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Reporter |

The market has once again erupted in a small-scale A+H dual listing boom, since the beginning of this year, Lopal Technology (603906. SH), Jihong shares (002803. SZ), Baili Tianheng (688506. SH), S.F. Holding (002352. SZ) and other companies have submitted prospectuses to the Hong Kong Stock Exchange, and Midea Group (000333. SZ), Junda Co., Ltd. (002865. SZ) was filed for overseas listing by the China Securities Regulatory Commission, and in addition, Anjing Foods (603345. SH) is also in active preparations.

Recently, Chifeng Jilong Gold Mining Co., Ltd. (hereinafter referred to as Chifeng Gold, 600988.SH), an A-share listed company, also submitted a prospectus to the main board of the Hong Kong Stock Exchange, planning to sprint for A+H dual listing, and the sponsor is CITIC Securities.

In 2022, Chifeng Gold had planned to list on the Switzerland Stock Exchange through an offshore issuance of Global Depositary Receipts (GDRs). However, this plan did not go ahead as planned. In August 2023, Chifeng Gold announced the termination of its GDR issuance plan. The company said the decision was made based on a combination of changes in domestic and foreign markets. Subsequently, Chifeng Gold adjusted its internationalization strategy, disclosed the indicative announcement of the planned issuance of H shares and the Hong Kong Stock Exchange, and decided to submit a prospectus to the main board of the Hong Kong Stock Exchange to seek the opportunity of A+H dual listing.

Affected by price fluctuations in the gold market

According to the prospectus, Chifeng Gold is a major gold producer, mainly engaged in gold mining, dressing and sales business. From 2021 to 2023 and the first quarter of 2024 (each period of the reporting period), the vast majority of Chifeng Gold's revenue came from gold mining and sales.

Revenue from gold mining sales increased significantly, from 78.5% in 2021 to 84.6% in 2022 and from 87.6% in 2023 to 90.8% for the three months ended March 31, 2024, while the Company also generated revenue from the sale of other mineral resources, including copper, during the same period.

The Company sells gold produced in and outside the PRC to domestic and international gold refiners at prices quoted by the Shanghai Gold Exchange and the London Bullion Market Association, respectively, and is therefore exposed to the risk of gold price fluctuations.

The spot price of gold on the Shanghai Gold Exchange closely follows the international gold price. The international gold price is affected by many factors beyond its control, such as the overall supply and demand of gold, the central bank's gold trading, macroeconomic factors such as inflation and interest rates, geopolitical conflicts (such as the Russia-Ukraine war and the Israeli-Palestinian conflict) and speculative trading activities.

In 2021, as the global economy began to recover from the COVID-19 pandemic, enthusiasm for gold investment weakened, and global gold spot price growth slowed. However, since 2022, the global geopolitical and economic environment has changed, and the price of gold has fluctuated significantly.

According to Frost & Sullivan, the average spot prices of gold on the Shanghai Gold Exchange in 2021 and 2023 were 374.3 yuan, 392.1 yuan and 449.6 yuan per gram respectively. During the same period, the London Bullion Market Association's midday spot gold prices were $1,798.9, $1,801.3 and $1,942.1 per ounce, respectively.

During the reporting period, the average selling price of the company's gold products was 381 yuan, 383 yuan, 436 yuan and 467 yuan per gram, and the corresponding revenue was 3.783 billion yuan, 6.267 billion yuan, 7.221 billion yuan and 1.854 billion yuan respectively, which continued to grow.

Net profit fell sharply due to high overseas tax rates

Chifeng Gold said it is the largest private gold producer in China, and as of August 20, 2024, the company owned and operated seven gold and polymetallic mines in China, Southeast Asia and West Africa.

It is worth mentioning that Chifeng Gold has the largest share of overseas markets among China's listed gold producers in terms of total asset value and overseas business revenue contribution as of 31 December 2023 and 2023. In 2023, Chifeng Gold's overseas business accounted for approximately 76.9% and 71.9% of the company's total gold production and total revenue, respectively. As of March 31, 2024, approximately 73.6% of Chifeng Gold's total assets came from overseas operations.

Image source: Prospectus

Specifically, the company mainly operates in China, Laos and Ghana. The company's sales revenue is mainly derived from the gold mines purchased and sold by the company, and Chifeng Gold currently has six gold mines in operation, including four in China and two in Laos, in addition, the company indirectly holds a 90% stake in GSWL in Ghana through the acquisition, through which the company conducts gold mining business.

For gold production in China, Chifeng Gold customers mainly sell to China, mainly members of the Shanghai Gold Exchange, i.e. precious metal refiners; For gold production in Laos, the company's customers mainly include selected large international gold refineries around the world.

According to the prospectus, according to geographical division, the gross profit margin of Chifeng Gold from China's business in the reporting period was between 45% and 55%, which was significantly higher than the gross profit margin of 30%-35% in Ghana and much higher than the gross profit margin of 18%-27% in Laos.

During the reporting period, Chifeng Gold's net profit was 613 million yuan, 494 million yuan, 872 million yuan and 238 million yuan respectively. In 2022, net profit declined significantly due to a 109.0% year-on-year increase in income tax expenses due to higher statutory income tax rates in Ghana (35.0%) and Laos (33.3%). As of March 31, 2024, Chifeng Gold's deferred tax liabilities amounted to RMB2.303 billion.

Large customers contribute more than half of the revenue

Chifeng Gold's top five customers are refiners of precious metals and other non-ferrous metals, as well as trading companies, due to the nature of the business and industry management, the company's customer base is limited, and most of the revenue is highly concentrated in a small number of customers. During the reporting period, Chifeng Gold's revenue from the top five customers was RMB2.946 billion, RMB5.346 billion, RMB5.566 billion and RMB1.591 billion respectively, accounting for 77.9%, 85.4%, 77.1% and 85.8% of Chifeng Gold's total revenue, respectively.

It is worth noting that during the reporting period, Chifeng Gold's revenue from its largest customers was 2.127 billion yuan, 2.602 billion yuan, 2.672 billion yuan and 723 million yuan respectively, accounting for 56.2%, 41.5%, 37.0% and 39.0% of the company's total revenue respectively. It is reported that the company's largest customer is a company in Australia, which is the world's largest precious metal testing, refining and mint.

In seeking an IPO on the Hong Kong Stock Exchange, the company said that it aims to raise more funds for business development and expansion, and further enhance its image as an international company, thereby enhancing its ability to attract new customers, business partners, strategic investors and key management personnel.

In this IPO, Chifeng Gold intends to raise funds for the transformation and exploration of mining plants; On the other hand, it is used to give priority to the acquisition of high-quality mining assets in countries with a mature political and economic environment and a mature mining industry, and the rest is used for general corporate purposes.

In the past few years, Chifeng Gold has continuously expanded its business territory through a series of strategic acquisitions.

In January 2022, the Company acquired a 62% stake in Golden Star Resources, which indirectly holds a 90% stake in GSWL. It is reported that GSWL is a large local mining enterprise in Ghana, focusing on gold mining and mining business, specializing in the production and operation of GSWL mines.

In January 2023, Chifeng Gold acquired a 51% stake in New Ganges Mining, which directly holds a 90% stake in Jintai Mining. Jintai Mining is a local mining enterprise in China focusing on gold mining and beneficiation business, specializing in the production and operation of Jintai Mining mining area.

In March 2024, Chixia Laos, which is 100% owned by Chijinxia Tungsten, an indirect non-wholly-owned subsidiary of the company, acquired 90% of the equity of China Investment (Laos) Rouangye Wholly-owned Co., Ltd. through acquisition, with a total consideration of US$18.963 million, which is currently pending regulatory approval.