Although MMG Limited’s net profit plummeted 95% YoY to US$9m in 2023, it was much better than our forecast of US$71m loss. Looking ahead, we expect explosive earnings growth in coming two years (from US$9m in 2023 to US$438m in 2025) as two expansion projects start to contribute. The acquisition of Khoemacau Mine in Botswana will provide additional growth if completed. We raise our 2024-25 earnings forecasts and lift our target price to HK$3.75. Reiterate BUY.
　　Key Factors for Rating
　　While the company’s EBIT dropped 29% YoY to US$532m in 2023, it was 20% higher than our forecast with the profitability at Las Bambas, Dugald River and Rosebery beating expectations. The unexpected US$71m deferred tax benefit also boosted 2023 earnings.
　　We expect the company’s net profit to jump about 48x in two years to US$438m in 2025 on the contributions from two expansion projects. The development of Chalcobamba pit at Las Bambas is already under way. After rounds of construction talks with various local communities, the company managed to convince those local communities that they will also benefit from the growth of the mine. We expect the copper output of the mine to increase from about 300k tonnes in 2024 to 380k tonnes in 2025. Its C1 cost should also start to fall in 2025.
　　For the Kinsevere Expansion Project, cobalt production already started in 4Q23 and the copper production from the sulphide ore in the new mining area is expected to start in 2H24. The copper output of Kinsevere can then reach 80k tonnes per annum, almost doubling the target output in 2024. Higher output will also reduce unit cost.
　　The company should complete the acquisition of Khoemacau Mine in Botswana within this year. This will immediately boost MMG Limited’s copper output by 50- 65k tonnes per annum, with the plan to expand the mine’s capacity to 135-155k tonnes per annum. This will then put MMG among the top 10 copper producers in the world.
　　Key Risks for Rating
　　Sharp fall in metal prices.
　　Disruptions in operations and logistics of its mines.
　　Valuation
　　We raise our DCF valuation from HK$3.57 to HK$3.75. The benefit of the increase in earnings forecasts is partly offset by the higher-than-expected capex for Las Bambas for 2025 and 2026.