<News Alert!>: Acquisition of Louyang Yinhui and Zhaojin Mining to enhance the growth of gold business.
- Zijin mining purchased stakes in two gold miners, Louyang Yinui and Zhaojin Mining (1818HK).
- Expanding gold resources and enhancing the growth of gold business.
- Positive for this acquisition, retain BUY and TP of HK$12.6.
Zijin mining purchased stakes in two gold miners, Louyang Yinui and Zhaojin Mining (1818HK). i) On 3 Nov. the company acquired 30% stakes in Louyang Yinhui from Luoyang Industrial for RMB70m, boosting its total stakes 100% after this acquisition. Luoyang Yinhui is a refiner producing gold (100 tonnes of gold bullion p.a. capa) and holds a 70% interest in the Luyuangou Gold Mine. In addition, it has another subsidiary, Luoning Zijin Gold Refinery, which has gold refining facility (5 tonnes of refined gold p.a. capa) and produces sulphuric acid. ii) Gold Mountains, Zijin Mining’s wholly owned subsidiary, will acquire 20% (654,078,041 H shares) of Zhaojin Mining from Shanghai Yuyuan Tourist Mart Group and become 2nd largest shareholder. The total investment would be HK$4.3tn (RMB4.1bn) based on the purchased share prices of HK$6.72 per H share, c 1.75% discount to the closing share price on 4 Nov.
Expanding gold resources and enhancing the growth of gold business. Upon completing the transaction, Zijin Mining’s gold resources and mined-gold production will increase by 188 tonnes (7.9%) and 4 tonnes (8.7%), respectively. After Zhaojin Mining’s Offshore Gold Mine (with 15-20 tonnes of gold production p.a. capa) commences production in 2025, the company’s annual mine-produced gold production will increase by 6.6-8.8 tonnes.
Positive for this acquisition, retain BUY and TP of HK$12.6. The acquisition is positive to increase its gold resources and improve the growth potential of the gold business. As the share price of Zhaojin mining has declined by 16.7% today from the peak in 13 Apr with the weak gold prices, the purchasing prices wouldn’t be overvalued. The share prices for both Zhaojin and Zijin Mining surged over 10% today after this announcement. Currently, Zhaojin mining is trading at 17.6x P/E, 1.3xP/BV and 12.6EV/EBITDA based on FY23 consensus estimates.
Source: The company, DBS Bank
Source: The company, Bloomberg L.P, DBS Bank