What's new

Western Mining Group, the controlling shareholder of Western Mining, published the first environmental impact assessment of the Xizang Yulong copper mine Phase III project on March 211. The mineral treatment capacity of the Yulong copper mine will likely reach 30mnt/yr after the completion of the Phase III project. Its main products include copper and molybdenum concentrates.

Comments

Expanding production capacity of the Yulong copper mine; mineral treatment capacity to reach 30mnt/year. According to the Western Mining Group2, the Yulong Phase III retrofitting and capacity expansion project will keep the 18mnt/yr beneficiation plant in the Phase II project, dismantle the existing 4.5mnt/yr beneficiation plant for mixed ore, and build a new 11mnt/yr beneficiation plant, new tailings ponds and other auxiliary facilities. The new tailings pond in Segongnonggou is expected to have a service life of around 16 years. The mineral treatment capacity of the Yulong copper mine will likely reach 30mnt/yr after the completion of the Phase III retrofitting and capacity expansion project, up 32% from the pre-retrofitting level.

Increasing mineral reserves and production capacity steadily; watch earnings growth ahead. The mineral treatment capability of Yulong No.1 and No.2 beneficiation plants increased to 22.8mnt/yr in November 2023 from 19.89mnt/yr, thanks to the technological retrofitting project starting in March 2023. We estimate that the production volume of metal at the two plants has increased by 21% to 145,000t/yr from 120,000/yr, and that the firm's attributable copper concentrate output has increased by 17%.

We estimate that the production capacity of copper concentrates at the Yulong copper mine will likely reach 0.2mnt/yr after the completion of the Phase III retrofitting and capacity expansion project, up 38% from the pre- retrofitting level. We also think that the firm's attributable copper concentrate output will increase to 129,100t/year, up 30% from the pre- retrofitting level. In our opinion, earnings will increase steadily thanks to the technologically retrofitting project for Yulong No.1 and No.2 beneficiation plants and the Phase III retrofitting and capacity expansion project.

Increasing resources and improving governance; watch high-quality development and improved management in 2024. In 2023, the company increased its mineral resources by expanding the production capacity of the Yulong mine, adding lead and zinc reserves, extending its mining rights, and acquiring several mines from other companies. The firm continues to improve corporate governance. It expects high-quality development and improved management in 2024. Western Mining may continue to acquire high-quality mining resources in Qinghai and other provinces, increase efforts to explore mining resources in deep areas and on the periphery of mines.

Demand for copper to increase amid green transition; average copper price to increase in the medium and long term due to supply- side constraints. We estimate that demand for copper in the clean energy industry will likely increase at a CAGR of 24% in 2022-2026, and total copper demand may grow at a CAGR of 3% in 2022-2026. In addition, we expect the average copper price to increase, as capex has remained moderate in the copper industry since 2016 and development of copper mines takes time.

Financials and valuation

We maintain our earnings forecasts. The stock is trading at 11.4x 2024e and 10.9x 2025e P/E. We maintain an OUTPERFORM rating and our target price of Rmb24.26. Our TP implies 15.1x 2024e and 14.5x 2025e P/E, offering 32.6% upside.

Risks

Metal prices decline; production volume of main metal products disappoints; development of mining projects slower than expected.