CGN Mining is one of the listed subsidiaries under CGN Group, the world's third-largest nuclear power group. It is also the only investment and financing platform for the development of overseas uranium resources under the CGN Group. CGN Mining will seize the opportunity of global nuclear power recovery and continued growth in natural uranium demand, obtain highly competitive uranium resource projects, and strive to become a world-class natural uranium supplier. As of the end of 2023, the company held 49% of Kazakh Semizbay Uranium Company and 49% of natural uranium product underwriting rights; 49% of Kazakhstan's shares and 49% of natural uranium product underwriting rights in its two active uranium mines; 12.62% of Canadian uranium exploration company Fission Uranium Corp and 20% of its natural uranium product underwriting rights and an additional 15% underwriting options.
The company's finances are stable, and core business revenue is expected to continue to grow. In 2023, the company's financial and business performance showed significant growth and challenges. The company achieved significant revenue growth of HK$7,368 million, an increase of 101.04% over the previous year. This increase was mainly due to a significant increase in the company's revenue in the natural uranium sector, with natural uranium revenue reaching HK$7,359.95 million, accounting for almost all of the company's annual revenue (99.96%).
Prices in the global natural uranium market are trending upward. In 2021, in response to climate change, the process of carbon reduction and decarbonization accelerated, and attention to nuclear power increased. Geopolitical conflicts in the past two years, and the guidelines of major ore companies Cameco and others to reduce production in 2023, the supply of natural uranium continued to be scarce, and the uranium cycle resumed. Global natural uranium production in 2023 was around 54,390Tu, up only 6.3% from 2022. In terms of supply and demand in the natural uranium market, the global supply of natural uranium was in short supply in 2022 and 2023, and the global supply situation is expected to improve after 2025. We believe that the rise in uranium prices is strongly supported by fundamentals, and uranium prices in the medium to long term natural uranium market are expected to continue their upward trend.
Backed by the CGN Group, there are close internal linkages. The Group's internal demand for natural uranium in 2024 is about 6120 tons. Compared with the company's current sales volume of 1,299 tons of uranium, there is still a large gap. Increased price flexibility under the new agreement will fully benefit from the rise in uranium prices. The company procures natural uranium resources from Xie Company and Austrian Company at 98% of the spot price and sells them to CGN Group. According to the latest agreement, the sales price of natural uranium from 2024 to 2026 is estimated to be 79.5/81.4/82.6 US dollars per pound, respectively.
Profit forecast and investment advice: We expect the company's main operating income for FY24-26 to be HK$9203/11267/HK$13162 million, corresponding net profit of HK$543/642/745 million, and the corresponding EPS of HK$0.07/0.08/0.10. We used DCF for valuation estimates. The target price was HK$2.81 per share, which gave the first coverage a “superior to the market” rating.
Risk warning: Uranium ore supply falls short of expectations; global uranium prices fall short of expectations; demand for nuclear power falls short of expectations.