Since the beginning of this year, the gold price has risen well, and the copper price has performed more ideally, and the main mineral copper and gold resources and production capacity of the world's top ten large mining group Zijin Mining (02899. HK), in the first quarter of 2024, it recorded quarterly revenue of RMB74.777 billion (RMB, the same below), down 0.22% year-on-year, net profit attributable to the parent company after deducting non-recurring gains and losses increased by 15.92% year-on-year to RMB6.224 billion, quarterly gross profit margin increased by 1.08 percentage points year-on-year to 16.61%, and net profit margin after deduction of non-recurring profit increased by 1.16 percentage points year-on-year to 8.32%.
Zijin Mining (601899. SH) looks good in the first quarter of 2024, why did the share price fall after the results were announced? H shares are now down 3.91% at HK$16.20, A shares closed down 4.27% at 17.04 yuan, and its 20%-owned associate Zhaojin Mining (01818. HK) also fell 3.27% to HK$11.84.
Finet believes that the reasons include: 1) Zijin Mining's share price has far outperformed gold and copper prices this year, and investors may take the opportunity to take profits, 2) gold and copper prices have repeatedly trended and may fall from their highs, and 3) the sustainability of Zijin Mining's earnings growth may be uncertain.
Zijin Mining's operating performance
In the first quarter of 2024, Zijin Mining's gold ingot sales volume and unit price increased by 29.80% and 14.55% year-on-year, respectively, according to which the sales revenue of gold ingots in the first quarter may increase by 48.68% year-on-year, while the quarterly sales volume of gold concentrate decreased by 25.99% year-on-year, but the unit price increased by 19.13% year-on-year, according to which its sales revenue may decrease by 11.83% year-on-year. Nevertheless, Zijin Mining's revenue from mine gold sales in the first quarter may have increased by 17.31% year-on-year, thanks to the increase in revenue from gold ingots, and the gross profit margin of mine gold may increase by 2.95 percentage points year-on-year to 51.32%.
According to the operating data provided by Zijin Mining, the sales volume and unit price of copper concentrate, its main source of revenue, decreased by 7.81% and 0.89% year-on-year respectively in the first quarter, but the cost of sales improved, down 7.93% year-on-year, and as a result, the gross profit margin in the first quarter increased by 2.77 percentage points year-on-year to 63.77%.
According to the data provided by the company, Finet estimates that the sales revenue of copper produced in its mines may increase by 9.80% in the first quarter, and the gross profit will increase by 8.12%. At the same time, the sales revenue of mining silver may increase by 7.77% year-on-year, and the gross profit margin will increase by nearly 10 percentage points, or to a certain extent, it may buffer the negative impact of the decline in sales revenue and gross profit of zinc produced in mines and copper and zinc produced in smelting.
Zijin Mining stock price vs. gold price and copper price
Mine-produced gold and mine-produced copper are important sources of revenue for Zijin Mining, and the high prices of these two metals during the period were the main reasons for its strong growth.
During the period under review, the rise in gold prices was mainly driven by demand, and the sharp rise in demand may be related to geopolitical risks, hedging and speculative activities, which are already very fragile.
Copper prices have strengthened this year, mainly due to major copper producers in China, which has adjusted its production capacity this year due to concerns about oversupply, while upstream ore supplier Zambia has suspended production at key mines due to power constraints, and the closure of the Cobre copper project in Panama and below-guidance production from mines in South America have also reduced ore supply. However, China's economic performance this year exceeded expectations, according to the Bureau of Statistics, the manufacturing purchasing managers' index (PMI) in March was 50.8%, up 1.7 percentage points from the previous month, 50% higher than the critical point, reflecting the recovery of the manufacturing industry.
Copper prices may have been boosted by a decline in supply and a rise in demand, as shown in the chart below, which has continued to rise so far this year.
Zijin Mining's Q1 operating data also showed a decline in copper production, which may be related to the above-mentioned supply adjustments, in which case its revenue contribution may also decline if copper sales volume declines, despite higher copper prices. Zijin Mining said it plans to see year-on-year increases in copper and 8% year-on-year increases in copper and gold in 2024, but it will depend on how much sales growth will determine its revenue performance.
This means that the outlook for its performance growth in the coming quarter may remain uncertain.
However, according to Wind, the London gold spot price has risen 11.71% year-to-date, the London silver spot price has risen 12.90% year-to-date, and the LME (London Metal Exchange) copper price has risen 13.50% year-to-date. In comparison, at HK$16.20, Zijin Mining's H-shares have risen 27.36% year-to-date, and as of the close, its A-shares have risen 36.76% year-to-date, far outperforming gold and copper prices.
Given the company's acceptable performance in the first quarter of 2024, profit-taking may be the main reason for the stock price correction after Zijinkuang's results.
Author: Mao Ting