New stock preview|Chifeng Jilong Gold Mining will be listed in Hong Kong for the second time: holding 7 gold mines, but suffering from a reliance on major customers.

ational Gold Group Gold Jewellery15.7%2023 Chifeng Jilong Gold MiningChifeng Jilong Gold Mining ,Shandong Gold, Zijin Mining, Shandong Humon Smeltery, CITIC33.76%21.77%9.47%,6.13%5.57%76% Chifeng Jilong Gold Mining "The wind" of A+H dual listing has blown onto the gold track. On August 30th, Chifeng Jilong Gold Mining Co., Ltd. (referred to as "Chifeng Jilong Gold Mining") submitted a listing application to the Hong Kong Stock Exchange, intending to list on the main board of the Hong Kong Stock Exchange, with CITIC SEC as its sole sponsor. The company is China's largest private gold producer, mainly engaged in gold mining, selection, and sales. It is worth mentioning that Chifeng Jilong Gold Mining (600988.SH) was listed on the Shanghai Stock Exchange main board in April 2004, with its current stock price in the 16 yuan range and a total market value of approximately 28 billion yuan. Regarding the purpose of this secondary listing in Hong Kong, the company stated that the funds raised are mainly intended for the renovation and exploration of existing mines, potential acquisitions, and general corporate purposes. Therefore, it is not difficult to see that the company is determined to further improve its corporate governance and core competitiveness. So, what is the true strength of Chifeng Jilong Gold Mining? Holding 7 gold mines, performance depends on the gold price Being one of the outstanding "gold diggers" in the upstream echelon of the domestic gold track, Chifeng Jilong Gold Mining is evidently an excellent player in the industry. According to the prospectus data, as of the final practicable date, the company owns and operates 7 gold and multi-metal mines distributed in China, Southeast Asia, West Africa, and other parts of the world. According to a report by Fosters Sullivan, Chifeng Jilong Gold Mining ranks fifth among gold producers in China. As of March 31, 2024, the company's gold reserves were 14.6 million ounces, ranking fifth in gold production among China's listed gold producers, with a gold production of 461.5 thousand ounces in 2023. At the same time, the company is also the gold producer with the highest growth rate among listed domestic peers. From 2021 to 2023, Chifeng Jilong Gold Mining achieved a compound annual growth rate of 33.1% in gold production, far exceeding the average growth rate of 16.4% among the major listed gold producers in China, indicating significant growth potential. However, despite its achievements in the gold mining business, Chifeng Jilong Gold Mining's performance seems to be somewhat dependent on the fluctuating gold price. The reason behind this is that Chifeng Jilong Gold Mining's fundamentals are easily affected by the volatile gold price. It is understood that the fluctuation of the gold spot price is mainly influenced by the depreciation of the Renminbi, global gold supply and demand forecasts, political situations, and uncertainties. In recent years, due to the increasing uncertainty in global geopolitical and economic environments, such as sustained inflation leading to a strong US dollar, major central banks aggressively raising interest rates, and impact from events like the Russia-Ukraine war and Israel-Palestine conflict, the gold price has experienced significant fluctuations. According to Fosters Sullivan's data, the average gold spot price on the Shanghai Gold Exchange was 374.3 yuan per gram, 392.1 yuan per gram, and 449.6 yuan per gram respectively from 2021 to 2023, while the London Bullion Market Association's afternoon gold spot prices were $1,798.9 per ounce, $1,801.3 per ounce, and $1,942.1 per ounce consecutively. Affected by the fluctuating gold prices, the average selling prices of gold products for Chifeng Jilong Gold Mining were 381 yuan per gram, 383 yuan per gram, 436 yuan per gram, and 467 yuan per gram during the period. It is important to note that the impact of fluctuating gold prices also reflects on Chifeng Jilong Gold Mining's operational performance. According to the prospectus data, from 2021 to March 31, 2024, the company achieved revenues of approximately 3.783 billion yuan, 6.267 billion yuan, 7.221 billion yuan, and 1.854 billion yuan respectively, with profits of approximately 613 million yuan, 494 million yuan, 872 million yuan, and 238 million yuan during the period. In 2022, the net profit declined mainly due to the high statutory income tax rates in Ghana (35.0%) and Laos (33.3%), leading to a 109.0% year-on-year increase in tax expenses, resulting in a significant decrease in net profit. Based on this, Chifeng Jilong Gold Mining also explicitly stated in the risk disclosure that fluctuations in gold prices may impact the company's income and profitability, and this impact may persist. If the gold price falls close to or below the cost of producing gold for the company, the company may face losses, and if the gold price remains at such levels for any sustained period, the company's revenue and profits may be significantly adversely affected. Steady progress on the gold track, but suffering from a major customer dependency syndrome Looking back at human history, almost all civilizations have a common point of fascination with gold. In 2013, middle-aged women in China bought large amounts of gold, leading to the largest single-day increase in international gold prices that year, shocking the international market with the purchasing power of middle-aged women in China, to the extent that The Wall Street Journal even coined the English word "dama" to describe the purchasing power of "Chinese aunties." Looking at the entire gold consumption market, in recent years, overall gold demand has shown steady growth. From 2019 to 2023, China National Gold Group Gold Jewellery saw a compound annual growth rate of 1.3% in demand. During this period, there were fluctuations in demand for China National Gold Group Gold Jewellery, mainly influenced by changes in demand for jewelry and ornaments. The decrease in gold demand in 2020 was mainly due to the prolonged impact of the pandemic on consumer economies, leading to a sharp decline in demand for gold jewelry. In 2021, driven by economic recovery, demand for gold jewelry saw a significant increase, with a growth rate of 15.7% for China National Gold Group Gold Jewellery. While there was some decline in 2023, demand continued to grow. In this way, Chifeng Jilong Gold Mining, on the gold track, has indeed attracted the attention of many investors with its outstanding performance and stable growth. However, compared to its performance and potential, Chifeng Jilong Gold Mining still faces a notable issue - a major customer dependency syndrome. The prospectus shows that the company's top five customers are Shandong Gold, Zijin Mining, Shandong Humon Smeltery, CITIC Financial Information, and CITIC Bank, accounting for 33.76%, 21.77%, 9.47%, 6.13%, and 5.57% of sales revenue, respectively, with a combined share of over 76%. This means that the company's sales revenue relies mainly on a few major customers, posing a certain customer dependency risk. In light of this, the company also clearly points out in the prospectus that if the main customers terminate or suspend their supply and service contracts with the company, the company may face risks of revenue and profitability damage. Although this is the case, with the continuous changes in the global political and economic environments and the ongoing prosperity of the gold track, Chifeng Jilong Gold Mining still has the potential to expand market share through fund raising for renovation and exploration, enhance core competitiveness, and achieve better development.National Gold Group Gold Jewellery consumption showed a strong recovery. In 2023, due to the significant increase in China's central bank's gold reserves, the demand for China National Gold Group Gold Jewellery achieved a year-on-year growth of 10.9%, with a total amount of 37.5 million ounces.Taking a longer-term view, concerns about future economic uncertainty may suppress consumer demand for jewelry, while stimulating central bank reserve investments. Therefore, in the future, demand for gold jewelry will decrease, while investment and central bank gold demand will increase, maintaining stable levels for China National Gold Group Gold Jewellery. Of course, China is not only one of the world's largest consumers of gold, but also the world's largest producer of gold. As the world's largest gold producer, China's gold resources are distributed throughout regions such as Shandong, Tibet, and Gansu. In 2023, Shandong Province's gold resources amounted to 1.4 million ounces, accounting for 27.6% of the country's total resources. In terms of supply, although production decreased by about 10% in 2021, by 2022, production had recovered as companies resumed operations after safety checks. Benefiting from technological advancements, equipment upgrades, and the steady increase in gold demand across various industries, it is expected that China's gold production will increase by 12.3% from 2024 to 2028. In this production environment, Chifeng Jilong Gold Mining has seen the fastest growth in gold production among China's top five listed gold producers. As of December 31, 2023, the company ranked fifth in China in terms of gold production and resources, showing overall strength. However, it is important to note that despite promising industry prospects and strong capabilities, Chifeng Jilong Gold Mining suffers from a noticeable "major customer dependency." According to the prospectus, Chifeng Jilong Gold Mining's top five customers are precious metal and other non-ferrous metal refining and trading companies. Due to the nature of their business and industry management, the company's customer base is limited, with the majority of revenue highly concentrated on a few customers. During the reporting period, the revenue contribution from the top five customers to Chifeng Jilong Gold Mining was 29.46 billion yuan, 53.46 billion yuan, 55.66 billion yuan, and 15.91 billion yuan respectively, accounting for 77.9%, 85.4%, 77.1%, and 85.8% of the company's total revenue. During the period, revenue from the largest customer of Chifeng Jilong Gold Mining was 21.27 billion yuan, 26.02 billion yuan, 26.72 billion yuan, and 7.23 billion yuan, accounting for 56.2%, 41.5%, 37.0%, and 39.0% of the company's total revenue, respectively. The largest customer is reportedly a company from Australia, a large global precious metal testing, refining, and minting company. The company has also warned of the risk that changes in the customer base may affect the company's revenue and profitability, especially in the case of a decrease or termination of business with major customers. In general, high customer concentration can pose risks to a company's ability to withstand risks. For example, when a company depends on a few large customers, these customers may have more bargaining power in negotiations, leading to weaker negotiating power for the company and affecting its profitability. Additionally, high customer concentration may increase a company's operational risks, as changes in these large customers' demand or purchasing behavior may have a significant impact on the company's revenue and profits. In conclusion, although Chifeng Jilong Gold Mining's listing is strong, there are also some "hidden concerns" to be aware of.