Report summary:
China Color Co., Ltd. is an internationally renowned multinational company with the collaborative development of the two main businesses of engineering contracting+resource development. Its performance has been growing steadily over the years. The controlling shareholder of the company is China Nonferrous Mining Group Co., Ltd., and the actual controller is the State Council's State-owned Assets Administration Commission. The company's main business is engineering contracting business, non-ferrous metal resource development and equipment manufacturing. Total revenue in 2023 was $9.361 billion. Zinc ingots and zinc alloys, lead-zinc concentrates, engineering contracting, and equipment manufacturing (and others) accounted for 21.0%, 26.2%, 42.3%, and 10.5%, respectively. The company's net profit has continued to rise in the past five years, and management results in cost reduction and efficiency are remarkable. In the first quarter of 2024, the company achieved the best single-quarter performance in history, achieving net profit of 300 million yuan to mother, an increase of 293.87% over the previous year, mainly due to the successful settlement of some projects in the engineering contracting sector, which drove the volume of performance.
The company has abundant mineral resources, and the current production of lead-zinc ore is stable. The company has 2 mines in production (Aobao Zinc Mine and Baiyinol Lead-Zinc Mine) and 1 mine under construction (Darey lead-zinc mine), with a total of 5 mining rights and 4 prospecting rights. It holds total mineral resources of 3.8011 million tons of zinc and 1,7337 million tons of lead. In 2023, the company produced 205,900 tons of zinc ingots and zinc alloys, +4.47% year over year, and zinc and lead concentrate production was 74,100 tons, +6.74% year over year.
After Indonesia's Dari lead-zinc mine is completed and put into operation, the company's lead-zinc production will increase significantly. Located in Indonesia, Dari's lead-zinc mine is one of the largest undeveloped high-grade lead-zinc deposits in the world. Currently, the total resources/reserves held by the Darrui lead-zinc mine are: 20.09 million tons of ore, 2.2562 million tons of zinc, 1.32,300 tons of lead, an average grade of zinc of 10.90%, and an average grade of lead of 6.38%.
The mine has a design production capacity of 1 million tons/year. Based on grades of 6.38% lead and 10.90% zinc, it is estimated that it can produce an average of 170,000 tons of lead and zinc per year.
The Darey lead-zinc project continues to advance, and we look forward to positive developments. In 2023, the company focused on key issues in the construction of the Dari lead-zinc mine project. The senior shareholders of Dari Mining strengthened talks and visits, successfully reached an agreement on a package of issues such as project financing and capital injection, and vigorously promoted changes in the no-end construction plan for sulfur extraction. In order to meet Dari Mining's financing conditions, the company has provided Dari Mining with a joint liability guarantee of US$245 million. Currently, Darey Mining is actively carrying out project planning and other work. In the future, when conditions such as construction funds are in place, it will accelerate the construction of the project and strive to complete and put it into operation as soon as possible.
Profit forecast and investment advice: We expect the company's net profit from 2024 to 2026 to be 623 million yuan, 662 million yuan, and 725 million yuan, which will be covered for the first time to give it an “increase in wealth” rating.
Risk warning: Lead-zinc prices, production and sales fall short of expectations, profit forecasts and valuation models fall short of expectations, etc.