occurrences
Operating income increased 57% year on year, net profit increased 95%, and net profit declined sharply after deducting non-profits
The company's revenue in the first half of the year was 97.59 million yuan, an increase of 57% over the previous year, the net profit of Guimu was 339 million yuan, an increase of 95% over the previous year, and the net profit of Gimu after deduction was 0.2 billion yuan, a decrease of 86.16% over the previous year. The company's production and operation were steady, producing 17,600 tons of copper in the first half of the year, an increase of 8.63% over the previous year. The SMCO copper-cobalt production line technical improvement project has entered the civil engineering installation and construction stage. The first phase of the cobalt hydroxide production line (3000 tons of cobalt metal/year) production line project has been successfully completed and has entered the commissioning stage. The resumption of production at the Oni Gold Mine is progressing steadily. Since the mine was successfully released on June 7, 2018, various work to resume production has been carried out in an orderly manner.
About 8,678 tons of gold ore were mined in the first half of 2019, achieving gold sales of 16 kilograms.
As the Oni Gold Mine gradually completes the resumption of production and achieves production, the Oni Gold Mine will become an important profit growth point for the company.
Brief review
Copper prices suppressed profits in the first half of the year, and cobalt and gold projects are poised to go
The sharp increase in the company's net profit attributable to shareholders of listed companies in the first half of 2019 was mainly due to increased investment income. In June 2019, the company sold 51% of its subsidiary Dazi Pengxin's shares, achieving value-added income of 395 million yuan. However, due to the decline in copper prices and the increase in the use ratio of outsourced mines, the cost of cathode copper increased, resulting in a sharp drop in the net profit returned to the mother after deduction. In the first half of the year, the company completed the construction of a cobalt hydroxide production line and began trial production, and production at the Oni Gold Mine in South Africa resumed production is also gradually increasing. The company will switch from relying entirely on the profit of the SMCO copper ore project to multi-line copper, cobalt and gold. Profitability has been greatly enhanced, and its resilience to risks has improved markedly.
The company produced 17,600 tons of cathode copper in the first half of the year, and the sector achieved operating income of 720 million yuan, accounting for only 7.4% of total revenue, but its gross profit contribution rate was close to 100%, and the company's profit depended heavily on the mineral copper business. Meanwhile, the average price of copper in the first half of the year was 6,100 US dollars/ton, down 11% year on year. The decline in copper prices led to a significant decline in the sector's gross profit margin, which affected the company's overall profit. The company's gross profit for the first half of the year was 264 million yuan, a year-on-year decline of 31%. This is also the main reason for the decline in profit after deduction. The company began actively developing cobalt and gold businesses in 2018 due to the decline in copper reserves in Hitulu in the Democratic Republic of the Congo (DRC). Through the construction of a new cobalt hydroxide phase I production line project at SMCO, the cobalt hydroxide phase I (3000 tons of cobalt metal/year) production line project was successfully completed during the reporting period and entered the commissioning stage. In addition to this, an important growth point for the company's future performance is the resumption of production project at the Oni Gold Mine in South Africa. The Oni Gold Mine has abundant resource reserves of about 501.74 tons. The gold grade is high, with an average grade of about 7.04 g/ton. In the first half of the year, the company's assets at Oni Gold Mine in South Africa successfully resumed production. The gold mine mined 8,678 tons of ore, and achieved gold sales of 16 kilograms. It is estimated that 700 kilograms of gold can be produced in 2019. As the resumption of production progresses, the full production of the Oni Gold Mine can achieve an annual output of 11.74 tons by 2023, bringing in gross profit of 1,122 million yuan.
While stabilizing mining production, the company continues to strengthen upstream resource reserves and downstream new energy, trade and other business arrangements. The company obtained 25 years of leasing and development rights for the PE1078 plot from the Democratic Republic of the Congo (DRC) National Mining Company. The total area of the mining area is 184 kilometers, the copper grade is 0.5 to 3.5%, and the cobalt grade is 0.1 to 1%. Preliminary estimates are that there will be 500,000 tons of metallic copper resource reserves and 100,000 tons of metallic cobalt resource reserves. The distance from the existing copper-cobalt production base is about 35km, making full use of the production conditions of the existing base. At the same time, the company purchased 16.17% of Australian Clean Teq's shares. Its Sunrise nickel-cobalt project is the world's largest ore project and one of the highest-grade nickel-cobalt deposits in the world, with reserves of 19,200 tons of cobalt; cobalt reserves are 132,000 tons, with a grade of 0.13%.
The mine signed a five-year underwriting agreement with Dangsheng Technology ahead of schedule, locking in about 20% of the production of cobalt sulfate and nickel sulfate. The project has now successfully completed the Definitive Feasibility Study Report (DFS). In July 2019, the company intended to buy 51% of Xueyin Mining's shares at a price of 204 million yuan. The company held copper and pyrite assets in Caihuagou, Xinjiang, and achieved operating income of 175 million yuan and net profit of 367.87 million yuan in 2018. In terms of trade business, the company achieved a trade volume of 8.887 billion yuan in the first half of 2019, an increase of 68.54% over the previous year. In addition to the main business of cathode copper, silver, and aluminum, various types such as rubber, tin, manganese, and chrome have also been added. The scale of trade has increased significantly, and a stable customer base has been formed. The company is actively building a new energy business platform, and Shanghai Pengpo New Energy Development Co., Ltd., which participated in the establishment, will focus on the overall layout of the ternary power lithium battery cathode materials industry chain. By laying out upstream and downstream industries, combining traditional business with emerging business, it will further enrich the company's business, greatly enhance its resilience to risks, and create more profit growth points.
We expect the company's revenue from 2019 to 2021 to be 17.226 billion yuan, 19.262 billion yuan and 21.941 billion yuan respectively, up 22.1%, 11.6% and 13.9% year-on-year; achieving net profit of 456 million yuan, 536 million yuan and 876 million yuan, up 129.8%, 17.6% and 63.3% year-on-year; and EPS per share of 0.22 yuan, 0.25 yuan and 0.41 yuan respectively. Net assets per share were $2.77, $3.03, and $3.44, respectively. The corresponding PE from 2019 to 2020 was 23.71 times, 20.16 times, and 12.35 times, respectively, and PB was 1.9 times, 1.7 times, and 1.5 times, respectively. Considering the reduction in supply in the copper and cobalt industry, prices are expected to rebound steadily. The company's diversified non-ferrous business has begun to gain strength, giving the company an increase rating of 25 times PE in 2019, with a target price of 5.5 yuan for 6 months.
Risk analysis
Poor demand has led to a decline in copper prices. At this stage, the company's business profits still depend on the Hituru Copper Mine.
The cobalt hydroxide production line was not put into operation smoothly, affecting later production.
The Democratic Republic of the Congo (DRC) introduced strict policies, causing damage to the company's operations.