Guosen Securities released a research report initiating coverage on TONGGUAN GOLD (00340) with an "Outperform" rating. The firm projects net profit attributable to shareholders of HK$780 million/1.05 billion/1.26 billion for 2025-2027 (+269%/34%/21%), with EPS of HK$0.18/0.24/0.29 respectively. Through multi-angle valuation, the company's fair value is estimated at HK$2.9-3.0, representing a 39%-44% premium to current stock price. The company's future strategic goals include intensifying research on mineralization patterns in Gansu and Tongguan regions for active integration, achieving growth through external M&A, and establishing strategic cooperation with Zijin Mining.

Guosen Securities' main viewpoints are as follows:

**Small but Excellent Regional Gold Mining Enterprise**

The company is a developing gold mining enterprise primarily engaged in gold mining, processing and recovery business. The company's gold mining areas are located in Tongguan, Shaanxi and Subei, Gansu. As of end-2024, it maintains gold resources with an average grade of 8.26 grams/ton, resource volume of 55 tons, and achieved gold production of 2.5 tons during the year. In 2024, the company achieved revenue of HK$1.6 billion, up 7% year-on-year, gross profit of HK$523 million, up 212% year-on-year, and net profit of HK$211 million, up 310% year-on-year.

In terms of revenue structure, the company is primarily focused on gold mining business. In 2024, mining business revenue was HK$1.3 billion, accounting for 81.2% of total revenue, while mining business gross profit was HK$520 million, accounting for nearly 100% of total gross profit.

**Gold Prices Expected to Remain Strong**

Weakening US dollar credit margins stimulate gold demand. Since the beginning of the year (as of mid-September), the US Dollar Index has declined 10.0%, maintaining its downward trend. Central bank gold purchases provide medium to long-term momentum for gold prices. Global central bank gold purchases have exceeded 1,000 tons for three consecutive years, far above the average of 473 tons from 2010-2021. The Russia-Ukraine conflict and Middle East situation may continue to disturb market sentiment, with gold expected to remain strong under multiple factors.

**Continuous Resource Expansion, Emphasizing Both Operating and Reserve Mines**

In the Tongguan mining area, only Xiangshun Mining is in production. Currently, the 1,500-ton processing plant has been completed and debugged, sufficient to meet future processing increases from several companies. In the Gansu mining area, Beidong Mining helps the company achieve new production highs, with its own 1,350-ton processing plant gradually reaching full capacity.

Assuming processing plants operate 330 days per year, the company's combined annual processing capacity from both mining areas can reach 940,000 tons (Tongguan 495,000 tons, Gansu 445,000 tons). In 2024, the company achieved 500,700 tons of underground mining volume and 457,700 tons of ore processing output, indicating significant growth potential before reaching full capacity.

**Gold Stream Agreement with Zijin Mining**

In April 2025, the company signed a long-term gold stream agreement with Zijin Metals Limited, a subsidiary of Zijin Mining. Zijin provided an upfront payment of US$25 million as early-stage funding support, while the company committed to deliver approximately 422 kilograms of gold from Subei Beidong Mining over the next nine years.

This agreement locks in partial production revenue while introducing US$25 million in upfront funding, with lower dilution compared to equity financing. Simultaneously, by establishing a binding relationship with Zijin, it enhances funding accessibility and stability for project development.

**Risk Warning:** Risk of declining safe-haven sentiment and falling gold prices; risk of declining mine grades and lower production.