Regional Industry Focus Copper
Refer to important disclosures at the end of this report
DBS Group Research . Equity 8 Jan 2020
Better 2020 ahead HSI : 28,322.06
• Demand to recover in 2020 after declining in 2019 Analyst LEE Eun Young +65 6682 3708 • Higher supply growth ahead but growth to be [email protected] constrained by mine output • Copper market to remain in deficit with growing optimism for prices
• Top picks: Zijin Mining > Jiangxi Copper STOCKS Copper demand to grow 2% in 2020. Global refined copper 12-mth Price Mkt Cap Target Price Performance (%) demand is expected to decline 1.4% y-o-y in 2019. The lower LCY US$m LCY 3 mth 12 mth Rating demand in 2019 attributes to negative growth in automobile sector and weak grid investment, especially in China. However, Jiangxi Copper 10.88 4,251 11.80 23.5 21.2 BUY copper demand is expected to pick up slowly from 4Q19, Jiangxi Copper (A) 17.10 8,524 16.40 19.1 29.7 HOLD supported by the recovery in China’s manufacturing and auto Zijin Mining 4.02 7,556 4.80 50.6 43.1 BUY sectors. Global demand in 2020 is forecast to increase 2% as stimulus fiscal policies in major countries such as China, Zijin Mining (A) 4.67 17,060 5.40 43.3 51.6 BUY Germany and US should support copper demand growth. MMG Ltd 2.15 2,229 1.90 23.6 (32.0) HOLD
Despite ample mine and smelting capacity ramp-up, mined Source: DBS Bank, Bloomberg Finance L.P. output continues to face risks. There are ample projects in the Closing price as of 7 Jan 2020 pipeline which would increase concentrates production by 3- 5%
in the next three years. Also, global smelting and refinery Jiangxi Copper : Jiangxi Copper is the largest integrated copper capacity is projected to grow by 4.3% in 2019, mainly led by producer and a state-owned entity in China. It is engaged in growth in China (e.g. 400k tons capacity from Chalco), which exploration, mining, ore dressing, smelting and processing of copper will drive 3% production growth in 2020. However, there will as well as other non-ferrous metals. still be risks on the supply side due to environmental-protection Zijin Mining : Zijin Mining Group Co Ltd. operates metal mineral efforts by the government and local community, and declining resources exploration and mining businesses. It produces gold, copper, copper grades. zinc, iron, and other base metals. The Group also conducts metal trade and investment businesses. Supply shortage lends a hand to price rebound. The copper market will remain in deficit in 2020, albeit this is MMG Ltd : MMG Limited is a mid-tier global resources company which explores, develops and mines base metal projects around the estimated to narrow to 169k tons from 398k tons in 2019. world. The Company currently owns and operates four mines, in Copper prices have started to rebound since Dec 2019, fuelled Australia, Democratic Republic of Congo (DRC) and Peru. by positive signals of a recovery in the global economy and
improving market sentiment. We forecast LME copper price to average US$6,060/ton in 2020 (+1% y-o-y). Based on LME copper price vs warehouse stock emerging new demand from EV and higher exploration and production cost, copper price is forecast to average higher by heading towards the US$7,000/ton level over the long term. Top picks: Zijin Mining > Jiangxi Copper. Both companies are increasing their copper and other mineral resources by M&As that brightened their earnings outlook. Recently, Zijin Mining has acquired Continental Gold at US$1bn, aided by its successful capital raising of RMB8bn. This will contribute to the diversification of its sales portfolio as well as earnings growth. Meanwhile Jiangxi Copper has acquired 18% of First Quantum Mineral, the 8th largest copper mine in the world, and Humon Smelting, a gold mine and smelting company in China. It is also trading at undemanding valuations. Source: DBS Bank
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Overall outlook: demand recovery in 2020 and market growth in China (e.g. 400k capacity by Chalco), which to remain in deficit will lead 3% production growth in 2020 backed by increased supply of mined copper. Sluggish demand in 2019 but expected to recover in 2020. Global refined copper demand to decline 1.4% y-o-y in Copper market remains in deficit and copper prices to 2019 due to demand slump in all regions. rebound. Lower demand in 2019 is largely due to the negative Copper market would remain in deficit of c. 400k tons growth in automobile sector as auto sales in major markets in 2019 mainly due to supply restriction, however, its declined by 5.6% y-o-y in 1H19 while China’s car sales deficit to narrow in 2020 with supply growth plunged by 11%. accelerating. Nonetheless, copper demand is expected to pick up slowly In 2019, copper price declined to US$6,000/ton or 8% from 4Q19 onwards, supported by recovery in China’s y-o-y as economic uncertainties and demand concerns manufacturing and auto sector. Global demand in 2020 is weighed on copper prices despite the persistence of a forecast to increase 2% as stimulus fiscal policies in major supply deficit, as copper is a highly cyclical metal. countries such as China, Germany and US should support We forecast LME copper price to average US$6,060/ton copper demand growth. in 2020 (up by 1% y-o-y) which bodes well for a recovering global economy, backed by a market deficit Supply: Ample mine projects planned but mined output and low inventory levels. continues to face risks. Based on our emerging new demand from EV and Copper mine production is forecast to grow marginally by higher exploration and production cost, copper price is 0.5% y-o-y in 2019 as local community protests in Peru forecast to average higher, head towards US$7,000/ton and anti-government protests in Chile have dampened levels over the long term. The key risks on the prices are mined copper supply. the stronger expansion of mine capacity and There will still be risks on the supply side due to unprecedented global economic slowdown. environmental protection by the government and local community and lowering grades. Our top picks: Zijin Mining, followed by Jiangxi copper. Both However, there are ample projects in the pipeline which companies are increasing their copper and other mineral would increase concentrates production by 3- 5% for the resources by M&As that brightened their earnings outlook. next three years. Recently, Zijin Mining has acquired Continental Gold at US1bn, aided by its successful capital raising of RMB8bn.This Refined copper production to decline in 2019 but to recover will contribute to the diversification of its sales portfolio as from 2020 onwards. well as earnings growth. Meanwhile, Jiangxi Copper has The growth of refined copper production is forecast at - acquired 18% of First Quantum Mineral, the 8th largest 1.4% in 2019, limited by the availability of concentrates copper mine in the world, and Humon Smelting, a gold mine and smelter shutdowns around the world. and smelting company in China. It is also trading at The significant decline in spot T/C (7-year low point of undemanding valuations. Note that we have upgraded our US$55.5/ton in Aug and c. US$58/ton as of Dec) calls for both of companies to BUY and raised their TPs in Dec negatively affects smelters’ profitability. 2019. However, global smelting and refinery capacity is projected to grow by 4.3% in 2019, mainly led by
Copper demand and supply
(k tons) 2015 2016 2017 2018 2019F 2020F 2021F 2022F Copper mine production 19,149 20,402 20,082 20,575 20,678 21,506 22,258 23,371 y-o-y % 6.5% -1.6% 2.5% 0.5% 4.0% 3.5% 5.0% Refined copper production 22,843 23,357 23,538 24,098 23,761 24,473 25,281 26,166 y-o-y % 2.3% 0.8% 2.4% -1.4% 3.0% 3.3% 3.5% Copper consumption 23,081 23,505 23,723 24,502 24,159 24,642 25,455 26,346 y-o-y % 1.8% 0.9% 3.3% -1.4% 2.0% 3.3% 3.5% Market balance -238 -148 -185 -404 -398 -169 -174 -180 LME Copper Price (US$/ton) 5,495 4,863 6,166 6,523 6,000 6,060 6,242 6,460 y-o-y % -11.5% 26.8% 5.8% -8.0% 1.0% 3.0% 8.0% Source: ICSG, DBS Bank
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9M19 copper market at a glance: Sluggish saw growth but Africa (- 9%), the Americas (-10.5%) demand/supply/prices and Europe (-2.5%) all witnessed declines. Apparent refined usage grew modestly by 0.3% y-o-y According to ICSG (International copper study group), in 9M19 as China’s 2.8% growth was offset by 2% Copper mine output declined 0.3% y-o-y in 9M19: decline in world ex-China. Concentrate production (0%), solvent extraction- World refined copper balance in the same period electrowinning (SX-EW) (-1%). indicated a deficit of about 390k tons in 9M19, Production in Chile (biggest copper mine producer) widening from a 330k-ton deficit in 9M18. and Indonesia declined by 0.3% and 50% respectively Despite the wider market deficit, copper price has due to lower copper grades, and transition of two declined since Apr due to weak sentiments arising major mines to different ore zones. from US-China trade tensions and rising concerns over Copper refined production remained essentially the global economic slowdown. Average LME copper unchanged in 9M19: Primary production (electrolytic prices in 9M19 declined by 9% y-o-y. and electrowinning) (-0.4%), secondary production (+1.6%). By region – Asia (3.5%) and Oceania (11%)
Copper demand and supply (k tons) 2016 2017 2018 9M18 9M19 Copper mine production 20,402 20,082 20,575 15,198 15,150 y-o-y % 6.5% -1.6% 2.5% 3.3% -0.3% Refined copper production 23,357 23,538 24,098 17,913 17,907 y-o-y % 2.3% 0.8% 2.4% 2.9% 0.0% Copper consumption 23,492 23,710 24,489 18,243 18,301 y-o-y % 1.8% 0.9% 3.3% 3.9% 0.3% Market balance -135 -172 -391 -330 -394 LME Copper Price (US$/ton) 4,863 6,166 6,523 6,641 6,043
Source: ICSG, DBS Bank
Weak demand has led to price declines in 2019 despite Slowed growth from automobile sector. Negative growth in supply disruption automobile sector took a toll on copper demand growth as well. Auto sales in major markets declined by 5.6% y-o-y in 1H19 to Lower copper prices due to negative growth in demand. Copper c. 31.2m units. Except for Brazil, which is experiencing recovery prices have declined 11.3% to US$5,828/ton on 19 Nov since of business cycle and enhanced consumer purchasing power, all the peak of US$6,572/ton on 1 Mar. The main driver of this fall major markets posted y-o-y decreases in 1H19 for their was weak demand. According to WBMS (World Bureau of Metal automobile sales. China’s car sales plummeted by 11%, Statistics), global copper demand declined by 1% y-o-y in Jan- dampened by weak consumer sentiment from trade war while Oct 2019. Although demand in America increased by 3.2% y-o- US market’s automobile sales decline was caused by low y over the same period, it was weighed down by declines demand due to rising selling prices of automobiles and observed in Asia (-0.4%) and Europe (-7.0%). The decline in prolonged booming of the industry for the last 10 years. The demand is in line with a slowing global economy given copper’s negative growth in sales is likely to recover to a positive figure in cyclical nature given its diversified usage across various sectors 2020, supported by higher GDP growth and launch of new and strong correlation with GDP growth. Copper prices have models. Over 2018-2024F, a CAGR of 2.1% is expected, weakened in tandem with the downward trend of OECD indicating a deceleration of long-term demand growth due to leading indicators and China’s PMI index. mobility dynamics.
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Refined copper consumption by region (k tons) 2016 2017 2018 10M18 10M19 y o y % Asia 16,383 16,694 17,148 14,097 14,039 -0.4% China 11,642 11,790 12,482 10,219 10,264 0.4% Japan 973 998 1,039 843 834 -1.1% South Korea 759 767 717 599 550 -8.1% Europe 3,781 3,764 3,758 3,179 2,956 -7.0% Germany 1,243 1,180 1,200 1,014 813 -19.8% Italy 596 635 552 469 456 -2.9% Africa 138 119 136 116 116 0.0% America 2,858 2,726 2,832 2,379 2,457 3.2% U.S.A. 1,811 1,771 1,814 1,521 1,548 1.8% Mexico 423 361 407 347 381 9.9% Oceania 23 31 51 43 43 0.7% Total 23,183 23,334 23,925 19,814 19,610 -1.0% Source: WBMS, DBS Bank
Copper price vs macro variables
Source: Bloomberg Finance L.P., DBS Bank
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Automobile sales by major countries / markets (1H19) (k unit) USA EU China India Mexico Brazil Russia Total 1H18 8,576 8,450 11,778 1,735 681 958 849 33,027 1H19 8,413 8,184 10,487 1,557 638 1,066 829 31,173 y o y % -1.9% -3.1% -11.0% -10.3% -6.3% 11.3% -2.4% -5.6%
Source: KAMA, Ward, DBS Bank
Copper demand to rebound from 4Q19 onwards Copper demand to recover in 2020. The World Bank moderated down its GDP growth projection for 2019 from 4Q19 demand to pick up, supported by demand recovery in 2.9% to 2.6%, attributing the decline to broad-based China. China, which accounts for 53% of global copper weakness due to escalated trade tensions and investment demand, is a key driver of global copper demand. We deceleration in 1H19. Meanwhile, GDP growth rates for estimate that copper demand in China would recover in 2020 and 2021 are expected to recover to 2.7% and 2.8% 4Q19, in line with the recovery of PMI and auto production. respectively. DBS economists expect the global economy to China’s manufacturing PMI has been hovering between 49 experience a slow start in 2020, but trade will likely bottom and 50 in the past three months, while China auto in Q1, supported by low interest rates, low inflation, and production is likely to rebound. China is preparing to fiscal stimulus. Most Asian economies should see growth implement stimulus policies to boost economic growth stabilise in 2020, although continued slowdown in China which will have a positive impact on copper demand going could drag down the overall outlook. Accordingly, we forward. For example, in Nov 2019, for the first time in expect global copper demand to grow 2% y-o-y in 2020, three years, China’s central bank implemented interest rate with the introduction of stimulus fiscal policies in major cut on its medium-term lending facility to counteract its countries including China, German and US supporting slowing economy. DBS economists expect more fiscal copper demand growth. However, further escalation in stimulus policies including infrastructure investment to be trade tensions between China and the US, and weak placed in to boost economy. performance in the global auto sector could pose major risks in our view.
China refined copper consumption growth vs PMI
Source: WBMS, CEIC, DBS Bank
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Page 5 Industry Focus Copper
China refined copper consumption vs Auto production growth
Source: WBMS, CEIC, DBS Bank
Global GDP growth vs Copper consumption growth 20% Global refined copper demand growth y-o-y Global GDP Growth 15%
10%
5%
0%
-5%
-10%
-15% 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Bloomberg Finance L.P., WBMS, DBS Bank
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Refined copper demand forecast by region
CAGR (k tons) 2016 2017 2018 2019F 2020F 2021F 2022F 2018 2019F 2020F '18-'22F Africa 214 208 203 205 211 220 231 -2.2% 1.0% 3.0% 3.2% N.America 2,335 2,300 2,355 2,379 2,402 2,475 2,550 2.4% 1.0% 1.0% 2.0% Latin America 463 441 448 457 468 487 505 1.5% 2.0% 2.5% 3.0% Asean-10/Oceania 1,064 1,153 1,192 1,204 1,240 1,302 1,393 3.4% 1.0% 3.0% 4.0% Asia ex Asean/CIS 15,259 15,361 16,034 15,713 16,059 16,589 17,136 4.4% -2.0% 2.2% 1.7% Asia-CIS 103 103 106 103 105 108 111 3.1% -3.0% 2.0% 1.2% EU 3,239 3,233 3,279 3,214 3,271 3,353 3,454 1.4% -2.0% 1.8% 1.3% Other Europe 827 924 885 885 885 922 967 -4.2% 0.0% 0.0% 2.2% Total 23,505 23,723 24,502 24,159 24,642 25,455 26,346 3.3% -1.4% 2.0% 1.8%
Source: ICSG, Bloomberg Finance L.P., DBS Bank
Market to remain in deficit, expect price rebound market deficit will likely continue over our mid-term forecast period although the gap will narrow due to supply growth Sustained market deficit to push up copper prices slowly. acceleration from 2020. The sustained market deficit is Due to the unstable macroeconomic situation in 2019, expected to push copper prices up and copper price is copper price declined by 8% from US$6,523/ton in 2018 to forecast to reach US$6,460/ton by 2022F. However, US$6,000/ton on average in 2019. Despite weak demand downside risk on copper price remains from stronger due to the slowing down of major economies, the copper expansion of mine capacity and an unprecedented global market continues to be in deficit, posting 404k tons of economic slowdown. The low level in copper inventory and deficit in 2018 and is expected to remain in deficit of c. the progress in trade talks between China and US could be 400k tons in 2019 mainly due to supply restrictions. The positive for copper prices in the near term.
Copper price vs warehouse stocks
(US$/ton) LME warehouse stock(R) (k tons) LME Copper Price(L) 10,000 700
9,000 600
8,000 500
7,000 400
6,000 300
5,000 200
4,000 100
3,000 0 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: Bloomberg Finance L.P., DBS Bank
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Copper market balance forecasts (US$/ton) Refined copper market balance (R) (k tons) 10,000 LME copper price (US$/ton) 800 9,000 600 8,000 400 7,000 200 6,000 0 5,000 -200 4,000 3,000 -400 2,000 -600 1,000 -800 0 -1,000 2000 2003 2006 2009 2012 2015 2018 2021F
Source: ICSG, Bloomberg Finance L.P., DBS Bank
Near-term supply disruption in mines on 16 Oct, after the government allowed the armed forces and police to intervene. However, potential risks for further Copper supply decreased in 9M19 due to supply disruptions in protests and road blockage persist until the issue is fully mines. According to data from ICSG, mined copper supply resolved. declined by 0.3% y-o-y in 9M19, largely due to major copper mine disruptions particularly in 1H19. Mined copper output Copper supply to be vastly affected by escalation of Chilean reduction in two major copper producing countries, Chile and protests. Chile’s ongoing anti-government protests have Indonesia, outweighed growth in others and caused an overall resulted in road blockages and port disruptions around the decline in mined copper supply. Heavy rainfalls, which forced country. With abundance of copper mines situated in the operations at Chuquicamata, Ministro Hales (Codelco) and El country, Chile accounted for c. 29% of the global mined Abra (Freeport McMoRan) mines to be temporarily stopped, copper production in 2018. Chile is also the largest copper and falling ore grades caused Chile’s 9M19 mined copper ore exporting country, with its copper ore exports production to fall by 0.4% y-o-y. Glencore, one of the top equivalent to 34% of the global export. Ports in Chile, copper-producing companies in the world, also closed two including San Antonio, Chile’s largest port, are also affected shafts at its Mopani Copper Mines in Zambia. Meanwhile, the by the protest and hence, copper exports from Chile are transition of two major mines to different ore zones also likely to decrease in 2019. caused a temporary 50% decrease in Indonesia’s copper mine production. Escondida mine in northern Chile, the world’s largest copper mine which produced c. 1.2m tons of copper last Continued protests in Peru putting a halt to copper exports year, was reportedly operating at a reduced rate as the and mine expansions. Since early this year, the local worker union organised day-long strikes on 22 and 29 Oct. Peruvian community has been protesting the Tia Maria Escondida copper mine produced 771k tons in Jan-Aug this project which caused Matarani port to be blocked. As of 8 year, contributing 20.3% of Chile’s copper production or Aug, c. US$400m worth of copper exports were reportedly 5.6% of global output. The strike has led to the ceasing of blocked from transport, leaving excess concentrates mining operations in Chile until the Government withdraws inventory on hand. According to a Reuters report, the four military troops and violence subsides. As Chile is the biggest mines that utilised Matarani churned out about half of copper-producing country in the world, the progress of Peru’s total copper supply in 2018, or c. 1.2m tons worth of Chile’s intensifying protests should be a key risk for mined the mineral. A series of protests demanding a definite copper supply in near term. cancellation of construction permit from late Sep to Oct caused roads for the transport of copper concentrates to be blocked for more than three weeks. The roads were cleared
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Companies lowering production guidance for 2019. Over Mar 2019, Indonesia’s Ministry of Energy and Mineral the course of this year, several major copper producing Resources imposed a new copper export quota of 198k tons companies have cut their 2019 production guidance of for the year 2019 on Freeport’s Grasberg mine, 84% lower copper after taking into account weaker production. than 2018’s 1.25m tons. However, Freeport managed to Glencore lowered its production guidance by 3% in Apr and increase the export quota to 700k tons of copper, more followed up with a further 1% cut to 1.45m tons after than a threefold increase. 1H19, owing to maintenance work at the Mopani mine. In
Companies with production guidance downgrade Company Change in production guidance
Lowered 3% to 1.46m tons in April and further 1% to 1.45m tons in July, due to Monapi (Zambia) related safety and smelter related safety and smelter outages Glencore and a range of mine plan updates at other operations Lowered its guidance on Kinsevere (DRC) production by c.14% from 77.5k-80k tons to 65k-70k tons. Las Bambas now expected to produce at lower end of its MMG guidance of 385k-405k tons.
Lowered its copper production guidance from 417k tons to 407k-417k tons in Vale 2019 Source: DBS Bank
Strong long-term growth potential of mined supply Big gap on mine development forecast. We reckoned that there is a big gap for forecasts in the market for mine Mine developments in the pipeline to impact market from development for next several years. In a bull case scenario, 2020 onwards. In 2019, there are two major projects planned copper mine capacity is expected to increase by a total of c. – Cobre Panama and Los Pelambres mines. Cobre Panama, 5.5m tons (23% of 2018 capacity) between 2019 to 2022 vs. which started commercial production on 1 Sep, plans to c 2.5m tons (10% of 2018 capacity) in bear case. This gap gradually expand its starting production of 150k tons in 2019 stems from capacity expansion of brown field and new small to 350k tons by 2021, while Los Pelambres’s expansion plan mines. We have taken account of c. 4.2m ton increase in the includes an additional 60k tons of copper per annum over the mine capacity which is 76% of bullish case forecasts. first 15 years of the project. In addition, Aluminum Corporation of China (Chinalco) has started its Toromocho Stagnant mined supply growth in 2019, to recover from 2020. mine expansion project designed to raise the mine’s copper Considering mined supply disruptions and a lack of capacity output by 45%. We expect that mine capacity expansion of increase thereof, we forecast a stagnant growth of 0.5% in 767k tons in 2019 and 1.3m tons in 2020 to reduce the 2019, lowered from the previous forecast of 1%. In 2020, tightness of the ore supply market. In the mid-to-long term, mined supply is forecast to grow strongly by 4%, mainly more sizeable projects in Mongolia, Tibet and Panama are in driven by growth in Asia and mine expansions. Accordingly, the pipeline which will be the key determinants of mined mined supply is expected to grow at a CAGR of 3.2% over copper supply from 2021 onwards. 2018-2022F.
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Copper mine capacity increase forecast (bull vs. bear)
2.5 (m ton) Bull Scenario Bear Scenario 2.0
1.5
1.0
0.5
0.0 2017 2018 2019F 2020F 2021F 2022F Source: ICSG, DBS Bank
Mined copper supply forecast by region
CAGR (k tons) 2016 2017 2018 2019F 2020F 2021F 2022F 2018 2019F 2020F '18-'22F Africa 1,913 1,961 2,223 2,412 2,508 2,602 2,793 13.4% 8.5% 4.0% 5.9% N.America 2,942 2,643 2,542 2,466 2,527 2,609 2,685 -3.8% -3.0% 2.5% 1.4% Latin America 8,368 8,411 8,694 8,581 8,796 9,112 9,568 3.4% -1.3% 2.5% 2.4% Asean-10/Oceania 2,104 1,942 2,047 1,934 2,070 2,184 2,358 5.4% -5.5% 7.0% 3.6% Asia ex Asean/CIS 2,635 2,438 2,379 2,511 2,721 2,733 2,740 -2.4% 5.5% 8.4% 3.6% Asia-CIS 685 863 875 940 1,021 923 1,102 1.4% 7.5% 8.6% 5.9% EU 918 965 911 917 932 1,151 1,150 -5.6% 0.6% 1.6% 6.0% Other Europe 837 860 904 918 931 945 974 5.2% 1.5% 1.5% 1.9% Total 20,402 20,082 20,575 20,678 21,506 22,258 23,371 2.5% 0.5% 4.0% 3.2% Source: ICSG, DBS Bank
Mine supply to be the key determinant of refined refined output would also face downside risks in the event production of a tighter-than-expected mined output. The long-term downside risks for copper ore supply are from: 1) systematic Historical low treatment charges with slight recovery, ore grade decline, 2) rising production costs, and 3) tepid market continues to be tight. Treatment charges (TCs) for exploration and limited discoveries, which will also constrain copper was agreed at US$80.8/ton for 2019, 1.8% lower y- refined copper supply. o-y than the US$82.3/ton in 2018, and the lowest since 2014. China’s copper TC (30% Cu) reached its 7-year low Especially output from Escondida, the world largest copper point of US$55.5/ton in Aug, 39% lower than US$91.5/ton mine, continues to fall. In 9M19, it produced 871k tons of at end-2018. TC has rebounded by 5.4% to the current copper (down 8.4% y-o-y) due to the decline in ore grades level of US$58.5/ton, indicating a slightly looser copper at its open pit operations in northern Chile's Atacama concentrate supply market. Nonetheless, given the supply Desert. Note that BHP operates and owns 57% of the mine. disruptions in major copper mines around the world, only Rio Tinto owns 30% while two Japanese consortia own the partial recovery of TC is expected. remaining shares.
Copper ore availability is the key determinant of refined copper supply. As copper concentrates processed from copper ore are the raw materials for copper cathodes,
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China copper concentrate TC Benchmark copper treatment charges (US$/ton) (US$/ton) China Copper Concentrate TC 30% CIF Benchmark TC 100 120 95 100 107.0 90 95 97.4 85 80 92.0 92.5 80 82.3 80.8 75 75 60 70.0 60 62.5 70 56.0 40 65 45 46.5 60 20 55 50 0 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 2006 2008 2010 2012 2014 2016 2018 Source: Bloomberg Finance L.P., DBS Bank Source: Teck Resources, DBS Bank
Copper spot T/C vs. LME copper price (US$/ton) China Copper Concentrate TC 30% CIF (US$/ton) LME Copper price (R) 140 9,000
120 8,000 100
80 7,000
60 6,000 40 5,000 20
0 4,000 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Source: Bloomberg Finance L.P., DBS Bank
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Refined copper supply growth to turn from negative to Smelting and refinery capacity continues to grow, black in 2020 supported by expansion in China. Global smelting and refinery capacity grew by 1.2% in 2018 and is projected to Refined copper supply in 1H19 suppressed by smelter grow by another 4.3% in 2019. China will continue to lead shutdowns. Refined copper production saw a 1.1% y-o-y smelting and refinery capacity growth following the decline in 1H19, dragged by declines in America and Asia installation of 2.25m tons of smelting capacity in 2018- regions. According to World Bureau of Metal Statistics 2021. In June 2018, Aluminum Corporation of China (WBMS) data, Chile’s refined production in Jan-Aug this Limited (Chalco)’s new smelter in Ningde, Fujian, started its year decreased by 12.4% y-o-y due to temporary smelter trial operation. The smelter is projected to have a 400k ton shutdowns for upgrade to meet environmental regulations. capacity, equivalent to c. 10% of China’s production and A further decline is expected in Chile as Codelco, the 6.5% of global primary refined production in 2018. world’s top copper producer, announced that it had closed Following Chalco’s new smelter, another new refined its Ventanas smelter down for maintenance since 19 Aug. copper smelter with capacity of 100k tons in Lingbao is As such, multiple maintenance works in major smelters are scheduled to start trial operations by this year. Daye Non- expected to further dampen supply growth in 2019. ferrous also established a joint venture (JV) to construct a copper cathode production plant with a 400k ton capacity Limited refined output growth in China from lower scrap which is expected to be completed by 1H21. However, due imports. China has undoubtedly been the largest refined to the rapid expansions in capacity, capacity utilisation is copper producer in the world, having contributed c. 38% of likely to fall to c. 82% in 2019F from 87% in 2018, and the total refined production in 2018. China relies heavily on gradually increase over the years to 85% in 2022F. imported materials for its refined production; imported copper ore/concentrates translating to c. 62% of refined Negative refined supply growth in 2019 but stronger production in Jan-Aug. Despite China’s smelting and growth expected in 2020 onwards. Pressured by both refinery capacity increase, its refined production volume tightness in the availability of copper concentrates and increased by only 0.7% y-o-y in 2018 mainly due to low- negative refined copper demand growth, refined copper grade copper scrap import ban in China, which was supply is projected to shrink by 1.4% in 2019. We forecast implemented in July 2017. The implementation of the global refined copper supply to register 3% growth in 2020, import ban had resulted in China’s copper scrap imports to with the expectations that this year’s disrupted supply decline by 32% y-o-y in 2018. However, going forward, would return to normal operations and result in a strong China will likely see higher domestic scrap availability, increase in mined supply. Over our forecast period of 2018- following its green drive to push for development of the 2022F, refined copper production is expected to grow at a recycling industry. 2.1% CAGR, supported by growth in Asia and Africa.
Refined copper supply forecast by region
CAGR (k tons) 2016 2017 2018 2019F 2020F 2021F 2022F 2018 2019F 2020F '18-'22F Africa 1,250 1,280 1,436 1,422 1,450 1,483 1,520 12.2% -1.0% 2.0% 1.4% N.America 2,017 1,850 1,816 1,780 1,797 1,824 1,861 -1.9% -2.0% 1.0% 0.6% Latin America 3,201 2,942 2,975 2,856 2,970 3,119 3,275 1.1% -4.0% 4.0% 2.4% Asean-10/Oceania 1,083 1,047 1,068 1,057 1,089 1,133 1,178 2.0% -1.0% 3.0% 2.5% Asia ex Asean/CIS 11,660 12,088 12,390 12,142 12,604 13,108 13,671 2.5% -2.0% 3.8% 2.5% Asia-CIS 429 440 459 484 489 514 543 4.4% 5.5% 0.9% 4.3% EU 2,676 2,733 2,699 2,727 2,754 2,760 2,764 -1.2% 1.0% 1.0% 0.6% Other Europe 1,041 1,158 1,255 1,293 1,320 1,340 1,353 8.4% 3.0% 2.1% 1.9% Total 23,357 23,538 24,098 23,761 24,473 25,281 26,166 2.4% -1.4% 3.0% 2.1% Source: ICSG, DBS Bank
Page 12
Page 12 Industry Focus Copper
Maintenance works in major smelters
Processing Company Location Maintenance Period Capacity (k tons)
Pan Pacific Copper Saganoseki, Japan 450 Three-four weeks around Nov 2019 Sumitomo Metal Mining Toyo smelter, Japan 450 Three weeks around Nov 2019 Mitsubishi Materials Naoshima, Japan 234 Feb 13-March 15 2019
Shandong Xiangguang Yanggu, China 400 50 days in May and June 2019 Aurubis Pirdop, Bulgaria 230 May-June 2019, 18 days Aurubis Lunen, Germany 190 17 and 25 days in March and Sept 2019
Codelco Ventanas, Chile 470 Oct 2019, 28 days Source: ICSG, DBS Bank
Copper refinery capacity vs. utilisation rate Annual changes in refining capacity by region (m tonnes) World Refinery Capacity (%) 25% Annual Refining Capacity Change by Region 35 Refineries Capacity Utilisation (R) 90 20% 30 88 15% 25 86
20 84 10%
15 82 5%
10 80 0% 5 78 -5% 0 76 Asia Africa Europe North South Oceania America America 2000 2003 2006 2009 2012 2015 2018 2021F Source: ICSG, DBS Bank Source: Bloomberg Finance L.P., DBS Bank
China’s refined copper production vs. ore supply China’s refined copper & scrap imports (k tons) China Refined Copper Total Import Quantity China Copper Ores Production China Import Commodity Volume - Scrap Copper (k tons) 600 1,000 Total Copper Ores and Concentrates Imports China China Refined Copper Production 900 500 800 700 400 600 500 300 400 300 200 200 100 100 0 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 0 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Jan-18 Source: WBMS, Bloomberg Finance L.P., DBS Bank Source: Bloomberg Finance L.P., DBS Bank
Page 13
Page 13 China / Hong Kong Company Guide Jiangxi Copper Version 3 | Bloomberg: 358 HK EQUITY | Reuters: 0358.HK | Bloomberg: 600362 CH EQUITY | Reuters: 600362.SS Refer to important disclosures at the end of this report
DBS Group Research . Equity 13 Dec 2019
H: BUY Positive move to secure copper mineral Last Traded Price (H) ( 11 Dec 2019):HK$9.68(HSI : 26,645) Turning to right direction; retain BUY for H share and upgrade A share to Price Target 12-mth (H):HK$11.80 (21.9% upside) HOLD and raise TP to RMB16.4. We maintain our BUY call on the H share of Jiangxi Copper and HK$11.8 TP and upgrade our call on the A share to HOLD A: HOLD(Upgrade from Fully Valued) from FULLY VALUED and raise TP to RMB16.4. The company has recently Last Traded Price (A) ( 11 Dec 2019):RMB15.20(CSI300 Index : 3,903) disclosed plans to acquire 18% stake in FQM through full acquisition of PIM Price Target 12-mth (A):RMB16.40 (7.9% upside) (Prev RMB10.50) Cupric Holdings. We believe this is positive as it is securing more mines to Analyst enhance its self-sufficiency ratio for copper concentrates. LEE Eun Young+65 6682 3708 [email protected] Also, we are positive on its acquisition of Shandong Humon, a gold mining What’s New and smelting company as this could boost its growth potential and diversify • Jiangxi to acquire 18% of First Quantum Mineral – its business more towards precious metals. Our call upgrade for A share world’s 8th largest copper mining company takes place after switching our valuation method to 1.05x P/BV from 0.7x • Positive direction to increase investment in copper mine P/BV. Despite Jiangxi Copper’s stable earnings delivery and positive developments, its share price has underperformed its peers. • No significant near-term impact but expect earnings contribution from FQM over the long term Where we differ: More optimistic earnings forecasts than the street’s. Our • Upgrade A share to HOLD, Retain BUY for H share forecasts on FY19F/FY20 EPS are higher than market consensus. This would stem from our optimistic view on newly acquired Humon’s sales growth Price Relative with its cost reduction efforts being bolstered by its parent company. We HK$ Relative Index RMB Relative Index
15.6 220 212 22.9 expect this to contribute c 14% of group gross profit in FY20. 14.6 200 192 13.6 20.9 180 172 12.6 18.9 11.6 152 160 Other potential catalyst: Securing more mines and scaling back trading 16.9 10.6 132 140 9.6 14.9 112 120 business. The company surmised that the trading business has resulted in 8.6 12.9 100 7.6 92 6.6 72 10.9 80 more bad debts rather than contributing to group earnings. We believe this Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19
Jiangxi Copper (LHS) Relative HSI (RHS) Jiangxi Copper(A) (LHS) Relative CSI300 Index (RHS) new strategy should enhance its earnings visibility and profitability.
Forecasts and Valuation (H Shares) Valuation: FY Dec (RMBm) 2018A 2019F 2020F 2021F Our TP of HK$11.8 for H share is pegged to 0.7x FY19F P/BV which is Turnover 214,395 222,492 241,417 255,149 based on a 50% discount to the regional peers’ average, in view of lower EBITDA 5,668 6,916 7,891 8,778 ROE compared to peers. On the other hand, our TP for A share of RMB16.4 Pre-tax Profit 3,262 4,118 4,628 5,260 Net Profit 2,415 2,710 3,045 3,461 is derived from 1.05x P/BV, a 25% discount to the peer average. Net Profit Gth (Pre-ex) (%) 46.3 12.2 12.4 13.7 Key Risks to Our View: EPS (RMB) 0.70 0.78 0.88 1.00 EPS (HK$) 0.78 0.87 0.98 1.11 Key downside risks are copper price volatility and hedging risk. Any EPS Gth (%) 46.3 12.2 12.4 13.7 decrease in smelting processing fees (TC/RCs) would also be negative for Diluted EPS (HK$) 0.78 0.87 0.98 1.11 the company. DPS (HK$) 0.22 0.22 0.22 0.22 BV Per Share (HK$) 15.99 16.64 17.40 18.29 At A Glance PE (X) 12.5 11.1 9.9 8.7 P/Cash Flow (X) 3.7 16.7 12.2 9.2 Issued Capital - H shares (m shs) 1,387 P/Free CF (X) 4.8 nm nm 48.8 - Non H shrs (m shs) 2,075 EV/EBITDA (X) 5.9 5.6 6.1 5.5 H shs as a % of Total 40 Net Div Yield (%) 2.3 2.3 2.3 2.3 Total Mkt Cap (HK$m/US$m) 48,844 / 6,255 P/Book Value (X) 0.6 0.6 0.6 0.5 Major Shareholders (%) Net Debt/Equity (X) 0.0 0.1 0.3 0.3 ROAE(%) 5.0 5.3 5.8 6.2 Jiangxi Copper Corporation Limited 58.1 Major H Shareholders (As % of H shares) 0 Earnings Rev (%): (1) 2 6 Jiangxi Copper Corporation Limited 17.0 Consensus EPS (RMB) 0.75 0.82 0.90 Other Broker Recs: B:10 S:0 H:6 H Shares-Free Float (%) 83.0 3m Avg. Daily Val. (US$m) 4.26 Source of all data on this page: Company, DBS Bank (Hong Kong) Limited (“DBS HK”), Thomson Reuters GICS Industry: Materials / Metals & Mining Bloomberg ESG disclosure score (2018)^ 22.3 - Environmental / Social / Governance 9.3 / 22.8 / 51.8 ^ refer to back page for more information
ed-CK/ sa- CS /AH Page 14 Company Guide
Jiangxi Copper
WHAT’S NEW from 1 September 2019, will ramp up FQM’s copper and gold Increased investment to copper mine production volume going forward. Jiangxi to acquire 18% of First Quantum Mineral at Positive direction to secure copper mineral US$1.12bn. On 9 December, Jiangxi Copper announced the While Jiangxi Copper stated that it won’t launch a takeover acquisition of Pangea Investment Management (PIM) Cupric bid for FQM, we believe this is positive for securing more Holdings Limited, the largest shareholder of First Quantum copper resources. Jiangxi Copper is the largest refined copper Minerals (FQM), for US$1.12bn (c. HK$8.77bn). PIM currently producer in the world, but its self-sufficiency ratio for copper owns c.124m shares in FQM, equivalent to 18.015% of the concentrates is only 15% with an annual mined copper total shares of FQM – a mining and metals company listed on production of c.200k tons. FQM’s copper and gold output in the Toronto Stock Exchange (TSX). Upon the full acquisition 2018 is equivalent to 45% and 22.7% of Jiangxi Copper’s of PIM Cupric Holdings, Jiangxi Copper will hold an 18.015% refined copper and gold production volume. stake in FQM and be FQM’s single largest shareholder. The There are very minimal adjustments in our near-term earnings consideration will be paid in two instalments – (i) 40% to be as it is estimated to pay more interest cost which will in turn paid within 30 days after the completion date, and (ii) the be offset by gains from its associate, FQM. Nevertheless, we remaining 60% to be paid within 60 days. PIM Cupric expect profits from FQM to contribute to group earnings over Holdings, incorporated in the British Virgin Islands, is a special the longer term, in line with organic growth of FQM. purpose vehicle created by PIM Limited solely for the purpose of acquiring FQM’s shares and interest. The completion of Retain BUY call for H share and upgrade call to HOLD for A acquisition is subject to due diligence and fulfilment of the share. We maintain our BUY call and HK$11.8 TP for H share. pre-arranged conditions between Jiangxi Copper and PIM On the other hand, we upgrade our call to HOLD from FULLY Cupric Holdings. VALUED for A share by switching our valuation method to 1.05x P/BV from 0.7x P/BV. This reflects the fact that A share FQM, one of top 10 mines in the world with organic growth has been trading at a smaller discount to the regional sector FQM (market cap: C$9.06bn), which was the 8th largest average than H share. Of note, its A share has been trading at copper mining company in the world based on 2016 1.16x P/BV which is c.70% higher than 0.68x P/BV for H production volume, owns nine copper mine projects in eight share. We derived our TP for A share by applying 1.05x P/BV, countries, among which three are world-class mines in a 25% discount to the regional metal & mining sector peer Zambia and Panama. It also owns two nickel ore mines in P/BV average of 1.4x and by applying 0.7x P/BV for H share, a Australia and Zambia. FQM has c.49.3m tons of copper 50% discount to the regional metal & mining sector peer resources and c.2.4m tons of nickel ore resources. In 2018, P/BV average, in view of its lower ROE compared to peers. FQM produced c.606k tons of copper and c.185k oz of gold and copper production would grow to 820k tons by 2021, according to the company’s guidance. Particularly, Cobre Panama, which officially started its commercial production
Page 15 Company Guide
Jiangxi Copper
First Quantum Mineral’s financial (US$m) 2017 2018 9M2018 9M2019 y-o-y % Revenue 3,310 3,966 2,912 2,783 -4.4% Gross profit 335 978 698 531 -23.9% Operating profit 99 809 549 380 -30.8% EBITDA 1,130 1,723 1,186 1,030 -13.2% Pretax Profit 60 791 537 159 -70.4% Net profit -316 441 243 58 -76.1%
Margins (%) Gross margins 10.1 24.7 24.0 19.1 Operating margins 3.0 20.4 18.9 13.7 EBITDA margins 34.1 43.4 40.7 37.0 Net margins -9.5 11.1 8.3 2.1
Total Asset 21,623 23,537 22,864 24,453 Total Liability 12,663 14,030 13,537 14,915 Shareholder capital 8,960 9,507 9,327 9,538 Net debt 5,259 6,323 5,994 7,010
Net gearing ratio 0.59 0.67 0.64 0.73 ROE (%) -3.5 4.6 2.6 0.6 Source: Company, DBS HK
First Quantum Mineral’s production and sales volume 2017 2018 9M2018 9M2019 y-o-y % Copper Production (k tons) 574 606 448 498 11.2% Copper Sales (k tons) 580 597 440 483 9.8% Cash Cost for Copper (C1) (US$/lb) 1.23 1.28 1.29 1.34 3.9% Gold Production (k oz) 200 185 137 179 30.4% Gold sales (k oz) 201 193 140 175 25.4%
Source: Company, DBS HK
Jiangxi Copper: P/BV band 2.5 P/BV( x) H share A share 2
1.5
1
0.5
0 12/14 06/15 12/15 06/16 12/16 06/17 12/17 06/18 12/18 06/19 12/19
Source: Company, DBS HK
Page 16 Company Guide
Jiangxi Copper
CRITICAL FACTORS TO WATCH Copper cathode sales volume (k ton) 1470 1,484 1421 1457 1353 1355 Critical Factors 1,272 Copper and gold prices. As copper accounts for 81% of 1,060 revenue and 93% of gross profit, copper price is a key critical 848 factor in determining the company’s performance. Meanwhile, 636 gold accounts for 9% of gross profit, and the proportion is 424 likely to increase with the newly acquired Humon. Accordingly, 212 gold price will be another key factor for the company’s 0 performance. 2017A 2018A 2019F 2020F 2021F Copper rods & processing products' sales volume (k ton) Copper concentrate production volume and self-sufficiency 961.8 981 925.5 924.4 942.9 ratio. As margins of copper cathode using self-produced 880.4 concentrate is higher than third-party purchased concentrate, 785 production growth in concentrates from its mines should be a 589 critical factor for its earnings. In 1H19, the company produced 749k tons of copper cathode while its copper concentrate 392 production volume was 102k tons, indicating a 14% self- 196 sufficiency ratio. 0 2017A 2018A 2019F 2020F 2021F TC/RC for purchased concentrates. Given its limited self- sufficiency ratio, c.86% of copper cathode production relies on LME copper prices (US$/ton) purchased raw materials including concentrates. This implies 6,654 6,523.0 6,475.7 6,166.0 5,981.9 6,167.3 that TC/RC, the pricing term for concentrates, should be a key 5,323 factor to determine its profitability. A higher TC/RC is positive for the company. 3,992
2,661 Capacity expansion includes more copper mine resources. Currently, the company is expanding the capacity at its key 1,331 production facilities. By 2020, the capacity of mines will reach 0 230k tons from 210k ton in 2017 and refined copper will have 2017A 2018A 2019F 2020F 2021F 1.7m-ton p.a. capacity from 1.3m-ton p.a., while the capacity Gold prices (US$/oz)
1,434 of processing products including copper rods, wires, foils, and 1,448 1,392 1,405 pipes will grow to 1.4m tons p.a. from 1m tons currently. In 1,258 1,269 2018, the company achieved 1.48m-ton p.a. capacity in refined 1,158 copper. Hence, the completion of capacity expansion and 869 commencement of operations should be the other key critical factors to monitor. 579
290
0 2017A 2018A 2019F 2020F 2021F Source: Company, DBS HK
Page 17 Company Guide
Jiangxi Copper
Appendix 1: A look at Company's listed history – what drives its share price?
Jiangxi Copper’s share price vs LME copper price Remark Copper accounts for over (US$/ton) LME Copper Price(L) Jiangxi Copper share price (R) (HKD) 10,000 30 80% of the company’s
9,000 revenue. Accordingly, its 25 share price moves in tandem 8,000 with copper price. 20 7,000
6,000 15
5,000 10 4,000
3,000 5 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: Bloomberg Finance L.P., DBS Bank
Jiangxi Copper’s share price vs Gold spot price Remark (US$/oz) Gold Spot $/Oz Jiangxi Copper share price (R) (HKD) In 1H19, gold segment 2,000 30 accounted for c.9% of total gross profit before 1,800 25 consolidation of Humon
1,600 20 Smelting. The contribution of gold to Jiangxi’s earnings is 1,400 15 set to increase as Humon Smelting is equipped with an 1,200 10 annual gold production
1,000 5 capacity of 50 tons.
800 0 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: Bloomberg Finance L.P., DBS Bank
Jiangxi Copper’s share price vs China Manufacturing PMI Remark
(pts) (HKD) Being the biggest copper China Manufacturing PMI SA Jiangxi Copper share price (R) 57 30 integrated producer in China, 56 its share price is also impacted 25 55 by China’s economic 54 20 conditions. This is shown
53 through the correlation with 15 52 China’s manufacturing PMI.
51 10
50 5 49
48 0 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: Bloomberg Finance L.P., DBS Bank
Page 18 Company Guide
Jiangxi Copper
Balance Sheet: The company has maintained healthy balance sheet as it was in Leverage & Asset Turnover (x) 2.3 net cash position until 2016. Following capacity expansion 0.70 projects and upgrades of facilities to meet environmental 0.60 2.3 regulation, the company’s capex increased to as high as 0.50
RMB3.2bn in 2017, doubling from RMB1.6bn in 2016. It 0.40 2.2 registered 0.14x net gearing in 2017 which reduced to 0.02x in 0.30 2018. Thanks to its acquisition of Humon at RMB3bn, its net 0.20 2.2 gearing is expected to rise to 0.11x in 2019, which would still 0.10 indicate a sound balance sheet. 0.00 2.1 2017A 2018A 2019F 2020F 2021F Share Price Drivers: Gross Debt to Equity (LHS) Asset Turnover (RHS) Capital Expenditure Metal prices. The company’s share price tends to move in RMB m tandem with copper and gold prices, which are set to remain 3,500.0 as its first- and second-largest earnings contributors 3,000.0 respectively. 2,500.0 2,000.0 Key Risks: 1,500.0 Copper price volatility and hedging risk. Based on company 1,000.0 sensitivity analysis, for every RMB1,000/ton decrease in copper 500.0 0.0 prices, the profits from self-produced concentrate will fall by 2017A 2018A 2019F 2020F 2021F
RMB0.06 EPS (before tax). Also, the company has entered into Capital Expenditure (-) hedging contracts for self-produced raw materials to lock in ROE the processing fee for its outsourced raw materials. However, 6.0% it is difficult to ascertain its hedging position and estimate the 5.0% gains/losses on its hedging position which is a risk factor for 4.0% earnings. 3.0%
The risk of decrease in smelting processing fees (TC/RC). 2.0% Following capacity expansion for smelting in China, copper 1.0% concentrate will experience shortage and there is risk of 0.0% further declines in TC/RC. 2017A 2018A 2019F 2020F 2021F Forward PE Band Environment, Social, Governance: (x) In recognition of increasing importance placed on 34.2 29.2 sustainability, Jiangxi Copper issued 2018 ESG Report +2sd: 27.7x highlighting its key focus on three aspects: 1) emissions, 2) 24.2 environmental and natural resources, and 3) health and +1sd: 22x 19.2 safety. It had completed ecological restoration projects in Avg: 16.2x Dexing Copper Mine and in the eastern side of the 14.2 -1sd: 10.5x Yangtaowu waste dump in 2018 to reduce the impact on the 9.2 environment. However, there is still room for improvement in 4.2 -2sd: 4.8x environmental aspects as its CO2 emissions increased by 2% Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 y-o-y in 2018. PB Band 1.1 (x) Company Background 1.0 0.9 Jiangxi Copper is the largest integrated copper producer and a +2sd: 0.86x 0.8 state-owned entity in China. It is engaged in exploration, +1sd: 0.76x 0.7 mining, ore dressing, smelting and processing of copper as Avg: 0.65x 0.6 well as other non-ferrous metals. The company was listed on -1sd: 0.54x both The Stock Exchange of Hong Kong and Shanghai Stock 0.5 -2sd: 0.44x Exchange in 2002. 0.4 0.3 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Source: Company, DBS HK
Page 19 Company Guide
Jiangxi Copper
Key Assumptions FY Dec 2017A 2018A 2019F 2020F 2021F Copper cathode sales 1,352.6 1,354.5 1,420.8 1,457.2 1,469.7 volume(k ton) Copper rods & processing products' sales volume(k 925.5 880.4 924.4 942.9 961.8 ton) LME copper 6,166.0 6,523.0 5,981.9 6,167.3 6,475.7 prices(US$/ton) Gold prices(US$/oz) 1,258.4 1,269.1 1,391.8 1,433.5 1,404.8
Source: Company, DBS HK
Segmental Breakdown (RMB m)
FY Dec 2017A 2018A 2019F 2020F 2021F Revenues (RMB m) Copper cathodes 121,463 122,742 120,659 125,887 133,013 Copper rods & processing 50,732 52,452 55,826 56,867 59,139 products Gold 7,228 7,260 7,366 7,691 7,650 Silver 2,954 2,057 1,690 1,803 1,876 Sulphuric and sulphuric 1,186 1,201 1,240 1,320 1,326 concentrate Others 20,678 28,684 24,287 47,850 52,145 Total 204,241 214,395 222,492 241,417 255,149 Gross Profit (RMB m) Copper cathodes 5,793 5,766 5,668 6,150 6,742 Copper rods & processing 1,671 1,474 1,569 1,598 1,662 products Gold 724 180 182 191 189 Silver 194 30 25 26 27 Sulphuric and sulphuric (141) (126) (130) (139) (139) concentrate Others 1,170 415 532 573 338 Total 9,411 7,738 8,639 9,718 10,205 Gross Profit Margins (%) Copper cathodes 4.8 4.7 4.7 4.9 5.1 Copper rods & processing 3.3 2.8 2.8 2.8 2.8 products Gold 10.0 2.5 2.5 2.5 2.5 Silver 6.6 1.5 1.5 1.5 1.5 Sulphuric and sulphuric (11.9) (10.5) (10.5) (10.5) (10.5) concentrate Others 5.7 1.4 2.2 1.2 0.6 Total 4.6 3.6 3.9 4.0 4.0 Source: Company, DBS HK
Page 20 Company Guide
Jiangxi Copper
Income Statement (RMB m) FY Dec 2017A 2018A 2019F 2020F 2021F Revenue 204,241 214,395 222,492 241,417 255,149 Cost of Goods Sold (195,643) (207,552) (214,044) (231,981) (245,000) Gross Profit 8,598 6,843 8,448 9,436 10,149 Other Opng (Exp)/Inc (4,833) (3,485) (3,596) (3,910) (4,138) Operating Profit 3,765 3,358 4,852 5,525 6,011 Other Non Opg (Exp)/Inc (537) 745 300 300 300 Associates & JV Inc 33 (105) 50 250 550 Net Interest (Exp)/Inc (355) (736) (1,084) (1,447) (1,600) Dividend Income 0 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 2,906 3,262 4,118 4,628 5,260 Tax (1,146) (840) (1,236) (1,388) (1,578) Minority Interest (109) (8) (173) (194) (221) Preference Dividend 0 0 0 0 0 Net Profit 1,651 2,415 2,710 3,045 3,461 Net Profit before Except. 1,651 2,415 2,710 3,045 3,461 EBITDA 5,066 5,668 6,916 7,891 8,778 Growth Revenue Gth (%) 1.2 5.0 3.8 8.5 5.7 EBITDA Gth (%) 14.8 11.9 22.0 14.1 11.2 Opg Profit Gth (%) 11.0 (10.8) 44.5 13.9 8.8 Net Profit Gth (%) 97.2 46.3 12.2 12.4 13.7 Margins & Ratio Gross Margins (%) 4.2 3.2 3.8 3.9 4.0 Opg Profit Margin (%) 1.8 1.6 2.2 2.3 2.4 Net Profit Margin (%) 0.8 1.1 1.2 1.3 1.4 ROAE (%) 3.5 5.0 5.3 5.8 6.2 ROA (%) 1.8 2.4 2.6 2.7 3.0 ROCE (%) 1.8 2.0 1.8 1.7 1.9 Div Payout Ratio (%) 41.9 28.7 25.6 22.7 20.0 Net Interest Cover (x) 10.6 4.6 4.5 3.8 3.8 Source: Company, DBS HK
Interim Income Statement (RMB m) FY Dec 1H2017 2H2017 1H2018 2H2018 1H2019
Revenue 97,760 106,482 104,026 110,370 104,694 Cost of Goods Sold (94,579) (101,063) (101,050) (106,503) (100,871) Gross Profit 3,180 5,418 2,976 3,867 3,823 Other Oper. (Exp)/Inc (1,654) (3,179) (1,554) (1,931) (1,560) Operating Profit 1,526 2,240 1,422 1,936 2,263 Other Non Opg (Exp)/Inc 198 (735) 579 166 148 Associates & JV Inc 31 2 (2) (103) 3 Net Interest (Exp)/Inc (94) (261) (262) (474) (503) Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 1,661 1,245 1,737 1,525 1,911 Tax (699) (447) (432) (407) (534) Minority Interest 11 (120) 23 (30) 36 Net Profit 974 678 1,327 1,088 1,412 Net profit bef Except. 974 678 1,327 1,088 1,412
Growth Revenue Gth (%) 8.7 (4.7) 6.4 3.7 0.6 Opg Profit Gth (%) 47.2 (4.9) (6.8) (13.5) 59.1 Net Profit Gth (%) 51.4 248.5 36.3 60.6 6.4
Margins Gross Margins (%) 3.3 5.1 2.9 3.5 3.7 Opg Profit Margins (%) 1.6 2.1 1.4 1.8 2.2 Net Profit Margins (%) 1.0 0.6 1.3 1.0 1.3 Source: Company, DBS HK
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Jiangxi Copper
Balance Sheet (RMB m) FY Dec 2017A 2018A 2019F 2020F 2021F
Net Fixed Assets 21,981 21,561 22,590 23,517 24,343 Invts in Associates & JVs 3,178 3,676 6,726 14,866 15,416 Other LT Assets 6,540 8,067 8,421 8,775 9,129 Cash & ST Invts 22,146 32,829 29,557 23,857 20,850 Inventory 19,997 17,259 18,598 20,156 21,287 Debtors 15,032 11,040 13,528 14,679 15,514 Other Current Assets 8,595 8,435 8,688 8,948 9,217 Total Assets 97,470 102,866 108,108 114,798 115,755
ST Debt 28,500 29,901 30,901 31,901 31,401 Creditors 7,881 6,230 7,564 8,207 8,674 Other Current Liab 9,532 10,007 10,007 10,007 10,007 LT Debt 509 3,782 4,500 7,000 5,000 Other LT Liabilities 1,046 919 919 919 919 Shareholder’s Equity 47,551 49,766 51,784 54,137 56,905 Minority Interests 2,451 2,260 2,433 2,628 2,849 Total Cap. & Liab. 97,470 102,866 108,108 114,798 115,755
Non-Cash Wkg. Capital 26,211 20,497 23,243 25,570 27,338 Net Cash/(Debt) (6,863) (855) (5,844) (15,044) (15,552) Debtors Turn (avg days) 28.2 22.2 20.2 21.3 21.6 Creditors Turn (avg days) 18.5 12.5 11.9 12.5 12.7 Inventory Turn (avg days) 33.3 33.0 30.8 30.7 31.1 Asset Turnover (x) 2.2 2.1 2.1 2.2 2.2 Current Ratio (x) 1.4 1.5 1.5 1.3 1.3 Quick Ratio (x) 0.8 1.0 0.9 0.8 0.7 Net Debt/Equity (X) 0.1 0.0 0.1 0.3 0.3 Net Debt/Equity ex MI (X) 0.1 0.0 0.1 0.3 0.3 Capex to Debt (%) 11.2 5.8 7.5 6.9 7.3 Z-Score (X) NA NA NA NA NA Source: Company, DBS HK
Cash Flow Statement (RMB m) FY Dec 2017A 2018A 2019F 2020F 2021F
Pre-Tax Profit 2,906 3,262 4,118 4,628 5,260 Dep. & Amort. 1,805 1,669 1,714 1,816 1,917 Tax Paid (938) (866) (1,236) (1,388) (1,578) Assoc. & JV Inc/(loss) (33) 105 (50) (250) (550) (Pft)/ Loss on disposal of FAs 0 0 0 0 0 Chg in Wkg.Cap. (7,964) 5,746 (2,747) (2,327) (1,768) Other Operating CF 5,081 (1,735) 0 0 0 Net Operating CF 858 8,182 1,800 2,479 3,282 Capital Exp.(net) (3,245) (1,968) (2,665) (2,665) (2,665) Other Invts.(net) (2,424) (6,335) (2,000) (2,000) 646 Invts in Assoc. & JV (290) (477) (3,000) (7,890) 0 Div from Assoc & JV 14 34 0 0 0 Other Investing CF 3,841 (432) (432) (432) (432) Net Investing CF (2,104) (9,178) (8,097) (12,987) (2,451) Div Paid (583) (693) (693) (693) (693) Chg in Gross Debt 7,010 6,059 1,718 3,500 (2,500) Capital Issues 0 0 0 0 0 Other Financing CF (2,504) (4,258) 2,000 5,000 1,353 Net Financing CF 3,922 1,109 3,025 7,807 (1,840) Currency Adjustments (589) 172 0 0 1 Chg in Cash 2,088 284 (3,271) (2,700) (1,007) Opg CFPS (RMB) 2.55 0.70 1.31 1.39 1.46 Free CFPS (RMB) (0.69) 1.79 (0.25) (0.05) 0.18
Source: Company, DBS HK
Page 22 Company Guide
Jiangxi Copper
H Share - Target Price & Ratings History
HK$ S.No. Date Closing 12-mth Rating 12.0 Price T arget Price 11.5 1: 4-Feb-19 HK$10.16 HK$9.70 Hold 11.0 2: 13-Nov-19 HK$9.10 HK$11.80 Buy 10.5 1 10.0 2 9.5 9.0 8.5 8.0 Jul-19 Jan-19 Jun-19 Feb-19 Oct-19 Apr-19 Apr-19 Sep-19 Dec-18 Dec-19 Nov-19 Mar-19 Aug-19 May-19
Source: DBS HK Analyst: LEE Eun Young
A Share - Target Price & Ratings History
RMB S.No. Date Closing 12-mth Rating 18.0 Price T arget Price 17.0 1: 4-Feb-19 RMB13.44 RMB8.62 Fully Valued 2: 13-Nov-19 RMB14.05 RMB10.50 Fully Valued 16.0 2 15.0
14.0 1
13.0
12.0 Jul-19 Jan-19 Jun-19 Feb-19 Oct-19 Apr-19 Apr-19 Sep-19 Dec-18 Dec-19 Nov-19 Mar-19 Aug-19 May-19
Source: DBS HK Analyst: LEE Eun Young
Page 23 Company Guide
Jiangxi Copper
^ Bloomberg ESG Disclosure Scores rate companies annually based on their disclosure of quantitative and policy-related ESG data. It is based on a scoring scale of 0-100, and calculated using a subset of more than 100 raw data points it collects on ESG. It is designed to measure the robustness of companies' disclosure of ESG information in their reporting/the public domain. Based on Bloomberg disclosures, as of 25 Jan 2019, the global ESG disclosure average score is 24.92 and 22.14, 28.26, 49.97 for Environmental, Social and Governance, respectively.
DBS HK recommendations are based on an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return, i.e., > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)
*Share price appreciation + dividends
Completed Date: 13 Dec 2019 11:25:00 (HKT) Dissemination Date: 13 Dec 2019 11:59:51 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS HK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
Page 24 Company Guide
Jiangxi Copper
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have a proprietary position in Jiangxi Copper Co Ltd (358 HK) recommended in this report as of 10 Dec 2019.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
3. Compensation for investment banking services: DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
4. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Page 25 China / Hong Kong Company Guide Zijin Mining
Version 6 | Bloomberg: 2899 HK EQUITY | 601899 CH Equity | Reuters: 2899.HK | 601899.SS Refer to important disclosures at the end of this report
DBS Group Research . Equity 8 Jan 2020 H: BUY Growing optimism with higher metal prices Last Traded Price (H) ( 7 Jan 2020):HK$4.02(HSI : 28,322) Raise TP following higher metal prices. We raise our TP for A-share Price Target 12-mth (H):HK$4.80 (19.4% upside) (Prev HK$3.90) and H-share to RMB5.4 and HK$4.8, respectively, and retain our BUY call. Factoring in recent stronger copper and gold prices and growing A: BUY optimism on such prices, we increase our copper and gold prices Last Traded Price (A) ( 7 Jan 2020):RMB4.67(CSI300 Index : 4,160) forecasts for 2020 by 4% and 5%, respectively, which results in our Price Target 12-mth (A):RMB5.40 (15.6% upside) (Prev RMB4.40) upward revision of FY20F EPS by 13.7%. After our call and TP Analyst upgrade on 11 Dec 2019, the share prices of A and H have LEE Eun Young+65 6682 3708 [email protected] outperformed its peers and the market by rising 25% and 28% respectively, along with higher copper and gold prices. Despite its What’s New recent strong share price performance, we keep Zijin Mining as our • Successful capital increase and new M&A to enhance long- top pick in view of its ample growth drivers arising from its various term growth potential operations globally, i.e. Heilongjiang Duobaoshan copper mine, the • Strong gold and copper prices are key catalysts for earnings Kamoa mine in the DRC, BTR Bor in Serbia and Timok mine in eastern and share prices Serbia. Plus, the acquisition of Continental Gold will contribute • Revise up earnings forecasts following higher metal price earnings diversification as well as growth. forecasts Where we differ: More optimistic on long-term earnings growth from • Retain BUY call and raise TPs for A-share and H-share M&As. We are more optimistic on its long-term growth potential, Price Relative reflecting our higher confidence in its capability to operate the newly developed and acquired mines and deliver earnings growth with further M&As. Thanks to this, our TP is higher than consensus due to our projection of stronger cash flows over the long term. Other potential catalyst: Higher metal prices. We are expecting industrial metal prices to rebound from weakness along with improved outlook for demand as the copper/zinc markets remain in Forecasts and Valuation (H Shares) deficit. FY Dec (RMBm) 2018A 2019F 2020F 2021F Valuation: Turnover 105,994 130,407 146,213 155,589 EBITDA 10,824 12,759 13,657 14,763 Our TP for its A-share is derived from DCF model using 9.1% Pre-tax Profit 6,130 6,888 7,722 8,738 WACC and 2% terminal growth rate. Our TP of H-share is derived Net Profit 4,094 4,472 5,014 5,674 from 20% discount for A-share to account for its historical Net Profit Gth (Pre-ex) (%) 16.7 9.2 12.1 13.2 discounted trading, translating into 22x PE and 1.9x P/BV based on EPS (RMB) 0.18 0.18 0.20 0.22 2020 earnings forecast. EPS (HK$) 0.20 0.20 0.22 0.25 Key Risks to Our View: EPS Gth (%) 13.7 (0.9) 12.1 13.2 Key risks include volatility in metal prices, mine exploration and Diluted EPS (HK$) 0.20 0.20 0.22 0.25 DPS (HK$) 0.10 0.00 0.00 0.00 project execution risks, geopolitical risks including changes in BV Per Share (HK$) 1.97 2.34 2.56 2.81 mining code in the DRC and financial burden arising from M&As. PE (X) 20.3 20.5 18.3 16.1 At A Glance P/Cash Flow (X) 8.1 8.8 8.6 7.8 Issued Capital - H shares (m shs) 5,737 P/Free CF (X) 29.8 20.8 11.4 15.4 - Non H shrs (m shs) 17,312 EV/EBITDA (X) 10.8 9.0 8.4 7.6 H shs as a % of Total 25 Total Mkt Cap (HK$m/US$m) 113,609 / 14,606 Net Div Yield (%) 2.5 0.0 0.0 0.0 Major Shareholders (%) P/Book Value (X) 2.1 1.7 1.6 1.4 MinxiXinghang State-owned Inv & Oper Co., Ltd. 34.5 Net Debt/Equity (X) 0.6 0.2 0.2 0.1 Major H Shareholders (As % of H shares) ROAE(%) 10.9 9.6 9.0 9.3 Van Eck Associates Corporation 7.0 Earnings Rev (%): 11.3 7.1 2.9 H Shares-Free Float (%) 93.0 Consensus EPS (RMB) 0.18 0.21 0.26 3m Avg. Daily Val. (US$m) 12.61 GICS Industry: Materials / Metals & Mining Other Broker Recs: B:15 S:0 H:0 Bloomberg ESG disclosure score (2018)^ 49.6 Source of all data on this page: Company, DBS Bank (Hong Kong) Limited - Environmental / Social / Governance 48.8 / 43.9 / 57.1 (“DBS HK”), Thomson Reuters ^ refer to back page for more inform
ed-CK / sa- CS /AH Page 26 Company Guide
Zijin Mining
WHAT’S NEW Continental Gold to enhance earnings growth potential with strong gold prices. We believe Zijin mining would have strong Copper and gold, two pillars for earnings growth earnings growth potential if it succeeds in acquisition of Continental Gold. Continental Gold owns the Buritica gold Raise TPs due to higher metal prices. We raise our TP for A- mine, one of the world’s largest high-grade gold deposits in the share and H-share to RMB5.4 and HK$4.8, respectively, and Andes Mountains region in Colombia. Its expected average retain our BUY call. Factoring in recent stronger copper and gold annual production of gold and silver for the first five years prices and growing optimism on such prices, we increase our stands at 8.8 tons and 15.4 tons, respectively, at a low copper and gold prices forecasts for 2020 by 4% and 5%, sustaining cost of US$604/oz. With an estimated economic respectively, which results in our upward revision of FY20F EPS by value of US$5bn premised on gold price of US$1,300/oz, the 13.7%. Copper and gold would contribute 64% and 25% to newly added mine will increase Zijin’s mine-produced gold group revenue and 30% and 40% to group gross profit in production volume by c. 20%, increasing the group’s gross 2019, respectively. Our TP of A-share is derived from DCF model profit by 9% annually. The stronger gold prices would have using 9.1% WACC and 2% terminal growth rate. TP of H-share larger positive impact to Zijin’s earnings and cashflow. We is derived from 20% discount for A-share to account for its expect Buritica mine to start production from 1Q20 and historical discounted trading. Our TP implies 22x PE and 1.9x contribute to its earnings on a full scale from 2021. P/BV, based on 2020 earnings forecast. Full owership of Timok mine and capacity expansion in China. After our call and TP upgrade on 11 Dec 2019, the share prices We are optimistic on its earnings growth 2020 onwards given of A and H have outperformed its peers and the market by that i) higher operation in Timok & Bisha mine (former Nevsun) rising 25% and 28%, respectively, along with higher copper and Zijin Bor acquired in 2018, ii) capacity expansions in and gold prices. Despite its recent strong share price performance, Heilongjiang Duobaoshan (increase to 80-90k tons from 40k we keep Zijin Mining as our top pick in view of its ample growth tons), Kamoa copper mine (300k tons p.a, to start operation in drivers arising from its various operations globally, i.e. Heilongjiang 2021) and Kolwezi copper mine (increase to 100k tons p.a. by Duobaoshan copper mine, the Kamoa mine in the DRC, BTR Bor 2020 from 53k tons in 2018). By Feb 2020, Zijin will attain full in Serbia and Timok mine in eastern Serbia. Plus, the acquisition ownership of Timok mine by acquiring the remaining 54% of Continental Gold will contribute earnings diversification as well interest in the Lower Zone, which will add another 7.7m tons as growth. and 161 tons to Zijin Mining’s copper metal and gold metal resources respectively. Successful capital increase reduces Zijin’s financial burden and support M&A plans. In Nov 2019, Zijin Mining successfully issued 2,346m A-shares at RMB3.41 per share, raising gross proceeds of c. RMB8bn. This capital issue was the largest-scale capital increase in China recently. After the capital increase, Zijin’s total number of shares increased by 10.2% to 25.377bn. While Zijin’s debt/equity ratio increased to 1.18x in 3Q19 from 1.05x in 3Q18 due to a large-scale M&A of Nevsun and RTB Bor, RMB8bn proceeds from the issuance of A-shares will contribute towards reducing the company’s debt and support Zijin’s active M&A plans.
Page 27 Company Guide
Zijin Mining
Earnings forecasts revision
Before revision After revision % changes (m RMB) 2019F 2020F 2021F 2019F 2020F 2021F 2019F 2020F 2021F LME gold prices (US$/oz) 1,392 1,434 1,405 1,393 1,463 1,434 0.1% 2.1% 2.1% LME copper prices (US$/ton) 5,995 5,935 6,113 6,000 6,060 6,242 0.1% 2.1% 2.1% Mined gold sales volume(kg) 37,050 39,200 39,200 37,050 39,200 39,200 0.0% 0.0% 0.0% Mined copper sales 0.0% 0.0% 8.3% volume(ton) 359,936 395,930 475,116 359,936 395,930 514,708 Refined copper sales 0.0% 0.0% 0.0% volume(ton) 499,676 574,628 609,105 499,676 574,628 609,105 Revenue 130,849 144,828 154,227 130,407 146,213 155,589 -0.3% 1.0% 0.9% EBITDA 12,062 13,167 14,543 12,759 13,657 14,763 5.8% 3.7% 1.5% EBIT 7,385 7,922 9,148 8,082 8,412 9,367 9.4% 6.2% 2.4% Pretax 6,191 7,213 8,490 6,888 7,722 8,738 11.3% 7.1% 2.9% Net Profit 4,020 4,683 5,512 4,472 5,014 5,674 11.3% 7.1% 2.9% EPS(RMB) 0.16 0.18 0.22 0.18 0.20 0.22 11.3% 7.1% 2.9% Source: Company, DBS Bank
Page 28 Company Guide
Zijin Mining
CRITICAL FACTORS TO WATCH Mined gold sales volume(ton)
Critical Factors Gold and copper prices. As gold and copper accounted for 61% and 26% of the group revenue, and 22% and 38% of group gross profit respectively in 2018, metal prices are definitely key critical factors for the company’s performance.
Copper production and sales volumes. Copper has become a key product that can drive its earnings growth in the wake of robust production growth in the copper mines under Mined copper sales volume(k ton) development. Thus, copper production and sales volume for its key mines are another critical factor for the group’s performance.
On-schedule capacity expansion and commencement of operations. Currently, the company is expanding the capacity in its key mines. Heilongjiang Duobaoshan copper mine’s production capacity will grow to 80k-90kt p.a. in 2019, from c.40kt p.a. in 2018. As of end-June, it was 83% completed, on the back of stage 2 expansion. Beyond 2020, the Kamoa mine in the DRC will be prepped to commence operations with a Refined copper sales volume(k ton) targeted annual capacity of 300k tons for copper. Zijin also plans to invest US$474m in development of the Cukaru Peki Upper Zone mine of the Timok copper-gold project, which is scheduled to start production in 2021. Hence, the on-schedule completion of capacity expansion and commencement of operations should be the other key critical factors to watch.
M&A and exploration activities for mines. Zijin has entered into a number of M&As and JVs globally to ensure the sustainable development of resources and reserves. Hence, its M&A Gold prices(US$/oz) activities should have a huge impact on its long-term earnings and share price. In 2019, the company plans to invest c.RMB6bn in the development and innovation of mines, RMB5bn in M&As and RMB400m in geological exploration. Zijin will attain full ownership of the upper and lower zones of the copper-gold Timok mine after its acquisition of the remaining 54% interest in the Lower Zone by 20 February 2020. Also, Zijin has successfully acquired Nevsun for c.US$1.4bn. In September 2018, it won the tender to become a strategic partner of Serbia's state-owned RTB Bor Group that LME Copper prices(US$/ton) is the country’s sole copper player, with a total investment of US$1.26bn to be paid within six years. For this venture, the company will initially invest US$350m (RMB2.4bn) for a 63% stake.
Source: Company, DBS HK
Page 29 Company Guide
Zijin Mining
Zijin Mining's share price vs gold spot price Remark
(US$/oz) Gold Spot Price Zijin Mining share price (R) (HKD) The company’s share price tends to move in tandem with 2,000 6 gold price, as gold is the 1,800 biggest revenue contributor. 5 In 2018, gold segment 1,600 accounted for 61% of the 4 company’s revenue and 22% 1,400 of gross profit. 3 1,200
2 1,000
800 1 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Source: Bloomberg Finance L.P., DBS Bank
Zijin Mining's share price vs LME copper price Remark LME Copper Price Zijin Mining share price (R) Copper segment is another (US$/ton) (HKD) important source of earnings 10,000 6 for the company, which 9,000 accounted for 26% of 5 revenue and 38% of gross 8,000 profit in 2018. As such, the 7,000 4 company’s share price shows similar trend with copper 6,000 3 price movements. 5,000 2 4,000
3,000 1 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Source: Bloomberg Finance L.P., DBS Bank
Zijin Mining's share price vs Dollar Index Remark
(pts) Dollar Index Zijin Mining share price (R) Its share price tends to move (HKD) in the opposite direction with 105 6 the US dollar. This is in line 100 with the general trend in gold 5 95 and base metal prices moving in the opposite direction with 4 90 the US dollar.
85 3
80 2 75
70 1 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Source: Bloomberg Finance L.P., DBS Bank
Page 30 Company Guide
Zijin Mining
Balance Sheet: Following a spate of mine acquisitions, the company’s net debt Leverage & Asset Turnover (x) had almost tripled to RMB29.4bn in 2016 from RM10.7bn in 2013, with net gearing surging to 0.9x from 0.4x in the same period. However, thanks to its capital increase of RMB4.6bn in June 2017, its net gearing ratio declined to 0.6x at the end of 2017. We forecast its net gearing to drop to 0.3x by end-2019, taking into consideration its capital increases this year.
Share Price Drivers: Metal prices. The company’s share price closely tracks the prices of gold and copper, which are set to remain as its largest Capital Expenditure and second largest earnings contributors respectively.
Key Risks: Key risks include i) volatility in metal prices; ii) mine exploration and project execution risks, iii) geopolitical risks including changes in mining code in the DRC, and iv) financial burden arising from M&As.
Environment, Social, Governance: Zijin has managed to maintain a good record in environmental aspects, with its 17 mining entities certified for their ROE environmental management systems. The company was able to recover 7.92m m³ of copper-containing acidic water and 7,255 tons of copper metal resources by channelling copper- containing pit water to copper hydrometallurgy plants to be reutilised. The company and its subsidiaries received multiple environment awards such as “2018 Green Development Exemplary Enterprise” and “Green Enterprise Management Award for the year 2018”. Zijin was also selected twice to be included in the China SGCX ESG50 Index in recognition of its good ESG-related investment activities and track record. Forward PE Band
Company Background Established in 2000, Zijin Mining (Zijin) is a local state-owned enterprise in Shanghang County and a dominant base metal producer in China. It ranks #1 for copper and #3 for zinc in terms of mineral reserves and resources in China. The company was listed on The Stock Exchange of Hong Kong Limited in December 2003, and on the Shanghai Stock Exchange in April 2008.
PB Band
Source: Company, DBS HK
Page 31 Company Guide
Zijin Mining
Key Assumptions FY Dec 2017A 2018A 2019F 2020F 2021F Mined gold sales 37.4 36.1 37.1 39.2 39.2 volume(ton) Mined copper sales 208.2 249.5 359.9 395.9 514.7 volume(k ton) Refined copper sales 431.2 436.0 499.7 574.6 609.1 volume(k ton) Gold prices(US$/oz) 1,258.0 1,269.1 1,393.4 1,463.1 1,433.8 LME Copper 6,166.0 6,523.0 6,000.0 6,059.7 6,241.5 prices(US$/ton) Source: Company, DBS HK
Segmental Breakdown (RMB m)
FY Dec 2017A 2018A 2019F 2020F 2021F Revenues (RMB m) Mine-produced gold 9,320 9,108 10,253 11,391 11,163 Refinery and processed 48,437 55,600 75,085 81,204 83,559 gold Mine-produced silver 603 505 541 517 540 Mine-produced copper 7,163 8,820 11,768 13,074 17,506 Refinery copper 18,061 18,964 20,101 23,347 25,490 Mine-produced zinc 4,067 4,012 4,274 4,511 4,340 Total 94,549 105,994 130,407 146,213 155,589 Gross Profit (RMB m) Mine-produced gold 3,164 2,857 3,652 4,267 3,896 Refinery and processed 268 141 190 205 211 gold Mine-produced silver 236 123 144 153 176 Mine-produced copper 3,625 4,405 5,081 5,645 7,558 Refinery copper 1,008 672 503 584 637 Mine-produced zinc 2,714 2,621 2,218 2,341 2,167 Total 13,177 13,343 14,905 16,216 17,635 Gross Profit Margins (%) Mine-produced gold 34.0 31.4 35.6 37.5 34.9 Refinery and processed 0.6 0.3 0.3 0.3 0.3 gold Mine-produced silver 39.1 24.3 26.7 29.5 32.6 Mine-produced copper 50.6 49.9 43.2 43.2 43.2 Refinery copper 5.6 3.5 2.5 2.5 2.5 Mine-produced zinc 66.7 65.3 51.9 51.9 49.9 Total 13.9 12.6 11.4 11.1 11.3 Source: Company, DBS HK
Page 32 Company Guide
Zijin Mining
Income Statement (RMB m) FY Dec 2017A 2018A 2019F 2020F 2021F Revenue 94,549 105,994 130,407 146,213 155,589 Cost of Goods Sold (81,372) (92,651) (115,502) (129,996) (137,954) Gross Profit 13,177 13,343 14,905 16,216 17,635 Other Opng (Exp)/Inc (6,293) (6,968) (6,823) (7,804) (8,268) Operating Profit 6,884 6,375 8,082 8,412 9,367 Other Non Opg (Exp)/Inc (459) (51) (100) (100) (100) Associates & JV Inc (29) 373 0 0 0 Net Interest (Exp)/Inc (2,013) (1,254) (1,428) (882) (807) Dividend Income 185 687 333 292 278 Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 4,568 6,130 6,888 7,722 8,738 Tax (1,320) (1,448) (1,626) (1,823) (2,063) Minority Interest 260 (589) (789) (885) (1,001) Preference Dividend 0 0 0 0 0 Net Profit 3,508 4,094 4,472 5,014 5,674 Net Profit before Except. 3,508 4,094 4,472 5,014 5,674 EBITDA 11,211 10,824 12,759 13,657 14,763 Growth Revenue Gth (%) 19.9 12.1 23.0 12.1 6.4 EBITDA Gth (%) 24.8 (3.5) 17.9 7.0 8.1 Opg Profit Gth (%) 41.4 (7.4) 26.8 4.1 11.3 Net Profit Gth (%) 90.7 16.7 9.2 12.1 13.2 Margins & Ratio Gross Margins (%) 13.9 12.6 11.4 11.1 11.3 Opg Profit Margin (%) 7.3 6.0 6.2 5.8 6.0 Net Profit Margin (%) 3.7 3.9 3.4 3.4 3.6 ROAE (%) 11.2 10.9 9.6 9.0 9.3 ROA (%) 3.9 3.6 3.7 3.9 4.2 ROCE (%) 2.1 3.1 3.1 4.0 4.4 Div Payout Ratio (%) 59.1 50.6 0.0 0.0 0.0 Net Interest Cover (x) 3.4 5.1 5.7 9.5 11.6 Source: Company, DBS HK
Interim Income Statement (RMB m) FY Dec 1H2017 2H2017 1H2018 2H2018 1H2019
Revenue 37,524 57,025 49,814 56,180 67,198 Cost of Goods Sold (32,049) (49,323) (42,717) (49,935) (59,642) Gross Profit 5,475 7,702 7,097 6,245 7,556 Other Oper. (Exp)/Inc (2,025) (4,268) (2,787) (4,168) (3,548) Operating Profit 3,450 3,434 4,310 2,078 4,008 Other Non Opg (Exp)/Inc (164) (295) 3 (55) (176) Associates & JV Inc 17 (46) (28) 401 11 Net Interest (Exp)/Inc (1,218) (795) (660) (594) (851) Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 2,151 2,417 3,781 2,362 3,040 Tax (388) (932) (712) (735) (800) Minority Interest (257) 517 (542) (47) (386) Net Profit 1,505 2,002 2,526 1,580 1,853 Net profit bef Except. 1,505 2,002 2,526 1,580 1,853
Growth Revenue Gth (%) (3.5) 42.7 32.8 (1.5) 34.9 Opg Profit Gth (%) 129.0 2.2 24.9 (39.5) (7.0) Net Profit Gth (%) 179.6 53.9 67.8 (21.1) (26.6)
Margins Gross Margins (%) 14.6 13.5 14.2 11.1 11.2 Opg Profit Margins (%) 9.2 6.0 8.7 3.7 6.0 Net Profit Margins (%) 4.0 3.5 5.1 2.8 2.8 Source: Company, DBS HK
Page 33 Company Guide
Zijin Mining
Quarterly Income Statement (RMB m) FY Dec 3Q2018 4Q2018 1Q2019 2Q2019 3Q2019
Revenue 26,359 29,821 29,042 38,156 34,429 Cost of Goods Sold (23,219) (26,715) (25,321) (34,321) (30,459) Gross Profit 3,139 3,106 3,721 3,835 3,969 Other Oper. (Exp)/Inc (1,979) (2,188) (1,698) (1,849) (1,837) Operating Profit 1,160 918 2,023 1,986 2,132 Other Non Opg (Exp)/Inc 5 (59) (67) (109) (33) Associates & JV Inc 61 340 6 5 44 Net Interest (Exp)/Inc (300) (294) (406) (445) (309) Exceptional Gain/(Loss) 0 0 0 0 0 Pre-tax Profit 1,024 1,338 1,574 1,466 1,824 Tax (339) (396) (380) (420) (486) Minority Interest (13) (33) (175) (210) (184) Net Profit 671 909 1,018 835 1,152 Net profit bef Except. 671 909 1,018 835 1,154 EBITDA 2,171 2,171 2,795 2,758 3,699
Growth (QoQ) Revenue Gth (%) (2.2) 13.1 (2.6) 31.4 (9.8) EBITDA Gth (%) (14.7) (10.0) 28.7 (1.3) 34.1 Opg Profit Gth (%) (37.6) (20.9) 120.4 (1.8) 7.4 Net Profit Gth (%) (53.0) 35.5 12.0 (18.0) 38.0
Growth (YoY) Revenue Gth (%) 7.8 (8.4) 27.0 41.6 30.6 EBITDA Gth (%) (31.1) 3.1 (18.0) (2.5) 53.2 Opg Profit Gth (%) (52.0) (9.9) (17.1) 6.8 83.8 Net Profit Gth (%) (5.3) (29.7) (6.2) (41.5) 71.7
Margins Gross Margins (%) 11.9 10.4 12.8 10.1 11.5 Opg Profit Margins (%) 4.4 3.1 7.0 5.2 6.2 Net Profit Margins (%) 2.5 3.0 3.5 2.2 3.3 Source: Company, DBS HK
Page 34 Company Guide
Zijin Mining
Balance Sheet (RMB m) FY Dec 2017A 2018A 2019F 2020F 2021F
Net Fixed Assets 33,433 39,500 41,986 40,678 42,513 Invts in Associates & JVs 6,797 7,042 8,042 15,042 16,042 Other LT Assets 20,410 35,889 34,760 33,381 32,006 Cash & ST Invts 5,936 10,090 14,865 14,876 19,813 Inventory 11,090 12,670 15,794 17,776 18,865 Debtors 2,812 1,010 1,242 1,393 1,482 Other Current Assets 8,837 6,679 5,464 5,564 5,564 Total Assets 89,315 112,879 122,152 128,709 136,284
ST Debt 9,856 15,617 9,000 8,000 9,000 Creditors 4,396 4,701 5,860 6,596 7,000 Other Current Liab 14,541 16,905 18,156 19,102 19,622 LT Debt 20,378 21,797 20,797 18,297 17,797 Other LT Liabilities 2,501 6,585 6,585 6,585 5,585 Shareholder’s Equity 35,000 40,455 52,928 57,942 63,615 Minority Interests 2,643 6,818 8,826 12,187 13,665 Total Cap. & Liab. 89,315 112,879 122,152 128,709 136,284
Non-Cash Wkg. Capital 3,801 (1,248) (1,516) (965) (711) Net Cash/(Debt) (24,298) (27,324) (14,933) (11,421) (6,985) Debtors Turn (avg days) 10.9 3.5 3.5 3.5 3.5 Creditors Turn (avg days) 20.8 19.5 19.3 19.3 19.3 Inventory Turn (avg days) 52.5 52.4 52.0 52.0 51.9 Asset Turnover (x) 1.1 0.9 1.1 1.1 1.1 Current Ratio (x) 1.0 0.8 1.1 1.2 1.3 Quick Ratio (x) 0.3 0.3 0.5 0.5 0.6 Net Debt/Equity (X) 0.6 0.6 0.2 0.2 0.1 Net Debt/Equity ex MI (X) 0.7 0.7 0.3 0.2 0.1 Capex to Debt (%) 16.3 19.9 20.3 9.7 21.9 Z-Score (X) NA NA NA NA NA Source: Company, DBS HK
Cash Flow Statement (RMB m) FY Dec 2017A 2018A 2019F 2020F 2021F
Pre-Tax Profit 4,568 6,130 6,888 7,722 8,738 Dep. & Amort. 4,327 4,449 4,677 5,245 5,397 Tax Paid (1,320) (1,448) (1,626) (1,823) (2,063) Assoc. & JV Inc/(loss) 29 (373) 0 0 0 (Pft)/ Loss on disposal of FAs 0 0 0 0 0 Chg in Wkg.Cap. (7,823) (6,190) 510 (550) (254) Other Operating CF 9,983 7,664 0 0 0 Net Operating CF 9,764 10,233 10,449 10,593 11,818 Capital Exp.(net) (4,942) (7,445) (6,037) (2,561) (5,860) Other Invts.(net) 351 145 (321) (321) (321) Invts in Assoc. & JV 263 (7,854) (1,000) (7,000) (1,000) Div from Assoc & JV 0 0 0 0 0 Other Investing CF (1,620) 1,514 300 300 300 Net Investing CF (5,948) (13,640) (7,057) (9,582) (6,881) Div Paid (3,188) (4,595) 0 0 0 Chg in Gross Debt (5,708) 15,710 (6,617) (1,000) 1,000 Capital Issues 0 0 8,000 0 0 Other Financing CF 6,223 (3,460) 0 0 (1,000) Net Financing CF (2,674) 7,655 1,383 (1,000) 0 Currency Adjustments (101) (69) 0 0 0 Chg in Cash 1,041 4,178 4,775 11 4,937 Opg CFPS (RMB) 0.78 0.71 0.39 0.44 0.48 Free CFPS (RMB) 0.21 0.12 0.17 0.32 0.23
Source: Company, DBS HK
Page 35 Company Guide
Zijin Mining
H Share - Target Price & Ratings History
HK$ S.No. Date Closing 12-mth Rating 5.0 Price T arget Price 4.5 1: 9-Jan-19 HK$2.76 HK$3.20 Buy 2: 26-Mar-19 HK$3.25 HK$3.20 Buy 4.0 3: 17-Apr-19 HK$3.45 HK$3.90 Buy 2 3 4: 2-May-19 HK$3.06 HK$3.90 Buy 3.5 8 5: 2-Sep-19 HK$2.93 HK$3.66 Buy 4 1 5 7 6: 31-Oct-19 HK$2.74 HK$3.66 Buy 6 3.0 7: 14-Nov-19 HK$2.93 HK$3.66 Buy 8: 10-Dec-19 HK$3.12 HK$3.90 Buy 2.5
2.0 Jul-19 Jan-19 Jan-20 Jun-19 Feb-19 Oct-19 Apr-19 Sep-19 Dec-19 Nov-19 Mar-19 Mar-19 Aug-19 May-19
Source: DBS HK Analyst: LEE Eun Young
A Share - Target Price & Ratings History
RMB S.No. Date Closing 12-mth Rating 5.0 Price T arget Price 4.5 1: 9-Jan-19 RMB3.04 RMB2.80 Hold 8 2: 26-Mar-19 RMB3.52 RMB2.80 Hold 4.0 3: 17-Apr-19 RMB3.63 RMB3.40 Hold 2 3 5 6 7 4: 2-May-19 RMB3.32 RMB3.40 Hold 3.5 4 5: 2-Sep-19 RMB3.66 RMB3.33 Hold 1 6: 31-Oct-19 RMB3.35 RMB3.33 Hold 3.0 7: 14-Nov-19 RMB3.49 RMB3.33 Hold 8: 10-Dec-19 RMB3.85 RMB4.40 Buy 2.5
2.0 Jul-19 Jan-19 Jan-20 Jun-19 Feb-19 Oct-19 Apr-19 Sep-19 Dec-19 Nov-19 Mar-19 Mar-19 Aug-19 May-19
Source: DBS HK Analyst: LEE Eun Young
Page 36 Company Guide
Zijin Mining
^ Bloomberg ESG Disclosure Scores rate companies annually based on their disclosure of quantitative and policy-related ESG data. It is based on a scoring scale of 0-100, and calculated using a subset of more than 100 raw data points it collects on ESG. It is designed to measure the robustness of companies' disclosure of ESG information in their reporting/the public domain. Based on Bloomberg disclosures, as of 25 Jan 2019, the global ESG disclosure average score is 24.92 and 22.14, 28.26, 49.97 for Environmental, Social and Governance, respectively.
DBS HK recommendations are based on an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return, i.e., > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)
*Share price appreciation + dividends
Completed Date: 8 Jan 2020 11:02:25 (HKT) Dissemination Date: 8 Jan 2020 11:48:50 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS HK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
Page 37 Company Guide
Zijin Mining
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 06 Jan 2020.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
3. Compensation for investment banking services: DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
4. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Page 38 Industry Focus Copper
DBS Bank recommendations are based on an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return, i.e., > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame) *Share price appreciation + dividends
Completed Date: 8 Jan 2020 16:35:32 (SGT) Dissemination Date: 8 Jan 2020 17:16:43 (SGT)
Sources for all charts and tables are DBS Bank unless otherwise specified.
GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Page 14
Page 39 Industry Focus Copper
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS'') or their subsidiaries and/or other affiliates have a proprietary position in Jiangxi Copper recommended in this report as of 30 Nov 2019. 2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
Compensation for investment banking services: 3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced: 4. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
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RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.
DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.
Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
Hong Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities.
Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.
Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.
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United This report is produced by DBS Bank Ltd which is regulated by the Monetary Authority of Singapore. Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.
In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication.
Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608 - 610, 6th Floor, International Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated Financial by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the Centre DFSA rulebook) and no other person may act upon it.
United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as Emirates defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.
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United States This report was prepared by DBS Bank Ltd. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
DBS Regional Research Offices HONG KONG MALAYSIA SINGAPORE DBS (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 13th Floor One Island East, 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 18 Westlands Road, Capital Square, Marina Bay Financial Centre Tower 3 Quarry Bay, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 3668 4181 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2521 1812 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] e-mail: [email protected] Company Regn. No. 196800306E
INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand
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