Materials, IPO & Equity Analyst

Venkat Ramana Nandyal

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

Shandong Gold Mining   / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/27455" target="_blank" data-smartkarma-citation="entities:27455:1">Shandong Gold Mining Co Ltd (1787 HK)</a> announced the price range of HK$14.70-HK$18.38 per share, raising HK$4.8B-HK6B. The company is issuing 327M shares (50M shares of greenshoe). The share will trade on the Hong Kong Exchange on the 28th of September.Global Equity Research’s base case valuation for Shandong Gold is HK$21B or HK$11.10/share based on a discounted cash flow model using 10% WACC and long-term gold price of US$1200/oz. This is ~25% below the lower end price range of HK14.70/share.Our key concerns remain the aggressive use of short-term debt and hedge book to fund working capital and operating costs and the short mine life of Veladero Mine.We believe the management should focus on improving balance sheet rather than expansion through acquisition backed by leverage.<div class="content-highlight">Based on valuation, we prefer Barrick Gold (large defensive and unhedged gold stock) and AngloGold Ashanti which is a similar size in market cap to Shandong but trading at lower 2019 EBITDA and earnings multiple.   </div>

Shandong Gold Mining Co Ltd (1787 HK) announced the price range of HK$14.70-HK$18.38 per share, raising HK$4.8B-HK6B. The company is issuing 327M shares (50M shares of greenshoe). The share will trade on the Hong Kong Exchange on the 28th of September.Global Equity Research’s base case valuation for Shandong Gold is HK$21B or HK$11.10/share based on a discounted cash flow model using 10% WACC and long-term gold price of US$1200/oz. This is ~25% below the lower end price range of HK14.70/share.Our key concerns remain the aggressive use of short-term debt and hedge book to fund working capital and operating costs and the short mine life of Veladero Mine.We believe the management should focus on improving balance sheet rather than expansion through acquisition backed by leverage.Based on valuation, we prefer Barrick Gold (large defensive and unhedged gold stock) and AngloGold Ashanti which is a similar size in market cap to Shandong but trading at lower 2019 EBITDA and earnings multiple.   

Shandong Gold Mining Co., Ltd (600547 CH)

Shandong Gold Valuation: All that Glitters Is Not Gold IPO