Goldman Sachs released a research report saying that Zijin Mining (02899) is one of the few mining companies that can benefit from increased production and rising commodity prices. In the face of rising copper prices, the bank expects Zijin's recurring net profit to increase from 22.4 billion yuan in 2023 to 41.4 billion yuan in 2026, with a compound annual growth rate of 23%. The bank maintains a “buy” rating for Zijin H shares (“convinced to buy” list) with a target price of HK$21.5, which it considers its current valuation to be attractive. The bank believes that continued execution of new project expansion and rising copper prices will be a catalyst.
Zijin's management indicated that the company's cost reduction measures have achieved positive results. It is estimated that in 2024, the total unit production cost for copper concentrate will be RMB 18,500 per ton, and the unit production cost for copper minerals will be RMB 22,400 per ton, with annual reductions of 7% and 4%, respectively. The unit production cost of Zijin Copper Concentrate fell 8.8% in the first half of this year on a semi-annual basis, mainly due to overseas projects. Cost reduction has been achieved through a number of measures, including renegotiation of the purchase prices of commodities such as diesel and explosives used in mining; second, adjusting the price of outsourced projects and reducing outsourced projects across the board; third, optimizing production processes; and fourth, reducing secondary mining blasting. However, Zijin believes that in the long run, as ore grade declines, unit production costs will gradually rise.
According to the report, the company recently raised 2.5 billion US dollars through the issuance of convertible bonds and the issuance of new H shares, mainly to replace high-interest US dollar debt. The company expects annual financial cost savings of up to 1 billion yuan, which will be reflected in the profit and loss statement starting in 2024. Dividend policy. Zijin has set a minimum dividend payout ratio of 30% and will balance capital expenses to increase dividend rates.
Goldman Sachs believes that Zijin, as one of the world's largest copper miners and gold producers, will produce 1.007 million tons of copper and 68 tons of gold in 2023. The company's mineral copper production is expected to increase from 1 million tons in 2023 to 1.1 million tons in 2024, and 1.2 million tons by 2025. The bank expects Zijin Mining's gold and copper production to reach 91 tons and 1.5 million tons respectively by 2026, ranking among the top five gold producers and the top three copper producers in the world.