Key points of investment

Jinchuan Group's overseas resource platform to build a global mining company. The actual controller of the company is the Gansu State-owned Assets Administration Commission, and the majority shareholder is Jinchuan Group. The company is positioned as the Group's flagship platform for developing overseas mineral resources. It currently includes 2 mines in operation: Ruashi and Kinsenda, 1 Musonoi project, a rental mine, the Chibuluma South Mine, and 1 mine in exploration status. The Jinchuan Group has significant resource advantages. In 2023, Jinchuan Group ranked third in the world in nickel production, fifth in the world in cobalt production, first in Asia in terms of mineral platinum group metals, and fourth in the country for copper production.

Changes in copper and cobalt prices are a major factor affecting the company's performance. The company's performance in 2019-2023 experienced a sharp fluctuation from trough to peak to trough. Among them, the company's mining business revenue continued to rise in 2019-2022, rising from US$368 million to US$649 million, with a compound annual growth rate of 20.82%. The trade business has declined sharply since 2020, and has basically fluctuated slightly around US$200 million since 2020. The main reason for the changes in the company's performance is the rise and fall of copper and cobalt prices. In addition, factors such as public events, policy changes, unstable electricity supply, and exchange rate fluctuations disrupted the company's performance.

Resources are abundant, and the Musonoi project is about to be put into operation. Ruashi mine/Kinsenda mine is the company's main production mine, and production is relatively stable. Among them, the Kinsenda mine is one of the highest grade copper deposits in the world, with a grade of more than 5%. The Musonoi project is a mine under construction by the company. Currently, the main project is basically completed. The copper and cobalt grade is 0.97/0.64pct higher than the Ruashi mine. According to related reports, the Musonoi mine can bring 38,000 tons of copper production and 0.78 million tons of cobalt production capacity after it is put into operation, which is the main driving force for the company's future growth.

Copper prices have been bullish for a long time, and cobalt prices are expected to be stable. Since 2024, copper supply has continued to be tight, and shortages at the mine end have spread to the smelting side. TC/RC processing fees have fallen to historic lows, smelters have lost large areas, and the copper price center continues to rise. Considering future green energy transformation needs, the supply and demand gap is expected to widen in the next three years. Furthermore, the recovery in the macroeconomic environment at home and abroad has boosted the rise in copper prices. The main downstream new energy vehicles for cobalt are growing rapidly. On the supply side, such as Molybdenum, Glencore, and Indonesian nickel projects, etc., continue to expand, and the cobalt market will remain oversupplied.

Investment proposal: We expect the company to achieve revenue of US$747/11.89/US$1,422 million in 2024-2026, with net profit of US$0.75/1.88/US$262 million, approximately HK$585/14.68/HK$2,050 million based on the USD/HKD exchange rate of 7.82, EPS of HK$0.05/0.12/0.16, and corresponding PE of 18.8/7.5/5.4.

Risk warning:

The risk of the Musonoi project falling short of expectations; risk of metal price fluctuations; geopolitical risk; risk of exchange rate fluctuations, etc.