What's new
　　CMOC signed a metal purchase and sale agreement (“streamingagreement”) with Triple Flag Precious Metals Corp. According to theagreement, Triple Flag will advance a prepayment of US$550mn, andCMOC will deliver: 1) 54% of NPM’s gold production (or 67.5% ofCMOC’s share) until cumulative delivery of 630koz, and 27%thereafter (or 33.75% of CMOC’s share); and 2) 80% of NPM’s silverproduction (or 100% of CMOC’s share) until cumulative delivery of9moz, and 40% thereafter (or 50% of CMOC’s share). In addition,Triple Flag will pay 10% of spot prices for each ounce delivered.
　　Comments
　　Operation solid at NPM with rising output and falling cost. As ofDecember 31, 2019, NPM had basic reserves of 730kt of copper,950koz of gold and 8.2mn oz of silver with 0.55% copper grade and0.2g/t gold grade. It has decades’ long mining life and large potentialin output and reserves. NPM produced 36kt of copper, 25koz of goldand 308koz of silver in 2019. Flotation plants are undergoing anexpansion, by which processing volume may rise 18.75% YoY to7.6mnt/y. The firm plans to raise annual copper output to over 50ktvia technological improvement.
　　Streaming agreement maintaining CMOC’s exposure to NPM’scopper assets while offering hedging at high gold prices. Theagreement covers NPM’s gold and silver assets, but excludes its majorcopper assets. The attributable 54% of gold and 80% of silver outputfrom NPM will contribute an annualized income of US$29mn, with10% payments from each delivery equaling 4.7% of the prepayment.
　　CMOC paid US$820mn for 80% stake in NPM in November 2013, andthe prepayment alone totaled US$550mn, crystalizing its asset value.
　　Streaming agreement offering low-cost financing. The agreement isa long-term financing tool with no repayment or minimum deliveryobligations. CMOC is obligated to deliver a percentage of gold andsilver production. At current prices, CMOC obtained long-term stablefunds, which optimize capital structure and reduce financing cost.
　　Valuation and recommendation
　　Given rising metal prices, we raise our copper price forecast and lift2020/2021 attributable net profit by 48.5%/45.5% to Rmb1.69bn/Rmb2.97bn. CMOC A-shares and H-shares are trading at 34.3x and21.8x 2021e P/E. Maintain OUTPERFORM on A-shares and H-shares,and raise TPs by 44.7% and 50.9% to Rmb5.5 (40.0x 2021e P/E with28.3% upside) and HK$4.0 (25.0x 2021e P/E with 31.4% upside).
　　Risks
　　Unexpected decline in metal prices.