Key Takeaways:
UBS downgraded Zhaojin Mining to Neutral, cutting its target to HK$21 from HK$23.7 after output guidance fell nearly 40 percent.
The downgrade follows two mining accidents earlier this year and intensified nationwide mine safety inspections that forced the company to cut its 2026 self-produced gold output guidance to around 10 tonnes from 16.5 tonnes, UBS said.
Lower output will push up unit costs and squeeze profit margins, the broker said. UBS also lowered its 2026-2028 earnings forecasts by an average of about 25 percent. The flagship Haiyu project's production start has been delayed from end-2027 to mid-2028, with 2028 output now expected at only about five tonnes versus the original 10-tonne target.
Zhaojin shares fell 3.3 percent on Monday, with short selling accounting for 15.9 percent of turnover. Although gold prices have rebounded from recent troughs, UBS said the increase may not fully offset the impact of lower production and rising costs. Full production at Haiyu is now expected only by 2030.
Zhaojin's H1 2026 net profit attributable to shareholders reached 227 million yuan, up 407 percent year on year, though the figure included a 135 million yuan debt restructuring gain classified as non-recurring. Net profit after deducting non-recurring items was 104 million yuan, up 666 percent year on year.
The production cuts come as spot gold has rebounded from a trough of $3,942.43 per ounce on June 30 to peak at $4,673.65 per ounce in late August, up about 15 percent since the start of the month. The rally has lifted Chinese gold miners broadly, with peer Zijin Mining reporting H1 net profit of 39.17 billion yuan, up 68 percent year on year.
BOCI, in contrast, said Zhaojin Mining's worst period is over and expects strong growth over the next three years. The divergent views highlight uncertainty over how quickly the company can restore production and whether the Haiyu project's delayed ramp-up will deliver on its original targets.
The downgrade reflects a structural shift in Zhaojin's near-term earnings power. The company's ability to convert the favorable gold price backdrop into profit growth now depends on restoring production under tightened safety regulations and delivering the Haiyu project on its revised timeline. Investors will watch for updated production guidance and further regulatory developments in China's mining sector.
This article is for informational purposes only and does not constitute investment advice.
