Zijin Mining Group Company Limited(601899) (601899)
Core view
The company is emerging as a world-class metal mining group. It has important mining investment projects in 12 overseas countries; There are 17 mines in China. In 2020, the company will produce 453000 tons of copper and 40.5 tons of gold, both ranking first in China. In the first three quarters of 2021, the operating revenue reached 168.98 billion yuan, a year-on-year increase of 29.6%; The net profit attributable to the parent company was 11.3 billion yuan, a year-on-year increase of 147.2%. The largest contribution to gross profit is the gold and copper business. In the first half of 2021, the gross profit of copper business accounted for 58.21% and that of gold business accounted for 23.32%.
Gold rose under inflation expectations, and the company’s performance is expected to improve again. At present, the United States and other developed countries have shown obvious inflation. In October 2021, the CPI of the United States reached a new high of 6.2%. Under inflationary pressure, real interest rates continued to hit new lows. According to the historical law, the gold price has a close negative correlation with the real interest rate, and the gold price is expected to rise further. Based on the gold price and production cost in the first three quarters of 2021, we estimate that for every 1% increase in gold price, the gold gross profit will increase by 2.03%. The company’s performance will grow rapidly driven by the gold price.
Under the recovery of demand, copper price is expected to be high, consolidating the company’s performance fundamentals. As of November 24, 2021, the settlement price of Comex copper futures was reported at US $4.46/lb, a year-on-year increase of 35.1% and a year-on-year increase of 25.4%. The price rise of copper is mainly driven by the demand side, including power grid and new energy vehicles. Among them, the monthly output of Shanxi Guoxin Energy Corporation Limited(600617) vehicles in 2021 increased by 127.9% – 237.7% year-on-year.
Holding scarce high-quality resources, the gold and copper business has been continuously consolidated. Through overseas investment, the company has arranged a number of copper and gold mines with high grade and high reserves all over the world. Kamoa kakula copper mine is the largest copper mine with the largest scale and value newly discovered in recent 20 years, and its output is expected to rank second in the world; Timok’s gold grade reaches 6.2 g / T, ranking among the first echelon of gold grade.
The layout of new energy will become a new growth point. The company acquired 3Q lithium salt lake. The salt lake is a high-quality salt lake in the “lithium triangle” of South America, with lithium carbonate reserves of 7.565 million tons. Driven by the strong demand for new energy, the lithium carbonate industry is highly prosperous and will become a new growth point of the company’s performance in the future.
Investment advice
Under the background of continuous prosperity of the industry, we expect the company’s performance to remain excellent in the next few years. It is expected that the net profit attributable to the parent company in 2021, 2022 and 2023 will be RMB 15.308/21.658/24.784 billion respectively, and the corresponding EPS will be RMB 0.60/0.85/0.97 respectively. Based on the closing price of RMB 10.25 on November 29, 2021, the corresponding PE is 17.06/12.05/10.53. Combined with the prosperity of the industry, we are optimistic about the development of the company. For the first time, give a “strongly recommended” rating.
Risk statement
International geopolitical changes, repeated covid-19 epidemic, decarbonization policy changes and exchange rate fluctuations.
