Shandong Gold Group Co. Ltd.

The stable outlook reflects our view that SDG will maintain its 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 (OCF). 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

...Shandong Gold Group Co. Ltd. (SDG) targets to be a top-five gold producer globally by 2025. The company plans to raise its annual mined gold output to 80 tons by 2025, from current 48 tons. We expect SDG to pursue this goal through continuous exploration on existing mines but more importantly, further acquisitions both domestically and overseas, focusing on producing assets. In our view, how SDG funds these acquisitions affects its credit profile. The recent acquisition involving equity funding demonstrated the company's intention to control its leverage and maintain its investment grade rating. We believe any equity financing through mixed ownership reform at the group level, which is part of SDG's strategic plan by 2025, should also help reduce the company's leverage as it pursues growth. Gold prices should lift SDG's performance over the next two years. We project the gross profit contribution from the gold mining business to increase to 73%-77% over the period, from 64% in 2019. We...

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