In September when over half of the year has passed, with the frequent „black swan“ incidents taking place in 2022, the downward pressure and market volatility of the global economy has become more severe than in previous years. In such a capital winter, gold stocks are expected to become one of the most valuable assets for investment to hold for an extended period of future time.
On the one hand, from a macro perspective, there have been more and more catalyst factors that drive the price of gold to rise recently, meanwhile the logic behind the medium and long-term upward trend of gold prices is also strengthening. On the other hand, in terms of valuation, the current gold industry is at the bottom value of the ten-year cycle. Hence the gold industry’s profitability and return level are now maintained at a stable and optimized state, providing effective investment values.
When it comes to selecting individual stocks, Zhaojin Mining (01818), listed in HKSE, deserves your attention.
In addition to the expectation that the rising gold price will boost the company’s profits, Zhaojin Mining’s endogenous growth momentum is also very strong. From the perspective of Zhitong Finance APP, the biggest attraction of Zhaojin Mining itself is Haiyu goldmine.
Zhaojin Mining’s two main mines used to be Dayingezhuang goldmine and Xiadian goldmine, with reserves of 229.2 tons and 108.6 tons, respectively. In 2015, the company acquired Haiyu goldmine, the largest single gold mine in China, with reverses of 562.4 tons, getting Zhaojin’s total reserves to be over 1,000 tons.
As for the current progress, Haiyu goldmine has obtained a 15-year mining license issued by the Shandong Provincial Department of Natural Resources in July 2021. According to the disclosed information, the area of mineral exploration right in Haiyu is 17.91 square kilometers. As of December 2020, it has retained 562.37 tons of mineral reserves, with an average ore grade of 4.20 grams per ton.
It is also understood that Zhaojin has sunk a total investment of RMB 7.3 billion to the Haiyu goldmine project, with a designed mining goal of 3.96 million tons per year. The mine is set to start production in 2023 and to achieve its target production in 2-3 years, with an annual output of 16-20 tons after the project is completed. For reference, Zhaojin Mining’s gold output in 2021 was 12.6 tons. In other words, Zhaojin Mining’s annual output will double after Haiyu goldmine reaches its designed production capacity.
On the cost side, thanks to the large production scale and high ore grade of Haiyu goldmine, the overall gold cost is expected to be as low as RMB 100/gram after full establishment of production, holding obvious advantages. For reference, Zhaojin Mining’s overall gold cost in the first half of this year was about RMB 193.98/gram.
It is also worth mentioning that the linear distance between Haiyu goldmine and the Zhaojin port is only 45 kilometers, which can generate a significant regional synergistic effect in the future.
Given all the above, after the production Haiyu goldmine is completed, the overall profitability of Zhaojin Mining’s goldmining business will usher in a qualitative leap forward.
According to Zhaojin Mining’s latest disclosure, the design of the safety facilities of Haiyu goldmine has passed the review of the relevant departments earlier this year, and the project has recently obtained the approval of the „Safety Three Simultaneousness“. Therefore, the construction of the project will soon be carried out.
In summary, Zhitong Finance APP believes that now is the perfect time to enter the left side trading of Zhaojin Mining. As we all know, the logic that drives the rise of cyclical stock prices can be divided into two categories: one is beta – rising commodity prices driving company profits and thus the stock prices; the other is alpha – stock prices and company profits driven by other factors besides commodity price fluctuations, such as an increase of an individual company’s market share, an increase in product yield, etc.
Long-term investors clearly prefer alpha logic to beta logic, as alpha is trendier and lasts longer.
At present, Zhaojin Mining undoubtedly has investment opportunities with a strong alpha under the resonance of two advantages: the expectation of the rising gold price, as well as the upcoming stable increase of gold production contributed by Haiyu goldmine. Moreover, if we consider the fact that Zhaojin’s share price has been unsatisfying in recent months due to the decline of the overall Hong Kong stock market, this is an even more rare opportunity for investors to go long.
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