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Morningstar | Zijin Mining’s Preliminary First-Half Results In Line With Our Expectation on Stronger Metal Prices. See Updated Analyst Note from 23 Jul 2018

No-moat Zijin Mining’s first-half 2018 net profit guidance of CNY 2.52 billion, up 68% year over year, is in line with our expectation. After fine-tuning our valuation model to take into account our foreign exchange and commodity price forecasts, we retain our fair value estimate of HKD 2.76 per share for H-shares, but we increase our fair value estimate for the A-shares to CNY 2.36 per share from CNY 2.20. The H-shares fair value estimate is unchanged as higher metal prices are offset by the depreciation of the Chinese yuan. We will issue an update pending more detailed information from the firm’s final results in late August. In our view, there will be limited upside for Zijin’s share price in the near term, as concerns of trade war between the U.S. and China will pressure metal prices. Copper prices, which averaged USD 3.14 per pound during the first half of the year, have recently plunged over 10% and are now trading at around USD 2.70 per pound.

The strong earnings growth is largely attributable to rising metal prices (such as copper and zinc), increasing production volume (copper and zinc), and lower foreign exchange losses. In particular, production of the Kolwezi copper mine in the Democratic Republic of the Congo rose rapidly following the commencement of production in second half of 2017. Meanwhile, management mentioned that there was a slight rise in operating costs due to rising investment in safety and environmental protection and higher transportation costs.