CHIFENG JILONG GOLD MINING(600988)：GOLD OUTPUT AND ASP BOTH RISE; COST REDUCTION EFFORTS CONTINUE-格隆汇

机构：中金公司
研究员：Zheng WANG/Ding QI/Yan CHEN

　　1H24 results in line with our expectations
　　Chifeng Jilong Gold Mining announced its 1H2024 results: Revenue rose 24.45% YoY to Rmb4,196mn; attributable net profit rose 127.75% YoY to Rmb710mn; and recurring net profit rose 71.80% YoY to Rmb639mn. In 2Q24, revenue rose 31.22% YoY and 26.35% QoQ to Rmb2,342mn, and attributable net profit rose 115.46% YoY and 154.35% QoQ to Rmb510mn. The firm's results are in line with our expectations.
　　Sales volume and prices of mined gold both increased; cost reduction and efficiency enhancement progressed. In terms of volume, the company completed mining of 7.6t gold in 1H24, up 9.72% YoY. Gold prices continued to hit record highs in 1H24, with ASP of standard gold on the Shanghai Gold Exchange rising 20% YoY to Rmb521/g in 1H24 and rising 23.8% YoY and 12.7% QoQ to Rmb552/g in 2Q24.
　　The firm continued to reduce costs and improve efficiency. It reduced procurement costs through centralized procurement and the introduction of new purchasers, and improved production efficiency through technological innovation. As a result, its gold production cost continued to decline, with unit gold maintenance cost down 0.88% YoY in 1H24.
　　Trends to watch
　　Gold output increased and cost control strengthened. According to corporate filings, the new 180,000t/yr gold ore dressing project started production in July, and the firm expects its annual ore processing volume to increase 150%. Meanwhile, subsidiary Wulong Mining continued to improve mining capacity through technological upgrading, and its average daily ore dressing volume rose to about 2,000t in 1H24. The Phase I Xidengping project with 140,000t/yr mining and ore dressing capacity came online in October 2023, and the entire production line has been put into operation.
　　Overseas, the firm expects to gain approval for the mining of Sepon mine in Laos in September. In addition, the tailings regrinding process, which helps reduce costs, was put into use in July. The firm expects to further improve its gold recovery rate and gold output, as the technological transformation of resin leaching and beneficiation process continues.
　　In addition to maintaining stable production in the main mining area, the firm has developed two new underground mining areas at the Wassa mine in Ghana - 242 and B-Shoot southern ramp. The underground mining　capacity has increased to 7,000t/day, which can rapidly replenish ores for existing ore dressing plants, and increase gold output.
　　Resource exploration continues under new cooperation models. Subsidiary Wulong Mining promoted the application of mineral rights integration, and has applied for incremental mining areas; Jilong Mining has achieved good results in peripheral and deep exploration, and completed the procedures for the merger and conversion of four exploration rights to the Zhuanshanzi Gold Mine.
　　The exploration rights in the deep mining area of Huatai Mining have been successfully transferred from exploration to mining. According to the announcement, the company explored a new model of cooperation with the government. It worked with Shenyang Geological Survey Center of the China Geological Survey Bureau and the government of Aohan Banner in Chifeng to jointly carry out geological survey, and promote the development of local resources.
　　Financials and valuation
　　Given rising gold prices, we raise our 2024 and 2025 earnings forecasts 8% and 14% to Rmb1.67bn and Rmb1.96bn. The stock is trading at 17x 2024e and 15x 2025e P/E. We maintain OUTPERFORM, and our TP of Rmb23 (considering earnings revisions and short-term pressure on sector valuation), implying 23x 2024e and 20x 2025e P/E, offering 32% upside.
　　Risks
　　Sharp fluctuations in product prices; disappointing project progress; overseas geopolitical risks.