What's new

JCHX Mining Management announced that it had entered a service agreement with CMH - the owner of the San Matias project in Colombia - to provide design and procurement (EP) services for the Alacran copper- gold-silver mine for a fee of US$15.8mn. The firm held a 59.995% stake in the project as of end-2023, and holds priority rights for mining services.

Comments

The Colombia project, which is progressing steadily, may become an important growth driver for both copper output and earnings. The Colombia project is the company’s third copper mine. According to the announcement, the feasibility study for the mine was completed in December 2023, and the environmental impact assessment (EIA) on the Alacran copper-gold-silver deposit was submitted to the Colombian National Environmental Licensing Authority (ANLA). Construction of the mine will begin upon EIA approval, may take two years to complete according to the company's plan.

The Alacran copper-gold-silver mine has copper and gold resources of about 470,000 tonnes and 32 tonnes, with copper and gold design capacity of 25,000 tonnes and 1.5 tonnes. In terms of costs, according to the announcement, the cash cost of copper will be only US$2,975 per tonne after deducting income from precious metal by-products.

Colombia project represents integration of services and resources. Resources wise, JCHX acquired a 19.995% stake in Cordoba Mining, as well as priority service rights for the project in November 2019. In March 2023, it acquired an additional 50% stake in Cordoba Mining’s subsidiary CMH, the owner of the San Matias copper-gold and silver mine project, raising its stake in the San Matias project to 59.995%.

Services wise, we believe the design and EP services contract for the Alacran copper-gold-silver mine will help the firm expand its mining service business overseas. We believe the firm's equity investment in the Colombia project represents effective integration of resources and services strategies.

The firm's copper mine output may continue to grow, and mineral resources are becoming another growth driver. As of February 2024, the firm holds stakes (including controlling stakes) in four mines, and plans　to acquire another copper mine. According to the announcement, two copper mines in Lonshi and Dikulushi in the Democratic Republic of the Congo have been put into operation, with combined annual capacity of 48,000 tonnes. The Alacran copper-gold-silver mine in Colombia is scheduled to start construction after obtaining regulatory approval, and it has annual copper production capacity of 25,000 tonnes. The domestic phosphate mine phase I project (300,000 tonnes/yr) has commenced operation, and the phase II project (500,000 tonnes/yr) is scheduled to come online in 2025. The to-be-acquired Lubambe copper mine in Zambia may have annual capacity of 32,500 tonnes by 2027, according to the company's plan.

We expect the firm's earnings growth to accelerate, as the "services + resources" strategy pays off and the resources business expands.

Financials and valuation

We keep our 2023 and 2024 earnings forecasts largely unchanged, and introduce our 2025 earnings forecast of Rmb2.2bn. The stock is trading at 14x 2024e and 12x 2025e P/E. We maintain an OUTPERFORM rating and target price of Rmb48, implying 15x 2024e and 13x 2025e P/E, offering 11% upside.

Risks

1) The environmental assessment of the project is subject to approval by the Colombian Environmental Authority; 2) sharper-than-expected fluctuations in copper prices; 3) project construction disappoints.