This video is a follow-up to the article I wrote in February on China Gold International (JINFF). We update investors on the impending debt-apocalypse that many felt would derail the company in 2020. We also cover the following points in the presentation:
The relationship makes clear that the Chinese government is not going to allow China Gold International to fail. Reasons for this support include the following:
China Gold International has improved operations significantly by:
I believe that the aforementioned reasons make the company more attractive for longer-term, value investors who look at distressed companies with good remediation plans. The stock once traded above $6 years ago, but is less than $1 now.
The success of this company will depend on whether the increasing returns from gold mining due to a rising gold price will offset the falling copper prices due to a deflation in the world economy.
The risks are that the below average grades for copper and gold are too much to overcome the cost reduction and efficiency efforts that China Gold has been making. Longer term, I believe copper demand will increase substantially due to world demand for more technical society in third world countries. However, in the short term, lower copper prices could continue to put increasing pressure on the company’s financials.
In the end, the company will not fail. At worst, it would be absorbed into the SOE that already owns 39%. But the government is going to support China Gold International as long as they continue to provide strategic reserves of both metals.