24Q2 losses narrowed, maintaining a “buy” rating

The company's 24H1 revenue was 0.208 billion US dollars and net profit to mother was -0.032 billion US dollars; of these, 24Q2 revenue was 0.148 billion US dollars, and net profit to mother was -0.005 billion US dollars. The loss narrowed month-on-month, mainly due to the smooth resumption of production at the Jiama Mine Phase II plant, the return to normal operation of Changshan Ditch, and the increase in Q2 copper and gold prices. Based on the 24-year copper price trend from the beginning of the year to date; considering the US recession or negative impact on copper prices, we lowered the 25-26 copper price assumption; the 24H1 Changshan Trench Mine sales volume was lower than expected and the cost was higher than expected. We lowered the mine's 24-year sales assumption and raised the mine's 24-year cost assumption. Ultimately, the net profit from the company to mother in 24-26 was 0.135/0.314/0.471 billion US dollars, respectively (previous value:

$0.171/0.323/$0.474 billion). Using the segmented valuation method: The company's 24-year copper and gold business profits accounted for 47%/53%, respectively. Copper and gold comparison company Wind agreed to PE9.5/37.4X (24E). Considering that the company's main mine, Jiama Mine, has successfully resumed production, the predictability of performance has improved, reducing the company's valuation discount to 20%, that is, 7.6/30.0XPE (24E) for the copper and gold business, respectively, corresponding to a target price of HK$51.84 (previous value: HK$65.36), maintaining the “buy” rating.

Jiama successfully resumed production and Changshan Ditch operation returned to normal. The company is expected to achieve the annual production target of 24, and the Jiama Mine Phase II Plant will resume operation on May 30, '24. The ore processing capacity is 34,000 tons/day (68% of the original production capacity); at the same time, the first phase of the plant (6,000 tons/day) will stop operating. Therefore, the company achieved copper production of 2092/8363 tons and gold production of 0.11/0.26 tons respectively in 24Q1/Q2, which indicates that the Jiama Mine Phase II plant successfully resumed production. We judge that the company is expected to achieve production targets of 0.0432-0.0445 million tons of copper and 1.32-1.41 tons of gold for the whole of '24. Slope maintenance work was completed on January 4, '24, and mining activities returned to normal operating levels. Therefore, 24Q1/Q2 achieved gold production of 0.54/0.71 tons respectively. We determine that 24H2 gradually eliminated the impact of the reduction in 23H2 ore volume, and production and sales may further increase month-on-month, and production and sales may increase further month-on-month, and the target of 3.3-3.5 tons of gold production is expected to be achieved throughout '24.

Copper and gold prices rose a lot month-on-month in 24Q2, further helping the company narrow its 24Q2 losses. Apart from the month-on-month increase in sales of Jiama mine and Changshanchou mine, the metal prices mainly involved in the month-on-month increase, as well as the month-on-month decline in the cost of the Jiama mine and Changshanchou mine are also the reasons for the narrowing of 24Q2 losses. In terms of price, the average price of copper and gold rose 16% and 13% in 24Q2, respectively. In terms of cost, the sales cost of 24Q1/Q2 of the Jiama mine was 9.57/4.44 US dollars/pound respectively. The month-on-month decline was mainly due to the successful resumption of production in the second phase of the Jiama mine, which led to a month-on-month increase in 24Q2 copper and gold sales; the sales cost of 24Q1/Q2 in Changshan Ditch Mine was 1653/1608 US dollars/ounce, respectively. The decline was gradually eliminated due to the gradual elimination of the impact of the reduction in 23H2 ore volume, which led to a month-on-month increase in gold production. In addition, the company confirmed in 24Q2 that the Jiama mine was fined about 8.8 million US dollars for land use, which was a one-time profit reduction.

Risk warning: After the resumption of production at the Jiama mine, the pace of production climbing fell short of expectations; copper and gold prices were lower than expected.