The rise has gone crazy. Gold and silver have been rising for seven consecutive quarters. Among them, the price of gold continued to set new historical records, while the price of silver hit a 13-year high, and stock market futures both ushered in a frenzy.

In fact, precious metals have experienced a long cycle of increase of 6 years. This year, due to the continuing impact of factors such as geographical conflicts, central enterprise gold purchases, inflation, and the US interest rate cut expectations, the increase accelerated markedly. International gold prices and Shanghai gold both increased by more than 15%, and international silver prices and Shanghai Bank both increased by more than 30%. Recently, the US released CPI data showing that inflation is slowing down, and expectations of interest rate cuts have increased fluctuations in precious metals prices, and at the same time spread to the stock market.

The Zhitong Finance App learned that, driven by prices, the Hong Kong A-share precious metals sector all performed well. Among them, Hong Kong stocks rose 3.9 times in 6 years and increased by more than 45% this year. Zijin Mining (02899) is the leader in the precious metals sector of the Hong Kong stock market. In this wavelength cycle, all indicators are at the leading level. The market value rose 6.33 times in six years, far higher than the sector. The market capitalization is close to HK$500 billion, far ahead of its peers, and the PB valuation is 3.76 times.

As gold and silver soar, more investors are attracted to recognize investment opportunities in precious metals, so can Zijin Mining maintain an upward channel?

Steady growth in performance and continuous improvement in profits

Zijin Mining is one of the world's leading mining industries. Its minerals include copper, gold, zinc, lithium, silver, molybdenum and other metal mineral resources, distributed in 17 provinces (regions) of China and 15 overseas countries. As of the end of 2023, the company had proven, controlled and inferred equity resources of 74.5565 million tons of copper, 299.753 tons of gold, 10.6777 million tons of zinc (lead), 147.3929 tons of silver, and 13.4659 million tons of lithium resources (equivalent lithium carbonate).

The company's performance grew steadily. In 2021-2023, the compound revenue growth rate was 14.16%, shareholders' net profit compound growth rate was 16.08%, and the net interest rate rose steadily and slightly, 7.2% in 2023 and Q1 2024. Due to demand for some products, revenue declined slightly by 0.22%, but shareholders' net profit increased 15.05%, and the net interest rate further increased to 8.37%. Prices of most production-based products have risen to varying degrees, and Q2 revenue and profit are expected to double.

Specifically, from the product side, the mining division is the core source of performance. In Q1 of 2024, Zijin Mining's mineral gold production, including Zhaojin Mining, was 16,800 kilograms, up 5% year on year. Mineral copper production including Kamoa equity and Tibet Yulong equity was 262,600 tons, up 5% year on year. Mineral zinc production included 98,500 tons of commercial equity in Wancheng, down 9% year on year. Based on the unit sales price, mineral gold and mineral copper contribute 30% or more of the turnover.

Excluding internal offsets and joint ventures, the volume and price of gold ingots rose sharply in Q1 in 2024. However, the volume of gold concentrate fell and rose by 29.8% and 7% respectively. Overall, total mineral gold revenue was 7.318 billion yuan, up 17.5% year on year, accounting for 9.8% of revenue; mineral copper, including copper concentrate, electrolytic copper and electrolytic copper, all increased in unit prices, but some sales volume declined. Revenue of 11.315 billion yuan during the period increased 7.76% year on year, accounting for 15.13% of total revenue. In addition, copper and zinc smelting products are relatively stable, accounting for 17.7% of total revenue.

On the profit side, copper and gold are also the main contributors. In 2023, copper-related businesses accounted for 47.19% of gross profit, while gold accounted for 25.35%, a total of 70.54%. In Q1 of 2024, the gross margins of gold ingots and gold concentrate in mineral gold reached 41.47% and 66.75% respectively, with significant year-on-year increases. The gross margin of copper concentrate in mineral copper reached 63.77%, and the gross margin of mining enterprises reached 54.5%, an increase of 8.88 percentage points over the previous year. However, since the gross margin of smelting products is only a unit, the overall profit margin was lowered. Q1 was 16.61%, down 1.36 percentage points.

In Q2 2024, up to now, the price of gold has increased by 10% and the price of copper has increased by 20%. If demand stabilizes, it is expected that the contribution of mineral distribution to performance and gross margin will increase further. Zijin Mining's expenses remained relatively stable. Net profit margin was basically in sync with gross margin, and the increase in profit brought abundant cash flow. Net cash flow from Q1 operations was 8.172 billion yuan. As of March, monetary capital was 21.148 billion yuan, an increase of 2.7 billion yuan over the end of last year.

“Copper and gold” may rise sharply in volume and price, and capital drives a strong market capitalization

The Zhitong Finance App learned that Zijin Mining is a global leader in both the copper and gold fields. Copper and gold prices are strong this year. Driven by a macro perspective, Zijin Mining's two core products will contribute significantly to the 2024 performance.

In the “copper” sector, as of 2023, the company's mine produced 1.073 million tons of copper, an increase of 11.13% over the previous year. It became the only mining enterprise in China and Asia that produced more than one million tons of copper, ranking in the top five in the world.

The company has many world-class mines, such as the Chukalu-Pegi copper and gold mine and the Bor copper mine in Serbia. In 2023, it achieved a total of 238,900 tons of copper, 42.66 million tons of copper resources in Kamoa, 394,000 tons of copper in 2023, and plans to mine 507,000 tons of copper in 2024. In addition, the company Zain China Tibet holds interests in Julong, Junuo, and Yulong copper mines.

In the “gold” sector, in 2023, Zijin Mining's gold production was 67.73 tons, up 20.17% year on year, leading the world's growth rate, ranking first in China and Asia, and the top ten in the world. According to data from the China Gold Association, the company's mining gold market share in China reached 23%.

The company's minerals span all continents. In South America, it has gold mines such as Rosebel in Suriname and Buritika in Colombia; in Oceania, it has the Pashin Pogra gold mine and Australia's Norton Gold Field; in Central Asia, it owns Zeravshan in Tajikistan and Otonk in Kyrgyzstan; and domestically, it has gold mines such as Longnan Zijin and Shanxi Zijin. In addition, it also holds shares in Zhaojin Mining and world-class single gold mines offshore gold mines.

Can abundant copper ore resources quickly release production capacity in a processional period. In Q1 2024, the company's mineral gold and copper production and sales both increased to varying degrees. It can be seen that macro demand is relatively steady, and the current performance is still mainly based on price. There is still room for copper prices to rise. On the one hand, supply-side agitation, strikes and production cuts have led to a contraction in supply, and pricing power has come to the supply side; on the other hand, in anticipation of global interest rate cuts, copper price futures are rising, and financial attributes are driving up spot prices. However, the price of gold has been bullish for a long time due to the influence of inflation, geopolitics, and national reserves, etc., and has received consensus from investment banks. The 2024 Federal Reserve interest rate cut has become a probable event, and there are high expectations of an increase.

Sound finance also guarantees continuous capacity expansion for Zijin Mining's procyclical core products. As of Q1 2024, the company's balance ratio was 58.3%, and the interest-bearing debt ratio was 28.7%. Monetary cash covers 88% of short-term loans, and there is also 30.57 billion yuan in inventory. The increase in inventory value due to the increase in copper and gold prices further optimizes the debt structure. In 2024, the company's annualized ROE was 16.9%, which remained stable in previous years.

In anticipation of a sharp rise in “volume and price,” Zijin Mining is favored by most investment banks. Among them, Huaxin Securities believes that Zijin Mining will combine implementing countercyclical mergers and acquisitions with independent exploration to allocate resources to the world, focusing on major global mining belts, large-scale global resources, and mergers and acquisitions of major domestic and neighboring countries. The target price of major investment banks is generally above HK$20, but the premium rate compared to the current price is not very high.

Zijin Mining's dividends are quite generous. According to Dongfang Choice data, since 2003, it has accumulated 22 dividends, with an average dividend ratio of 37.36%. Based on the current market value, the dividend rate is only 1.5%. For investors who want to receive high dividends, it is not very attractive compared to sectors such as bank infrastructure, but it is very attractive to trend investors and quantitative investors. Performance and events continue to attract capital to drive the company's market capitalization to grow.