Zijin - A_H_ Zijin in talks to buy controlling stake in Zangge Mining. Sun Jan 12 2025

Summary of Key Points from the Conference Call Company and Industry Involved - Company: Zijin Mining Group - Industry: Mining, specifically focusing on copper, gold, potassium chloride, and lithium production Core Points and Arguments 1. Acquisition Plans: Zijin is in discussions to acquire a 24.72% stake in Zangge Mining, which is the second-largest potassium chloride producer in China and a major lithium producer. This acquisition is seen as a strategic move to enhance Zijin's asset portfolio and achieve its production targets over the next five years [2][5][6]. 2. Market Performance: On January 10, Zijin-A and Zijin-H shares increased by 1% and 3% respectively, outperforming the HSCEI index which fell by 1%. This positive market reaction is attributed to the announcement of the potential acquisition [2]. 3. Recent M&A Activity: Since November, Zijin has announced two other mergers and acquisitions (Akyem Gold Mine and La Arena Project), although these did not significantly impact share prices due to their relatively small size compared to Zijin's overall operations [2]. 4. Strategic Goals: The acquisition aims to increase Zijin's holding in the Julong Copper Mine from 50.1% to 58%, which is expected to be the largest single copper mine commissioned since 2000. Additionally, it will enhance Zijin's lithium reserves, which are crucial for maintaining low production costs [5][8]. 5. Financial Impact: The acquisition is projected to increase Zijin's copper reserves and FY25 estimated output by 3.7% and 1.2% respectively, although it will not affect consolidated reserves and output due to existing controlling interests [5][8]. 6. Investment Thesis: Zijin is favored due to its strong performance in copper and gold, which contribute 47% and 32% to its gross profit respectively. The company is expected to benefit from improving demand and tighter supply in the copper market, supporting an 8-10% CAGR volume growth target through 2028 [8][11]. 7. Valuation Metrics: The price target for Zijin-A is set at Rmb21.00, implying a FY25E P/E multiple of 14.4x and an EV/EBITDA multiple of 10.5x. For Zijin-H, the price target is HK$20.00, with a FY25E P/E multiple of 13x and an EV/EBITDA multiple of 9.6x [9][12]. 8. Risks: Upside risks include stronger-than-expected commodity prices and volume growth, while downside risks involve potential overpayment in M&A, geopolitical risks, and weaker commodity prices [10][13]. Other Important but Possibly Overlooked Content - Zangge Mining's Financials: In the first nine months of 2024, Zangge Mining reported earnings of Rmb19 billion, with 72.96% derived from investment gains in the Julong Copper Mine [7]. - Production Capacity: Zangge Mining has a production capacity of 2 million tons per annum (mtpa) for potassium chloride and produced 715,000 tons in 9M24 [7]. - Strategic Asset Locations: Zangge Mining's key assets include Qarhan Salt Lake and Mamicuo Salt Lake, which are rich in potassium chloride and lithium chloride resources [5][7]. This summary encapsulates the critical insights from the conference call, highlighting Zijin Mining's strategic initiatives, market performance, and financial outlook within the mining industry.