CICC has published a research report projecting TONGGUAN GOLD's (00340) EPS at HK$0.16 and HK$0.23 for 2025 and 2026 respectively, representing a 2024-2026 CAGR of 121%. This corresponds to current P/E ratios of 17.3x and 11.6x respectively. The firm initiates coverage on TONGGUAN GOLD with an "outperform" rating and a target price of HK$3.52, representing 15.0x 2026 P/E and implying 30% upside from the current stock price. CICC believes the company has strong exploration and reserve expansion capabilities, with gold production growth potential that may exceed market expectations.

CICC's key investment points are as follows:

**Exploration-focused Gold Company with Strong Organic Growth Momentum**

In terms of resources, the company prioritizes the strategic importance of exploration and reserve expansion, holding a total of 55.0 tons of gold resources across Tongguan and Subei mining areas with an average grade of 8.26 g/t. For production, exploration-to-mining conversion at the Tongguan mining area is driving output growth, with CICC projecting gold sales of 2.8 tons and 3.4 tons for 2025 and 2026 respectively. On the cost front, the company's January 2025 acquisition of mining engineering supplier Xi'an Hongshang is expected to reduce gold mining production costs through supply chain integration.

**Strategic Investment from Zijin Mining Provides M&A Growth Potential**

In April 2025, Zijin Mining acquired a 3.82% stake in the company through its wholly-owned subsidiary Zijin Metal, establishing a metal streaming partnership with an upfront payment of $25 million. CICC believes Zijin's investment reflects recognition of the company's asset quality and strategic direction. The metal streaming collaboration helps increase available cash flow, and based on the company's improved cash flow and exploration capabilities, it has growth potential through external M&A activities.

**Declining Real Interest Rates and Central Bank Gold Purchasing Trends Support Gold Price Rally**

First, against the backdrop of weakening U.S. employment data and generally controlled inflation, a new round of rate-cutting trades is underway, with declining real interest rates expected to drive gold prices higher. Second, the People's Bank of China resumed gold purchases in November 2024. CICC believes the PBOC may replicate its successful counter-cyclical gold accumulation strategy, with central bank gold purchasing trends likely to continue.

**Potential Catalysts:** Continued gold price appreciation, smooth progress in exploration-to-mining conversion at Tongguan mining area, further supply chain integration to reduce costs.

**Risk Factors:** Gold price volatility; exploration-to-mining conversion falling short of expectations; mining costs rising above expectations.