Smooth operations in 3Q23; positive revisions in full-year guidance
　　MMG Limited’s total copper and zinc output grew 1% QoQ and 19% QoQ respectively in 3Q23 on smooth operations at most of its mines, with Las Bambas at the highest quarterly output after 4Q20. Hence, the company revises up its full-year output guidance for three of its four mines. We now expect it to break even in 2H23 and see substantial earnings growth in 2025 when the expansion projects are in full swing. We reiterate our BUY call with target price slightly raised to HK$3.19.
　　Key Factors for Rating
　　In 3Q23, the copper output at Las Bambas was flat QoQ with operations remained at full capacity. The copper output at Kinsevere grew 8% QoQ with improved power supply. The zinc output at Dugald River surged 30% QoQ as production ramped up after restarting in late March. Rosebery was the only mine posting QoQ decline in metal outputs as mining operations got more challenging as a bigger part of mining was done at deeper part of the mine.
　　The company expects Las Bambas will continue to see smooth operations in 4Q23 with Peruvian Government extended the State of Emergency along the Southern Corridor to 12 December 2023. Hence, it raises the full-year output guidance for three of its mines, with the mid-point of the new guided output range up 4% for Las Bambas, 3% for Kinsevere and 2% for Dugald River compared with the previous ones. It also lowers the mid-point of C1 cost guidance for Las Bambas by 6%.
　　The company should be able to start the development of Chalcobamba pit towards the end of 2023 with dialogue with Huancurie community already started. At Kinsevere, the commissioning of the new cobalt plant started in September and the construction of sulphide plant will be the next focus. All these new projects will be key growth drivers for the next two years.
　　Under our new forecasts, we now expect the company to basically break even in 2H23 after a net loss of US$59m in 1H23. We then expect a small profit for 2024 and substantial earnings growth in 2025 when all the expansion projects are up and running.
　　Key Risks for Rating
　　Lower-than-expected metal prices.
　　Disruptions in operations at its mines, especially Las Bambas.
　　Valuation
　　We increase our DCF valuation slightly from HK$3.16 to HK$3.19 with lower expected net debt at-end 2023 more than offsetting the cuts in earnings forecasts for 2024/25 and the increases in our WACCs by 0.5-0.8ppt (to reflect the recent rise in US long-term yield). Hence, we raise our target price in the same manner.