We maintain the investment rating for Zhaojin Mining (the "Company") as "Accumulate", with TP of HK$7.97. Our TP represents 17.6x 2023 PER and 13.9x 2024 PER. We expect output of mined gold to continue to grow in 2023, which will further reduce production costs of mined gold and improve profitability of the Company. We expect gold price to continue to rise in 2023, which will lift profitability of the Company.
　　Net profit of Zhaojin Mining has great growth potential and will be driven by mined gold output growth and higher gold price. Zhaojin Mining produced 19.2 tons of mined gold in 2022, which is 31.5% higher than its previous plan and only slightly lower than its designed production capacity of around 20 tons. The production of gold mines of the Company in Shandong Province had generally resumed normal in 2022. We expect mined gold output of the Company to grow steadily in 2023. Haiyu Gold Mine is the largest gold mine of the Company which is under construction, it has a designed production capacity of 15-20 tons of mined gold and is expected to commence production from 2025. Mined gold production costs of Zhaojin Mining were closely related to its production scale and we expect production costs of the Company to continue to decline as mined gold output grows.
　　Descending mined gold production costs will be the main driver of profit growth in 2023. Zhaojin Mining produced 19.2 tons of mined gold in 2022, which approached its designed production capacity. However, production costs of mined gold of the Company in 2022 remained high. Mined gold production costs of Zhaojin Mining were closely related to its production scale; we expect descending production costs to accelerate in 2023.
　　We expect total mined gold output of Zhaojin Mining to be greater than 20 tons in 2023 and the average production costs of mined gold to decrease from the high levels in 2022.
　　Catalyst: Rise in gold price.
　　Risks: Decline in gold price; gold mine production impact from external factors.