What's new

On March 4, Chifeng Jilong Gold Mining's controlling subsidiary, Shanghai Chijinxia Tungsten Metal Resources, along with its wholly owned subsidiary CHIXIA Laos, signed an equity transfer agreement with China Properties Investment Holdings Ltd. Under this agreement, CHIXIA Laos plans to acquire a 90% stake in China Investment Mining (Laos) Sole Co., Ltd. (the target company) from China Properties Investment Holdings Ltd. The equity transfer involved a payment of US$6.28mn, with an additional repayment of US$12.69mn to the target company, resulting in a total consideration of US$18.96mn.

Comments

Acquisition target comprises an ionic rare earth ore containing 25,000t of rare earth resources. According to the announcement, the target company holds licenses for rare earth ore processing (trial), mining (trial), and rare earth exploration issued by the Ministry of Energy and Mines of Laos. In terms of resources, the mining area contains 25,000t of rare earth oxide resources with an average grade of 0.025%. This includes 15,000t within the trial mining area and 10,000t within the exploration rights area.

Rare earth mine now under construction; company plans to start production 40 days after the handover. According to the feasibility study, the mine is designed to produce 3,675t/yr of mixed rare earth oxides using the in-situ leaching (ammonium sulfate-ammonium carbonate) process. The product scheme aims to achieve mixed rare earth oxide with a minimum total rare earth oxide (TREO) content of 92% Following completion of the deal, the company intends to refine its mine construction plan and expedite construction and production. The company expects to complete infrastructure construction and initiate production within 40 days after the handover (within three days after the signing of this agreement). However, the exact timeline will be contingent on the equity transfer process and subsequent project approvals and construction progress.

Output of gold mines to grow steadily; rare earth business to create new growth driver.

Gold mines: According to the announcement, expansion and renovation of domestic gold mines have accelerated. The concentrator capacity expansion projects of Wulong Mining and Jilong Mining have commenced operation. The Phase I mining and processing project of Xidengping gold mine was launched on schedule, and the acquisition of mining rights for Phase II is progressing steadily. The Sepon mine in Laos focuses on cost control, with ongoing efforts focused on reducing costs as the primary business improvement direction. Meanwhile, the Wassa mine in Ghana plans to improve all aspects. The exploration of deep mining areas is progressing smoothly, with output likely to increase steadily.

Rare earth: We believe that the acquisition of the rare earth mine, representing a significant strategic direction for the firm, marks the beginning of the company's rare earth business. The rare earth project involved in the deal is typical of medium and heavy rare earth mines that have high economic value. The imminent production launch is poised to bolster the firm's future earnings growth. In addition, the project offers a platform and opportunity for the firm to enhance its resource development and integration efforts in Laos.

Financials and valuation

We maintain OUTPERFORM. We keep our 2023 and 2024 earnings forecasts largely unchanged, and introduce our 2025 earnings forecast of Rmb1.4bn. The stock is trading at 16.1x 2024e and 15.7x 2025e P/E. We maintain our target price of Rmb18.6, implying 22.0x 2024e and 21.4x 2025e P/E, offering 36% upside.

Risks

1) Progress of rare earth projects disappoints; 2) sharper-than-expected fluctuations in rare earth prices; 3) mining policy and political risks in Laos.