3Q22 results slightly miss our expectations
　　Zijin Mining reported its 1-3Q22 results: Revenue grew 20.8% YoY to Rmb204.19bn, and attributable net profit jumped 47.47% YoY to Rmb16.67bn. In 3Q22, revenue rose 21.35% YoY or 5.98% QoQ to Rmb71.7bn, and attributable net profit declined 13.24% YoY or 37.95% QoQ to Rmb4.04bn. The firm’s 3Q22 results slightly missed our expectations, mainly due to falling metal prices in 3Q22, logistic disruptions amid COVID-19 resurgence, surging US dollar, and elevated energy costs.
　　Trends to watch
　　3Q22 results a slight miss. We mainly attribute the firm’s lower-than-expected 3Q22 results to: 1) QoQ decline in metal prices: In 3Q22, unit prices of gold, copper, zinc, silver, and iron ore concentrate dropped 6%, 17%, 12%, 18%, and 14% QoQ, with their pricing coefficients falling relative to their market prices; and 2) the QoQ increase in production costs of metals: In 3Q22, production costs of gold, copper, zinc, silver, and iron ore concentrate rose 8%, 3%, 9%, 4%, and 3% QoQ.
　　To become a global top 3-5 global mining group via continued external expansion; two acquisitions to bolster gold production. In October, Zijin Mining acquired a 30% equity stake in Haiyu Gold Mine and a 95% stake in Rosebel. We expect the firm’s gold output to reach 84t in 2025, falling within the range of its previous guidance of 80-90t. On October 21, the firm indirectly acquired for Rmb5.91bn an 84% stake in the Shapinggou molybdenum mine in Anhui province, a world-class, super-large porphyry molybdenum and polymetallic deposit which has yet to be developed. We believe the firm may become one of the largest molybdenum manufacturers globally through its acquisition of the world’s single largest molybdenum mine.
　　Announces plan to issue Rmb10bn in convertible bonds and repurchase shares, showing confidence in growth prospects. The firm plans to issue up to Rmb10bn in convertible bonds to fund acquisitions and the construction of its projects (e.g., Phase I Aurora Gold Mine project) to expand its gold production. It also intends to spend Rmb250-500mn to repurchase its shares and grant these shares to its staff covered by its employee stock ownership plan and equity incentive scheme. We note the copper and gold segments have remained under pressure from Fed’s rate hikes and COVID-19 resurgence since March. Zijin Mining issued its share buyback plan despite industry headwinds. We believe this reflects its management’s confidence in the firm’s future growth.
　　Financials and valuation
　　We keep our 2022 and 2023 attributable net profit forecasts at Rmb22.8bn and Rmb24.4bn. We maintain OUTPERFORM on Zijin Mining’s A- and H-shares. We keep our A-share TP at Rmb10.4, implying 12.0x 2022e and 11.2x 2023e P/E with 31.6% upside. The current A-share price corresponds to 9.1x 2022e and 8.5x 2023e P/E. We maintain our H-share TP at HK$10.6, implying 10.4x 2022e and 9.7x 2023e P/E with 38.7% upside. The current H-share price corresponds to 7.6x 2022e and 7.1x 2023e P/E.
　　Risks
　　Uncertainty in Fed policy; project progress disappoints; copper and zinc supply exceeds expectations.