Morningstar | Proposed Share Issuance to Partly Fund Zijin Mining’s Acquisition; FVE Unchanged. See Updated Analyst Note from 28 Feb 2019
No-moat-rated Zijin Mining has successfully acquired 63% of RTB Bor Group in end-2018 and took over Canada-listed miner, Nevsun Resources in January 2019. We think these will help to mitigate the firm’s falling gold production due to reserves depletion while further strengthening its copper production in the long term. To recap, we estimated that these transactions will increase the firm’s resources (including inferred resources) for zinc, copper and gold by about 24%, 42% and 32%, respectively. We do not expect these to significantly change our view on Zijin, given our bearish view on midcycle material prices.Our fair value estimate remains at HKD 2.96 (CNY 2.56) after incorporating our latest commodity price deck and foreign exchange assumptions. We will issue an update following the announcement of the firm’s 2018 results on March 22.
Meanwhile, Zijin also proposed to raise CNY 8 billion through issuance of A shares to help partly fund the CNY 9.4 billion acquisition of Nevsun. This exercise is still subjected to approvals by shareholders and the China Securities Regulatory Commission. We have yet to factor in the deal in our model as the issuance price is not set. If we assume the maximum issuance of 3.4 billion shares, earnings per share could be diluted by about 13%. That said, this should also help to lower Zijin’s net gearing from our estimated 1.1 times post acquisitions to below 0.8 times, a more healthy level.
Zijin Mining Group Company Limited is a China-based company principally engaged in the exploration, mining, smelting and sales of gold and other metal minerals. The Company's main products include gold products, copper products, lead and zinc products, iron products, silver products, among others. Its gold products mainly include the mineral gold, standard gold bullions, gold ingots and gold concentrates, among others. The Company is also involved in the geographic survey businesses through its subsidiaries.
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