Incident: As of December 30, 2023, the overall progress of the Southwest Copper Industry policy relocation project has been completed by about 55%. After completion, the Southwest Copper Industry's policy relocation project will have an annual production capacity of 550,000 tons of cathode copper, 1.35 million tons of sulfuric acid, 11 tons of gold, and 650 tons of silver. It also produces other related by-products, with a total investment of about 6.4 billion yuan. The construction period is 24 months, and is expected to achieve sales revenue of 31.38 billion yuan/year. The preliminary plan is that the electrolysis system will be completed and put into operation in May 2024, and the fire system will be put into operation in August. According to the company's preliminary estimates, based on the company's budget output of 1.28 million tons of cathode copper in 2023, the impact of the relocation of the southwest copper industry on the company's total output of cathode copper in 2024 is not expected to exceed 100,000 tons.

Mine side: Pulang copper is the core mine. By the end of 2022, the company held 996 million tons of ore, an increase of 41 million tons over the previous year; the amount of copper metal was 37.456 million tons, an increase of 135,500 tons over the previous year, and the average grade of copper was 0.38%. Among them, the Diqing Nonferrous Pulang Copper Mine holds 2.89 million tons of copper resources, accounting for 77% of the company's total copper resources. In 2022, Prang Copper Mine produced 36,400 tons of copper, accounting for 58% of the company's output.

Smelting side: Green smelting benchmark, looking forward to new students. After years of development, accumulation and scientific layout, the company has formed three major smelting bases in the southwest, southeast and north, namely Southwest Copper, Southeast Copper, and Chifeng Yuntong, with a total production capacity of 1.3 million tons. Among them, Southwest Copper has a production capacity of 500,000 tons, accounting for nearly 40% of production capacity, making it the largest smelter in the Yunnan copper industry.

The company is the only copper industry listing platform for China Alcoa Group and China Copper. Backed by major shareholders, resource mergers and acquisitions can be expected in the future. ① Liangshan Mining: Yuntong Group holds 36.67% of Liangshan Mining's shares, and Yunnan Copper holds 23.3% of Liangshan Mining's shares. The company is currently undergoing construction of the Hongnipo copper ore mining and selection project, which may contribute 24,000 tons of copper after it is put into operation in the second half of '25. Based on the pre-tax copper price of 70,000 yuan, if Liangshan Mining can inject into a listed company, the net profit of Hongnipo Copper Mine corresponding to 60% of the listed company's shares may be 350 million yuan. ② Peru's Toromocho Copper Mine: This copper mine is located in central Peru. The project has proven ore reserves of 1.53 billion tons, including 10 million tons of copper-containing metal resources. It is also the first world-class copper mine built overseas from scratch. China Alcoa Group acquired all of the shares in the project in 2007, completed and put into operation in 2014, and the mineral produced 244,200 tons of copper in 2022. At present, the second phase of the Toromocho copper mine expansion project has been basically completed, adding 53,000 tons/day of ore processing capacity and 80,000 tons/year of copper content in the copper concentrate. The entire project has reached an annual mineral production of about 300,000 tons of copper. ③ Tibet Jinlong Mining: China Copper Mineral Resources Co., Ltd., a first-level subsidiary of China Copper, holds 66% of the shares of Tibet Jinlong Mining Co., Ltd. through its wholly-owned subsidiary, China Copper Tibet Mining Co., Ltd., and the Jinlong mine estimates that the amount of copper metal above exceeds 10 million tons.

The company is backed by China Alcoa Group, and future opportunities for high-quality resource injection can be expected.

Investment advice: As the only listed company in the copper industry under the China Alcoa Group, the company's main copper mining and smelting business is developing steadily, and the Group's asset injection can be expected. We expect the company's net profit to be 20.01/21.35/2,211 billion yuan respectively for 2023-2025, and PE corresponding to the closing price on December 29, 2023 will be 11X/10X/10X, respectively, maintaining the “recommended” rating.

Risk warning: Prices of copper and other metals are falling, project progress falls short of expectations, and there is a risk of exchange rate fluctuations.