A news that "copper prices will rise by 75% in the next two years" has recently made Wanguo International Mining (03939), a little-known metal stock, shine.
From the perspective of the market, as of the close of trading on January 11, its share price continued to rise, closing up 3.09% at HK$5. In the long term, since January 8, its stock price has recorded an increase of more than 22% in four trading days, and its stock price has recorded an increase of more than 7% on January 10 and 9, which is undoubtedly a bright spot in the current sluggish market.
(行情来源:智通财经APP)
Although, for the current "copper prices in the next two years to rise 75%" the news has been put on the table, but the capital market pays attention to the essence through the phenomenon, so for the international mining industry, is this a false "wind"?
"Tight balance" turns into "shortage", and copper prices are expected to continue to rise
For this answer, we may find some "clues" from specific industry data.
In 2023, affected by multiple factors such as labor disputes, environmental protests and demand fluctuations, copper prices have experienced ups and downs - specifically, as of December 18, the main force of Shanghai copper has risen by 3.61% during the year, during which it hit a high of 71,500 yuan/ton in January, and the lowest in May fell to a low of 62,690 yuan/ton in the year; The main international copper force rose 3.14% to 61,070 yuan/ton during the year. The three-month LME copper contract rose 1.86% year-to-date to around $8,530/mt.
(Image source: Founder Mid-term Research Institute)
In short, after experiencing several major fluctuations such as "shock", "bottoming" and "rebound", until the end of the year, copper prices almost returned to the level at the beginning of the year.
However, since 2024, investors and the market seem to be more optimistic about copper's performance in the next two years, based on expectations of a variety of macro factors.
It is reported that copper is a key metal resource in the current energy transition. "Dr. Copper", commonly used in electrical equipment, industrial machinery, buildings and power lines, is often a bellwether for measuring economic development. Economic growth stimulates demand for copper, while gold prices rise when the economic outlook is bleak and investors look to hedge against inflation and other financial risks.
In December 2023, the US dollar is expected to move lower after the Fed made a clear interest rate cut at the FOMC meeting, so dollar-denominated copper will be more attractive to foreign buyers. As the Fed pivoted to cutting interest rates, the dollar weakened, which has undoubtedly become a major factor in the market's optimism about the future of copper prices.
In addition, at the recently concluded UN annual climate change conference, more than 60 countries expressed their support for plans to triple global renewable energy capacity by 2030. It is understood that base metals are the key to the energy transition, and in a broad sense, base metals include iron, copper, nickel, aluminum, etc., which are an indispensable part of the manufacture of electric vehicles, power grids and wind turbines.
In response to these positive factors, Citibank pointed out in a report released in December that higher renewable energy targets will increase copper demand by 4.2 million tonnes by 2030. Citi believes this could push copper prices to US$15,000 a tonne in 2025, well above the all-time peak of US$10,730 a tonne in March last year. This is a 75% jump from the current $8,500 or so.
In fact, not only Citi, Fitch, Goldman Sachs and other major banks have recently issued research reports optimistic about the rise of copper prices in the future.
Among them, BMI, a research arm of Fitch, said that the demand growth driven by the green energy transition and the depreciation of the US dollar in the second half of 2024 are expected to push copper prices higher. Goldman Sachs noted that copper supply is now expected to increase by 3% year-on-year in 2024, compared with a previous forecast of 5%. And due to mining disruptions, there will be a bull market in copper prices. In addition, Goldman Sachs also said that it predicts a gap of 534,000 tonnes in the refined copper market in 2024 (the previous forecast was 155,000 tonnes), which means that the market will tighten sharply from a state of "near equilibrium" to a "clear gap".
Of course, if you want to further explore the trend of copper prices in the next year or two, I am afraid that we need to combine the supply and demand ends.
On the demand side, while factors such as geopolitical conflicts, a global economic slowdown, a high interest rate environment, and a weak post-pandemic recovery may dampen traditional demand for copper, especially the significant impact of the downturn in China's construction industry on global copper consumption. However, the rapid development of the new energy sector, including increased demand for copper in electric vehicles, renewable energy, power transmission and distribution networks, etc., bodes well for the potential growth of the copper market in the future, and forms a gap that will be difficult to fill in a few years. This also means that despite the near-term challenges, demand growth in emerging sectors is expected to provide strong support to the copper market. Global refined copper consumption is expected to increase by 2.7% to 27.066 million tonnes in 2024.
On the supply side, in November 2023, due to environmental factors, Cobre Panamá, one of the world's leading copper mines, stopped production. British mining group Anglo American also said that in order to reduce costs, the group will cut copper production in 2024 and 2025, including lowering its 2024 copper production target from 1 million tons to 730,000 tons to 790,000 tons. The closure of a giant copper mine in Panama comes after the closure of a giant copper mine in Panama will reduce global copper supply by 750,000 tonnes next year, or 3%, from previous estimates. In this regard, market participants generally expect that about 400,000 tons of copper production will be affected in 2024.
It can be seen that with the gradual normalization of multiple disturbance factors, the increase in global copper supply is expected to continue to converge, and at the same time, due to the rapid development of the new energy field, the global copper demand is expected to show a growth trend in the future. However, it should be noted that in the short term, in 2024, which is full of risks and challenges, especially in the first half of the year, copper prices may still face some correction pressure. However, as the global supply of refined copper is expected to turn from "tight balance" to "shortage", the pivot of copper prices in the medium and long term is expected to move upward.
The fundamentals are insufficient, and the iron needs to be hard
From a medium- to long-term perspective, as the global supply of refined copper shifts from "tight balance" to "shortage", it is clear that the future rise in copper prices is not a false "wind".
But the question is, can IWC Mining seize this opportunity? I am afraid that it needs to be combined with its fundamentals.
Among the metal concept stocks in the Hong Kong stock market, Wanguo International Mining is not "eye-catching". The company landed on the Hong Kong stock market in 2012, and its share price has been hovering at the HK$5 level since its listing, with the lowest share price being less than HK$1.2. Recently, due to the good news of rising copper prices, its share price has finally broken through the "threshold" of 5 Hong Kong dollars.
The Company is principally engaged in mining, ore beneficiation and the sale of concentrate products in China and the Solomon Islands. Among them, concentrate products include copper concentrate, iron ore concentrate, zinc concentrate, sulfur concentrate, gold in copper concentrate, copper and silver in zinc concentrate and indium in zinc concentrate. The Company, through its subsidiaries, is also engaged in the exploration of mineral resources.
Further, IWC, through its wholly-owned subsidiary, owns the entire equity interest in Yifeng Wanguo, which in turn owns a large number of non-ferrous polymetallic mineral resources at the Xinzhuang copper-lead-zinc mine (the production mine "Xinzhuang Mine" in Jiangxi Province, China), including copper concentrate, iron ore concentrate, zinc concentrate, sulphur concentrate, lead concentrate and gold and silver by-products. In 2017, the Company also completed the acquisition of a 51% attributable interest in Tibet Qamdo County Zhengdi Mining Co., Ltd. ("Tibet Qamdo"), which is known to have a large amount of lead and silver mineral resources at the Wakalige Lead and Silver Mine in Qamdo County, China. In addition, in 2020, the company acquired a 77.78% interest in Xiangfu Jinling Limited, which owns a 90% interest in a Jinling mine located in the Solomon Islands, which has a large number of gold mineral resources.
In the first half of 2023, affected by the rising gold price, IWC's revenue and profit both showed double-digit growth.
According to the financial report data, in the first half of 2023, the company achieved revenue of 581 million yuan, a year-on-year increase of 75.9%, mainly due to the increase in sales of Jinling Mine; gross profit was RMB279 million, a year-on-year increase of 74.7%; The profit for the period was 179 million yuan, a year-on-year increase of 105.75%.
In addition to the double-high growth trend of core financial indicators such as revenue and profit, the company's profitability also maintained a high level: during the period, the company's gross profit margin was about 47.9%, and the net profit margin was about 30.9%.
However, it should be noted that in the long term, the fundamentals of IWC Mining do not always seem to show a trend of high growth.
In terms of growth capacity, the overall performance has been relatively volatile in recent years. From 2019 to 2022, the company's year-on-year revenue growth rates were -2.97%, 348.05%, 44.49%, and -66.17%, respectively. The revenue growth rate was not stable, and the year-on-year growth rate of its net profit attributable to the parent company was also relatively fluctuating, with growth rates of -23.02%, 56.13%, 123.08% and -6.66% respectively in the same period.
(Source: choice)
In addition, from the perspective of cash flow performance, due to the company's high current liabilities, there is no shortage of liquidity pressure in the short term. According to choice data, from 2019 to 2022, the company's current liabilities continued to rise, respectively 289 million yuan, 310 million yuan, 331.1 million yuan, and 487 million yuan, while the company's current assets were 50 million yuan, 104 million yuan, 295 million yuan, and 422 million yuan in the same period. Current liabilities almost completely cover current assets, and the company's short-term financial pressure should not be underestimated.
As of the first half of 2023, the company has current assets of $574 million, current liabilities of $528 million, and cash and cash equivalents of only $176 million. It can be seen from this that although IWC Mining owns a "gold mine", it does not mean that the company does not have a certain amount of financial pressure.
To sum up, combined with the financial data of previous years, the fundamentals of IWC Mining are not "able to play". The high performance in the first half of 2023 is obviously due to the growth trend of the industry, and it is still unknown whether it can continue to maintain a high growth trend in the future. This also means that if you want to seize this formation, the company also needs to continue to improve the "endogenous extension" ability, and further thicken the company's "muscles" through technological transformation and upgrading.