Shandong Geo‐Mineral Company Limited, previously known as Taifu Industry Company Limited isprimarily engaged in the mining, processing, and sale of mineral ores. It is also involved in the miningdevelopment and management consulting, as well as overseas investment and asset managementservices. The Company was incorporated in 1993 and is headquartered in Shandong, China.

Investment Highlights

Events:

Shandong Geo‐Mineral Co., Ltd announced its private placement plan, stating that it was going topurchase 100% stake in Laizhou Jin Sheng at the price of CNY 2.05 billion and raise CNY 930 million inparallel for commission fee as well as infrastructure construction in Zhu Guo Li gold mine throughprivately offering new shares at CNY 9.52 per share. Shandong Provincial Bureau of Geology & MineralResources holds 41.75% ownership of the Company after this transaction (19.87% ownershiporiginally).

Comments:

Low price of powdered iron dragged the Company’s earnings. Shandong Geo‐Mineral went public in2013 via back‐door listing. Its main business has suffered sharp decline due to low price of powderediron since that. Proportion of powdered iron sales in total revenue slumped from 92.47% in 2014 to10.23% in 2015. Net income of the Company only registered CNY 3.04 million in 16H1.Storage of Zhu Guo Li gold mine reaches 122 metric ton. We expect capacity of the mine to be 4.9metric ton of gold annually. Construction of the mine takes approximately 4.5 years (2016.5~2020.12).And it takes another 17 years (2021~2038) for it to produce in a full capacity. The company promisedthat the net income after deducting non‐recurring losses and profits would be CNY ‐10.96 million inconstruction period and CNY 192 million, CNY 386 million and CNY 401 million respectively in the firstthree year after operation starts.

Although Zhu Guo Li gold mine won’t contribute earnings to the Company until five years later, price ofthe transaction is comparatively low (earnings promised in the first three year after operation startsaccounts for 50% of the expense). In addition, uncertainties (US presidential election, risks in Europeand potential rate hike) worldwide may boost gold price.

Earnings Forecast and Investment Grading:

We made EPS forecast for the Company at CNY 0.025 in 2016, CNY 0.07 in 2017 and CNY 0.115 in 2018(including newly‐issued shares), implying 408x/146x/89x PE. Reiterate BUY.

Potential Risk: the application may be rejected, gold price goes down, less‐than‐expected output fromthe gold mine.