China Gold Group's large overseas gold asset operation platform. The company is mainly engaged in the operation, acquisition, exploration and development of gold and basic metal minerals. China Gold Group holds a 40.01% stake in the company and is the controlling shareholder of the company. the company's main products are copper and gold. In 2019, the company's output of copper and gold was 62500 tons and 6.9 tons. The income of copper and gold products accounted for 69% and 31% respectively, and gross profit accounted for 80% and 20% respectively.
With China Gold Group's domestic high-quality copper and gold resources, and is the group's only overseas resources integration platform, with overseas development capabilities. The core competitiveness of the company is mainly reflected in: first, the controlling shareholder is strong and fully supports the company to go global. The company's main operating mines are Changshanhao Gold Mine in Inner Mongolia, China and Jiama Copper polymetallic Mine in Tibet. By the end of September 2020, the company has gold reserves of 108.69 tons, gold resources of 294 tons, copper reserves of 2.4474 million tons and copper resources of 7.12 million tons. The company is the group's only overseas resources integration platform, has the priority to purchase the group's overseas assets, and has the priority to inject into the overseas mines cultivated by the group. Second, the company's standards are in line with international standards and have advantages in overseas mine development. Third, the Hong Kong stock platform has a more flexible and efficient trading system and financing capacity.
Jiama Copper Mine has achieved remarkable results in the second phase of production adjustment, and is about to enter the performance release period. Jiama copper deposit, located in the Gangdise mineralization belt of Tibet Autonomous region, is a large copper-gold polymetallic deposit. At present, two phases of construction have been completed in Jiama mining area, with an ore mining and processing capacity of 50,000 tons per day. The first phase of the project began mining operations in the second half of 2010, the first series of the second phase of the Jiama mining area began commercial production in December 2017, and the second series of the second phase of the Jiama mining area began commercial production in July 2018, with a total design capacity of 44000 tons per day. After the second phase was put into production, the operation efficiency of the mine was unstable and its profitability was suppressed. the company strengthened its management in the first three quarters of 2020, and achieved remarkable results in adjusting production. Jiama Mine produced 59300 tons of copper in the first three quarters of 2020, an increase of 20.3% over the same period last year. Jiama Mine is about to enter the performance release period in the future.
Changshanjiao Gold Mine is the main gold mine of the company, which has the potential to increase reserves. The mine is owned and operated by Inner Mongolia Taiping Mining Co., Ltd., which owns 96.5% of its rights and interests. As of September 2020, Changshan Hao Mine has gold and metal reserves of 43.49 tons and gold and metal resources of 118.27 tons. The mine has the second largest gold reserves in China Gold Group, second only to Jiama Copper Mine. The grade of the mine is not high, but the output is large and there is room for increasing reserves. The average ore grade of Changshanhao gold mine in 2019 is 0.53 g / t, which is lower than that of 1.7g/t, but it produces 4.13 tons of gold in 2019, accounting for 13.4% of the total output of the group. The current service life of Changshan Hao Gold Mine is 5 years. According to the company's announcement, the exploration of deep resources in Changshan Hao Mine is under way, which is expected to increase resource reserves and prolong mine life.
We believe that as the company's profits continue to release, the company is expected to usher in a comprehensive revaluation. First, the production activities of important mines have been comprehensively straightened out, the scale and volume of products has increased, and the volume of profits is expected to usher in a revaluation. Second, the management is continuously optimized, the production indicators are comprehensively optimized, and the management mechanism is expected to usher in a reevaluation. Third, the large amount of capital expenditure has come to an end, the cash flow pressure has been reduced, and the performance has ushered in a period of release, and the space for follow-up development is expected to usher in a revaluation. Considering that 2020Q3 achieved an EBITDA of US $103 million, accounting for 44% of the first three quarters, with the company's metal production volume in the future, EBITDA is expected to continue to grow, and the company's EV/EBITDA may converge rapidly. Fourth, global inflation trading is in the ascendant, the metal price center has moved up, and the company's valuation level is expected to usher in a revaluation.
Investment advice: give a "buy-A" rating. According to our estimation, from 2020 to 2022, the company is expected to achieve mineral copper output of 79000 tons, 79400 tons, 81500 tons, gold 7.34tons, 7.35tons, 7.34tons, under the assumption of copper price 4.98,5.8,60000 yuan / ton, gold price 380,380,380,380,380,380,380,380,380,380,380,380,380,380,380 yuan per gram. The company is expected to achieve net profit of $0.78,1.34 and $158 million, corresponding to EPS0.20, $0.34 and $0.40, and PE of 9.02x, 5.27x and 4.45x, respectively. Considering that the production of Jiama Copper Mine is getting better and better, the mineral copper output in 2020 is expected to increase by 26% compared with 2019, and the company's management mechanism and profit volume are expected to be revalued; second, Changshanhao Gold Mine still has great potential to increase reserves. Third, the macro-economy at home and abroad continues to pick up, good news about overseas vaccines continues to emerge, domestic and foreign central banks continue to take care of liquidity, copper prices have rebounded sharply and persistently, and the company is expected to usher in a comprehensive revaluation and give the company a "buy-A" rating.
Risk tips: 1) the price of copper and gold is lower than expected; 2) the output of the company's main products is not as expected; 3) assuming that it is not as expected, there is an error between the calculated results and the actual situation.
