costs and transportation costs, unexpected deviations in the mining of the company's mining resources and its own operating risks.