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Equity Bottom-Up

Jinchuan Group International Resources / Equity Bottom-Up

Jinchuan Group International Resources (2362 HK)

During the nine months ended September 2021, Jinchuan International Resources Co Ltd. [2362_HK; HK$13.87 billion/US$1.80 billion market cap] mining operations produced 45,244 tons of copper content included in copper cathode and copper concentrate (nine months ended 30 September 2020: 55,872 tons) and 2,407 tons of cobalt content included in cobalt hydroxide (nine months ended 30 September 2020: 3,422 tons).
The company sold 47,376 tons of copper (nine months ended 30 September 2020: 52,731 tons), representing a decrease of 10% year-on-year compared to the corresponding period in 2020, and 1,660 tons of cobalt (nine months ended 30 September 2020: 4,593 tons), representing a decrease of 64% 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$430.8 million and US$70.2 million in the period, respectively (nine months ended 30 September 2020: US$272.6 million and US$86.8 million, respectively), representing a 58% year-on-year increase and 19% 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$95.5 million in the period, representing a decrease of 39% as compared to US$155.7 million for the nine months ended 30 September 2020.
Reduction in Volume; Uptick in Revenue
Copper and cobalt production volume in the nine months ended September 2021 decreased by 19% and 30% respectively as compared to the corresponding period in 2020 as the company has processed ores with lower copper and cobalt grade from their Ruashi and Kinsenda mines. The decrease was also due to the finance lease of Chibuluma which became effective during the period. Mining assets at Chibuluma are leased out to an independent third party under a finance lease arrangement. The lessee produced and sold 1,993 tons of copper in the period and Jinchuan has recorded a royalty income of approximately US$1.6 million under the finance lease arrangement. In the corresponding period in 2020, Chibuluma produced 8,023 tons of copper content.
Despite the decrease in volume of copper and cobalt sold during the nine months ended September 2021, the total revenue generated from the mining operations has increased significantly. The average benchmark London Metal Exchange (LME) copper and Metal Bulletin (MB) cobalt prices in the period were US$9,187 per ton and US$22.1 per pound respectively, representing a 57% and 43% increase as compared to the average benchmark copper and cobalt price for the corresponding period in 2020 of US$5,834 per ton and US$15.4 per pound respectively. LME copper price has increased by approximately 17% from the end of 2020 and reached US$9,041 per ton by the end of September 2021. This has led to the increase in the company’s mining operation’s revenue and profit.
The trading of mineral and metal products segment recorded a significant decrease in revenue on trading of externally sourced commodities of 39% from US$155.7 million in the corresponding period in 2020 to US$95.5 million in the nine months ended September 2021. The decrease was due to the voluntary liquidation of Shanghai Jinchuan Junhe Economic Development Co., Ltd. one of the principal trading arms of the company.
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$1184 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 84% from the current levels. Once the revenue growth picks up, we will revise the target on the higher side.
11.0x/6.2x FY2021/FY2022 P/E; 1.74x/1.36x FY2021/FY2022 P/B; 2.52x/1.48x 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 11.0x and 6.2x on FY2021 and FY2022 earnings. Similarly, on FY2020 numbers, P/B basis, the stock is trading at 2.0x 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 nine months ended September 2021, Jinchuan International Resources Co Ltd. [2362_HK; HK$13.87 billion/US$1.80 billion market cap] mining operations produced 45,244 tons of copper content included in copper cathode and copper concentrate (nine months ended 30 September 2020: 55,872 tons) and 2,407 tons of cobalt content included in cobalt hydroxide (nine months ended 30 September 2020: 3,422 tons).
The company sold 47,376 tons of copper (nine months ended 30 September 2020: 52,731 tons), representing a decrease of 10% year-on-year compared to the corresponding period in 2020, and 1,660 tons of cobalt (nine months ended 30 September 2020: 4,593 tons), representing a decrease of 64% 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$430.8 million and US$70.2 million in the period, respectively (nine months ended 30 September 2020: US$272.6 million and US$86.8 million, respectively), representing a 58% year-on-year increase and 19% 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$95.5 million in the period, representing a decrease of 39% as compared to US$155.7 million for the nine months ended 30 September 2020.
Reduction in Volume; Uptick in Revenue
Copper and cobalt production volume in the nine months ended September 2021 decreased by 19% and 30% respectively as compared to the corresponding period in 2020 as the company has processed ores with lower copper and cobalt grade from their Ruashi and Kinsenda mines. The decrease was also due to the finance lease of Chibuluma which became effective during the period. Mining assets at Chibuluma are leased out to an independent third party under a finance lease arrangement. The lessee produced and sold 1,993 tons of copper in the period and Jinchuan has recorded a royalty income of approximately US$1.6 million under the finance lease arrangement. In the corresponding period in 2020, Chibuluma produced 8,023 tons of copper content.
Despite the decrease in volume of copper and cobalt sold during the nine months ended September 2021, the total revenue generated from the mining operations has increased significantly. The average benchmark London Metal Exchange (LME) copper and Metal Bulletin (MB) cobalt prices in the period were US$9,187 per ton and US$22.1 per pound respectively, representing a 57% and 43% increase as compared to the average benchmark copper and cobalt price for the corresponding period in 2020 of US$5,834 per ton and US$15.4 per pound respectively. LME copper price has increased by approximately 17% from the end of 2020 and reached US$9,041 per ton by the end of September 2021. This has led to the increase in the company’s mining operation’s revenue and profit.
The trading of mineral and metal products segment recorded a significant decrease in revenue on trading of externally sourced commodities of 39% from US$155.7 million in the corresponding period in 2020 to US$95.5 million in the nine months ended September 2021. The decrease was due to the voluntary liquidation of Shanghai Jinchuan Junhe Economic Development Co., Ltd. one of the principal trading arms of the company.
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$1184 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 84% from the current levels. Once the revenue growth picks up, we will revise the target on the higher side.
11.0x/6.2x FY2021/FY2022 P/E; 1.74x/1.36x FY2021/FY2022 P/B; 2.52x/1.48x 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 11.0x and 6.2x on FY2021 and FY2022 earnings. Similarly, on FY2020 numbers, P/B basis, the stock is trading at 2.0x 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: 9M 2021 Operational Update: Mining Copper Revenue +58% YoY, Strong Copper Price +57% YoY