Incident 1: The company plans to invest in the expansion of the Fankou Lead-Zinc Mine Resource Integration Phase I Shiling East Mining Section Project. According to the announcement, CICC Lingnan plans to invest 913 million yuan to build the Fankou lead-zinc mine resource integration phase I Shiling East mine expansion project. The project will expand the scope of the Fankou lead-zinc mine mining license to 4.314 km, adding 666,500 tons of lead-zinc metal within the license. The construction period is expected to begin within one year. The construction period is 3 years, and the Shilingdong section will produce 300,000 tons/year after delivery.

Incident 2: The company plans to invest in the optimization and adjustment of the Guangxi Panlong lead-zinc mine mining and production expansion project. The current production capacity of Guangxi Zhongjin Lingnan Mining is 3,000 tons/day (or 800,000 tons/year). The company plans to implement the Panlong lead/zinc mine 6,000 tons/day extraction expansion and transformation project according to the optimization plan. The construction period of the project is 3 years, reaching 1.98 million tons/year after delivery.

Mine-side supply is disrupted, and lead and zinc prices have continued to rise recently

In recent years, due to climate change and geopolitical factors, overseas mine supply has been disrupted, and production cuts and production stoppages are frequent. Among them, Peruvian zinc miner Volcan stopped production, Russia's Ozernoye mine delayed production, etc., and the supply of raw ore was clearly insufficient. TC prices continued to be sluggish due to mine-side disturbances.

As of May 2024, the average TC price of lead concentrate fell to 35 US dollars/thousand tons, and the average TC price of zinc concentrate fell to 20 US dollars/thousand tons. Currently, lead and zinc prices are rising. According to data from the Business Association, the spot price of lead/zinc was 1.91/241,000 yuan/ton respectively on June 27, +25.0%/+18.8% compared with the same period last year. It is expected that Q3 will enter winter storage, and lead-zinc prices will remain high.

Overseas copper deposits are expected to be released in 25 years. Copper metals drive performance growth, and the company's domestic Panlong and Fankou projects are progressing steadily, and lead-zinc ore holdings continue to increase; overseas projects promote the deepening of the overall industrial chain layout and explore the potential for copper ore to increase profits. The company is promoting the Maimon mine project in Dominica with an annual output of 2 million tons of ore. It is expected to be ready for use in December 2024. After commissioning, it is expected to produce about 32,000 tons of zinc, 26,000 tons of copper, 890 kg of gold, and 24 tons of silver. The company constructed two boreholes at the La Yaguaza-Los Sosa porphyry copper mine prospecting target in Dominica. The DA-29 hole reached a depth of 1071.70 meters. The DA-30 borehole reached 883.65 meters. The company obtained a mineral rights environmental license for the target area in the southwestern part of the Barbuito exploration area on September 20, 2023, after which the area will be investigated. It is expected that the two major exploration projects will drive the continued expansion of copper and zinc resource holdings in the Maimon mine project. Considering the time when Maimon Mine was put into operation and the copper ore volume is expected to be released in 2025, the project will become an important source of overseas profits for the company. The company's planned production volume for 24 years: 263,300 tons of lead-zinc concentrate, 457,000 tons of lead-zinc smelting, 12,700 tons of copper concentrate, and 428,700 tons of electrolytic copper. The copper industry chain is expected to achieve full process integration and internal and external linkage with the new materials industry, which is expected to drive increased performance.

Investment advice

We expect the company's net profit to be 8.45/10.16/1,140 billion yuan respectively in 2024-2026 (the previous value was 16.4/2.09 billion yuan in 2024-2025, conservatively considering the downward risk reduction in lead and zinc prices), and the corresponding PE will be 18.75/15.60/13.91 times, respectively, maintaining the “buy” rating.

Risk warning

The release of production capacity fell short of expectations; prices of metals such as copper, lead, and zinc fluctuated greatly; overseas business risks, etc.