While the copper output of its key mine Las Bambas fell 10% YoY in 1H24, the company expects the full-year output of the mine to be at the high-end of its guided range. With the contributions from expansion projects and new mine, we expect the company’s copper output to surge 50% from 2023 to 2026. We reiterate our BUY call given the rapid earnings growth ahead. We slightly lower our target price from HK$3.75 to HK$3.64 after adjusting our model for the acquisition of Khoemacau Mine and the rights issue.
　　Key Factors for Rating
　　The drop in copper output at Las Bambas was mainly due to the lower ore grade in 2Q24 vs 2Q23 (0.58% vs 0.69%). The good news is the company has already started to produce copper ore from the Chalcobamba pit. The company has also signed a series of agreements with the Huancurie community and the dialogue is still ongoing. This will help to ensure the smooth development of the Chalcobamba pit. The company now expects the full-year copper output of the mine to be at the high end of its guidance (320k tonnes), implying the output in 2H24 to be about 194k tonnes or 60% of the full-year output.
　　With the expansion projects at Las Bambas and Kinsevere to be completed this year and the contribution from the newly acquired Khoemacau Mine, we expect the company’s copper output to reach 521k tonnes in 2026, up 50% from the level in 2023. This will make the company one of the fastest growing copper producers in the world.
　　Spot LME copper price has dropped 16% in two months from the peak in May 2024. Further downside should be limited as copper is still a much needed metal for the green energy transition.
　　With the strong growth in copper output and metal prices expected to stay firm, we estimate the company’s earnings to post a CAGR of 78% in the next two years after a roughly 19x YoY jump in 2024.
　　Key Risks for Rating
　　Sharp fall in metal prices.
　　Disruptions in operations and logistics of its mines.
　　Valuation
　　We increase our DCF valuation of the firm from US$4,152m to US$5,654m after updating our model with higher metal price assumptions, the contributions from the newly acquired Khoemacau Mine and the proceeds from rights issue.
　　However, we lower our DCF valuation per share from HK$3.75 to HK$3.64 to reflect the increase in number of shares after its recent 2-for-5 rights issue.