The company's recent situation
On March 15, the company announced that its wholly-owned subsidiary African Minerals Limited plans to acquire 65% of Junction's shares. The main asset is the Kitumba copper mine in Zambia. With the completion of this transaction, the company will hold a total of 65% of Junction's shares and 65% of the Kitumba copper mine project.
reviews
We believe that the company is deeply involved in Africa and continues to expand its business layout based on industrial capacity. This time, it is entering the copper mining business efficiently through the acquisition of smelters and mines, which is in line with the strategic direction of “being a world-class resource-based mining company”. Copper is expected to become the third largest business after the rubidium and lithium businesses, further opening up room for long-term profit growth.
This acquisition has favorable consideration, and Kitumba has good development conditions. First, judging from development conditions, Kitumba is located about 240 km north of Lusaka in Zambia, with good infrastructure such as mining road conditions, and an initial capital investment of about US$433 million; second, in terms of resource endowments, Kitumba has 614,000 tons of copper resources, 490,000 tons of copper reserves, an average grade of 2.20%, and there are still abnormal areas such as Kakozhi, Mushingashi, and Mutoya in the mining area, which have good mineralization potential and prospecting prospects; third, from an economic point of view, based on Predictable in 2015, the mine C1 cost is about 3,527 US dollars/ton, and the full cost is about 4255 US dollars/ton. Fourth, judging from the purchase price, the consideration for each ton of equity resources purchased this time is about 1,055 yuan/ton, which is lower than the average value of 1,439 yuan/ton since 2007. The overall valuation is relatively favorable.
The company previously had copper resources and smelter layouts, which may have produced good synergy effects. According to China Nonferrous Metals Network, on March 7, the company purchased the Tsumeb Smelter in Namibia for 49 million US dollars. The smelter is one of the few special smelters in the world that can handle complex concentrates such as high-arsenic copper concentrate. The concentrate processing capacity is 260,000 tons/year, and the concentrate processing capacity can be increased to 370,000 tons/year after technical improvements. It is worth mentioning that Namibia and Zambia are members of the Southern African Development Community. The organization aims to establish an open economy, break the tariff ratio, promote mutual trade and investment, and also lay the foundation for the company's subsequent expansion of copper resources in southern Africa.
Profit forecasting and valuation
We keep our 2023-2025 profit forecast unchanged. The current stock price corresponds to a price-earnings ratio of 13.6 times/11.6 times for 2024/2025. We maintain an outperforming industry rating. Since copper acquisitions are expected to bring about long-term profit growth, we raised our target price by 16% to 53.85 yuan, corresponding to 18.0 times and 15.3 times P/E in 2024 and 2025, with 32% upside compared to the current stock price.
risks
Acquisition progress fell short of expectations; policy risks in overseas resources; lithium prices declined faster than expected.