On August 23rd, Federal Reserve Chairman Jerome Powell indicated at the Jackson Hole Central Bank Conference that the timing for policy adjustments has arrived. The market widely interprets this as the most explicit signal of an interest rate cut released by the Fed to date.
A report from CICC (China International Capital Corporation) points out that Powell's speech essentially confirms that an interest rate cut in September is a foregone conclusion, aligning with expectations. Guotai Junan believes that it is highly likely the Fed will cut rates by 25 basis points (BP) in September, with a greater possibility of three rate cuts throughout the year. According to CME (Chicago Mercantile Exchange) interest rate futures, the market perceives the probability of a September rate cut to have reached 100%, with a 76% chance of a 25bp cut and a 24% chance of a 50bp cut.
Overall, the direction of the Fed's interest rate cut is already clear; the only uncertainties are the magnitude and the pace, which have already provided strong support for the subsequent trend of copper prices.
At this juncture, enterprises with sufficient high-quality copper ore resources should be taken seriously. On August 26th, Jinchuan International released its latest interim report, from which some clues may be found.
I. Long-term copper price bullish outlook, enhancing profitability
In the first half of the year, Jinchuan International achieved revenue of $283 million, a decline compared to the same period last year, mainly due to unstable power supply from the national grid in the Democratic Republic of Congo, leading to a decrease in cathode copper production at the Ruashi mine, which in turn dragged down terminal sales volumes. Such sporadic events do not affect the company's long-term operations.
It is important to note that the company's profitability has significantly improved, with the current period achieving a turnaround from loss to profit, with net profit reaching $12.78 million.
From another perspective, Jinchuan International's business involves a large amount of fixed asset investment and long-term asset depreciation. Using EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) can better assess the company's core profitability without being disturbed by non-cash items such as depreciation and amortization. In the first half of the year, the company's EBITDA was $74.987 million, a significant increase of 86.55% year-on-year.
The repair on the profit side is inseparable from the continuous rise in copper prices.
In March of this year, following Powell's dovish speech, the market began to trade on the logic of interest rate cuts, and LME (London Metal Exchange) copper started a one-way upward trend, reaching a historical high of $11,104.5 per ton on May 20th. Subsequently, with profit-taking and the rise of hawkish sentiments within the Fed, copper prices adjusted consecutively and fell back to around $9,300.Now standing at the most explicit juncture of the Federal Reserve's interest rate cut expectations, the support for copper prices has increased, which is conducive to the continuous improvement of subsequent corporate profitability.
In addition to the impact of financial attributes, copper prices are also strongly related to the supply and demand situation.
On the demand side. Due to copper's excellent thermal conductivity, electrical conductivity, and its easy processing, corrosion resistance, and other characteristics, it is widely used in various industrial fields, and its demand has been increasing over the long term. According to statistics from the International Copper Study Group (ICSG), from 2014 to 2023, global copper consumption increased from 22.906 million tons to 26.549 million tons.
At present, as the global trend of embracing new energy intensifies, copper, as an indispensable metal raw material for emerging industries such as new energy vehicles and AI data centers, has further opened up long-term demand space.
On the supply side, it is relatively weak. Founder Securities pointed out that factors such as the reduction of large copper mine discoveries, the long cycle of mine development with many uncertainties, the decline in ore grades, and the decrease in capital expenditure of major global copper companies have constrained the release of new copper mines, which may peak in 2023, and the incremental supply from mines will gradually decline from 2023 to 2025.
At the same time, copper inventory continues to decline. According to data, as of August 23, COMEX copper inventory was 29,000 tons, falling to a low level in the historical range of the past decade.
Overall, the widening supply-demand gap is conducive to the continuous strength of copper prices in the medium and long term, which is beneficial to the continuous improvement of profitability for enterprises with rich mining resources, such as Jinchuan International.II. Patiently Await the Realization of the Value of Mines, with More Highlights to Look Forward to in the Future
Currently, the focus on Jinchuan International should be on several of its mines.
Firstly, there is the Ruashi copper-cobalt mine, which has been operating steadily for many years. At present, the mine has completed the construction of a 600,000-ton flotation and magnetic separation plant. The aim is to further extend the mine's lifespan by processing low-grade mixed ores through flotation technology and magnetic separation.
Secondly, the Kinseda copper mine is one of the highest-grade copper deposits globally, with a copper grade of 5.8%. As of now, the mine has copper reserves of 180,000 tons and resources of 935,000 tons. The expected lifespan is 12 years, but given the substantial resource reserves, the lifespan can be extended to 20 years. The mining license has also been extended to 2036, providing certainty for the company's continuous development. It is reported that the mine has constructed a second ramp to exploit the eastern ore body, which is conducive to increasing copper production in the future.
In the first half of this year, the combined copper production from the two mines supplied approximately 28,600 tons, corresponding to an annual capacity of about 60,000 tons.
Jinchuan International is also developing the Musonoi copper-cobalt project, which has a total of 1.085 million tons of copper resources and 606,000 tons of copper reserves, with an expected annual production of 43,800 tons of electrolytic copper. According to public information, the project is expected to be operational in early 2025. This means that, without considering fluctuations in copper prices and increases in production from existing mines, there is at least a 60% growth potential in the copper mining business next year.
In addition, Jinchuan International has the Lubembe copper project. It is reported that its resource volume reaches 1.9 million tons of copper, making it the mine with the largest resource volume in the company. If it can be successfully put into production in the future, it will greatly increase Jinchuan International's copper production and become a new growth point after the Musonoi project in the coming years.
If we further extend the time dimension, Jinchuan International's imagination space is not limited to the current visible mine resources.
Jinchuan International, backed by Jinchuan Group, has long been hovering below 1 Hong Kong dollar in stock price. Under the current policy guidance of "strengthening the market value management of state-owned listed companies," this situation urgently needs to be changed.For a mining company, the most direct and effective way to enhance its recognition in the capital market is undoubtedly to inject more mineral resources into it. The Tibet Xiongcun Copper-Gold Mine, Mexico Copper Mine project, South Africa Siwei Platinum Mine, Zambia Munali Nickel Mine, Indonesia WP&RKA Nickel-Iron project, Koala Sea Nickel-Iron project, and Huanyu High Ice Nickel project, among other assets under Jinchuan Group, all need a listed company as a vehicle to fully realize their value. Jinchuan International, as the only overseas listing platform under Jinchuan Group, is undoubtedly the most suitable vehicle. According to the roadshow materials of Jinchuan International, the copper production is expected to be increased to 4 to 5 times the current level through mergers and acquisitions and other measures in the future.
This is only considering the value generated by the copper mine part. Jinchuan International currently also has cobalt mineral resources and will inject nickel resources, platinum group metals, and gold resources in the future. The prices of nickel and cobalt, the two major non-ferrous metals, have fallen to a historical low after a long-term adjustment, and there is not much room for further decline. With the vigorous development of emerging industries such as new energy, both nickel and cobalt are expected to become new growth points for Jinchuan International's performance in the future.
III. Conclusion
Overall, facing the fluctuations in the global economy and changes in market expectations, Jinchuan International has achieved a significant improvement in profitability through optimizing operations and cost control. More importantly, the Federal Reserve's interest rate cut policy has provided support for the rise in copper prices. Coupled with Jinchuan International's own rich mineral resources and the expectation of a substantial increase in copper production in the future, the certainty of Jinchuan International's growth is becoming higher and higher.
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