JCHX MINING MANAGEMENT(603979)：MINE ACQUISITION UNDERWAY;DUAL-DRIVER STRATEGY OF MINE SERVICE AND RESOURCES PAYING OFF

　　What's new
　　On February 22, the board of directors of JCHX Mining Management (JCHX) approved a framework agreement that the firm signed on December 8, 2022. According to this agreement, JCHX plans to acquire 50% of CMH, a wholly-owned subsidiary of Cordoba Minerals, for no more than US$100mn. JCHX will submit the acquisition plan at a shareholder meeting for approval on March 10, 2023.
　　Currently, Ivanhoe Mines is the controlling shareholder of Cordoba Minerals with a 63.36% stake, and JCHX is the second largest shareholder with 20.00% of the shares. CMH owns 100% equity in Cobre, a firm that owns 100% of the mining rights of the Alacran copper-gold-silver deposit at the San Matias Project in Colombia. Upon completion of the acquisition, we estimate JCHX will gain a 50% stake in the San Matias Project through CMH, sending its total equity interest to 60.00%.
　　Comments
　　San Matias’ Alacran copper-gold-silver mine is JCHX’s important resource project in the pipeline.
　　JCHX announced that this project’s feasibility study and environmental impact assessment are underway. Upon completion of these procedures, construction would start. The Alacran copper-gold-silver mine is JCHX’s key resource project in the pipeline. According to an evaluation report, this project has rich and diverse metal resources with potential for increased reserves. It has a high recovery rate and low mining costs. In addition, its net present value is high, and acquisition consideration is relatively low. After acquiring CMH, JCHX’s attributable copper reserves could expand 25% to 1.32mn tonnes.
　　According to the agreement, JCHX has a preemptive right to serve the San Matias Project. We believe the firm’s advantage in mine development and Ivanhoe’s strong expertise in exploration could generate synergies and create mutual benefits.
　　JCHX is a leader in integrated mine operation services. It is steadily implementing a dual-driver strategy focused on services and resources. The firm is exploring a dual-driver model (i.e., mine development services and resource development) by acquiring quality mine projects. JCHX is transforming itself from a mine development service provider into a comprehensive mining group.
　　Lonshi copper mine is to come online soon. Resource development business creates new growth potential, thus accelerating earnings growth. According to JCHX’s announcement, three of its mines could start production in the near term.
　　Dikulushi copper mine: JCHX owns 100% of this mine in the Democratic Republic of the Congo (DRC) and expects it to produce 8,000 tonnes of copper in 2023.
　　Lonshi copper mine: JCHX owns 100% of this 40,000t/yr mine in the DRC, which is scheduled to start production in 2023.
　　Liangchahe phosphate mine: JCHX has a 90% stake in this mine in China. The firm expects Phase I (300ktpa) to commence operations in 2023, with Phase II (500ktpa) online in 2025.
　　We believe JCHX’s dual-driver strategy of mine service and resources will start to pay off, likely accelerating earnings growth.
　　Financials and valuation
　　We leave our 2022 earnings forecasts largely unchanged at Rmb694mn. Given potential output expansion in 2023, we raise our 2023 earnings forecasts 3.8% to about Rmb1.04bn. We introduce our 2024 earnings forecasts of around Rmb1.92bn. Maintain OUTPERFORM. As the Chinese economy may recover in 2023 and sector valuations could bounce back, we raise our target price 15.4% to Rmb42 (24x 2023e and 13x 2024e P/E), offering 36.6% upside. The stock is trading at 18x 2023e and 10x 2024e P/E.
　　Risks
　　Volatile metal prices; negative surprises in project operation commencement; political risks in countries where overseas projects are located
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。