Regional leader, integrated industrial chain layout. After nearly 30 years of development, Tongling Nonferrous has formed a four-block business layout for mining, smelting, processing and integrated. It has a complete integrated upstream and downstream industrial chain. The perfect industrial capital structure makes the company highly resilient to risks. Over the past few years, the company's profitability has steadily improved as copper prices have risen, profit margins have steadily increased, and expenses have remained relatively stable. The share of self-produced copper revenue and gross profit has continued to increase with the rise in copper prices and Mirado.

Smelting and deep processing, growing steadily. The company currently has a copper smelting production capacity of 1.7 million tons, and the production capacity under construction of 0.5 million tons/year is expected to be completed and put into operation in 2025. At that time, the copper smelting production capacity will reach 2.2 million tons/year. Copper smelting profits mainly come from: (1) profit from smelting and processing; (2) profit from by-product sulfuric acid and precious metals; (3) profit from improving the recovery rate of smelting (directly related to company management and technical level). Copper smelting and processing costs have continued to be relatively high in the past ten years. The lowest in 21 years was only $59.5/ton, and most of the company's smelters are located along or along the Yangtze River (except Chifeng Jintong). Transportation costs are low, location advantages are remarkable, and profitability is strong. Considering the profit from by-product sulfuric acid, the average gross profit per ton from 2014 to 2023 was 0.0022 million/ton.

Mirado was injected, and the second phase progressed steadily to release performance. The company has six mines in China, with total reserves of 1.78 million tons of copper, 95 tons of gold, and 1,090 tons of silver, with a total mining scale of 9.47 million tons. The average copper production in 2014-2017 was 0.0475 million tons. In 2018, with the production of Shaxi copper mine, copper production increased to more than 0.05 million tons. The average output in 2018-2022 reached 0.054 million tons, and domestic mine production remained stable.

In August 2023, the company completed the acquisition of 70% of China Railway Construction Tongguan's shares. Its core asset is the Mirador copper mine. The Mirador project has 7.08 million tons of copper resources, 181 tons of gold, and 1108 tons of silver. The first phase of the project reached production in 2021, with an annual output of about 0.09 million tons of copper. In 2022, the actual production and sales volume of copper concentrate exceeded 0.12 million tons, exceeding the design value by more than 30%. The average production cost for 2020-2022 is estimated at 0.0264 million/ton, the full cost is 0.043 million/ton, and the net profit per ton is 0.014 million/ton. The second phase of the project is expected to be completed and put into operation in June 2025, with an estimated annual output of about 0.2 million tons of copper (Phase 1 and 2 total) after delivery. According to the current net profit estimate of 0.014 million/ton per ton, Mirador is expected to achieve a net profit of 2.8 billion yuan after delivery.

Profit forecast and rating: We expect the company's net profit attributable to the parent company's owners in 2024-2026 to be 3.432, 3.676, and 5.357 billion yuan, respectively, and the corresponding PE is 12.30X, 11.49X, and 7.88X, respectively. We selected leading companies related to A-shares in the same industry as comparable companies. The average PE was 12.68X, 10.79X, and 9.58X, respectively. The second phase of Mirador is about to be released, and future growth will be even higher. Covered for the first time, a “gain” rating was given.

Risk warning. Net interest in smelting litigation risks; risk of falling metal prices beyond expectations; risk of production safety risks; geopolitical risks.