KGI: Zijin Mining Group Company Limited (2899 HK) – Round 2 of the commodities supercycle
alanyeo
Buy Entry – 9.5 Target – 11.0 Stop Loss – 8.8
Zijin Mining Group Company Limited is a China-based company principally engaged in the exploration, mining, smelting and sales of gold and other metal minerals. The Company’s main products include gold products, copper products, lead and zinc products, iron products, silver products, among others. Its gold products mainly include the mineral gold, standard gold bullions, gold ingots and gold concentrates, among others. The Company is also involved in the geographic survey businesses through its subsidiaries.
Gold and copper performed well during the last rate hike cycle. The last rate hike cycle began in December 2015 and ended in July 2019. There were nine rate hikes lifting the fed fund rate (upper bound) from 25bps to 250bps. The first rate hike was in 2015 , followed by once in 2016, three times in 2017, and four times in 2018.
First year performance: Gold price surged by 30% from the low in December 2015 to the peak in July 2016. Copper jumped by 19% from the low in February 2016 to the peak in May 2016.
Full cycle performance: Gold was up 35%, and copper was up 29%.
Echoes of the commodity super cycle. Commodities prices saw a spectacular jump in 2021. Just right before the bullish cycle kick-started, the market had called a super cycle. Even though those prices have corrected from the peak in 3Q21, the cycle may not have ended as the post-pandemic recovery upholds demand which is outpacing supply. For gold, we see an inverse correlation with cryptocurrencies. The further selldown of crypto could push some funds back to the yellow metal. For copper, it peaked twice in 2021, one in May and the other in October, and has nicely consolidated at above US$9,000/tonne after March 2021. Recently, copper has regained some upward momentum probably due to inventory build before Chinese new year.
Updated market consensus of the EPS growth in FY22/23 are 34.5%/7.4% YoY respectively, which translates to 9.8x/9.2x forward PE. Current PER is 15.8x. FY22F/23F dividend yields are 4.3%/4.8% respectively. Bloomberg consensus average 12-month target price is HK$15.9.
