Event: the company issued a "notice on the progress of the construction of fund-raising investment projects": the second phase of the project includes roadway excavation, ventilation system, crushing system (2 KB63-75 hydraulic rotary semi-mobile crushers), transportation system, emergency shelter and other construction contents. The first crusher in the crushing system has completed the installation and commissioning of the machinery and equipment and entered the pre-trial production stage.
The origin of the company's copper project: the Pala Bora Copper Mine (PC), located in Limpopo province in northern South Africa, was first developed by Rio Tinto PLC of the United Kingdom and Newmont of the United States (through subsidiary PMC) in the 1960s.
In 2013, Hegang Group led the formation of a Chinese consortium and South Africa Industrial Development Co., Ltd. (IDC) jointly acquired South Africa's PC mine, and in 2017, the listed company acquired a 100% stake in Silian Hong Kong by issuing shares, thus taking control of the PC mine. Since PC Mine was placed into a listed company, the company has mainly relied on the first phase of the copper mine project to contribute production, but as the original mining time of the first phase of the copper mine project was up to 2017, and the production was discontinuous, the company's copper output was small and unstable in recent years, and the copper business was basically in a state of slight loss or break-even. The second phase of the company's copper mine project was originally planned to be completed and put into production before 2019, but it was postponed to September 2023 due to the epidemic and other factors.
The second phase of the copper mine will gradually release volume: the company's copper project is currently in the first phase of the copper mine project is close to the closure of the pit, the second phase of the copper mine project has been partially put into production and entered the stage of construction while production. The first phase of the company's copper project is expected to be closed in the first half of 2024, and the second phase of the project is expected to be fully put into production by the end of 2024 (the transformation of the smelter matched with the second phase of the project has been completed and is expected to be put into use in 2024) and full production in 2026. At that time, the company's metal copper output will reach 70,000 tons / year.
How to treat the profitability of Copper Phase II? As the second phase of the company's copper mine has not yet been put into production, the real cost is difficult to judge. We take the cost of the first phase of the copper mine as a reference, and the production cost was maintained at 23,000-26,000 yuan / ton before the completion of the first phase of the project in 2014-2016, but the cost was low because the first phase of the copper mine had less depreciation and amortization at that time. The grade of the second phase of the copper mine is higher than that of the first stage, but the operation depth is greater, and the cost of roadway ventilation and ore lifting is higher. Taking into account factors such as depreciation and amortization, the total cost of the second phase of the copper mine is estimated to be 35,000 yuan / ton. Assuming that the price of the second phase of copper products refers to the electrolytic copper price of 65,000 yuan / ton (about 57500 yuan / ton after tax deduction), considering that 28% of the resource income tax in South Africa and PC's net profit are converted into 59.2% of the company's net profit, it is expected that the copper mining business after delivery is expected to contribute 672 million yuan to the company's annual return net profit.
Iron ore profit is expected to maintain a high level: Parabola copper mine is associated with copper and iron, which mainly uses copper resources in the historical production process. Magnetite is stored on the ground of the plant after simple screening, and the current storage capacity is about 140 million tons, with an average grade of 58%. The company's average annual magnetite shipment is about 8.5 million tons, magnetite can be sold by the company for more than 17 years, and the development potential is huge (after the second phase of copper project was put into production. The annual increase in ground storage is 2 million tons, with an average taste of 62%). At present, domestic hot metal production remains high, while the increment of global iron ore supply is low in 2023, iron ore shows a "high demand, low inventory" situation, iron ore prices are expected to remain high, thickening the company's profits. We assume that the average sales price of magnetite in 2023 is US $106.33 / ton, the cost per ton is US $65 / ton, and the shipment volume is 7.5 million tons, then the magnetite business is expected to contribute 879 million yuan to the company's net profit in 2023.
Profit forecast and investment advice: as the copper phase II project is gradually put into production and iron ore prices remain at a high position, the company's performance is expected to achieve sustained growth. We estimate that the return net profit of 2023-2025 company is 9.41,13.11 and 1.652 billion yuan respectively, the EPS is 1.44,2.01,2.53 yuan respectively, and the closing price on September 26 is 11.4,8.1,6.5 times of PE respectively.
Risk tips: copper Phase II project production / climbing schedule is not as expected, iron ore prices decline risk, sea freight prices rise sharply, and so on.