Based on lead and zinc, it lays out rare precious metals. Currently, the company's main revenue comes from the non-ferrous metal sampling business. The main products are lead concentrate, zinc concentrate, copper concentrate, etc. Based on high-quality resources, the Dongshengmiao Mine is focusing on increasing production capacity while investing in exploring resource recycling to further improve production and efficiency in the lead-zinc business.
Since the controlling shareholder was changed in 2018, the company has focused on rare metals such as silver and molybdenum through acquisitions and asset injections to build a leading rare metals enterprise.
Based on high-quality resources, the lead and zinc business is developing steadily. The company's main mine is Dongshengmiao Mine in Bayannur, Inner Mongolia, with a resource reserve of 152 million tons, ranking first in the northwest region; the annual sampling volume is 2.2 million tons. At the same time, the company is implementing comprehensive tailings utilization projects, which are expected to further expand production and efficiency in the future. In 2019, the company achieved revenue of 1,021 million yuan, of which Dongshengmiao Mining's revenue was 876 million yuan, accounting for 85.8%; operating profit was 336 million yuan, and Dongshengmiao Mining's profit was 183 million yuan, accounting for 54.5%, which is the main profit point of the company's lead and zinc sector.
It is proposed to acquire Yubang Mining, the largest silver mine in Asia. The company plans to acquire 65% of Yubang Mining's shares, and has previously reached an initial acquisition agreement for 34% of its shares. Yubang Mining has mining rights for silver and lead mines in the Shuangjianzishan mining area of Inner Mongolia. Among the resource reserves, silver metal amounts are 15129.3 tons, lead metal amounts are 38,9119 tons, and zinc metals are 1500,462 tons. Among main and symbiotic minerals: the average grade of silver is 138 g/t, the average grade of lead is 1.03%, and the average grade of zinc is 1.46%; it also contains 3110.08 tons of associated silver metal. The Shuangjianzishan mining area is the largest silver deposit in Asia, bringing the company a resource advantage in the silver metal field. At the same time, the silver metal business is expected to become the main growth point of the company's performance as silver prices rise.
The controlling shareholder is expected to inject high-quality assets to develop the molybdenum metal business. After the original controlling shareholder went bankrupt and restructured, a large amount of money was invested to rectify the subsidiary mining enterprise Zhongxi Mining, and the technical improvement project to explore potential and expand capacity reached production standards. It is expected that it will be injected into Guocheng Mining in the future. The injection of this asset will not only optimize the original single business structure, but will also help the company enter the molybdenum metal business. Currently, there is a gap in China's molybdenum supply. The molybdenum metal business has great potential for development, and it is expected that the company's profitability will improve significantly after asset injection.
Profit forecasts and investment recommendations. Without considering the impact of the acquisition of Yubang Mining and Zhongxi Mining's injection on the company's performance, we expect the company's revenue from 2020 to 2022 to be 920 million yuan, 990 million yuan and 1.07 billion yuan respectively, and net profit of 127 million yuan, 147 million yuan and 175 million yuan respectively. The corresponding PE is 188 times, 163 times and 137 times respectively. Considering that the company's current valuation is higher than the average valuation of companies comparable to the industry, no ratings will be given for the time being.
Risk warning. There is a risk that the price of lead and zinc will fluctuate greatly, and asset injection will fall short of expectations.