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					                                      02 January 2008                                                         Company Report
                                                                                  Zhaojin Mining (1818.HK)
                                                                                                                “Pure Gold” concept


Expected Return                       Investment Highlights
Rating                    : BUY
                                      ►     “Pure Gold” play
Price (31/12/07)          : HK$32.6        Zhaojin is a “pure gold” play in the field. More than 94.9% of Zhaojin Mining
Target Price              : HK$40.5        turnover was derived from gold sales and the co operates its own smelting
Expected Capital Gain     : 24.2%          segment, which is different from the two other locally listed peers Lingbao Gold
                                           and Zijin Mining, for which gold sales accounted for 75.9% and 58.5% of the
Expected Dividend Yield   : 1.2%
                                           1H07 turnover respectively. The “pure gold” concept allows the co to benefit
Expected Total Return     : 25.4%          most from the rally in gold price in FY08.

                                      ►     Gold price rocket in FY08
                                           We believe the US dollar will keep its downward trend and thus providing upside
                                           for gold price as people are switching from USD asset like bonds and equities to
                                           commodities.

                                           Jewelry demand for gold in China is accelerating. We believe, under the booming
                                           China economy and the thriving A share market, gold demand from China will be
                                           the key growth driver for world gold demand in FY08.

                                      ►     Under-valued integrated gold miner
                                           Zhaojin is now trading at 38.5x 08F PER, which is trading at 7.5% discount to
                                           the leader Zijin Mining. We expect this discount to be narrowed in 1H08 as the
                                           premium on Zijin is solely derived from the A share floatation. And we believe
                                           Zhaojin deserves a premium over other peers under its “pure gold” concept,
                                           higher margin and aggressive M&A plan.

                                      ►     Aggressive M&A in FY08
                                           Under the strong RMB and the cost pressure, China miner commenced a new
                                           round of M&A overseas. Leaders like Chalco, Zijin, JXC, HNC expanded their
                                           foothold over the globe; we believe Zhaojin Mining will follow suit in FY08 in
                                           response to the need of replacing the old exhausting mines with new mines so
                                           as to lower the average life.


                                      Earnings Estimates
                                      Yr-end    Net Profit     Chg        EPS        Chg       PER     DPS    Yield   P/B    ROE
                                      Dec       (Rmb mn)       (%)       (Rmb)       (%)        (x)   (Rmb)    (%)    (x)    (%)

                                      2005A         163       (1.6)       0.31       121.4    105.0   0.05    0.2     23.1   20.2
                                      2006A         351       115.6       0.54        74.2     60.3   0.31    0.9     5.2    10.1
                                      2007F         478        36.1       0.66        21.5     49.6   0.30    0.9     5.8    11.5
                                      2008F         616        28.9       0.85        28.9     38.5   0.38    1.2     4.7    12.2
                                      2009F         725        17.7       1.00        17.7     32.7   0.45    1.4     3.9    11.9
                                      Source: the Company, Celestial Securities estimates

                                      Key Data                                              Chart
                                      Stock Code                     : 1818.HK
                                      12-month High/Low (HK$)        : 44.90/11.40
                                      Hang Seng Index                : 27812.65
                                      Issued Shares (mn)             : 219
  Create Lee
                                      Market Cap (HK$m)              : 7,115
  (852) 2287 8842
                                      Average Daily Turnover (K)     : 2,756
  create.lee@cash.com.hk
                                      Major shareholders             : Zhaojin Group
                                                                      (37.3%)
                                      Rel. Performance
                                           - 1 month (%)             : +6.20
                                           - 3 months (%)            : +6.03
                                           - 12 months (%)           : +109.72
    Company Profile
    Zhaojin Mining is one of the leading integrated gold enterprises with exploration,
    mining, ore processing and smelting operations based mainly in Zhaoyuan district
    of Shandong province.

                          Gold Reserve for HK Listed Co (FY06)

                500
                450
                400
                350
                300
       Tonnes




                250
                200
                150
                100
                50
                  -
                       Zijin Mining   Jiangxi Copper     Zhaojin Gold        Lingbao Gold


    Source: the Company

    The co is a “pure gold” play in the market; approximately 94.9% sales were
    derived from gold sales in FY06 for the co; whereas for two others locally listed
    peers: Zijin Mining (2899.HK) and Lingbao Gold (3330.HK), of which gold sales
    accounted for 70.4% and 72.7% respectively.

                      Turnover composition, Zhaojin Mining, FY06



                                                                   Gold

                                         1%               1%       Silver
                                         1%
        94%                                                        Sulphur
                                         4%               3%
                                                                   Other by-products

                                                                   Processing gold and silver




    Source: the Company

    The co possesses 4,196 koz gold reserves in FY06, which ranked 3 rd around the
    local listed peers (1 st : Zijin Mining (2899.HK); 2 nd : Jiangxi Copper (0358.HK)). Gold
    production of Zhaojin in FY06 was 201.6 koz, showing a CAGR growth of 10.5% in
    FY03 – FY06.




2   Zhaojin Mining (1818.HK)
                                                        Gold Production – Mining Segment

                                        300

                                        250

                                        200



                                  koz
                                        150

                                        100

                                        50

                                          -
                                                2003A       2004A        2005A       2006A       2007F   2008F      2009F


                               Source: the Company, Celestial Securities estimates

                               The co currently operates 5 mines, namely Jinchiling Gold Mine, Hedong Gold Mine,
                               Xiadian Gold Mine, Dayingzhuang Gold Mine, Jintingling Gold Mine. The life of the
                               mines ranged from 2.9 years to 28.1 years (1H07).

                                              Gold Mine, Zhaojin Mining
Gold Reserves              Open pit / underground           Interest Gold Grade        Gold Cotent       Years to sustains
                                                                                       (kgs)             (30/6/2006)
  Jinchiling Gold Mine       Underground                   100%       6.45             3,001             3.9
  Hedong Gold Mine           Underground                   100%       4.9              13,103            8.6
  Xiadian Gold Mine          Underground                   100%       4.09             18,184            12
  Dayingzhuang Gold Mine     Underground                   100%       2.53             72,328            29.1
  Jintingling Gold Mine      Underground                   75%        4.37             23,880            14.4
Total                                                                 3.14             130,497
Total (to the co)                                                     3.09             124,527
Source: the Company




                               Zhaojin Mining (1818.HK)                                                                      3
                                 ■     “Pure Gold” play
                                 Zhaojin is a “pure gold” play in the field. More than 94.9% of Zhaojin Mining
                                 turnover was derived from gold sales and the co operates its own smelting
                                 segment, which is different from the two other locally listed peers Lingbao Gold
                                 and Zijin Mining, for which gold sales accounted for 75.9% and 58.5% of the 1H07
                                 turnover respectively.

                                     Turnover distruibution, Zijin and Lingbao
                  Zijin Mining                                                                                                                                                Lingbao Gold

                                                Gold
                       1%
             3%                                 Copper                                                                                            2%
           1%                                   concentrates
                                                                                                                   20%
                                                Copper Cathodes                                                                                                                                                               Gold Bullion
    22%
                                                Zinc Ingots                                                                                                                                                                   Silver
                                                                                                             2%
                                                Zinc Concentrates
                                                                                                                                                                                                                              Copper
    2%                           58%                                                                                                                                                                                          Products
                                                Iron Concentrates
                                                                                                                                                                                                                              Sulphuric acid
    13%                                         Others                                                                                                                         76%




Source: the Company
                                 In the wake of the listing of Zhaojin Mining in late FY06, noticed from the
                                 historical PER of the co, we found that the performance of the stock is highly
                                 correlated with the spot price of gold in COMEX, with correlation coefficient 0.67.

                                 Our FY08 and long-term gold price assumption at USD 850 / ounce and USD 750 /
                                 ounce implies 22% and 8% premium to FY07 average price. We believe the co will
                                 enjoy a better valuation in FY08 under further gold price rally. Our target price
                                 implies 47.8x and 40.6x forward PER in FY08 and FY09 respectively.

                                                                                   Gold Price VS PER, Zhaojin Mining

                                                                                 Histroical PER Range (Weekly)                                                                  Spot price


                                      850                                                                                                                                                                                                                          70
                                      800                                                                                                                                                                                                                          60
                                      750                                                                                                                                                                                                                          50
                                      700                                                                                                                                                                                                                          40
                                      650                                                                                                                                                                                                                          30
                                      600                                                                                                                                                                                                                          20
                                      550                                                                                                                                                                                                                          10
                                            15/12/2006




                                                                                                                                                                                                                             26/10/2007

                                                                                                                                                                                                                                          16/11/2007
                                                                    26/1/2007

                                                                                16/2/2007



                                                                                                       30/3/2007

                                                                                                                   20/4/2007

                                                                                                                               11/5/2007



                                                                                                                                                      22/6/2007

                                                                                                                                                                  13/7/2007



                                                                                                                                                                                         24/8/2007

                                                                                                                                                                                                     14/9/2007

                                                                                                                                                                                                                 5/10/2007




                                                                                                                                                                                                                                                       7/12/2007
                                                         5/1/2007




                                                                                            9/3/2007




                                                                                                                                           1/6/2007




                                                                                                                                                                              3/8/2007




                                 Source: Bloomberg




4                                Zhaojin Mining (1818.HK)
■     Gold price rocket in FY08
We are bullish on the gold price in FY08 due to:
1. Weak USD
2. Increasing demand on jewelry

►     Weak USD
USD index has been a good indicator for gold price historically; in the past ten
years, the correlation coefficient between the two data was –0.80, meaning that
the USD index is highly negatively correlated to the spot gold price. We noted that
USD index has been decreasing since 2001, the year that 911 incident took place.
The index plunged from 119.4 to around 70 recently. At the same time, gold price
rocketed from USD 320 / ounce to USD 840 / ounce recently.

                                                                             USD Index vs Gold Price Spot

                                                                     GOLDS Comdty Px Last                                                                                    DXY Curncy
    130                                                                                                                                                                                                                                                                                               900
    120                                                                                                                                                                                                                                                                                               800
                                                                                                                                                                                                                                                                                                      700
    110
                                                                                                                                                                                                                                                                                                      600
    100
                                                                                                                                                                                                                                                                                                      500
    90
                                                                                                                                                                                                                                                                                                      400
    80                                                                                                                                                                                                                                                                                                300
    70                                                                                                                                                                                                                                                                                                200
                                                        12/11/1999




                                                                                                                                                                      21/11/2003




                                                                                                                                                                                                                                                                                         30/11/2007
          20/2/1998

                       18/9/1998

                                      16/4/1999




                                                                                                                                       27/9/2002

                                                                                                                                                      25/4/2003



                                                                                                                                                                                         18/6/2004

                                                                                                                                                                                                            14/1/2005

                                                                                                                                                                                                                             12/8/2005

                                                                                                                                                                                                                                              10/3/2006

                                                                                                                                                                                                                                                           6/10/2006
                                                                         9/6/2000

                                                                                           5/1/2001

                                                                                                            3/8/2001

                                                                                                                          1/3/2002




                                                                                                                                                                                                                                                                          4/5/2007
Source: Bloomberg

Federal Reserve has cut the federal fund rate from 5.25% early this year to 4.25%
in Dec. As we noted from the period in late 2000 to mid 2004, Fed cuts the target
rate from 6.5% to 1%, which was a 5.5 ppt cut; at the same time, the USD index
plunged from 119.85 to the lowest 85.11, showing a 28.9% drop. We believe the
bottom line for the target rate should be 1%, which means that there is 3.25ppt
room for the Fed to further reduce the rate. As the only weapon of the US
government to remedy the deteriorating economy, we perceive the rate cut will
continue in FY08, thus being bullish on FY08 gold price.

                                                                 USD Index vs Federal Target Rate
                                                                                                      USD Index                                            Federal Target Rate

          7                                                                                                                                                                                                                                                                                       130
          6                                                                                                                                                                                                                                                                                       120
          5                                                                                                                                                                                                                                                                                       110
          4                                                                                                                                                                                                                                                                                       100
     %




          3                                                                                                                                                                                                                                                                                       90
          2                                                                                                                                                                                                                                                                                       80
          1                                                                                                                                                                                                                                                                                       70
          0                                                                                                                                                                                                                                                                                       60
                                                                                               29/12/2000




                                                                                                                                                                                                                                 28/10/2005


                                                                                                                                                                                                                                                           24/11/2006


                                                                                                                                                                                                                                                                                     21/12/2007
                      24/4/1998
                                   6/11/1998
                                                  21/5/1999
                                                                 3/12/1999
                                                                               16/6/2000


                                                                                                              13/7/2001
                                                                                                                           25/1/2002


                                                                                                                                                   21/2/2003


                                                                                                                                                                                   19/3/2004
                                                                                                                                                                                                1/10/2004
                                                                                                                                                                                                                 15/4/2005


                                                                                                                                                                                                                                               12/5/2006
                                                                                                                                       9/8/2002


                                                                                                                                                                  5/9/2003




                                                                                                                                                                                                                                                                        8/6/2007




Source: Bloomberg




Zhaojin Mining (1818.HK)                                                                                                                                                                                                                                                                                    5
    ►        Increasing demand for gold
    Despite the skyrocketed gold price in 2H07, demand for gold on jewelry is still on
    the up trend in China. We found that jewelry demand for gold in China is
    accelerating, the yoy growth in first three quarters in FY07 was well above 20%.
    We believe, under the booming China economy and the thriving A share market,
    gold demand in China will be the key growth driver for world gold demand in FY08.

                                                      China Jewelry Demand, Quarterly
                                                                  China Jwelry Demand                                          yoy growth


         35%                                                                                                                                                                                  90
         30%                                                                                                                                                                                  80
         25%                                                                                                                                                                                  70
         20%
                                                                                                                                                                                              60




                                                                                                                                                                                                   metric ton
         15%
         10%                                                                                                                                                                                  50
          5%                                                                                                                                                                                  40
          0%                                                                                                                                                                                  30
         -5%
        -10%                                                                                                                                                                                  20
        -15%                                                                                                                                                                                  10
        -20%                                                                                                                                                                                  0
                             30/9/2001

                                          31/3/2002

                                                      30/9/2002

                                                                   31/3/2003

                                                                               30/9/2003

                                                                                           31/3/2004

                                                                                                       30/9/2004

                                                                                                                   31/3/2005

                                                                                                                                30/9/2005

                                                                                                                                             31/3/2006

                                                                                                                                                          30/9/2006

                                                                                                                                                                      31/3/2007

                                                                                                                                                                                  30/9/2007
    Source: GFMS

                                                                               World Gold Demand

                     4,000                                                                                                                  12.3%
                                                                                                                                             yoy
                     3,500
                                                                                                                                                                                       ETFs &
                     3,000                                                                                                                                                             similar
                     2,500                                                                                                                                                             Other
        metric ton




                     2,000                                                                                                                                                             Bar & coin
                     1,500                                                                                                                                                             Industrial &
                     1,000                                                                                                                                                             dental
                                                                                                                                                                                       Jewellery
                      500
                        0
                      -500               2004                     2005                 2006                                    1-3Q06                    1-3Q07



    Source: GFMS




6   Zhaojin Mining (1818.HK)
                                                           -
                                                               1,000
                                                                       2,000
                                                                               3,000
                                                                                       4,000
                                                                                               5,000
                                                                                                       6,000
                                                                                                               7,000
                                                                                                                       8,000
                                                                                                                                                                                       -
                                                                                                                                                                                           1,000
                                                                                                                                                                                                   2,000
                                                                                                                                                                                                           3,000
                                                                                                                                                                                                                   4,000
                                                                                                                                                                                                                           5,000
                                                                                                                                                                                                                                   6,000




                                               31/3/1998
                                                                                                                                                                           28/2/2003




                           Source: Bloomberg
                                                                                                                                                      Source: Bloomberg
                                               30/9/1998
                                                                                                                                                                           23/5/2003
                                               31/3/1999
                                                                                                                                                                           15/8/2003
                                               30/9/1999




Zhaojin Mining (1818.HK)
                                                                                                                                                                           7/11/2003
                                               31/3/2000                                                                                                                   30/1/2004
                                               30/9/2000                                                                                                                   23/4/2004
                                               31/3/2001                                                                                                                   16/7/2004
                                               30/9/2001                                                                                                                   8/10/2004
                                               31/3/2002                                                                                                                  31/12/2004

                                               30/9/2002                                                                                                                   25/3/2005
                                                                                                                                                                                                                                           SH Composite Index




                                               31/3/2003                                                                                                                   17/6/2005

                                               30/9/2003                                                                                                                    9/9/2005
                                                                                                                                                                           2/12/2005
                                               31/3/2004
                                                                                                                               Nominal GDP of China




                                                                                                                                                                           24/2/2006
                                               30/9/2004
                                                                                                                                                                                                                                                                A Share Market Performance




                                                                                                                                                                           19/5/2006
                                               31/3/2005
                                                                                                                                                                           11/8/2006
                                               30/9/2005
                                                                                                                                                                           3/11/2006
                                               31/3/2006
                                                                                                                                                                                                                                           SZ Composite Index




                                                                                                                                                                           26/1/2007
                                               30/9/2006
                                                                                                                                                                           20/4/2007
                                               31/3/2007                                                                                                                   13/7/2007
                                               30/9/2007                                                                                                                   5/10/2007
                                                                                                                                                                          28/12/2007




7
    ■    Under-valued integrated gold miner
    Zhaojin Mining differs from the other locally listed gold stocks by the concept of
    “pure gold” manufacturer. Together with our FY08 and terminal gold price
    assumption at USD 850 / ounce and USD 750 / ounce respectively, our DCF model
    with 13.4% WACC and 2.2% terminal growth rate suggests that the 1.4x DCF value
    of Zhaojin is HK$40.5.

    Zhaojin is now trading at 38.5x 08F PER, which is trading at 7.5% discount to the
    leader Zijin Mining. Yet, we expect the discount to be narrowed or eliminated in
    FY08 as the current premium due merely to the A share floatation of Zijin Minig.
    We think Zhaojin Mining deserves a premium over other peers under its “pure
    gold” concept, higher gross margin, aggressive expansion plan and the possible A
    share floatation.

                          ASP and Gross Margin, Zhaojin Mining
                                         ASP, Rmb / gram      Margin

        250                                                                            200.0%
        200                                                                            150.0%
        150
                                                                                       100.0%
        100
         50                                                                            50.0%

           -                                                                           0.0%
                2003A       2004A      2005A      2006A    2007F    2008F     2009F



    Source: the Company, Celestial Securities estimates

                                       Gold Stocks 08F PER

                120

                100

                 80

                 60

                 40

                 20

                   -
                       1818 HK 600489     600547 2899 HK           3330 HK   Average
                        Equity CH Equity CH Equity Equity           Equity

    Source: Bloomberg, Celestial Securities estimates




8   Zhaojin Mining (1818.HK)
                                                    DCF model, Zhaojin Mining
                                                                                  1          2           3         4           5        6
Rmb mn                                                      2006     2007F    2008F      2009F       2010F     2011F       2012F
EBITDA                                                       597       867     1,104      1,295        1,231     1,169       1,111
Add:                         Working capital adjustment              2,509     2,750      3,300        2,145     1,590       1,093
Less:                        Capital expenditure            (268)    (350)     (470)      (450)        (349)     (297)       (245)
Less:                        Income tax paid (ungeared)     (168)    (234)     (302)      (356)        (336)     (320)       (304)
Free cashflow                                                 161    2,792     3,082      3,790        2,691     2,142       1,654 16,744
yoy growth                                                        1630.2%     10.4%      23.0%       -29.0%    -20.4%      -22.8%

Discount factor                                                           1 0.88183 0.77763 0.68574 0.60471 0.53325 0.47024
Present value                                                       2791.93 2717.9 2946.88 1845.19 1295.57 881.846 7873.62

Sum of discounted NCF                                     12479.3
Terminal value                                            7873.62
Fair enterprise value                                     20352.9

Add:                         Cash and equivalents          2695.4
Less:                        Market value of debt         -733.19
Less:                        Minority interest             -1.539
Fair equity value                                         22313.6


Number of issued shares,                                    728.7
mn
Fair equity value per share                                  30.6
P/DCF                       Multiplier                        1.4
Fair equity value per                                        40.5
share, HKD
Source: the Company, Celestial Securities estimates

                                                     Gold Stocks Comparison
Bloomberg Company                            Mkt Cap, mn GPM, %              PER            ROE            PBR
Ticker                                                                FY07   FY08 FY09 FY07 FY08 FY09 FY07 FY08 FY09
1818 HK      ZHAOJIN MINING                  23,720        53.5       49.6   38.5      32.7   11.5     12.2    11.9      5.78   4.74 3.92
Equity       INDUSTRY - H
2899 HK      ZIJIN MINING GROUP CO           136,901       37.1       58.1   41.7      29.6   52.7     51.7    48.0      30.5   17.9 25.4
Equity       LTD-H
3330 HK                                      3,722         19.8       17.7    9.8       9.7   12.9     16.1    15.1       2.1    1.6   1.9
Equity       LINGBAO GOLD CO LTD-H
600489 CH                         34,138                   13.2      126.7 105.2       47.9   27.2     40.0    37.0      N.A.   16.9 10.0
Equity       ZHONGJIN GOLD CORP-A
600547 CH    SHANDONG GOLD MINING 28,879                   13.2      122.7   86.7      35.2   N.A.     N.A.    N.A.      N.A.   28.2   9.3
Equity       CO LT-A
Source: Bloomberg, Celestial Securities estimates




                                     Zhaojin Mining (1818.HK)                                                                           9
     ■    Aggressive M&A in FY08
     Under the strong RMB and the cost pressure, China miner commenced a new round
     of M&A overseas. Leaders like Chalco, Zijin, JXC, HNC expanded their foothold over
     the globe; we believe Zhaojin Mining will follow suit in FY08 in response to the
     need of replacing the old exhausting mines with new mines so as to lower the
     average life.

                                                                                USD – RMB Exchange Rate

         8.4
         8.2
          8
         7.8
         7.6
         7.4
         7.2
          7


                                                                                                  23/12/2005




                                                                                                                                                                          13/10/2006




                                                                                                                                                                                                                                                                                     28/12/2007
               14/1/2005


                                      22/4/2005
                                                  10/6/2005
                                                              29/7/2005
                                                                          16/9/2005
                                                                                      4/11/2005


                                                                                                               10/2/2006
                                                                                                                           31/3/2006
                                                                                                                                       19/5/2006


                                                                                                                                                              25/8/2006


                                                                                                                                                                                       1/12/2006
                                                                                                                                                                                                   19/1/2007


                                                                                                                                                                                                                          27/4/2007
                                                                                                                                                                                                                                      15/6/2007


                                                                                                                                                                                                                                                             21/9/2007
                                                                                                                                                                                                                                                                         9/11/2007
                           4/3/2005




                                                                                                                                                   7/7/2006




                                                                                                                                                                                                               9/3/2007




                                                                                                                                                                                                                                                  3/8/2007
     Source: Bloomberg

                                                                              Gold Mine Acquired in 2H07
                  Possible boost to                                                                                                                                                            Estimated annual
                        production Reserves, kg                                                                                    * Average Life                                              production, kg

     Xixia                                                                               980                                       22                                                          45
     Tuoli                                                                            3,700                                        22                                                          170
     Gansu Tianhao                                                                    3,100                                        22                                                          142
     Sarekuobu                                                                        1,500                                        22                                                          69
     Fukang Mining Industry                                                           1,356                                        22                                                          62
                                                                                                                                                                                               489                                                                               kg
                                                                                                                                                                                               16                                                                                koz
     Source: the Company, Celestial Securities estimates
     * Average life of current mine of Zhaojin Mining

     Zhaojin acquired 5 mining assets in 2H07, namely Xixia Zhaojin, Tuoli Zhaojin,
     Gansu Tianhao, Sarekuobu Gold Mine and Fukang Mining Industry. With the
     assumption of mining life of 22 years, which is the current average life of existing
     gold mine of Zhaojin Mining, we expect the new mines will add 15.7koz and 16.1
     koz in FY08 and FY09 gold production respectively to Zhaojin. This will boost the
     production by 6.6% and 5.7% in FY08 and FY09 respectively.




10   Zhaojin Mining (1818.HK)
                      Gold Mines Production , Zhaojin Mining

    350.0
                           CAGR 114%
                                                                   Potential adding from new
    300.0                                                          mine
    250.0                                                          Jintingling Gold Mine

    200.0                                                          Dayingzhuang Gold Mine

    150.0                                                          Xiadian Gold Mine
    100.0
                                                                   Hedong Gold Mine
     50.0
                                                                   Jinchiling Gold Mine
        -
                2003A 2004A 2005A 2006A 2007F 2008F 2009F


Source: the Company, Celestial Securities estimates

M&A of Zhaojin has a good track record. We noted that gold mines acquired by
Zhaojin are improving the overall grading of the co. We noted that new mines like
the mines from Gansu Zhaojin and Fukang Mining Industry have higher grading (5
g/ton and 8 g/ton respectively) than the 5 mines that Zhaojin operates.

We expect with the expertise of the management on the M&A of gold mines,
Zhaojin will utilize the M&A strategy to improve the gold grade. We believe after
the fund raised from the IPO of Zhaojin H-share of HK$2,400 mn, the co is able to
do further M&A in FY08.

                     Cash and Cash Per Share, Zhaojin Mining
                                     Cash ending       Cash per share

    3,500                                                                                  6.00

    3,000                                                                                  5.00
    2,500
                                                                                           4.00
    2,000
                                                                                           3.00
    1,500
                                                                                           2.00
    1,000

      500                                                                                  1.00

            -                                                                              -
                  2004A      2005A        2006A       2007F     2008F        2009F

Source: the Company, Celestial Securities estimates




Zhaojin Mining (1818.HK)                                                                          11
     Investment Opinion
     Zhojin Mining is our top pick for the gold miners; we recommend “BUY” on this
     stock.

     We like the “pure gold” concept of Zhaojin such that the co can capture the largest
     gain among other listed peers in the gold price rally. Zhaojin is now trading at
     38.5x 08F PER, which is trading at 7.5% discount to the leader Zijin Mining. Yet,
     we expect the discount to be narrowed or eliminated in FY08 as the current
     premium due merely to the A share floatation of Zijin Minig. We think Zhaojin
     Mining deserve a premium over other peers under its “pure gold” concept, higher
     gross margin, aggressive expansion plan.

     Furthermore, we are looking for A share floatation for Zhaojin Mining, which is one
     of the leading gold miners in China in a foreseeable future, which will be a
     potential booster to the share price.

     Our DCF derived target price is HK$40.5, which accounted for the production
     addition from new mines and the RMB appreciation. Our target price implies 47.8x
     and 40.6x forward PER in FY08 and FY09 respectively.




12   Zhaojin Mining (1818.HK)
                                                      Key Financial Summary
Yr-end Dec                                        2004A        2005A    2006A     2007F    2008F    2009F
 P&L (Rmb mn)
 Turnover                                               428      868     1,164    1,586    1,997    2,319
 COGS                                                  -237     -428      -541     -683     -833     -956
 GP                                                     191      439       623      903    1,164    1,363
 SG&A                                                   -86     -145      -149     -203     -256     -297
 Other operating expense                                 -4      -10         3        3        3        3
 EBITDA                                                 132      369       597      867    1,104    1,295
 Dep & Amor                                              31       84       120      164      193      227
 EBIT                                                   101      285       477      703      912    1,069
 Associates                                               -       -1        -2       -1       -1       -1
 Interest Inc / expense                                  -1      -45       -47        8        5       11
 IPO interest                                             -        -        89        -        -        -
 EBT                                                    100      240       518      710      916    1,078
 Tax                                                    -33      -80      -168     -234     -302     -356
 MI                                                      -0       -3        -2       -2       -2       -3
 Deferred Tax                                            99        -         -        -        -        -
 NP                                                     166      163       351      478      616      725
 Dividend                                                 2       29      167      215      277      326
 EPS (pre-exceptional item, Rmb)                       0.14     0.31      0.54     0.66     0.85     1.00
 EPS (in. exceptional item, Rmb)                       0.36     0.31      0.54     0.66     0.85     1.00
 DPS (Rmb)                                             0.00     0.05      0.31     0.30     0.38     0.45

Balance Sheet (Rmb mn)
 Cash & eq                                             350       139     2,695    2,664    2,837    3,321
 AR                                                    135        49        51       70       88      102
 Inventories                                            75       154       275      670      817      939
 Other current assets                                    -         -         -        -        -        -
 Total current assets                                  560       341     3,022    3,403    3,743    4,361
 Net PP&E                                               295    1,022     1,178    1,575    1,969    2,163
 Net intangibles                                         25      587       551      751      951    1,051
 Total investments                                        6       17        15       14       18       22
 Other LT assets                                        139      165       142       70       91      241
 Total non -current asset                               465    1,792     1,885    2,409    3,028    3,477
 Total assets                                         1,025    2,133     4,908    5,813    6,771    7,838
AP                                                     131       333       531      683      833      956
ST debt                                                243       267       125      200      150      100
Other current liab                                       5         9         8       12       10        5
Total currnet liab                                     379       609       665      895      993    1,061
LT debt                                                  -       559       608      658      658      658
other long term liab                                    33       160       170       70       52       10
Total non current lib                                   33       719       778      728      710      668
Total liab                                             413     1,328     1,443    1,622    1,702    1,729
Capital and reserves                                   612       747     3,408    4,101    5,007    6,045
MI                                                       0        58        57       59       61       64
Total equity                                           612       805     3,464    4,160    5,068    6,109

 Cash Flow (Rmb mn)
 EBIT                                                  101       285      477        703     912    1,069
 Dep & Amort                                             31        84     120        164     193      227
 Change in NWC                                           21       (4)       31     (262)     (15)     (12)
 Others                                                (14)      (26)     (88)      (51)     (20)      (8)
 CFO                                                   139       339      541        555   1,069    1,276
 Capex                                                (135)     (258)    (268)     (350)    (470)    (450)
 Others                                               (118)     (400)       23     (100)     (50)       80
 CFI                                                  (252)     (658)    (245)     (450)    (520)    (370)
 Debt raised                                           106       180       (93)      125     (50)     (50)
 Equity raised                                         362          -    2,367         -        -        -
 Div paid                                               (7)      (29)      (58)    (215)    (277)    (326)
 Interest paid                                          (4)      (44)        45     (46)     (48)     (46)
 Others                                                   -         -         -        -        -        -
 CFF                                                   457       108     2,261     (137)    (375)    (422)
 Net CF                                                343      (211)    2,557      (32)     174      483
 Cash beginning                                          7        350      139    2,696    2,664    2,837
 Cash ending                                           350        139    2,696    2,664    2,837    3,321

Source: the Company, Celestial Securities estimates




                                    Zhaojin Mining (1818.HK)                                           13
                                                                             Key Ratios
                                                  2004A                                    2005A                                     2006A                                   2007F                                 2008F                                       2009F

Efficiency
AR turnover                                               3.2                                  17.8                                      22.7                                  22.7                                    22.7                                         22.7
Inv turnover                                            (1.8)                                  (1.3)                                     (1.0)                                 (1.0)                                   (1.0)                                        (1.0)
AP turnover                                             (1.8)                                  (1.3)                                     (1.0)                                 (1.0)                                   (1.0)                                        (1.0)
Cash conversion cycle                                       115                                     21                                        16                                16.0                                   16.0                                         16.0
Lquidity
Net debt                                        (106.6)                                   687.8                             (1,962.2)                            (1,805.9)                                (2,029.6)                                    (2,562.8)
Net debt to equity                              -17.4%                                   92.1%                                -57.6%                               -44.0%                                   -40.5%                                       -42.4%
Current ratio                                   147.7%                                   56.0%                                454.5%                              380.5%                                    377.0%                                       410.9%
Quick ratio                                     127.9%                                   30.7%                                413.1%                              305.6%                                    294.7%                                       322.4%
Cash ratio                                       92.2%                                   22.7%                               405.4%                               297.8%                                    285.8%                                       312.8%

Profitablity
ROA                                               16.2%                                   7.6%                                      7.2%                                      8.2%                                9.1%                                       9.3%
ROE                                               27.0%                                  20.2%                                     10.1%                                     11.5%                               12.2%                                      11.9%
Gross margin                                      44.6%                                  50.6%                                     53.5%                                     57.0%                               58.3%                                      58.8%
Net margin                                        38.7%                                  18.8%                                     30.2%                                     30.1%                               30.8%                                      31.3%
Valuation
BVPS                                               1.33                                     1.41                                          6.28                                 5.63                                     6.87                                        8.30
PB                                                24.50                                   23.11                                           5.18                                 5.78                                     4.74                                        3.92
EPS                                                0.14                                     0.31                                          0.54                                 0.66                                     0.85                                        1.00
PER                                              232.50                                  105.00                                          60.28                                 49.6                                     38.5                                        32.7
PEG                                                 0.9                                   (65.0)                                           0.5                                 1.38                                     1.33                                        1.84
Growth momentum
Turnover growth                                  11.5%                                   102.7%                                34.2%                                         36.2%                               25.9%                                      16.1%
COGS                                             -0.3%                                    80.6%                                26.4%                                         26.1%                               22.0%                                      14.9%
GP growth                                        30.7%                                   130.2%                                41.8%                                         45.0%                               28.9%                                      17.0%
NP growth                                       264.2%                                    -1.6%                               115.6%                                         36.1%                               28.9%                                      17.7%
EPS growth                                      -12.5%                                   121.4%                                74.2%                                         21.5%                               28.9%                                      17.7%
EBITDA                                           30.8%                                   180.7%                                61.7%                                         45.3%                               27.3%                                      17.3%
Source: the Company, Celestial Securities estimates

                                                                                                    Historical Weekly PER
                                                                                                      Pe Ratio                                  Mean                           +1SD                              -1SD

                                        70.00
                                        60.00
                                        50.00
                                        40.00
                                        30.00
                                        20.00
                                        10.00
                                         0.00
                                                                                                                                                                                                                             26/10/2007

                                                                                                                                                                                                                                          16/11/2007



                                                                                                                                                                                                                                                                     28/12/2007
                                                                 26/1/2007

                                                                             16/2/2007



                                                                                                    30/3/2007

                                                                                                                20/4/2007

                                                                                                                             11/5/2007



                                                                                                                                                     22/6/2007

                                                                                                                                                                 13/7/2007



                                                                                                                                                                                         24/8/2007

                                                                                                                                                                                                     14/9/2007

                                                                                                                                                                                                                 5/10/2007




                                                                                                                                                                                                                                                        7/12/2007
                                                      5/1/2007




                                                                                         9/3/2007




                                                                                                                                          1/6/2007




                                                                                                                                                                              3/8/2007




                                    Source: Bloomberg




14                                  Zhaojin Mining (1818.HK)
                                                            2.00
                                                                   3.00
                                                                          4.00
                                                                                 5.00
                                                                                        6.00
                                                                                               7.00
                                                                                                      8.00
                                                                                                             9.00




                                                26/1/2007




                           Source: Bloomberg
                                                16/2/2007

                                                 9/3/2007




Zhaojin Mining (1818.HK)
                                                30/3/2007

                                                20/4/2007

                                                11/5/2007

                                                 1/6/2007
                                                                                                                    Px To Book Ratio




                                                22/6/2007

                                                13/7/2007
                                                                                                                    Mean




                                                 3/8/2007

                                                24/8/2007
                                                                                                                                       Historical Weekly P/B Ratio




                                                14/9/2007
                                                                                                                    +1SD




                                                5/10/2007

                                               26/10/2007
                                                                                                                    -1SD




                                               16/11/2007

                                                7/12/2007

                                               28/12/2007




15
             Our Rating System

             Stock
             Buy            Expected to outperform the benchmark index by >15% over the next six months
             Accumulate     Expected to outperform the benchmark index by 5 – 15 % over the next six moths
             Hold           Expected to outperform or underperform the benchmark index by <5% over the six
                            months
             Reduce         Expected to underperform the benchmark index by 5 – 15% over the next six months
             Sell           Expected to underperform the benchmark index by >15% over the next six months




             Industry
             Outperform     Fundamentals/valuations of most stocks in the sector are expected to be improving over
                            the next six months.
             Marketperform Fundamentals/valuations of most stocks in the sector are expected to be steady, neither
                           improving nor deteriorating, over the next six months.
             Underperform Fundamentals/valuations of most stocks in the sector are expected to be deteriorating
                          over the next six months.
             Selective      Fundamentals/valuations of the stocks in the sector are expected to be diverging over
                            the next six months.




Head Office: 21/F, Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong.
Tel: (852) 2287 8788 Fax: (852) 2287 8000

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Securities and Futures Ordinance. The document is for information purpose only. Neither the information nor opinion expressed
shall be construed, expressly or impliedly, as an advice, offer, invitation, advertisement, inducement, recommendation or
representation of any kind or form whatsoever. While the information contained herein has been obtained from sources believed
to be reliable, CSL or its affiliates (“CASH”) do not represent that it is accurate or complete and it should be relied upon. CASH
hereby expressly disclaims all liabilities arising out of or incidental to the accuracy and completeness of the contents and
information herein contained. The contents and information in this document will be subject to change without further notice.
Trade in securities covered by this report may be made only in those jurisdictions where the securities are qualified for trading.
This document may not in whole or in part be reproduced or furnished to any person other than the addressee.
        16                              Zhaojin Mining (1818.HK)