Shandong Gold Group Co. Ltd.

The stable outlook reflects our view that SDG will maintain its current leading market position in China and proactively take measures to reduce its high financial leverage in the next 24 months. These measures include: its key operating subsidiary's equity financing on the Hong Kong Stock Exchange, gradually exiting noncore businesses such as financial services and real estate through disposals, introducing strategic investors, and continuing to carry out debt-to-equity swaps. We also expect SDG to further expand mined gold output in the coming 12-24 months to generate steady operating cash flow. We could lower the rating on SDG if its financial metrics deteriorate due to lower-than-expected gold prices or gold output, higher-than-expected inflation in production costs, or more aggressive capital

...We expect Shandong Gold Group Co. Ltd. (SDG) to remain one of the largest mined gold producers in China and a mid- to large-size gold miner globally, benefiting from its rich mine reserves. SDG's mined gold production was 47.8 tons in 2018 and we expect it to rise to 49-53 tons over the next 12-24 months. We believe the company has steady volume growth potential, given its large reserves and diversified mine presence in China. The company had total gold reserves of 1,731 tons as of end-2018--the largest in China and mainly located in Shandong. We expect SDG to remain a relatively low-cost gold producer. SDG's cost position will remain at the lower end of the second quartile of the global cost curve, primarily owing to its higher-than-average ore grade. Average ore grade was 2.38 grams (g)/ton for the company's domestic mines in 2018. SDG has advanced technology in exploration and production, including drilling of deep underground mines, to maintain relatively efficient productivity and...

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