Recently, the international gold price has reached new highs again, how are the performance of listed companies in the gold industry on the crest of the wave?
Caijing statistics found that as of August 23, 2024, among the 12 gold mining companies (Shenwan precious metal classification, including gold mining and smelting, the same below) in A-shares, 10 companies have released their performance for the first half of the year (including forecasts), with a total amount of net profit attributable to the parent company of at least 19 billion yuan, an increase of 6.2 billion yuan compared to the 12.8 billion yuan in the same period of the previous year, an increase of about 48%.
Among them, the performance of many companies has reached a new high since the listing. Data from Dongfang Fortune Choice shows that among the five gold mining companies that have disclosed their semi-annual reports, four companies have achieved a new high in net profit attributable to the parent company in the first half of the year since listing; among the companies that have disclosed performance forecasts, two companies have forecasted a minimum net profit that has reached a historical high.
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Especially in the second quarter when the gold price was running at a high level, the net profit of most gold mining companies continued to grow. Wind data shows that among the aforementioned 12 gold mining companies, nine companies' net profit attributable to the parent company in the first quarter grew by more than 20% year-on-year, and six companies grew by more than 50%. In the second quarter, as of August 23, among the five companies that have released their semi-annual reports, three companies' data growth rate exceeded 30%. Among them, Zijin Mining's net profit attributable to the parent company in the second quarter reached a new high since its listing on the A-share market for 16 years, and several other companies have released forecasts that this data will continue to grow.
Opportunities and risks coexist. The continuous rise in gold prices has cooled consumers' enthusiasm for purchasing. Affected by this, 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, among which the same-store gold sales revenue (sales comparison of the same self-operated store with complete daily operation during the comparable period) fell by more than 30% year-on-year.
Xiao Zhang, who got married at the end of July 2024, told Caijing that he went to see gold jewelry in May, and because the price was relatively high, he wanted to wait for the price to drop before buying the gold jewelry needed for the engagement. It was not until three weeks before the wedding that he purchased the required gold necklaces, bracelets and other products.
Li Zhongliang, an investment manager at Cheese Fund, told Caijing that the poor performance of gold jewelry retail companies in the second quarter was influenced by a combination of consumer behavior, rising costs, discount promotions, and seasonal factors. "When the gold price rises too fast, consumers may adopt a cautious wait-and-see attitude, waiting for the price to fall before choosing to buy, leading to a decline in demand in the short term."
Behind the significant increase in the performance of gold mining companies is the recent historical high in gold prices again.
On August 20, the spot gold price in London rose to $2531.67 per ounce, and the COMEX gold price in the New York Commodity Exchange rose to $2570.4 per ounce, both setting new highs.
After Federal Reserve Chairman Powell released a signal to cut interest rates, on August 23, the spot gold price in London jumped to $2518.33 per ounce, closing at $2512.01 per ounce, up 1.11%. On the same day, the COMEX gold price in the New York Commodity Exchange closed at $2548.7 per ounce, up 1.27%.Data from the World Gold Council shows that the price of gold rose by 12% in the first half of 2024, with the gold price operating 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 is the slow growth in China's gold production, mainly due to the gradual depletion of easily accessible resources in old mines and the difficulty of deep-well construction in new mines. Many market participants believe that green sustainable development and overseas mergers and acquisitions will be the main investment directions for gold mining companies in the future.
Regarding the later trend of gold prices, many international investment institutions remain bullish. UBS analyst Giovanni Staunovo estimates that the gold price will reach $2,600 per ounce by the end of 2024. Goldman Sachs analysts predict that, based on expectations of interest rate cuts by the Federal Reserve and other factors, the gold price may rise to $2,700 per ounce by 2025. In Citibank's view, the gold price will reach $3,000 per ounce by the middle of 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 the gold price continues to hit new historical highs, gold mining companies are making substantial profits.
According to financial statistics, as of August 23, 2024, among the seven A-share gold mining companies with revenue exceeding 5 billion yuan in 2023, five companies saw their net profit attributable to the parent company in the first half of 2024 (including forecasts) increase by more than 40% year-on-year.
Among them, Chifeng Gold (600988.SH) has a net profit attributable to the parent company with an increase of over 100%, temporarily leading the list. During the period, the company's net profit attributable to the parent company after deducting non-recurring gains is expected to grow by 60% to 80%.
Zijin Mining (601899.SH), the leader in China's mining industry, saw its operating income increase by 0.06% to 150.417 billion yuan in the first half of the year, and its net profit attributable to the parent company increased by 46.42% to 15.084 billion yuan. The company stated that the increase in the production of gold, copper, and silver, as well as the rise in sales prices compared to the same period last year, are the main reasons for the expected increase in performance. During the period, the company's gold production was about 354 tons, a year-on-year increase of 9.6%, which is higher than the growth rate of copper and silver production.
Hengbang Shares (002237.SZ), which has built three pyrometallurgical production lines, saw its operating income increase by 27.13% to 40.97 billion yuan in the first half of the year, with the net profit attributable to the parent company and the net profit attributable to the parent company after deducting non-recurring gains being 300 million yuan and 500 million yuan, respectively, with an increase of 2.28% and 87.33%, respectively. During the period, the company suffered losses of more than 300 million yuan due to hedging business contracts, which significantly reduced the growth rate of net profit.
The excellent performance of gold products has improved the company's performance. Gold products, which account for more than 60% of Hengbang Shares' revenue, grew by 93.29% year-on-year in the first half of the year, far exceeding the growth rate of products such as silver and electrolytic copper.Shandong Gold (600547.SH) has acquired Shandong Gold International (formerly Yintai Gold, 000975.SZ), which reported first-half revenue and net profit attributable to the parent company of 6.5 billion yuan and 1.1 billion yuan, respectively, with year-on-year growth rates of 42.27% and 46.35%. Shandong Gold International, which owns four gold mines, is one of the major gold producers in China, ranking sixth in terms of gold production among listed gold mining companies in China in 2023.
In its semi-annual report, Shandong Gold International summarized that the main drivers of its performance were cost control, capacity expansion, strengthened sales, increased reserves, and a focus on innovation. By product, the company's revenue from doré gold increased by 22.06% year-on-year to 2.3 billion yuan, outpacing the growth rate of other products such as silver-containing doré gold and silver in lead-zinc concentrate. Concurrently, the company's gross margin for doré gold increased by 11 percentage points year-on-year to 72%.
Shandong Gold International's doré gold is primarily sold to gold refining and smelting enterprises, which then refine and sell it as standard gold and silver ingots or sell it to jewelry processing enterprises.
Looking at the quarterly performance, after the profitability of the aforementioned seven gold mining companies improved in the first quarter, five companies continued to see growth in net profit attributable to the parent company in the second quarter.
In the second quarter of 2024, among the companies that have published their semi-annual reports, two out of three companies have seen a year-on-year increase in net profit attributable to the parent company of over 30%. According to Caijing's calculations based on the performance forecasts of the remaining companies, the net profit attributable to the parent company of three companies has increased by more than 20% year-on-year.
Among them, Zijin Mining has shown excellent performance in the second quarter. Compared to the year-on-year growth of 15.05% in 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 company's gold production from mines saw an increase in both sales volume and unit price for gold ingots, and although the sales volume of gold concentrate declined, the unit price of this product increased significantly, driving the overall growth of revenue from gold mining products.
Wind data shows that in the second quarter of 2024, Zijin Mining's net profit reached a new high since the company went public in 2008.
Gold Jewelry: Performance Generally Declining
As of August 23, according to the companies that have published their semi-annual financial reports and performance forecasts, unlike the continued growth in profitability of gold mining companies in the second quarter, the performance of many gold jewelry retail companies has declined during the period.
Data from the China Gold Association shows that in the first half of 2024, China's gold consumption was 523.75 tons, a year-on-year decrease of 5.61%. This includes: 270.02 tons of gold jewelry, a year-on-year decrease of 26.68%; and 213.635 tons of gold bars and coins, a year-on-year increase of 46.02%."Planning to get married in 2025, but the price of gold jewelry is too expensive now," Huang Xing (a pseudonym), who works in Beijing, told Caijing, preparing to wait for the price to drop before buying gold bars and then having them processed into jewelry, which could save some money.
The China Gold Association stated that the significant fluctuations in high gold prices have increased the operational risks for gold processing and sales enterprises, leading to a reduction in inventory purchases by wholesale and retail businesses, and a substantial decrease in processing volumes for jewelry manufacturers.
The aforementioned impact has already been reflected in the second-quarter performance of listed companies in the gold jewelry retail sector.
Cuihua Jewelry (002731.SZ) estimates that its net profit attributable to the parent company for the first half of the year will be between 78 million yuan and 98.9 million yuan, representing a year-on-year increase of 30.57% to 65.55%. In the first quarter, the company's net profit was 60.2 million yuan, a year-on-year increase of 65.28%. Based on this calculation, the company's net profit for the second quarter is expected to be between 17.8 million yuan and 38.7 million yuan, compared to 23.32 million yuan in the same period last year, with a year-on-year growth rate of approximately -24% to 66%.
Laisen Tongling (603900.SH) anticipates that the company's net profit attributable to the parent company will be a loss of 0.3 billion yuan to 0.43 billion yuan for the first half of 2024. In the first quarter, the company suffered a loss of 0.19 billion yuan, which also implies that the company continued to incur losses in the second quarter.
Laisen Tongling stated that in the first half of the year, the company has been continuously increasing its efforts to expand its gold business, with a year-on-year increase in operating income of more than 40%, and a significant increase in the proportion of gold business income. However, the low gross margin of the gold business led to a noticeable decline in the company's overall gross margin, preventing it from achieving profitability.
The performance of Hong Kong-listed gold jewelry retail companies has been noticeably affected.
In the second quarter of 2024, Chow Tai Fook (1929.HK) saw a year-on-year decline of 20% in its retail value (calculated based on the final retail price of products sold to customers), with a 18.6% decline in Mainland China and a decline of more than 20% in Hong Kong, Macau, and other markets.
During the same period, the same-store sales of Chow Tai Fook's gold jewelry and products (retail value of directly operated retail outlets that were open before April 1, 2023, and still in existence as of June 30, 2024) declined by 27.9% in Mainland China and by more than 30% in Hong Kong and Macau.
Chow Tai Fook stated that due to the ongoing impact of the macroeconomic environment on consumption, coupled with the high gold prices, the demand for gold jewelry in the second quarter has been affected, which is a phenomenon across the entire industry.Luk Fook Group's retail revenue in the second quarter of 2024 saw a year-on-year decline of over 20%, with a more than 30% drop in same-store gold sales. The company stated that the continuous increase in gold reserves by central banks of various countries and the ongoing international geopolitical tensions have led to a surge in gold prices since March 2024, reaching new highs repeatedly. "This situation intensified in April, and coupled with the high base effect, it further impacted the sales performance of gold products."
Regionally, in the second quarter, Luk Fook Group's same-store gold sales in Hong Kong and Macau declined by 35%, while in Mainland China, they fell by 19%.
Another Hong Kong-listed gold jewelry sales company, Chow Sang Sang (0116.HK), forecasted that the company's net profit for the first half of 2024 would be between 500 million and 550 million Hong Kong dollars, a decline from the 827 million Hong Kong dollars in the same period of the previous year. "The historical high in gold prices and the challenges faced by the macroeconomy, leading to weak consumption, is one of the main reasons."
Li Zhongliang told Caijing that the poor performance of some gold jewelry sales companies in the second quarter, aside from the high gold prices affecting consumer sentiment, also includes increased raw material costs and promotional activities, which directly compress the operating profit margins. "The second quarter is traditionally a slow season for gold sales, and the rise in gold prices will also exacerbate this seasonal decrease in demand."
How to deal with resource scarcity?
Despite the continuous rise in gold prices, the depletion of global gold resources remains a serious issue. Therefore, the future investment direction of the gold industry has become a focal point for companies. Green sustainable development and overseas investment are the two major directions that companies in the industry are paying attention to.
According to data from the China International Gold Conference, in the first half of 2024, China's raw gold production increased by 0.58% year-on-year, with a further decline in growth rate compared to 2023.
The China Gold Association stated that in the first half of 2024, although gold prices performed well, China's gold production did not increase as expected. The main reasons are the gradual depletion of easily accessible resources in old mines, new mines facing challenges in deep-shaft construction, and the continuous improvement of safety and environmental protection policies, leading to some gold mining enterprises reducing production, shutting down for rectification, or being unable to continue production.
CRU Group's senior consultant, Chen Danwu, estimated that global gold mine production will approach its peak around 2025, and will show a downward trend by 2028. "Gold prices may continue to run at high levels, and investors will need to pay more attention to the sustainable development of resources and environmental protection in the future."
Shan Jin 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 becoming the mainstream, "going global" becoming a strategic choice for Chinese gold mining enterprises; the new quality of the industry in the era of stock becoming the key support for transformation and upgrading, technological innovation and management progress becoming an important force to achieve additional reserves in existing mines and the efficient use of difficult-to-utilize resources; responsible gold mining becoming the foundation for the healthy development of the gold mining industry, helping gold mining enterprises to achieve a dual improvement in economic and social benefits.In the view of Xu Jianzhong, the Chief Financial Officer 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 for Chinese gold mining companies. In recent years, the investment footprint of Chinese gold mining companies has spread across Africa, the Americas, Australia, and other regions.
The Beladero gold mine, a subsidiary of Shandong Gold, is located in Argentina. The core asset of Venus Resources, a holding subsidiary of Chi Feng Gold, is the Wassa gold mine in Ghana, Africa. Zijin Mining's overseas gold mine layout involves countries such as Kyrgyzstan, Papua New Guinea, Australia, Colombia, and others.
In the first half of 2024, Shandong Gold International implemented the acquisition of all the equity of Osino Resources Corp., a Canadian mining company, with a transaction amount of approximately 368 million Canadian dollars, marking the first step in the internationalization of resource layout. Through this acquisition, the company can quickly obtain high-quality resources, increase gold resource reserves, and is expected to provide an annual gold production capacity of 5 tons after production.
In the view of Shandong Gold International, although the gold price has performed well, the growth of China's gold production has not met expectations. Therefore, making full use of overseas resources to fill the demand gap and enhance the core competitiveness of gold mining enterprises has become the main trend of development.
The "Global Gold Annual 2024" (Chinese version) shows that in 2023, the global gold mining mergers and acquisitions transaction volume more than doubled year-on-year, reaching 21 billion US dollars.
According to the statistical data of the United States Geological Survey (USGS), the global gold reserves in 2023 were about 590,000 tons, with Australia, Russia, and South Africa accounting for 20.34%, 18.81%, and 8.47% respectively, and China's share of the global gold reserves is about 5.08%.
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