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Text｜"Caijing" reporter Zhang Jianfeng

Editor｜Yang Xiuhong

Recently, the international gold price has hit a new high. How are the performances of listed companies in the gold industry, which is at the forefront of the trend?

Caijing statistics show that as of August 23, 2024, 12 A-sharesGold MiningAmong the companies (Shenwan Precious Metals Classification, including gold mining and smelting, the same below), 10 companies released their first-half results (including forecasts), with the lowest total net profit attributable to shareholders of approximately RMB 19 billion, an increase of RMB 6.2 billion, or approximately 48%, compared with RMB 12.8 billion in the same period last year.

Among them, the performance of many companies hit a record high since listing. According to the data of Eastmoney Choice, among the five gold mining companies that have disclosed their semi-annual reports, four companies' net profit attributable to their parent companies in the first half of the year hit a record high since listing; among the companies that disclosed their performance forecasts, two companies predicted the lowest net profit to hit a record high.

Especially in the second quarter when gold prices were high, the net profits of most gold mining companies continued to grow. Wind data showed that among the 12 gold mining companies mentioned above, 9 companies had a year-on-year growth rate of more than 20% in the first quarter, and 6 companies had a growth rate of more than 50%. In the second quarter, as of August 23, among the five companies that had released their semi-annual reports, 3 companies had a growth rate of more than 30%. Among them,Zijin MiningThe net profit attributable to shareholders of the parent company in the second quarter hit a new high since its listing on the A-share market 16 years ago, and several other companies have announced forecasts that the data will continue to grow.

Opportunities and risks coexist. The continued rise in gold prices has cooled consumers' enthusiasm for buying. As a result, the performance of many gold jewelry retail companies declined in the second quarter.Luk Fook Group(00590.HK)'s retail revenue in the second quarter fell by more than 20% year-on-year, of which gold same-store sales revenue (sales comparison of the same self-operated store with full days of operation during the comparable period) fell by more than 30% year-on-year.

Xiao Zhang, who is getting married at the end of July 2024, told Caixin that he went to look at gold jewelry in May. Because the price was relatively expensive, he wanted to wait until the price came down before buying the gold jewelry needed for the engagement. It was not until three weeks before the wedding that he bought the necessary gold necklaces, gold bracelets and other products.

Li Zhongliang, investment manager of Cheese Fund, told Caijing that the performance of gold jewelry retail companies was sluggish in the second quarter, affected by factors such as consumer behavior, rising costs, discounts and promotions, and seasonality. "When gold prices rise too fast, consumers may adopt a cautious wait-and-see attitude and wait for prices to fall before choosing to buy, resulting in a short-term decline in demand."

The reason behind the surge in performance of gold mining companies is the recent record high gold prices.

On August 20, London spot gold rose to $2,531.67 per ounce during trading, and COMEX gold on the New York Mercantile Exchange rose to $2,570.4 per ounce during trading, both setting new highs.

After Federal Reserve Chairman Powell released a signal of interest rate cuts, on August 23, London spot gold jumped to $2,518.33 per ounce during the intraday session and closed at $2,512.01 per ounce, up 1.11%. On the same day, COMEX gold on the New York Mercantile Exchange closed at $2,548.7 per ounce, up 1.27%.

Data from the World Gold Council shows that gold prices rose 12% in the first half of 2024, and gold prices remained above $2,300 per ounce for most of the second quarter.

Although the rise in gold prices has boosted the performance of gold mining companies, these companies are also facing some challenges. One of them isChina GoldThe slow growth in production is mainly due to the gradual reduction of easily exploitable resources in old mines and the difficulty of deep well construction in new mines. Many market participants believe that green and sustainable development and overseas mergers and acquisitions will be the main investment directions of gold mining companies in the future.

Many international investment institutions are still bullish on the future trend of gold prices. UBS analyst Giovanni Staunovo predicts that the gold price will reach $2,600 per ounce by the end of 2024. Goldman Sachs analysts predict that based on factors such as expectations of the Fed's interest rate cuts, the gold price may rise to $2,700 per ounce by 2025. In the view of Citibank, the gold price will reach $3,000 per ounce by mid-2025, and it also predicts that the average gold price in the fourth quarter of 2024 will be $2,550 per ounce.

Gold mining: Profits continue to grow

As gold prices continue to hit record highs, gold mining companies are making huge profits.

According to statistics from "Caixin", as of August 23, 2024, among the seven A-share gold mining companies with revenue exceeding 5 billion yuan in 2023, the net profit attributable to shareholders of five companies in the first half of 2024 increased by more than 40% (including forecasts) during the same period last year.

in,Chifeng Gold(600988.SH) temporarily ranked first with a net profit attributable to the parent company of over 100%. In the current period, the company's net profit attributable to the parent company after deducting non-operating items is expected to increase by 60% to 80%.

(Data source: Caijing compiled and calculated based on Wind and company announcements; screening scope: companies with revenue exceeding 5 billion yuan in 2023)

Zijin Mining (601899.SH), a leading Chinese mining company, saw its operating income increase by 0.06% year-on-year to RMB 150.417 billion in the first half of the year, and its net profit attributable to the parent company increased by 46.42% year-on-year to RMB 15.084 billion. The company said that the increase in the output of gold, copper and silver and the year-on-year increase in sales prices were the main reasons for the company's expected performance increase. During the period, the company's gold output was about 35.4 tons, a year-on-year increase of 9.6%, which exceeded the growth rate of copper and silver output.

Hengbang Co., Ltd. (002237.SZ), which has built three sets of pyrometallurgical system production lines, saw its operating income increase by 27.13% year-on-year to 40.97 billion yuan in the first half of the year, with net profit attributable to the parent company and net profit attributable to the parent company after deducting non-recurring items being 300 million yuan and 500 million yuan, respectively, up 2.28% and 87.33%, respectively. During the period, the company incurred losses of more than 300 million yuan due to hedging business contracts, which significantly reduced the growth rate of net profit.

The outstanding performance of gold products has boosted the company's performance. Gold products, which account for more than 60% of Hengbang's revenue, grew at a year-on-year rate of 93.29% in the first half of the year, far exceeding silver, electrolytic copper and other products.

Shanjin International (formerly Yintai Gold, 000975.SZ), which was acquired by Shandong Gold (600547.SH), had operating income and net profit attributable to the parent company of 6.5 billion yuan and 1.1 billion yuan respectively in the first half of the year, with year-on-year growth rates of 42.27% and 46.35% respectively. Shanjin International, which owns four gold mines, is one of the major gold producers in China. Its mineral gold production in 2023 ranked sixth among China's listed gold mining companies.

Shanjin International summarized in its semi-annual report that the main drivers of performance were cost control, expansion of production capacity, strengthening of sales, increase of reserves, and focus on innovation. In terms of products, the company's operating income from gold-containing products increased by 22.06% year-on-year to 2.3 billion yuan, a growth rate higher than that of products such as silver-containing gold and silver-containing lead-zinc concentrate. During the same period, the company's gross profit margin for gold-containing products increased by 11 percentage points year-on-year to 72%.

Shanjin International's mixed gold is mainly sold to gold refining and smelting enterprises, which separate and refine it before selling it as standard gold and silver ingots or selling it to jewelry processing enterprises.

On a quarterly basis, after the profitability of the above seven gold mining companies improved in the first quarter, the net profit attributable to shareholders of five companies continued to grow in the second quarter.

In the second quarter of 2024, among the three companies mentioned above that have released their semi-annual reports, the net profit attributable to their parent companies of two companies increased by more than 30% year-on-year. Caijing calculated based on the performance forecasts of the remaining companies that the net profit attributable to their parent companies of the three companies increased by more than 20% year-on-year.

Among them, Zijin Mining performed well in the second quarter. Compared with the 15.05% year-on-year growth rate of net profit attributable to the parent company in the first quarter, Zijin Mining's net profit attributable to the parent company in the second quarter increased by 81.54% year-on-year. In the first half of the year, the sales volume and unit price of gold ingots in the company's mine production increased year-on-year. Although the sales volume of gold concentrate declined, the unit price of this product increased significantly, driving the overall growth of the revenue of gold products produced by the mine.

Wind data shows that in the second quarter of 2024, Zijin Mining's net profit hit a new high since the company went public in 2008.

Gold jewelry: Performance generally declined

As of August 23, judging from the companies that have released their first-half financial reports and performance forecasts, unlike gold mining companies whose profitability continued to grow in the second quarter, the performance of many gold jewelry retail companies declined in the current period.

According to data from the China Gold Association, in the first half of 2024, China's gold consumption was 523.75 tons, a year-on-year decrease of 5.61%. Among them: gold jewelry was 270.02 tons, a year-on-year decrease of 26.68%; gold bars and gold coins were 213.635 tons, a year-on-year increase of 46.02%.

"I plan to get married in 2025, but gold jewelry is too expensive now." Huang Xing (pseudonym), who works in Beijing, told Caixin that he plans to buy gold bars after the price drops, and then find someone to process the jewelry, so that he can save some money.

The China Gold Association said that the huge fluctuations in gold prices at high levels have increased the production and operation risks of gold processing and sales companies, reduced purchases by wholesale and retail companies, and significantly reduced processing volumes by jewelry processing companies.

The above-mentioned impact has been reflected in the second quarter performance of listed gold jewelry retail companies.

Cuihua Jewelry (002731.SZ) expects its net profit attributable to shareholders of the parent company to be RMB 78 million to RMB 98.9 million in the first half of the year, a year-on-year increase of 30.57% to 65.55%. In the first quarter, the company's net profit attributable to shareholders of the parent company was RMB 60.2 million, a year-on-year increase of 65.28%. Based on this calculation, the company's net profit attributable to shareholders of the parent company in the second quarter was approximately RMB 17.8 million to RMB 38.7 million, compared with RMB 23.32 million in the same period last year, a year-on-year growth rate of approximately -24% to 66%.

Lassen Psychic(603900.SH) expects the company's net profit attributable to the parent company to be a loss of 30 million to 43 million yuan in the first half of 2024. In the first quarter, the company lost 19 million yuan, which also means that the company will continue to lose money in the second quarter.

Laisen Tongling said that in the first half of the year, the company continued to increase its efforts to expand its gold business, with operating income increasing by more than 40% year-on-year and the proportion of gold business revenue increasing significantly. However, the gross profit margin of the gold business was low, resulting in a significant decline in the company's overall gross profit margin and failure to achieve profitability.

The performance of gold jewelry retail companies listed on the Hong Kong stock market has been affected more significantly.

In the second quarter of 2024,Chow Tai Fook(1929.HK)'s retail value (calculated based on the final retail price of products sold to customers) fell by 20% year-on-year, of which mainland China fell by 18.6%, while Hong Kong, Macao and other markets fell by more than 20%.

During the same period, Chow Tai Fook's same-store sales of gold jewelry and products (the retail value of directly-operated retail outlets opened before April 1, 2023 and still in existence on June 30, 2024) fell 27.9% year-on-year in mainland China, and fell by more than 30% in Hong Kong and Macau.

Chow Tai Fook said that as the macro environment continued to affect consumption and gold prices hovered at high levels, the demand for gold jewelry was affected in the second quarter. This is an industry-wide phenomenon.

Luk Fook Group's retail revenue in the second quarter of 2024 fell by more than 20% year-on-year, of which same-store gold sales fell by more than 30%. The company said that the increase in gold reserves by central banks in many countries and the continued tension in international geopolitics have caused gold prices to soar and hit new highs since March 2024. "This situation intensified in April, coupled with the high base effect, further affecting the sales performance of gold products."

By region, in the second quarter, Luk Fook Group's same-store gold sales in Hong Kong and Macau fell 35%, and in mainland China fell 19%.

Another Hong Kong-listed gold jewelry sales company, Chow Sang Sang (0116.HK), forecast that the company's net profit in the first half of 2024 would be HK$500 million to HK$550 million, down from HK$827 million in the same period last year. "The record high gold prices and challenges facing the macro economy have led to weak consumption, which is one of the main reasons."

Li Zhongliang told Caijing that the performance of some gold jewelry sales companies was sluggish in the second quarter. In addition to the high gold price affecting consumer sentiment, the increase in raw material costs and promotional activities will directly reduce operating profit margins. "The second quarter is the off-season for gold sales, and the rise in gold prices will also exacerbate the decline in seasonal demand."

How to deal with resource shortages?

Although the price of gold continues to rise, the depletion of global gold resources remains a serious problem. Therefore, the future investment direction of the gold industry has become the focus of attention of enterprises. Green sustainable development and overseas investment are the two major directions that companies in the industry are concerned about.

According to data from the China International Gold Conference, China's raw gold production increased by 0.58% year-on-year in the first half of 2024, and the growth rate further declined compared with 2023.

The China Gold Association stated that in the first half of 2024, although gold prices performed well, China's gold production did not grow as expected. The main reason was that the easily exploitable resources in old mines were gradually decreasing, new mines faced the difficulty of deep well construction, and safety and environmental protection policy requirements continued to increase. Some gold mining companies reduced production, closed down for rectification, or were unable to continue production.

According to Chen Danwu, senior consultant of CRU Group, a British commodity research institute, global gold mine production will approach its peak around 2025, and will then show a downward trend until 2028. "Gold prices are likely to continue to run at high levels, and investors need to pay more attention to sustainable development of resources and environmental protection in the future."

Shanjin International stated in its 2024 semi-annual report that the gold industry will show three major development trends in the future: global investment and mergers and acquisitions will become the mainstream, and "going global" will become the strategic choice of Chinese gold mining companies; in the era of inventory, the industry's new quality productivity will become the key support for transformation and upgrading, and technological innovation and management progress will become important forces for increasing reserves of existing mines and efficient use of difficult-to-use resources; responsible gold mining will become the foundation for the healthy development of the gold mining industry, which will help gold mining companies achieve both economic and social benefits.

In the view of Xu Jianzhong, CFO of Shandong Gold Group Co., Ltd., green finance has brought new development opportunities to the gold mining industry, especially in terms of technological innovation and management progress.

Overseas investment is also a key focus of Chinese gold mining companies. In recent years, Chinese gold mining companies have invested in Africa, America, Australia and other places.

The Veladero gold mine under Shandong Gold is located in Argentina. The core asset of Venus Resources, a subsidiary of Chifeng Gold Holdings, is located in the Wasa gold mine in Ghana, Africa. Zijin Mining's overseas gold mine layout involves Kyrgyzstan, Papua New Guinea, Australia, Colombia and other places.

In the first half of 2024, Shanjin International acquired all the shares of Canadian mining company Osino Resources Corp. for approximately 368 million Canadian dollars, marking the first step in its international resource layout. Through this acquisition, the company can quickly obtain high-quality resources and increase its gold resource reserves. It is expected to provide 5 tons of gold production capacity per year after production begins.

In Shanjin International's view, although the gold price has performed well, China's gold production growth has been lower than expected. Therefore, making full use of overseas resources to fill the demand gap and improving the core competitiveness of gold mining companies has become a general development trend.

The "Global Gold Yearbook 2024" (Chinese version) shows that in 2023, the global gold mining mergers and acquisitions transaction value more than doubled year-on-year to US$21 billion.

According to statistics from the United States Geological Survey (USGS), the world's gold reserves in 2023 were approximately 59,000 tons, with Australia, Russia and South Africa accounting for 20.34%, 18.81% and 8.47% respectively. China accounts for approximately 5.08% of the world's gold reserves.

Figure: Global gold reserves distribution in 2023 (unit: 10,000 tons)

Data source: United States Geological Survey (USGS)

Lu Shudong, general manager of the Mineral Resources Department and International Cooperation Department of China National Gold Group Corporation, believes that as China's demand for gold continues to grow, overseas mergers and acquisitions are of great significance in filling the domestic resource gap and promoting the sustainable development of enterprises. "Through technological innovation and international cooperation, Chinese gold companies can gain more opportunities in the global market."