Zijin Mining’s prospects glitter on acquisitions, rising gold and copper prices

China’s leading gold and copper miner has also gotten a lift from low interest rates and could benefit from growing demand for electricity with the rise of EVs and AI

Key Takeaways:

• Zijin Mining has acquired several new projects this year, including the latest involving a gold mine in Peru
• The Fed’s new cycle of policy easing and elevated federal U.S. debt could pressure the U.S. dollar, in turn boosting gold prices

By Bai Xinrui

The U.S. Federal Reserve’s new easing cycle is proving not only good news for home buyers and businesses, which are sensitive to high interest rate. Another big beneficiary may be gold miners, which can benefit as demand for the precious metal rises from investors looking for better returns as bond rates fall.

As the Fed continues to cut rates, some analysts are expecting gold to breach the $3,000 per ounce mark, which could help names like Zijin Mining Group Co. Ltd. (2899.HK; 601899.SH), China’s leading gold miner. Anticipating strong demand, Zijin has made several acquisitions this year, including its recently announcement of one in the South American nation of Peru.

According to its announcement earlier this month, the company plans to purchase La Arena for $245 million. La Arena owns two mining projects, the first a heap leach gold mine currently in production, while the second is a porphyry copper and gold project still in the exploration stages. The first mine, La Arena I, contains gold at an average grade of 0.33 grams per ton, while the second, La Arena II, averages 0.24 grams per ton.

La Arena has a total of 25 mineral concessions covering approximately 33,100 hectares, Zijin said. Its total assets are valued at $320 million, and it recorded revenue of $190 million and a net profit of $10 million last year.

Not long before the Peruvian purchase, Zijin acquired another gold project called Akyem in Ghana for $1 billion in October. The Akyem mine is located in one of the world’s major gold metallogenic belts and is a typical orogenic gold deposit. It generated an impressive $128 million in profits last year.

But the buying spree didn’t start there. In September, Zijin disclosed that it would invest in Chinese gold miners Longyan Kaolin Clay (605086.SH) and Wanguo Gold Group (3939.HK). And in July, it announced a 300 million yuan ($41.4 million) strategic investment for 9.9% of Canada-listed Montage Gold Corp. (MAU.V).

High gold prices have clearly boosted Zijin’s appetite for new projects this year.

Acquisitions aside, high gold prices have also lifted Zijin’s broader business. Its net profit reached 24.36 billion yuan in the first nine months of the year, up 50.7% year-on-year. It did especially well in the third quarter when its profit rose 58.2% to 9.27 billion yuan, mainly on strong sales of its core gold and copper products, whose prices rose 25.5% and 13.9%, respectively, lifting its sales for the two metals by 3.4% and 2.3%.

Many investors mistakenly believe Zijin’s gold is bigger than its copper business, probably due to its name. In fact, the company is more prone to changes in the price of copper than gold. In this year’s third quarter, its gold sales accounted for 32.5% of gross profit, behind the 44.4% contribution for copper. Copper’s contribution was even bigger in the second quarter at 51%, while gold supplied 30.1%. But the recent acquisitions could potentially close the gross profit contribution gap.

Gold rallies on Trump win

Donald Trump’s victory in the U.S. presidential election has also been positive for gold, given his business friendliness that makes him prefer lower interest rates. Current treasury future prices show investors believe the federal funds rate will fall to the 3.75% to 4% range by June next year, down three quarters of a percentage point from the current level.

Trump has also promised to revitalize U.S. manufacturing, proposing to cut the corporate tax rate by 6 percentage points, from the current 21% to 15%. As a result of lost tax revenue from that and other spending, the market estimates the federal debt will increase by $1 trillion every year to exceed $40 trillion four years from now.

Such surging debt and falling interest rates could combine to undermine the U.S. dollar. That could help to push up the price of gold, which is often seen as one of the best hedges against dollar depreciation. As China’s top gold miner, Zijin Mining is sitting pretty to benefit if prices indeed keep rising.

Meanwhile, a weak dollar will also inflate the prices of commodities like copper, Zijin’s other mainstay. Copper is widely used as the best material for conducting electricity, and demand could rise sharply on the need for new capacity in the U.S. and Europe to accommodate the rapid rise of power-hungry applications like AI and electric vehicles (EV).

If and when copper demand grows, another factor that could work to Zijin’s advantage is the limited capacity of copper mines around the world. According to estimates from the International Copper Study Group, the world’s productive capacity of copper can grow by 1.7% to 22.75 million tons this year, and by another 3.5% to 23.55 million tons in 2025. Those figures are well below the estimated market demand for 27.15 million tons of refined copper this year and 27.88 million tons in 2025, which could drive up copper prices due to the gap between supply and demand

In addition to its traditional copper and gold businesses, Zijin is also expanding into the new energy materials industry, with a particular focus on lithium. Its current portfolio includes the 3Q Lithium Salt Lake Project in Argentina, the Lakkor Tso Lithium and Xiangyuan Lithium Projects, both in China, and the Manono Lithium Project in the Democratic Republic of Congo.

The Argentinian project is about to start production, with a planned output of 250,000 tons to 300,000 tons of lithium annually by 2028. Once these projects are all completed and deployed, the company might establish itself as a leading global lithium miner.

However, overseas acquisitions also have certain risks, especially in developing countries where law enforcement can be weak and business conflicts often occur. That reality was evident last year when 3.2 tons of gold worth $200 million was stolen through illegal mining from Zijin’s Buriticá gold mine in Colombia, equal to 38% of the mine’s total production.

Valuation underperformer

As gold and copper prices climb and its lithium business grows, Zijin could see its gross margin reach 18.9% and 19.9% this year and next, respectively, according to Bloomberg forecasts, representing improvements of 3.1 percentage points and 1 percentage point over that period. Its net profit is also forecast to rise 51.8% this year to 32.05 billion yuan and 21% to 38.8 billion yuan in 2025.

Zijin Mining is known for high efficiency among its global peers. It boasts a projected return on equity (ROE) ratio of 25.8%, much higher than Newmont Corp.’s (NEM.US) 11.8%, Barrick Gold’s (GOLD.US) 8.8% and Freeport-McMoRan’s (FCX.US) 11.9%. But stockholders don’t seem to appreciate that, awarding its Hong Kong shares a price-to-earnings (P/E) ratio of only 12.7 times, lower than the others whose ratios vary from 14.5 for Newmont and Barrick and 31 times for Freeport-McMoRan. Perhaps that may change with the latest acquisitions, especially if gold and copper prices rise as some believe they will.

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