Jiama mining tools are expected to resume production, maintaining a “buy” rating

The company achieved revenue of US$459 million in 2013 (yoy -58.42%); net profit to mother of US$26 million (yoy -111.45%). Based on the company's production guidelines and actual trends in copper and gold prices since the beginning of '24, we assume a reduction in production and sales and an increase in copper and gold prices. We expect the company's net profit to mother of US$125/4.39/US$433 million in 24-26, respectively (previous value: US$326/331/-US$331 million). Since 24 is or the first year of the resumption of production at the Jiama mine, the performance is not of reference significance, the target price is calculated based on the 25-year performance; a segmented valuation method is used. The company's copper and gold businesses accounted for 59%/41% of their profits in '25, respectively. Copper and gold comparison company Wind agreed to expect PE 8.2/18.9X (25E), considering that the company's profit sources were concentrated, giving the company a 30% valuation discount, that is, 5.7/13.2XPE (25E) for the copper and gold business, respectively, corresponding to a target price of HK$78.37 (previous value: HK$45.04), maintaining the purchase rating.

Both mines were in an abnormal state of operation, causing the company to lose slightly in '23, the main reason for the decline in company profits: 1) Since March 27, '23, the operation of the Jiama mine was suspended due to tailings outflow from tailings depot, and almost only 23Q1 was in production. In the whole year, copper and gold production were only about 20,000 tons/0.6 tons, respectively, and the total production cost per pound of copper rose to 5.17 US dollars (YOY+2.03 US dollars), so the mine's gross profit fell sharply by US$331 million to US$65 million. 2) Comprehensive slope treatment was carried out at the Changshan Trench Mine in 23Q3-4, so 23Q3-4 gold production was reduced to 1.03/0.76 tons, 23 annual production was about 4 tons, and the total unit production cost rose to 1,420 US dollars/ounce (YOY+80 US dollars/ounce). However, according to the Shanghai Gold Exchange, the average price of gold rose 15% year on year to 450 yuan/gram, offsetting the impact of some of the decline in production on performance. The mine achieved gross profit of 54 million US dollars (YOY-0.15 billion US dollars) in '23.

The company expects to fully resume production at the Jiama copper-gold polymetallic mine in May 24. After production is stopped at the Jiama mine, the company will make every effort to resume production and carry out a comprehensive restoration and safety assessment of the tailings depot.

On December 15, '23, the mine resumed underground gap management and phase I selection. The ore processing capacity was 6,000 tons/day (12% production capacity), and the output tailings were backfilled into the underground gap. Since then, the company has continued to push for full resumption of production. Currently, all repairs and reinforcement of the Guolanggou tailings depot have been completed, and the safety assessment report has been completed, awaiting government inspection and approval; the review process of the tailings discharge plan is being carried out simultaneously. The company is expected to receive approval from the government to resume full operation in May '24. The remaining production capacity will be started after the second phase of plant selection and production is resumed; and production guidelines for 24 years will be given: 432-44,500 tons of copper and 1.32-1.41 tons of gold. The actual time for the resumption of production and production in 24 years depends on the final date of approval issued by the government, and there is some uncertainty.

Changshanbo Gold Mine completed slope treatment and resumed normal production

As of January 4, '24, slope maintenance work has been completed at the Changshan Trench mine, mining activities (mining, shipping, crushing and landfill) have returned to normal operating levels, and the company gave 24-year production guidelines of 3.3-3.5 tons. The full resumption of mining activities at Changshan Ditch has laid a solid foundation for strengthening the company's financial and production performance in '24. Furthermore, the mine is gradually approaching the end of the mine's life, and the company continues to evaluate the possibility of land mining.

Risk warning: The progress of resuming production at the Jiama mine fell short of expectations, and the Federal Reserve cut interest rates slower than expected.