2023 results in line with market expectations

Chifeng Jilong Gold Mining announced its 2023 results: Revenue rose 15.23% YoY to Rmb7.22bn, and attributable net profit grew 78.21% YoY to Rmb804mn. Recurring net profit rose 115.97% YoY to Rmb866mn, and EPS increased 78.21% YoY to Rmb0.48. In 4Q23, revenue rose 20.54% YoY and 27.68% QoQ to Rmb2.16bn, and attributable net profit grew 416.60% YoY and 36.54% QoQ to Rmb284mn. The firm’s results were in line with market expectations.

Trends to watch

Output and prices of mined gold rising; effective efforts to reduce costs and improve efficiency. The firm’s output of mined gold rose 5.79% YoY to 14.35t. The firm announced that it targets 16.02t of output for 2024 (up 11.64% YoY). Gold prices averaged Rmb449.05/g in 2023 (up 14.97% YoY) and have risen about 11% YTD in 2024. We expect gold prices to continue rising given heightened expectations for US interest rate cuts and geopolitical impacts.The firm’s efforts to reduce costs and improve efficiency have paid off, with unit all-in sustaining cost gold down 12.00% YoY in 2023.

Rising output of mined gold and improving cost control. Domestic: Jilong Mining’s 180,000t/yr beneficiation expansion project continues, and the firm plans to start trial production in June 2024. In addition, Wulong Mining has continued to improve its mining capacity through underground technological upgrading to meet demand of 3,000t/day beneficiation plants, and its average daily beneficiation volume rose to over 1,800t in 2H23. Moreover, the 140,000t/yr Phase I mining and beneficiation project of the Xidengping Gold Mine was put into operation in October 2023.

Overseas: First, the firm made significant progress in exploring the Sepon mine in Laos, adding 5.3mnt of gold ore resource as of end-2023. In addition, the firm plans to improve its tailings regrinding process and resin dressing process to raise the recovery rate from 66.5% to over 75%, further cutting costs. Second, the Wassa mine in Ghana is expanding production capacity. While maintaining stable production in the main mining area, the firm is exploring two new underground mining areas to rapidly increase output for existing beneficiation plants and gold output.

Rare earth business to take off. The rare earth business has been an important strategic focus for the firm in Laos. It acquired a rare earth mine project in Laos in March 2024, and started to expand its rare earth segment. The firm plans to produce about 3,700t of rare earth oxides in 2024. We believe the operation of this rare earth project will boost the firm’s earnings and provide a platform and opportunity for the firm to further expand its rare earth resources.

Financials and valuation

Given rising gold prices, we raise our 2024 and 2025 earnings forecasts 10% and 19% to Rmb1.54bn and Rmb1.72bn. The stock is trading at 18.9x 2024e and 16.9x 2025e P/E. Considering the sector uptrend, we maintain OUTPERFORM and raise our target price 24% to Rmb23, implying 25.0x 2024e and 22.4x 2025e P/E and offering 32% upside.

Risks

Sharp fluctuations in product prices; disappointing progress of projects; overseas geopolitical risks.