Zijin Mining refinance $2.5 billion to give it a “buy” rating
On June 17, '24, the company raised an additional $2.5 billion in the H share market from overseas investors. The refinancing has not yet been fully completed. Without considering capital dilution and financial cost savings, we expect net profit of RMB 315/405/49.2 billion and EPS of RMB 1.20/1.54/1.87 for 24-26. Comparable to the company, the average PE value for 24 years was 12.7X PE. Considering that the company is a leading domestic copper mining enterprise, the company was given 15.3X PE in 24 years, with an average premium rate of 13% for A/H shares in the past three years. The estimated target price for A/H was 18.3 yuan/HK$17.8, giving it a “buy” rating. We estimate that this refinancing will dilute the share capital by up to 4%, but increase net profit to the mother by 3%. Overall, the impact of refinancing on earnings per share is limited.
The total amount of convertible bonds issued and placed was 2.5 billion US dollars, diluting the share capital by up to 4%. On June 17, '24, the company raised an additional 2.5 billion US dollars in the H share market from overseas investors. This includes 1) the issuance of $2 billion convertible bonds: the initial conversion price was HK$19.84 (21.57% premium over the closing price of H shares on the 17th), and the coupon was 1.0%, which could be converted to approximately 787 million H shares; 2) placement price of approximately HK$15.5 billion (5.02% off the closing price of H shares on the 17th), raising a total capital of HK$3.9 billion (approximately US$500 million). Since the H share convertible debt-for-share price has a high premium, there are few discounts in this placement, and the company currently has a large number of shares in stock (about 26.3 billion shares), the share capital was diluted less after this refinancing was issued. Based on the number of convertible bonds/placed shares, they each accounted for 2.99%/0.96% of the issued shares. Even if all late-stage convertible bonds were converted into shares, the share capital was diluted by less than 4%.
Used to repay overseas debts and save financial expenses, it is expected to increase net profit due to mother by 3%. The funds raised in this refinancing are mainly used to repay the company's overseas debts. At the end of '23, the company's total foreign currency liabilities amounted to about $52.9 billion, of which US dollar debt was 47.1 billion yuan. The US dollar interest rate is currently high, and the SOFR 6-month interest rate (as of June 17) is as high as 5.39%. Assuming that all of this refinancing of 2.5 billion dollars is used to replace high-interest dollar liabilities, it will save more than 1 billion yuan in financial expenses every year.
Based on our expectations of the company's net profit of 31.5 billion yuan in 24 years and an average effective income tax rate of 18% for 21-23, we estimate that after the replacement is completed, it is expected to increase net profit to mother by 800 million yuan, an increase of 3%.
Steadily help the new five-year journey, planning the mineral copper and gold CAGR 8-10%. On May 16, 24, the company announced a new five-year (24-28) plan, proposing to achieve the comprehensive index ranking to enter the world-class mining industry in 28 years, with copper and gold products entering 3-5 places in the world, and lithium entering the top 10 in the world; achieving a 24-28 CAGR of mineral copper and mineral gold production of 8%-10%, etc.; the pace of expansion is fast, and there is also a high demand for capital. This refinancing will consolidate the foundation for the company's future growth in terms of liquidity, balance and liability structure, expenses (profit), etc., and help the company achieve its goals for the next five years. Furthermore, this refinancing was oversubscribed several times. Most of the subscription funds were world-renowned long-term funds and hedge funds, reflecting global capital's recognition of the company's operations.
Risk warning: To complete refinancing, some conditions must be met, such as no significant adverse changes in the overall situation of the company before delivery; new projects progressing more slowly than expected; and commodity prices fluctuated.