The reason for Zijin Mining's decline has been found
This year, gold prices have shown a good upward trend, while copper prices have performed even better. Zijin Mining Group (2899.HK), a large mining group whose main mineral resources and production capacity of copper and gold rank among the top ten globally, recorded quarterly revenue of RMB 74.777 billion (in Chinese yuan, same below) in Q1 2024, a year-on-year decrease of 0.22%. Net profit attributable to the parent company after deducting non-recurring gains and losses increased by 15.92% year-on-year to RMB 6.224 billion. The quarterly gross profit margin rose by 1.08 percentage points year-on-year to 16.61%, while the net profit margin after deducting non-recurring gains and losses increased by 1.16 percentage points year-on-year to 8.32%.
$Zijin Mining(601899.SH) 's Q1 2024 performance seems decent, so why did its stock price drop after the earnings release? The H-share fell 3.91% to HKD 16.20, while the A-share closed down 4.27% at RMB 17.04. Even its 20%-owned associate company, $ZHAOJIN MINING(01818.HK) , fell 3.27% to HKD 11.84.
Caijinghua believes the reasons include: 1) Zijin Mining's stock price has far outperformed gold and copper prices this year, prompting investors to take profits; 2) Gold and copper prices have been volatile and may retreat from highs; 3) The sustainability of Zijin Mining's profit growth may be uncertain.
Zijin Mining's Operational Performance
In Q1 2024, Zijin Mining's gold bar sales volume and unit price increased by 29.80% and 14.55% year-on-year, respectively, implying a potential 48.68% year-on-year increase in gold bar revenue. Gold concentrate sales volume fell 25.99%, but the unit price rose 19.13%, leading to an estimated 11.83% decline in revenue. Nevertheless, thanks to gold bar revenue growth, Zijin Mining's Q1 mine-produced gold revenue may have risen 17.31% year-on-year, with gross margin up 2.95 percentage points to 51.32%.
According to operational data, Zijin Mining's primary revenue source, copper concentrate, saw Q1 sales volume and unit price decline by 7.81% and 0.89% year-on-year, respectively. However, sales costs improved, falling 7.93% year-on-year, lifting the gross margin by 2.77 percentage points to 63.77%.
Based on the company's data, Caijinghua estimates Q1 mine-produced copper revenue grew 9.80%, with gross profit up 8.12%. Meanwhile, mine-produced silver revenue may have risen 7.77%, with gross margin surging nearly 10 percentage points, partially offsetting declines in mine-produced zinc and smelted copper/zinc revenue and profits.
Zijin Mining's Stock Price vs. Gold & Copper Prices
Mine-produced gold and copper are key revenue drivers for Zijin Mining. High metal prices during the period were the main reason for its strong earnings growth.
Gold's rally was driven by demand, which surged due to geopolitical risks, hedging, and speculation—factors that are inherently fragile. As tensions ease and speculative activity unwinds, gold prices may retreat from highs (see chart below).
Copper prices strengthened this year due to supply concerns. Major producer China adjusted capacity, while Zambia faced power shortages, halting production in key mines. The closure of Panama's Cobre project and lower-than-expected output in South America also reduced supply. Meanwhile, China's manufacturing PMI rose to 50.8% in March, above the expansion threshold of 50%, signaling a recovery.
Lower supply and higher demand boosted copper prices (see chart below).
Zijin Mining's Q1 data showed lower copper output, likely due to supply adjustments. Despite higher copper prices, lower sales volume may have reduced revenue contribution. The company targets 10% and 8% annual growth in copper and gold production for 2024, but revenue will depend on sales performance.
This suggests uncertainty around next-quarter earnings growth.
According to Wind, London spot gold and silver prices rose 11.71% and 12.90% year-to-date, while LME copper gained 13.50%. In contrast, Zijin Mining's H-share surged 27.36% to HKD 16.20, and its A-share jumped 36.76%, far outpacing metal prices.
Given Zijin Mining's solid Q1 results, profit-taking likely drove the post-earnings stock price correction.
Author: Mao Ting
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