As the golden tide rises, Chifeng Gold is keen on capitalizing by sprinting towards its listing on the Hong Kong Stock Exchange (HKEX). The company took a significant step on February 18, 2025, by undergoing its listing hearing at HKEXFollowing in the footsteps of industry giants like Zijin Mining and Shandong Gold, Chifeng Gold is on the verge of becoming the third company to achieve a dual listing, known as "A+H," in China and Hong Kong, respectively.

The excitement in the gold market is palpable as prices have continued to soar, setting new records almost every weekNotably, on February 11, 2025, the spot price of gold in London reached a staggering $2,942 per ounce, marking a historic peakThis environment is particularly beneficial for gold mining stocks, as rising gold prices typically translate into enhanced earnings for these companiesAn analyst in the gold industry remarked that during bullish cycles in gold pricing, mining companies generally experience substantial boosts to their financial performanceHowever, challenges are looming for Chifeng GoldThe company's reliance on a concentrated revenue structure, the cyclical nature of gold prices, and uncertainties surrounding international mining ventures present substantial hurdles.

Chifeng Gold's IB listing efforts began in June 2024. They have proposed to issue no more than 338 million H-shares as part of their strategy to penetrate the Hong Kong marketThe projected funds from this capital raising initiative are aimed primarily at expanding domestic and international business operations, including mine extensions and exploration efforts, as well as mergers and acquisitions, and reinforcing liquidity.

Currently, Chifeng Gold's revenue stream is heavily tethered to its gold-related activitiesAs of September 30, 2024, gold sales accounted for an impressive 89.4% of the company's total revenueThis stark concentration raises concerns for analysts, particularly given the historical volatility of gold prices

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For instance, between 2015 and 2023, the company saw an increase in net profit from 237 million yuan to 871 million yuanDespite this growth, the journey was fraught with challengesIn 2018, the company suffered a loss of 114 million yuan due to a downturn in the industry, and by 2022, high tax rates on overseas operations caused net profit to decline by 19.5% to 494 million yuan.

The fluctuations in international gold prices are pivotal to the company’s profitabilityOver the past decade, London gold prices have experienced several dramatic swings: a 28% drop in 2015, a 1.57% decline in 2018, and another reduction of approximately 4% during the consecutive years of 2021-2022. However, predictions for 2024 are optimistic; with an expected increase of 27% in gold prices during the year, Chifeng Gold's net profit could soar to between 1.73 billion and 1.8 billion yuan—a staggering growth of over 115% year-on-year.

Despite these promising forecasts, the same industry analyst points out that the vast majority of Chifeng Gold's income is pegged to the sale of gold, which is influenced by a multitude of factors—many of which are unpredictableThe fluctuation of gold prices might directly impact the company's revenue and profitsMoreover, the estimates of gold resources and reserves are based on assumptions concerning pricing, and significant deviations from those forecasts could lead to impairments and increased related costs.

Another red flag is the heavy dependence on a limited customer baseThe disclosure released on February 18 indicated that Chifeng Gold's customers largely consist of refiners of precious metals and various trading firms, including banksOver the past four years, the revenue contributions from the top five customers were 2.946 billion yuan, 5.345 billion yuan, 5.565 billion yuan, and 4.904 billion yuan, representing 77.9%, 85.4%, 77.1%, and 78.8% of the total revenue, respectively.

The largest customer of Chifeng Gold has contributed 56.2%, 41.5%, 37.0%, and 34.4% to the company’s annual revenue in recent years

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While it seems that the revenue share from this primary customer is on a downward trend, the overall concentration among the top five customers remains alarmingly highThe company acknowledges that there is a significant opportunity for improvement in diversifying their customer base.

Turning attention to international investments, the risks associated with overseas mining ventures cannot be ignoredAs of September 30, 2024, approximately 65.2% of the total assets of Chifeng Gold were attributable to their international business endeavorsBy the end of 2023, overseas operations accounted for 76.9% of gold production and 71.9% of total revenue.

The company primarily operates six gold mines: Jilong and Wulong Gold Mines in China, as well as Kintai and Huatai Gold MinesAdditionally, it has operations in Laos with the Sabang Gold-Copper Mine, and in Ghana, where the Wassa Gold Mine operatesAll told, the estimated mineral resources from these overseas mines tally around 91.129 million tons, compared to about 18.893 million tons from domestic mines.

However, investing in international mining comes with challenges influenced by the global political and economic landscape, regulatory frameworks, and market dynamicsAn analyst from a mid-sized brokerage firm pointed out that these factors could create significant uncertainty regarding investment returnsProspecting for minerals is inherently unpredictable; the numerous approvals needed from local governments can delay resource extractionSuch hurdles, paired with financing issues, geological complexities, and managerial challenges, necessitate substantial time and investment for prospects to translate into productionFurthermore, changes in market dynamics and economic feasibility could jeopardize the process of converting mineral resources into certified reserves.

As of the end of 2021, Chifeng Gold’s debt-to-asset ratio stood at 38%. However, it climbed to 58% by the end of 2022. While there was a slight decline in total liabilities in 2023 after hitting peak levels, by September 30, 2024, the company still carried a high debt-to-asset ratio of 51%, exceeding industry averages

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