"Zijin Mining" Doubles Market Capitalization, Risk or Opportunity?

The last time I was going to talk about Zijin Mining, I accidentally talked too much about the logic of gold, so I just talked about gold.

Zijin Mining has been in full swing during this period, and its market value has hit a record high.

The last time Zijin Mining was analyzed was in December last year, and before January this year, it was still around 11 yuan, and in just 3 months, it has now doubled, which is almost three times compared with the low level in 2022.

The reason is also very simple, Zijin Mining's main source of performance is gold and copper, these two brothers cooperate really well, many times when the price of gold is bad, the price of copper is good, and in turn, when the price of copper is not good, the price of gold is not bad.

There are also times when both brothers perform very well at the same time, and the company's performance will of course be very good.

Therefore, with the double blessing of good performance expectations and market speculation, there is a Davis double-click, and the market value has risen gradually.

If you want to understand Zijin Mining, you must understand the logic of gold and copper, and it stands to reason that you should talk about copper in detail today, but copper is far more complex than gold.

Gold is mainly a financial attribute, and it is rarely used in industry, so it will not have a practical impact on the economy, and it can be regarded as the boss behind the currency, so it is relatively simple.

Copper is different, thousands of years ago, copper wore many hats, not only as a currency, but also as an industrial material, so the scale is much more complex, and it is a long text of 10,000 words to explain clearly.

So today I won't talk about copper alone, but probably the logic of Zijin Mining.

1. Company

The fundamentals of the company have been talked about several times before, and this article updates the latest data.

Zijin Mining has grown from a small county-level mining company to a giant with a market value of nearly 500 billion yuan, and it has taken more than 20 years to go from a low-grade Zijin Mountain mine to now have 15 major gold mines, 11 major copper mines, 9 major silver mines, two major iron mines, three major lithium mines, and six major zinc (lead) mines (including the company).

I have to admire the strong ability of the chairman "Chen Jinghe", and I also have to admire the accuracy of the vision of the investor "Chen Fashu".

So many mines are mainly obtained through resource mergers and acquisitions, and this model will continue in the future, and the company's resources will be more and more.

For example, at the beginning of 2023, the delivery of the Rosbel gold mine in Suriname and the Hamagothai copper-gold mine in Mongolia was completed.

At the beginning of this year, he bought a 15% stake in Solaris, Canada, which holds the world-class Vallincha porphyry copper mine in Ecuador, with 6.18 million tons of copper, 280,000 tons of molybdenum and 63 tons of gold, but the deal has not yet been approved, and it is the second largest shareholder after approval.

In recent years, all our mining companies have bought mines all over the world, and the national fortune is booming, and the resource reserves of various enterprises are also rising.

This is the resource volume announced in Zijin Mining's 2023 annual report, detailing the reserves of each index and the resources of each index.

The copper ore reserves are 33.4 million tons, the resources are 74.56 million tons, the gold ore reserves are 1,149 tons, the resources are 2,998 tons, the lithium ore reserves are 4.43 million tons, the resources are 13.47 million tons, the silver ore reserves are 1,864 tons, and the resources are 14,739 tons.

At this scale, it is already the fastest growing mining company in the world.

This growth rate mainly comes from the mergers and acquisitions and independent exploration just mentioned.

After the share reform in 2000, Purple Mountain re-explored and discovered gold reserves of up to 138 tons, much higher than the tens of thousands of tons previously explored.

Since then, the company has started a crazy merger and acquisition mode, because there is a mine at home and you can raise money.

In the first round of purchases, he bought himself into the top five gold mining enterprises in the country.

After being listed in Hong Kong in 2003, it raised another 1.1 billion Hong Kong dollars and continued to buy, such as Canada's "Summit Mining", the UK's "Monterric", and South Africa's "Ridge Mining" and so on.

After this round of buying, the gold mine was bought into the top 10 in the world, and it also expanded to copper, silver, iron and zinc and other metals.

In a blink of an eye, there was no money, so it continued to be listed, and in 2008, it was listed on the A-share market, raising as much as 10 billion.

This is a very good time, the financial crisis has caused many enterprises around the world to operate in difficulty, Zijin Mining has a huge amount of money, and it is even more crazy to buy.

With the exception of copper ore, most of the company's resources were bought back during that time.

For example, the copper and gold mines in Australia, the third largest gold mine in Kyrgyzstan, the Norton gold fields, the Musanoi mining in the Congo and so on.

Especially in 2015, there were many acquisitions, such as Phoenix Gold in Australia, Kamoa Kakula Copper Mine in Congo, Barrick in New Guinea, etc.

Anyway, it's just buying, buying, buying, still buying, and will continue to buy in the future, because Chen Jinghe personally said in 2022: "By 2028, another Zijin Mining will be built!"

In terms of assets, Zijin Mining's fixed assets plus long-term equity investment in 2022 will be 97.8 billion, doubling to 195.6 billion, and now it is 113.1 billion, that is, it will increase by 82.5 billion in the next five years, with an average annual growth of 16.5 billion.

In terms of production capacity, the copper output in 2023 will be 1.007 million tons, a year-on-year increase of 11.13%, and 62% of China's copper is produced by his family, ranking among the top five in the world.

Gold production was 67.7 tons, a year-on-year increase of 20.17%, and 23% of China's gold was produced by his family, ranking among the top 10 in the world.

Zijin Mining's performance is main

This, this, this...... This is crazy, if this is the case, the world's largest gold and copper mines will be bought by him.

I think it's very difficult, but of course you still have to have a dream, in case it comes true!

Of course, in addition to mergers and acquisitions, Zijin Mining's own exploration is also improving.

As shown in the chart above, half of the gold and copper resources are self-explored.

This is also normal, after buying a mine, while mining and continuing to explore, the amount of resources will naturally increase.

2. Gold and copper

As mentioned at the beginning of the article, gold and copper work really well together, and it is rare that when two prices are not good at the same time, if one price falls, the other will either maintain or rise.

For example, in 2022, LME copper fell from US$9,768/mt to US$8,385/mt, but the price of gold almost unchanged.

For example, in 2021, the gold price fell from US$1,904/oz to US$1,829/oz, but LMF copper rose from US$7,758/t to US$9,768/ton.

Of course, there are times when one does not rise, the other rises, or simply the two of them rise together.

I took screenshots of two charts of gold and copper prices in the past ten years, and you can compare them to know.

The chart above shows the price action of gold over the past decade.

The above chart is the price trend of LME copper in the past ten years, it doesn't matter if you are too lazy to look at it, I have carefully checked it.

The price of copper and gold is good, coupled with the continuous increase in production in recent years, so these two brothers are the main force of Zijin Mining's performance, which is obviously the reason why the company's performance has been growing over the years.

In 2023, copper production was 1.01 million tonnes, up 11% year-on-year, and gold production was 68 tonnes, up 20% year-on-year.

And this year, copper production is expected to be 1.11 million tons, a year-on-year increase of 9.9%, and gold output is 74 tons, a year-on-year increase of 8.8%.

Since 2020, the average annual compound growth rate of mineral products is about 30% for copper and more than 15% for gold, and the new copper production capacity of existing projects is expected to exceed 500,000 tons in the next 3~5 years.

Under normal circumstances, production is no problem, of course, many of Zijin Mining's mines are abroad, whether there is a risk of local instability, I can't judge, before the accident, I can only default to normal.

Then there is another price factor, about the price of gold I have talked about in detail in the previous article, copper is far more complex than gold, because after all, gold is mainly a financial attribute, but copper has financial and industrial dual attributes, so there are many factors that affect the price of copper.

This article will not comprehensively talk about the logic of copper prices, but will first talk about the key points.

Last year's copper price did not fluctuate compared with the beginning of the year and the end of the year, and LME copper opened from $8,423.5/ton on January 2, 2023 to $8,562/ton on December 29, 2023, with a difference of only $138.3.

However, in half a month at the beginning of the year, the copper price reached a peak of 9550.5 US dollars / ton, and then fell and then remained stable in a shocking manner.

In fact, if we look at the conventional supply and demand relationship, copper prices should keep rising, because copper has been in short supply in recent years, and the gap between supply and demand in the past two years is still expanding, and this gap may even expand to 2 million tons after 2025.

Of course, the variables in this are relatively large, because the main copper-producing countries are not so stable.

At present, the five major copper producing countries in the world are Chile (27.8%), Peru (10.9%), China (8.9%), Congo (8.9%) and the United States (5.9%).

The instability includes natural and man-made disasters, such as the severe drought in Chile and the large amount of water required to mine copper, so last year's production was much lower.

and Peru, where copper mines have been shut down due to strikes.

Needless to say, Congo is chaotic, there is a risk of production shutdown at any time, and there are other events that are described with sensitive words.

Of course, even without these external instability, the copper industry itself will fluctuate.

For example, in the first quarter of this year, the domestic refined copper output was 2.92 million tons, a year-on-year increase of 7.64%, but from the second quarter onwards, it will enter a large-scale maintenance period, and the output will definitely be greatly affected.

April should not make much difference, as there is also a "scrap copper" in the copper industry that can act as a countervailing effect in the short term.

Generally, when the price of copper is high, the supply of scrap copper will increase, because it is cheap, so there is a thing in the industry called "fine scrap price difference".

This price spread is also very volatile, mainly caused by demand, when there is a sudden problem with the supply or price of refined copper, copper scrap will be replenished immediately, which will soon pull up the price of copper scrap, because the inventory of copper scrap is relatively small.

However, if the scrap copper inventory is exhausted after a period of time, and the supply of refined copper does not keep up, the price will get out of control.

Those who do not study macroeconomics may not know that the price of copper is actually very important, because copper prices are the "barometer" of macroeconomics, so they are also nicknamed "Dr. Copper".

This year's copper price performance is very good, which is affected by this factor.

As shown in the chart above, LME copper has risen from a low of $8,127/ton in February to a high of $9,913/ton now, rising for more than two months.

Because China and the United States, as the top two in the global economy, have performed well this year, and the manufacturing index has been expanding last month, which is why employment in the United States is so good.

Needless to say, China's economy grew by 5.2% in the first quarter.

Economic growth means production growth, and production growth means raw material consumption growth.

However, the demand for copper has increased, but there is a problem with supply, so naturally many people are optimistic about copper.

So I just took a look at the net long position in LME copper, and it was a buzz, and the market sentiment was very good, and both individuals and institutions were going long.

I remember that Goldman Sachs sent a research report not long ago, which was automatically pushed to me by the system, and I probably doubled it, and they predicted that by the end of 2024, the copper price would rise to $10,000/ton, and in the first quarter of 2025, it would rise to $12,000/ton.

At the current rate, there is no need to wait for the end of the year......

In fact, I think this rate of rise is a bit excessive, the current small and medium-sized copper smelters, already in a state of loss, if according to my estimates, they may now lose more than 1,000 yuan/ton.

If it continues, the pointing effect of this barometer will be useless.

Because this has seriously affected the operating rate of downstream enterprises, copper is mainly used in cables, automobiles and home appliances and other fields, especially cables, which are not highly profitable, and production will be reduced if the cost is too high.

I just looked at the domestic cable operating rate in March, which was less than 72%, down 10 percentage points from the same period last year.

So there is a very strange phenomenon, on the one hand, there is a gap in the supply side, and on the other hand, the demand is not very good, so where does the copper produced go?

That's right, it entered the inventory, and the domestic copper spot inventory at the beginning of this month was as high as 400,000 tons, the second highest in the past decade.

This has happened many times in history, and these stocks are usually released only after copper prices have stabilized, and then copper scrap stocks begin to replenish and finally offset the normal shortfall on the supply side.

If this is the case, there is a lot of pressure on copper prices to continue to rise sharply, and with the intervention of Mr. Market, it will theoretically return to stability.

Then, according to the gold logic mentioned in the previous article, plus the basic logic of copper, we can roughly estimate the performance of Zijin Mining in 2024, which is calculated in the table of "A-share core asset research summary" at the end of the article.

Of course, I didn't take into account the unreasonable price rise under the market speculation, so I would be a bit conservative.

3. Performance

After understanding the logic of the metal industry, it is very simple to look at the performance of Zijin Mining.

In 2023, Zijin Mining's revenue will be 293.4 billion yuan, a year-on-year increase of 8.54%, its net profit will be 26.5 billion yuan, a year-on-year increase of 7.16%, and its net operating cash flow will be 36.86 billion yuan, a year-on-year increase of 28.53%.

The increase in performance is mainly due to the following chart.

As shown in the chart above, in 2023, the sales volume of gold ingots will be 33.67 tons, with a sales value of 14.58 billion, a year-on-year increase of 12.28%, and the sales volume of gold concentrate will be 33 tons, with a sales amount of 12.51 billion, a year-on-year increase of 6.76%.

The sales volume of copper concentrate was 641,000 tons, with a sales amount of 31.66 billion, a year-on-year increase of 3.95%.

Sales of gold did not increase less, with ingots up 6.34t and gold concentrate not up, although copper concentrate only increased by 23,000t.

As for the price, it goes without saying that gold has risen twice at the beginning and end of 2023, and copper prices are much more volatile.

The price has been very high in the first half of 2022, and it fell greatly in the second half of the year, from a high of $10,845/ton to a position of $6,955/ton, with a maximum decline of nearly 36%, and although it rose at the end of the year, it also closed at $8,385/ton.

The price of LME copper in 2023 was relatively stable, rising to a high of US$9,550/mt at the beginning of the year, and then falling back quickly, fluctuating around US$8,400/mt most of the time.

This is also the reason why Zijin Mining's performance growth in copper last year was less.

Don't say it, the trend of LME copper this year is really similar to the first half of 2023.

Looking at the price trend in the chart above, I marked it with two red arrows, the left is the trend at the beginning of 2023 and the right is the trend in recent months.

Of course, this year's rise has been longer, after all, it's already April.

So I think the price pressure will get bigger and bigger, and it can't keep going up, the historical high is $10,845/ton in 2022, and the price on April 22 today has reached $9,869/ton, with a gap of less than 10%.

If the influence of the dollar is put aside, it is impossible to rise so exaggerated purely from the perspective of industrial attributes.

However, for Zijin Mining, even if the price of copper does not rise, it is still very good, and the current price is really not cheap.

Moreover, the company has fully enjoyed the dividends of rising gold and copper prices in recent years, and the debt ratio has been maintained with such a large annual capital expenditure.

Looking at the capital expenditure in the past five years, it will have exceeded the high level of 30 billion in 2023, and the expenditure is very large.

The reason mentioned earlier, I am still buying mines every year, and I am really rushing to the goal of building another Zijin Mining.

The rise in production and prices has also made the company's operating cash flow grow rapidly, and it will also exceed 30 billion in 2023, reaching a high of 36.86 billion.

As a result, the debt ratio has been below 60% for seven consecutive years.

However, the asset-liability ratio in 2023 has reached 59.66%, which is only one step away from breaking through 60%.

The growth rate of fixed assets and construction in progress is indeed too fast, and these two items have increased by 22.8 billion compared with 2022.

Therefore, although the company's hematopoietic capacity is very strong, the funds are still not abundant, resulting in long-term borrowings continue to hit new highs.

The long-term borrowings in 2023 have reached 77.53 billion, resulting in financial expenses of up to 3.3 billion.

However, for the situation that the supply of such products exceeds demand, there will be no problem with cash flow, and Zijin Mining's annual cash income is higher than its operating income.

Therefore, although the monetary funds on the account are not enough to repay short-term loans, they can also be transferred.

The performance of gold and copper prices this year is so good, and the performance and cash flow in the first half of the year must be fine, which is also the confidence of the company's two dividends last year.

Last year, there was already a semi-annual dividend, with a cash dividend of 0.5 yuan for every 10 shares, and the total amount of dividends exceeded 1.3 billion.

Then now it will be divided again, with a cash dividend of 2 yuan for every 10 shares, and the total amount of dividends will exceed 5.7 billion.

That is, the total amount of cash dividends in 2023 will exceed 7 billion, accounting for 33.35% of the net profit attributable to the parent company.

If you have a mine at home, you will be domineering, and you will have to share the money with shareholders to resist the pressure of debt.

Since its listing, Zijin Mining has accumulated cash dividends of more than 45 billion yuan, with a dividend rate of more than 40%, which is worthy of praise.

Fourth, summary

Now gold and copper are resonating in price, but don't expect that to last.

Of course, in such a turbulent international environment, the price of core resources is relatively supportive.

However, I think it is still necessary to consider the price issue from the industrial demand side and return to the value of the resource itself.

The advantage of this is that there will be a higher margin of safety, after all, this market value is not cheap, and the disadvantage is of course the loss of the ultra-high returns brought by the hype.

Other views on Zijin Mining are placed below this column.