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Equity Bottom-Up

Jinchuan Group International Resources / Equity Bottom-Up

Jinchuan Group International Resources (2362 HK)

<a target="_blank">During the year ended 31st December 2021, for Buy-rated Jinchuan International Resources Co Ltd. [2362_HK; HK$17.52 billion/US$2.28 billion market cap] mining operations produced 61,260 tons of copper content included in copper cathode and copper concentrate (year ended 31st December 2020:&nbsp; 72,477 tons) and 3,379 tons of cobalt content included in cobalt hydroxide (year ended 31st December 2020: 4,158 tons).</a>
The company sold 55,549 tons of copper (year ended 31st December 2020: 67,843 tons), representing a decrease of 18% year-on-year compared to the corresponding period in 2020, and 2,538 tons of cobalt (year ended 31st December 2020: 5,468 tons), representing a decrease of 54% year-on-year compared to the corresponding period in 2020. Out of the sales of copper and cobalt, the company’s mining operations generated revenue of US$510.1 million and US$106.6 million in the year, respectively (year ended 31st December 2020: US$388.1 million and US$109.5 million, respectively), representing a 31% year-on-year increase and a 3% year-on-year decrease respectively compared to the corresponding period in 2020.
The revenue generated from trading of externally sourced mineral and metal products amounted to US$203.5 million in the year, representing an increase of 22% as compared to US$166.6 million for the year ended 31st December 2020.
Reduction in Volume; Uptick in Revenue
Copper and cobalt production volume in 2021 decreased by 15% and 19% respectively as compared to 2020 as the company has processed ores with lower copper and cobalt grade at the Company’s Ruashi Mine and Kinsenda Mine in 2021. The decrease was also due to the finance lease of Chibuluma which became effective in 2021. Mining assets at Chibuluma are leased out to an independent third party under a finance lease arrangement in 2021. The lessee produced and sold 3,051 tons of copper in 2021 and the company has recorded a royalty income of approximately US$2.4 million under the finance lease arrangement. In 2020, Chibuluma produced 8,023 tons of copper content under the company’s operation.
Despite the decrease in volume of copper and cobalt sold in 2021, the total revenue generated from the mining operations increased owing to materially higher prices for copper and cobalt in 2021 as compared to 2020, with market copper and cobalt prices increased by approximately 51% and 55% respectively, leading to a significant increase in revenue. Also, as a result of higher commodity price, there had been an adjustment to the provisional sales price previously recognized.
The average benchmark London Metal Exchange (LME) copper and Metal Bulletin (MB) cobalt prices in 2021 were US$9,315 per ton and US$23.9 per pound respectively, representing a 51% and 55% increase as compared to the average benchmark copper and cobalt prices in 2020 of US$6,169 per ton and US$15.4 per pound respectively.
LME copper price increased by approximately 25% from the end of 2020 and reached US$9,692 per ton by the end of 2021. This has led to the increase in the company’s mining operation’s revenue and profit in 2021.
The trading of mineral and metal products segment recorded an increase in revenue on trading of externally sourced commodities of approximately 22% from approximately US$166.6 million in 2020 to approximately US$203.5 million in 2021.
Stock at a Multiyear Inflection Point, Strong Revenue and EPS Growth Expected
Based on our model estimates, revenues should increase from US$665 mn in FY2020 to US$1,184 mn in FY2022 at a CAGR of 33% while earnings should increase from a profit of US$31.5 mn in FY2020 to a profit of US$297 mn in FY2022 at a CAGR of 207%. Similarly, the EPS is expected to increase at a CAGR of 205% from US0.24 cents in FY2020 to US2.23 cents in FY2022. We have a 12-month price target of HK$2.00 on the stock, suggesting an upside of 44% from the current levels. Once the revenue growth picks up, we will revise the target on the higher side.
14.1x/7.9x FY2021/FY2022 P/E; 2.2x/1.7x FY2021/FY2022 P/B; 3.2x/1.9x FY2021/FY2022 P/S
We believe that the stock is currently at a multiyear inflection point and expect earnings to increase significantly in FY2021 and beyond, supported by continuously rising copper and cobalt prices. Based on our model forecasts, the stock is trading at a P/E of just 14.1x and 7.9x on FY2021 and FY2022 estimated earnings. Similarly, on FY2020 numbers, P/B basis, the stock is trading at 2.6x and the current book value of the company is low due to large levels of impairments taken in the earlier years. We believe that with record high levels of copper and cobalt prices and strong sales results in 2021 and beyond, there will be substantial impairment reversal in the coming year, suggesting an even lower P/B multiple. Given that the stock is trading at attractive valuations with multiple catalysts in place, we believe that the stock offers compelling growth potential for investors.
For further details, please see our attached Operational Update Report.

During the year ended 31st December 2021, for Buy-rated Jinchuan International Resources Co Ltd. [2362_HK; HK$17.52 billion/US$2.28 billion market cap] mining operations produced 61,260 tons of copper content included in copper cathode and copper concentrate (year ended 31st December 2020:&nbsp; 72,477 tons) and 3,379 tons of cobalt content included in cobalt hydroxide (year ended 31st December 2020: 4,158 tons).
The company sold 55,549 tons of copper (year ended 31st December 2020: 67,843 tons), representing a decrease of 18% year-on-year compared to the corresponding period in 2020, and 2,538 tons of cobalt (year ended 31st December 2020: 5,468 tons), representing a decrease of 54% year-on-year compared to the corresponding period in 2020. Out of the sales of copper and cobalt, the company’s mining operations generated revenue of US$510.1 million and US$106.6 million in the year, respectively (year ended 31st December 2020: US$388.1 million and US$109.5 million, respectively), representing a 31% year-on-year increase and a 3% year-on-year decrease respectively compared to the corresponding period in 2020.
The revenue generated from trading of externally sourced mineral and metal products amounted to US$203.5 million in the year, representing an increase of 22% as compared to US$166.6 million for the year ended 31st December 2020.
Reduction in Volume; Uptick in Revenue
Copper and cobalt production volume in 2021 decreased by 15% and 19% respectively as compared to 2020 as the company has processed ores with lower copper and cobalt grade at the Company’s Ruashi Mine and Kinsenda Mine in 2021. The decrease was also due to the finance lease of Chibuluma which became effective in 2021. Mining assets at Chibuluma are leased out to an independent third party under a finance lease arrangement in 2021. The lessee produced and sold 3,051 tons of copper in 2021 and the company has recorded a royalty income of approximately US$2.4 million under the finance lease arrangement. In 2020, Chibuluma produced 8,023 tons of copper content under the company’s operation.
Despite the decrease in volume of copper and cobalt sold in 2021, the total revenue generated from the mining operations increased owing to materially higher prices for copper and cobalt in 2021 as compared to 2020, with market copper and cobalt prices increased by approximately 51% and 55% respectively, leading to a significant increase in revenue. Also, as a result of higher commodity price, there had been an adjustment to the provisional sales price previously recognized.
The average benchmark London Metal Exchange (LME) copper and Metal Bulletin (MB) cobalt prices in 2021 were US$9,315 per ton and US$23.9 per pound respectively, representing a 51% and 55% increase as compared to the average benchmark copper and cobalt prices in 2020 of US$6,169 per ton and US$15.4 per pound respectively.
LME copper price increased by approximately 25% from the end of 2020 and reached US$9,692 per ton by the end of 2021. This has led to the increase in the company’s mining operation’s revenue and profit in 2021.
The trading of mineral and metal products segment recorded an increase in revenue on trading of externally sourced commodities of approximately 22% from approximately US$166.6 million in 2020 to approximately US$203.5 million in 2021.
Stock at a Multiyear Inflection Point, Strong Revenue and EPS Growth Expected
Based on our model estimates, revenues should increase from US$665 mn in FY2020 to US$1,184 mn in FY2022 at a CAGR of 33% while earnings should increase from a profit of US$31.5 mn in FY2020 to a profit of US$297 mn in FY2022 at a CAGR of 207%. Similarly, the EPS is expected to increase at a CAGR of 205% from US0.24 cents in FY2020 to US2.23 cents in FY2022. We have a 12-month price target of HK$2.00 on the stock, suggesting an upside of 44% from the current levels. Once the revenue growth picks up, we will revise the target on the higher side.
14.1x/7.9x FY2021/FY2022 P/E; 2.2x/1.7x FY2021/FY2022 P/B; 3.2x/1.9x FY2021/FY2022 P/S
We believe that the stock is currently at a multiyear inflection point and expect earnings to increase significantly in FY2021 and beyond, supported by continuously rising copper and cobalt prices. Based on our model forecasts, the stock is trading at a P/E of just 14.1x and 7.9x on FY2021 and FY2022 estimated earnings. Similarly, on FY2020 numbers, P/B basis, the stock is trading at 2.6x and the current book value of the company is low due to large levels of impairments taken in the earlier years. We believe that with record high levels of copper and cobalt prices and strong sales results in 2021 and beyond, there will be substantial impairment reversal in the coming year, suggesting an even lower P/B multiple. Given that the stock is trading at attractive valuations with multiple catalysts in place, we believe that the stock offers compelling growth potential for investors.
For further details, please see our attached Operational Update Report.

Jinchuan: 2021 Operational Update: Mining Copper Revenue +31% YoY, Strong Copper Price +51% YoY