On April 15, $ZHAOJIN MINING(01818.HK) released its Q1 2024 earnings report. To be honest, Brother Er Gou isn’t particularly interested in mining stocks, but with gold-related assets skyrocketing recently—$SPDR Gold Shares(GLD.US) has surged over 15% year-to-date in 2024—even Brother Er Gou can’t help but take a second look at gold stocks. Overall, Zhaojin Mining’s standout performance in Q1 was its massive net profit growth. It seems the rise in gold prices has directly boosted the company’s bottom line!

1. Overall Performance: Exceptionally Strong

Revenue: In Q1 2024, Zhaojin Mining delivered impressive results. The company reported revenue of RMB 1.981 billion, up 13.94% YoY, though down 2.84% QoQ, showing stable growth overall.

Profit: Net profit attributable to shareholders reached RMB 221 million in Q1 2024, soaring 124.30% YoY. Despite a 36.63% QoQ decline, this growth rate aligns with expectations, reflecting robust profitability. Zhaojin Mining’s gross margin hit 42.10% in Q1 2024, up 23.17 percentage points YoY. While the surge in net profit and gross margin is significant, it’s hardly surprising given gold prices rose over 16% in Q1 2024.

Expenses: The company demonstrated strong cost control. Financial expenses fell 18.14% YoY, administrative expenses rose 8.44%, and operating expenses dropped 26.58%. Although the expense ratio increased 3.10 percentage points YoY to 23.43%, the debt-to-asset ratio improved by 5.79 percentage points to 52.59%, indicating financial optimization.

2. Resource Reserves & Project Progress

Zhaojin Mining made notable strides in resource reserves and project development. Through exploration and acquisitions, the company invested RMB 123 million in geological surveys in 2023, adding 33.83 tons of metal reserves. Breakthroughs were achieved at key mines like Xiadian, Dayingezhuang, and Canzhuang. The company also accelerated external expansion, notably acquiring Tietto Minerals. By end-2023, gold reserves reached 1,185 tons, with recoverable reserves at 472 tons.

The Haiyu Gold Project (70% owned by Zhaojin, 30% by Zijin Mining) is slated for production in 2025. Construction is on track, with five shafts completed this year. Upon completion, daily processing capacity will hit 12,000 tons, yielding 15-20 tons of gold annually. With a projected cost of RMB 120/gram, Haiyu—Asia’s largest single gold mine—promises exceptional profitability.

3. Gold Prices: The Key Profit Driver

In Q1 2024, the Shanghai Gold Exchange’s average daily gold price was RMB 489.18/gram, up 16% YoY and 4% QoQ. With the Fed’s potential rate cuts, gold may remain strong—historically thriving in easing cycles. Central banks’ growing gold reserves further support prices, likely enhancing Zhaojin’s per-unit profitability.

4. How Long Will Gold’s Rally Last?

While rising gold prices drive profits, the rally isn’t infinite. Current trends suggest further upside:

1. Central bank demand: As a dollar alternative amid de-dollarization, gold remains a favored reserve asset.

2. Rate cuts likely: Despite Fed hawkishness, high rates strain economies. A 2024 cut could boost gold.

3. Geopolitical risks: Escalating conflicts (e.g., Iran-Israel) reinforce gold’s safe-haven appeal.

5. Brother Er Gou’s Take: Can Zhaojin’s Stock Rise Further?

1. As a 港股黄金龙头， Zhaojin’s rich reserves—including the Haiyu project—support growth. At just 2.08x PB vs. $ZIJIN MINING(02899.HK)’s 3.87x and $SD GOLD(01787.HK)’s 3.24x, the stock looks undervalued.

2. Haiyu’s low costs (RMB 120/gram) could lift margins. Analysts project 2024-2026 net profit at RMB 860M, 1.44B, and 2.92B—a 50% CAGR, assuming smooth execution.

3. Gold’s rally remains the key catalyst. Further upside is likely, especially with Middle East tensions.

4. Disclosure: Brother Er Gou holds no Zhaojin positions.

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Disclaimer:

1. This article represents personal views only, not investment advice. Markets are volatile—proceed with caution.

2. Make investment decisions based on your financial situation or consult professionals.

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