Ping An Securities: Maintaining Zijin Mining's (601899.SH) “Recommended” Rating; Prices of leading mineral products have risen sharply

The Zhitong Finance App learned that Ping An Securities released a research report stating that it maintained the “recommended” rating of Zijin Mining (601899.SH) and raised the profit forecast. EPS for 2021-23 was 0.6/0.72/0.75 yuan (originally 0.49/0.62/0.64 yuan), and the current stock price corresponding PE is 19/16/15 times.

Matters: The company released its 2021 three-quarter report. During the period, it achieved revenue of 168.976 billion yuan, an increase of 29.55% over the previous year, and net profit attributable to the parent company of 11.302 billion yuan, an increase of 147.19% over the previous year.

Ping An Securities's main views are as follows:

Prices of leading minerals rose sharply, and profit increased 12% month-on-month in the third quarter: the main reason for the increase in the company's performance in the first three quarters was the increase in the price of leading minerals. The company's mineral production maintained good growth in the first three quarters. Among them, mineral copper production was 4081,000 tons, up 18% year on year; mineral gold production was 34.46 tons, up 17% year on year; and mineral zinc production was 285,400 tons, up 17% year on year.

In terms of gross margin of mineral products, mineral gold declined slightly in the first three quarters due to weakening gold prices in 2021. Prices of other mineral products were at historically high levels. The company's comprehensive gross margin of mineral products increased significantly, reaching 59.23%, an increase of 11.96 percentage points over the previous year.

Among them, the gross margin of the mineral copper increased 20.46 percentage points to 66.17% year on year; the gross margin of the mineral zinc increased by 23.95 percentage points to 47.97% year on year. On a quarterly basis, the company's profit level increased quarterly in 2021. In the third quarter, the company achieved net profit of 4.653 billion yuan, up 116% year on year and 12% month on month, respectively. This is a new high profit for the single quarter of 2021.

Key projects have been put into operation one after another, and the company's copper mineral can be expected to grow: in recent years, the company has stepped up its efforts to develop copper resources. Among them, the first phase of the Kamoa-Kakura copper mine project in the Democratic Republic of the Congo (DRC) was officially put into operation in May 2021. It is expected to produce 85,000 to 95,000 tons of mineral copper in 2021. The first phase two series project is expected to be put into operation in the second quarter of 2022; the Serbian Peji copper and gold mining belt project will be officially produced in October 2021 and is expected to produce 50,000 tons of mineral copper in 2021; the first phase of the Tibet Julong Copper project is expected to be put into operation by the end of 2021, producing 160,000 tons of mineral copper per year; Serbia's Zijin MS mining plant has completed construction and is expected to be put into operation in the first quarter of 2022, adding 22,000 tons of copper after production.

Proposed acquisition of Canada's New Lithium Company to enter the lithium resources industry: The company recently announced that it intends to acquire all of Canada's issued and circulating common shares in cash. New Lithium's core asset is the 100% owned 3Q lithium salt lake project in Argentina. The 3Q project has large lithium resources, high grade, low impurities, good development conditions, and great potential for expanding production. The estimated lithium resources are about 7.565 million tons of lithium carbonate equivalent. According to the pre-feasibility report, the 3Q project plans an annual production capacity of 20,000 tons of battery-grade lithium carbonate, and is expected to expand production to 40,000 to 60,000 tons of lithium carbonate.

Risk warning: 1) Risk of product price fluctuations. The company's main source of revenue and profit is metal products such as gold, copper, and zinc. If product prices fall, the company's production and operation will be under great pressure.

2) Exchange rate fluctuations and the risk of overseas operations. In the future, with the development of overseas projects such as the Democratic Republic of the Congo (DRC), the company's overseas revenue will increase significantly. Exchange rate fluctuations and changes in mining policy and unrest in countries where overseas mines are located will affect the development of the company's overseas mining business.

3) The risk that the new project falls short of expectations. Currently, the company's copper and gold mines have new projects under construction or planning. If the new project is put into operation and production progress falls short of expectations, the company risks that mineral production, sales and performance will fall short of expectations.

4) Safety and environmental risks. If a production safety accident occurs, the normal operation of the company will be affected to a certain extent. At the same time, if environmental standards are raised in the future, the company's environmental pressure and investment may also increase.