What's new
　　China Molybdenum (CMOC) approved its 2023 budget proposal, announced the output of major products in 2022, and stated production guidance for 2023. Output of major mineral products have increased markedly from 2021. In our view, the firm focused on construction of its key projects in 2022, and is likely to step up efforts to reach designed production capacity in 2023. We see strong growth potential in the copper and cobalt segments, and expect the firm to gain momentum in its earnings growth.
　　Comments
　　Completed 2022 production goal as scheduled; key copper and cobalt segments perform well. The firm beat its production target for the copper and cobalt segments. Copper and cobalt output at the Tenke Fulgurate mine (TFM) rose 19% and 10% YoY to 254,286t and 20,286t in 2022, completing 103% and 107% of its production goal.
　　Output of the molybdenum and tungsten segments declined slightly, but the firm largely completed its production target. Output of molybdenum and tungsten concentrates reached 15,114t and 7,509t, down 8% and 13% YoY, completing 108% and 100% of its production target.
　　Copper and gold segments were relatively weak. Output of copper and gold at the Northparkes Mine (NPM) fell 3% and 19% YoY to 22,706t and 16,221oz, completing 93% and 87% of its production goal. The firm's output of niobium and phosphate fertilizers grew 7% and 2% YoY to 9,212t and 1.14mnt, completing 104% and 101% of its production goal.
　　Announces production volume guidance for 2023; copper and cobalt output growth at TFM and KFM projects beats expectations. The firm guides its 2023 copper and cobalt output at 290,000-330,000t and 21,000-24,000t for the TFM project, and 70,000-90,000t and 24,000-30,000t for the Kisanfu Mine (KFM) project. This implies medians of 390,000t and 49,500t for total copper and cobalt output, up 53% and 144% YoY from 2022, as the TFM and KFM projects are likely to be completed and commence operation in 2023.
　　Due to factors such as falling grades of domestic mines, the firm’s guidance for production volumes of tungsten and molybdenum sectors is close to that for 2022. It plans to produce 12,000-15,000t of molybdenum concentrate and 6,500-7,500t of tungsten concentrate. CMOC’s 2023 output guidance for copper, gold, niobium, and phosphate fertilizers sectors remained flat YoY. The firm guides its production volume for copper at NPM, gold at NPM, niobium, and phosphate fertilizers at 24,000-27,000t, 25,000-27,000 ounces, 8,400-10,000t, and 1.05-1.25mnt.
　　Aiming to reach consensus on royalty payment for increase of reserves at TFM project without delay. According to corporate filings, the firm has been communicating with relevant parties in the Democratic Republic of the Congo (DRC) regarding royalty payment for the increase of reserves at the TFM project. The two parties have not fully resolved their differences on royalty payment standards for the increase of reserves. Exports at the TFM project have been affected since 3Q22, but the firm does not expect a significant impact on its 2022 results. The firm also stated that it will continue to communicate with relevant parties in the DRC, and will also take necessary measures, including legal means, to protect its legitimate rights and interests during the negotiation process. The firm hopes to reach consensus on this issue as soon as possible.
　　Financials and valuation
　　We roughly maintain our 2022 and 2024 earnings forecast. As copper and cobalt output may rise more than expected in 2023, we raise our 2023 earnings forecast 10% to Rmb9.52bn. The A-share is trading at 12.5x 2023e and 9.4x 2024e P/E, and H-share is trading at 8.6x 2023e and 6.3x 2024e P/E. Maintain OUTPERFORM for A- and H-shares. Given high visibility in the output growth of copper and cobalt, we lift our A- and H-share TPs 26% and 67% to Rmb7.05 (16x 2023e and 12x 2024e P/E) and HK$5.48 (11x 2023e and 8x 2024e P/E). Our TPs offer 28% and 25% upsides.
　　Risks
　　Construction of copper and cobalt projects disappoints; disappointing negotiations on royalty payment for increase of reserves in DRC; sharper-than-expected decline in metal prices.