Backed by CGN Group's leading uranium industry, downstream demand is steady

CGN Mining is the only investment and financing platform for overseas uranium resource development under the CGN Group. The business mainly consists of uranium ore equity investment, natural uranium self-production trade, and international trade. It is expected to benefit from rising uranium prices and catalytic volume and price increases in production capacity. We expect that in 2024-2026, the company will achieve operating income of HK$9.94/12.283/14.884 billion, corresponding net profit to mother of HK$0.56/0.765/1.081 billion, and the corresponding EPS of HK$0.07/0.10/0.14. We refer to 2025E 17.4x PE, an overseas comparable company, and consider the company's liquidity and scarcity premium. Based on 2025E 20x PE, we are optimistic that the company will rely on CGN Group to guarantee downstream demand, and that “owning mining is king” will further open up room for growth under the uranium mine “seller's market”, and give the company a “buy” rating.

Global nuclear power growth is on the rise, and the tight balance between supply and demand for uranium ore continues

Energy transformation is intertwined with energy security, driven by AI power demand, and the global nuclear power revival has begun. According to our statistics, the average annual installed capacity of global nuclear power will reach 15 to 18 GW per year in 2024-35. We predict that demand for natural uranium will be steady, with a compound annual growth of about 3%. Demand before 2030 may be driven by countries such as China, Russia, India, etc. After 2030, the restart of nuclear power and the construction of small reactors in developed Europe, America, Japan, and South Korea may lead to secondary growth. Constrained by continued tight supply and demand (a lack of match with the location and lifespan of nuclear power plants increases supply risk), natural uranium supply may maintain a ~ 10% gap compared to demand, compounded by downward secondary supply margins (downward supply trends in commercial inventories and centrifuge shortage operations, making it difficult for the spent fuel cycle to contribute to increases in the short term), supply side disturbances will cause price fluctuations.

The uranium price center has sufficient upward momentum. Overseas nuclear power premiums have brought about uranium price catalytic differences from market views. We are even more optimistic that structural price increases in US nuclear power will catalyze a marginal rise in uranium ore prices. In March of this year, US nuclear power operator Talen Energy sold ten-year nuclear power plant power generation to cloud service provider Amazon at a 50% + premium; US natural uranium has low inventory, low output, and low long-term coverage. Natural uranium accounts for only ~ 5% of nuclear electricity costs. Demand for natural uranium is urgent and price tolerance is high. The rise in US nuclear power prices is expected to bring about flexibility in uranium prices. Reviewing the two rounds of bullish markets in 1970-80 and 2000-10, we are optimistic that the current spot price of uranium ore will approach the historical high of 175-225 $/lb from the current 80-100$/lbs.

We are optimistic that the GN mining industry will benefit from rising uranium prices and redeem excess profits from high-quality uranium resources. The unique business model of GN mining is one of the most flexible uranium ore indicators for rising spot uranium prices. Over the past few years, we have achieved sustainable growth in the company's profit, scale, and market value through mergers and acquisitions of high-quality overseas production, construction, and exploration mines. Currently, the company holds 49% of the shares of Xie Company and Austrian Company, a subsidiary of Kazakh Nuclear Energy, the world's largest and lowest-cost natural uranium mining company. Its four mines have the advantages of low production costs and high correlation between sales prices and spot prices. Furthermore, the company is one of the world's largest natural uranium trading companies. On the one hand, it brings steady profit contributions through back-to-back trade, and on the other hand, it also helps the company better grasp international natural uranium market trends. We estimate that for every 1 $/lb increase in the price of spot uranium, the company's net profit to the mother will increase by HK$0.006 billion in 2025.

Risk warning: Nuclear power plant accident risk, overseas geopolitical risk.