Attractive inflation play with growth engines
- Key beneficiary of strong gold and copper prices
- Aggressive M&As and capacity expansion to drive strong output growth
- Acquisition of lithium mine to enhance its growth potential; operations to commence in 2023.
- Upgrade A-share to BUY as we lift TP to RMB14; maintain BUY on H-share on higher TP of HK$15
Upgrade A-share to BUY; raise TPs for A/H-shares on higher metal prices. We upgrade our call for A-share and raise our target prices (TPs) for A- and H-shares to RMB14 and HK$15, respectively. We have lifted FY22F/FY23F EPS by 31%/21% after raising forecasts for prices and sales volume of copper and gold. Copper and gold prices, critical factors driving its earnings, are now stronger than our expectations at tight market. Both assets are good hedges in a high inflation environment.
Tailwinds from production growth in key mines. Thanks to a series of M&As, the company’s production volume is set to increase. The management guided that production volume of mined gold and mined copper will grow by 26% and 47% respectively in 2022 and the output of copper and gold is expected to double in 2025 vs. 2021, driven by ramp up in its key mines globally. Despite the volatility in metal prices, volume growth would underpin earnings growth in the mid to long term. In addition, the recently developed key mines would enhance profitability by producing high grade ores.
More growth from lithium business. Zijin Mining has acquired a 100% stake in Neo Lithium for CAD$960m in Jan 2022 and will produce battery grade lithium carbonate from 2023 from the lithium brine lake in Argentina’s 3Q Project . This should enhance its earnings growth potential given that estimated IRR is 50%.