Open Source Securities: Initiates "Buy" Rating on TONGGUAN GOLD (00340), Gold Production and Sales Volume Expected to Continue Growing

Open Source Securities released a research report stating that it expects TONGGUAN GOLD (00340)'s net profit attributable to parent for 2026-2028 to be HKD 14.97/19.19/27.59 billion respectively, with the stock price on October 12 corresponding to PE ratios of 8.8/6.8/4.8 times. It initiates coverage with a "Buy" rating; the bank believes that the company focuses on gold exploration, mining, and recycling, and owns two core gold mineral bases in Tongguan, Shaanxi and Subei, Gansu. As of the end of 2025, the company had 77.6 tonnes of gold metal, with an average grade of 6.45 g/t. The company has excellent gold resource endowments and is actively promoting the conversion of exploration rights to mining rights in its mining areas, and its gold production and sales volume are expected to continue growing. The main points of Open Source Securities are as follows: 2026H1 results achieved rapid growth, and integrated synergy effectively controlled costs Driven by a significant increase in the average selling price of mineral gold, the company achieved operating revenue of RMB 1.368 billion in 2026H1, a year-on-year increase of 45.79%, and net profit attributable to parent of RMB 454 million, a year-on-year increase of 45.29% (using the historical exchange rates for the corresponding years). After completing the vertical integration of two mining engineering companies, Xi'an Hongshang and Longxin Construction, the company achieved significant cost reduction in mining engineering. In 2026H1, the gross profit margin was 62.86%, a year-on-year increase of 11.33 pct. Strategically the Tongguan and Subei gold mining areas, with excellent gold resource endowments The company has excellent gold resource endowments. The Tongguan area has formed a concentrated and contiguous pattern, with Xiangshun Mining as the main producing force, while Tongxin, Dexing, and Tongjin Mining provide support for future gold production growth, possessing significant cluster and synergy advantages; in the Subei mining area, the Beidong gold mine and the 460 gold mine are only about 320 meters apart in a straight line, with the advantage of sharing mineral processing infrastructure, providing solid resource support for subsequent capacity expansion. Mining scale achieved leapfrog growth, and improved mineral processing capacity ensures steady gold volume release Since acquiring Beidong Mining in 2023, the company's mining volume has accelerated its release. Gold ore mining volume jumped from 192,700 tonnes in 2022 to 627,200 tonnes in 2025, daily ore processing capacity increased to 3,500 tonnes, and annual gold production increased from 0.91 tonnes to 2.78 tonnes. In 2026H1, the company's average mining grade was 5.52 g/t, achieving gold production of 1.54 tonnes, a year-on-year increase of 15.92%, with an average selling price of RMB 965/g and an all-in sustaining cost of RMB 409/g. Risk warnings Operational safety production risks; product price fluctuations exceeding expectations; project construction falling short of expectations.