Founded in 2004 and headquartered in Zhaoyuan City, Shandong Province, China, Zhaojin Mining Industry Company is a leading player in China's mining industry. The company excels in the exploration, mining, processing, and smelting of gold, as well as the processing and sale of silver and copper products. The group specializes in Au9999 and Au9995 gold bullions, marketed under the esteemed brand "Zhaojin." Zhaojin Mining is a renowned company listed on the Hong Kong Stock Exchange, with a workforce of 6,801 employees as of H1FY24.
The company operates through three key segments, with the Gold Operations segment leading the way, contributing 92% of total revenues as of FY23. The Copper Operations segment accounted for 4%, while other sources made up the remainder. Geographically, the Chinese Mainland emerged as a key contributor to total sales.
Seizing opportunities to improve operations
In 2023, the China Gold Association reported that China produced 375.2 tons of raw gold, representing a y/y increase of 0.84%. This total production included 297.3 tons sourced from gold mines and 77.9 tons derived from non-ferrous metal processing. In 1HFY24,the group capitalized on favorable market conditions, achieving a total gold production of 13.2 tons, of which 9 tons were attributed to its mining operations.
Furthermore, the company has invested RMB42mn in geological exploration,leading to the significant discovery of an additional 14.31 tons of gold. These outcomes underscore the group's commitment to operational excellence and sustainable growth in both gold and copper production.
Reliable performance over the long term
Zhaojin Mining has demonstrated a CAGR of 3.3% in sales over the past five years, reaching CNY8.4bn in FY23. This growth trajectory was primarily fueled by an 8.5% CAGR in the average price of gold, which averaged $1,943.4 per ounce in 2023. Concurrently, EBITDA increased at a CAGR of 4.1%, reaching CNY2.6bn, contributing to an expansion of the EBITDA margin by 690 bps in 2023. The company's net income also reflected robust growth, standing at CNY686mn in 2023, with a CAGR of 7.7% over the same period.
To support new mining exploration activities, Zhaojin Mining's total debt increased to CNY17.8bn as of FY23, up from CNY14.7bn in FY18. However, cash and short-term investments saw a significant rise from CNY1.7bn to CNY4.4bn during the same period. As a result, the debt-to-equity ratio improved from 87.5% in FY18 to 79.9% in FY23, indicating enhanced financial stability and resource management.
In comparison, Zhaojin Mining's local competitor, Shandong Humon Smelting, also experienced growth in EBITDA and net income over the past five years, albeit at a slightly lower rate. Shandong's EBITDA grew at a CAGR of 5.4%, reaching CNY1.4bn, while its net income increased at a CAGR of 4.9%, amounting to CNY516mn in FY23.
Strategic initiatives
In 2HFY24, the group has announced strategic priorities to enhance production and reserves while optimizing efficiency. The strategy includes increasing recovery rates and output from key mines such as Xiadian, Dayingezhuang, and Zaozigou Gold Mines. Additionally, the group is committed to expediting the Komahun mine project to ensure its early completion and swift commencement of production.
The group will also prioritize the advancement of 22 projects, each spearheaded by a single enterprise, along with six key initiatives aimed at improving the efficiency of mine processing and smelting operations. Furthermore, it will focus on 10 significant scientific research and development projects throughout FY24. In response to intensifying competition in the gold industry, the group plans to accelerate mergers and acquisitions of mining rights in critical domestic metallogenic zones.
Positive analyst sentiment
Over the past 12 months, the company's stock has demonstrated significant performance, delivering robust returns of approximately 60%, indicative of a positive fundamental trajectory. In contrast, its local competitor, Shandong Humon Smelting, achieved returns of 5%. This substantial increase in share price has elevated the company's valuation relative to its peer. The company currently trades at a P/E ratio of 19x, based on the FY25 estimated EPS of CNY0.66, which is notably lower than its five-year historical average of 46x. However, this valuation is higher compared to Shandong Humon Smelting, which trades at a P/E ratio of 11x.
The company is favorably viewed by 12 analysts, with eight issuing a ‘Buy’ rating and three assigning an ‘Outperform’ rating, resulting in an average target price of CNY15.67. This target price suggests an upside potential of 23%. The positive analyst sentiment is further supported by an anticipated CAGR of 25% in net sales from FY23 to FY26, reaching CNY16.3bn. Furthermore, analysts forecast an EBITDA CAGR of 38%, reaching CNY7.1bn, with margins expanding to 44% by FY26.
Zhaojin Mining focuses on enhancing production and efficiency of reserves while ensuring the completion of new mine projects and initiating production promptly. The company anticipates gains from rising gold prices, driven by recent tariffs, increasing demand from retail investors, and central banks in countries like Russia and China purchasing the metal due to geopolitical tensions. However, there are investment risks to consider, including potential delays in obtaining regulatory approvals—particularly for environmental licenses—and the possibility of underestimating development costs and experiencing fluctuations in gold prices.
