Zijin Mining's 1H26 results were in line; free cash flow improved significantly; Goldman Sachs maintains Buy

Overview

The report reviews Zijin Mining's 1H26 results, operating performance by business, costs and cash flow, and updates its medium- to long-term commodity price and earnings assumptions. Goldman Sachs believes the results were broadly consistent with the previous profit alert. Although gross profit from the gold and lithium businesses was below expectations, the copper business, expense control and lower taxes provided an offset. Strong free cash flow, higher gold and copper prices, and production growth support its maintained Buy view.

Core views

Zijin Mining reported 1H26 net profit of Rmb39.2bn and EPS of Rmb1.47/share, both up 68% YoY and in line with its previous profit alert. Excluding one-off items such as fair-value gains and foreign-exchange losses, recurring net profit was Rmb38.8bn, up 77% YoY and broadly in line with Goldman Sachs' forecast and Bloomberg consensus. The company declared an interim cash dividend of Rmb0.42 per share, representing a 28% payout ratio, higher than 25% in 1H25. Operations were generally solid: mined copper production excluding Kamoa increased 5%, while mined gold production increased 13%. However, reported gross profit was 5% below Goldman Sachs' expectation, mainly because weaker profits from the gold and lithium businesses more than offset the positive contribution from the copper business. Gold production and realized average selling prices for gold and lithium were below expectations and were the main drags. Nevertheless, lower-than-expected selling and administrative expenses and income tax expenses kept final net profit broadly in line with expectations. Goldman Sachs estimates that unit selling costs for gold and copper increased 11%-13% YoY, due to factors including higher royalties resulting from increased commodity prices, lower ore grades, longer transportation distances as mining advanced, and higher diesel and reagent costs following the Middle East conflict. The copper business contributed 39% of total gross profit. Gross profit from mined copper was 7% above Goldman Sachs' expectation and increased 58% YoY, mainly driven by higher realized selling prices and better-than-expected cost performance. Goldman Sachs estimates that the realized average copper selling price increased 36% YoY, below the 39% rise in the benchmark copper price, although selling prices for both copper concentrate and copper cathode exceeded its forecasts. Including Kamoa's attributable production, mined copper production declined 6% YoY because incremental output from Julong and Kolwezi did not fully offset lower Kamoa production, but this result was in line with expectations. Unit selling costs increased 13% YoY, which the company attributed to lower grades, higher diesel and reagent prices, and increased royalties resulting from higher commodity prices. The gold business contributed 47% of total gross profit. Gross profit from mined gold increased 92% YoY but was 7% below Goldman Sachs' expectation, mainly due to a lower realized average selling price and higher-than-expected unit costs. Goldman Sachs estimates that the realized average gold selling price increased 45% YoY, below the 53% rise in the benchmark gold price. Mined gold production increased 13% YoY but was 7% below its forecast due to lower production at overseas gold mines. Unit gold selling costs increased 11% YoY and were 3% above expectations. The lithium business contributed 4% of total gross profit. Gross profit from the lithium business increased 26-fold YoY but was 26% below Goldman Sachs' expectation due to a lower realized average selling price. Goldman Sachs estimates that the realized selling price for lithium carbonate equivalent increased 129% YoY, below the 144% rise in China's lithium carbonate spot price, possibly because some products were sold in the form of lithium ore. Total lithium carbonate equivalent production increased sixfold YoY and was broadly in line with expectations. Unit selling costs increased 21% YoY but remained 20% below expectations. Improved expenses and cash flow offset the gross-profit shortfall. Selling and administrative expenses increased 33% YoY, below expectations, which Goldman Sachs believes may reflect better cost control. Finance expenses declined 45% YoY but remained above its forecast. Income tax expenses were 18% below expectations. Goldman Sachs estimates that the effective tax rate in 1H26 was 22%, up 5 percentage points YoY but still below expectations. Operating cash flow increased 92% YoY, faster than profit growth. As capital expenditure declined, investing cash outflow decreased 37% YoY, causing free cash flow to turn from negative Rmb0.3bn in 1H25 to positive Rmb37.2bn in 1H26. The improvement in free cash flow drove the net gearing ratio down from 53% at end-2025 to 36% at end-June 2026. Looking ahead, Goldman Sachs raised its 2026 earnings forecast for Zijin Mining by 2% to reflect year-to-date mark-to-market adjustments in commodity prices. It also raised its 2028 earnings forecast by 32% after increasing its long-term copper price assumption from US$10,000/t to US$13,700/t, consistent with the forecast of Goldman Sachs' global commodities team. The report expects recurring profit to rise from Rmb50.9bn in 2025 to Rmb80.6bn in 2026, up 58% YoY, mainly driven by higher gold and copper prices and 5%-12% YoY growth in gold and copper production. Zijin Mining produced 1,085kt of copper and 89.5t of gold in 2025, and the report views it as one of the world's largest copper miners and gold producers. The valuation methodology remains unchanged, centered on the historical relationship between P/B and ROE. The 2026 target valuations for the H-shares/A-shares are 4.7x/5.2x P/B, respectively, versus 4.8x previously for the H-shares, while the A-share multiple remains at 5.2x. The corresponding ROE assumption is 37.0%, versus 36.4% previously. These valuations correspond to 14x/15.5x P/E for the H-shares/A-shares based on the long-term copper price, at the mid-to-high end of the 12-16x global peer mid-cycle valuation range. If the 2028 operating targets are achieved, Goldman Sachs estimates that the current H-share price implies a copper price of only US$9,090/t, 36% below the spot level of US$14,113/t, and therefore believes the valuation is attractive. Goldman Sachs maintains Buy ratings on both the H-shares and A-shares and keeps its 12-month target prices unchanged at HK$51.0 and Rmb49.0, implying respective upside of 32.3% and 41.0% from the reference prices of HK$38.56 and Rmb34.74. The report also emphasizes that earnings are highly sensitive to gold and copper prices: 2026 earnings would change by 1.5% for every US$100/oz change in the gold price and by 1.1% for every US$0.10/lb change in the copper price. In addition, poor project execution or slow progress could weaken the company's ability to sustain growth, while overseas assets are also exposed to foreign-exchange and country risks.

Analysis framework

Goldman Sachs first compares 1H26 net profit and recurring profit with the profit alert, its own forecasts and market consensus. It then breaks down the production, realized selling prices, unit costs and gross-profit variances of the copper, gold and lithium businesses to explain why net profit still met expectations. It subsequently analyzes changes in expenses, operating cash flow, capital expenditure and the net gearing ratio, and updates its earnings forecasts based on mark-to-market commodity price adjustments and its long-term copper price assumption. Finally, it conducts cross-valuation using the historical relationship between P/B and ROE, P/E based on the long-term copper price, and global peer mid-cycle multiples, and tests its view using commodity price sensitivity and project and overseas risks.

Methodology notes

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Breakdown of segment profits by production volume, realized average selling price and unit selling cost

  The report separately examines changes in copper, gold and lithium production, selling-price performance relative to benchmark prices, and unit costs to explain gross-profit growth and variances from forecasts for each business.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Analysis of operating cash flow, capital expenditure and free cash flow

  The report uses changes in operating and investing cash flows to explain why free cash flow turned from negative to positive, and links this to the decline in the net gearing ratio to assess earnings cash conversion and balance-sheet improvement.

• Valuation MethodPB valuation

  Valuation based on the historical correlation between P/B and ROE

  Based on the historical relationship between Zijin Mining's price-to-book ratio and return on equity, the report assigns 2026 P/B multiples of 4.7x and 5.2x to the H-shares and A-shares, respectively, and derives the 12-month target prices accordingly.

• Valuation MethodPE/PEG valuation

  P/E based on the long-term copper price and comparison with global peer multiples

  The report converts the target valuations into P/E multiples of 14x and 15.5x based on the long-term copper price and compares them with the global peer mid-cycle multiple range of 12-16x as a cross-check of the P/B valuation results.

• (Out-of-Vocabulary Method)

  Commodity price earnings sensitivity analysis

  The report quantifies the impact of unit changes in gold and copper prices on 2026 earnings to present the earnings forecast's exposure to assumptions for key commodity prices.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Zijin Mining H-shares (2899.HK)

  The report maintains its Buy rating and 12-month target price of HK$51.0, implying 32.3% upside from the reference price of HK$38.56.

  Strengths

  Gold and copper prices and production jointly drive profit growth, while free cash flow has improved significantly. If the 2028 target is achieved, the current share price implies a copper price of US$9,090/t, 36% below the spot level.

  Weaknesses

  Gross profit from the gold and lithium businesses was below expectations, while unit costs for gold and copper increased YoY.

  Comparison

  The target valuation corresponds to 14x P/E based on the long-term copper price, at the mid-to-high end of the global peer mid-cycle valuation range of 12-16x.

  Risks

  Gold and copper price volatility, slower project execution, and foreign-exchange and country risks associated with overseas assets.

• Zijin Mining A-shares (601899.SS)

  The report maintains its Buy rating and 12-month target price of Rmb49.0, implying 41.0% upside from the reference price of Rmb34.74.

  Strengths

  Recurring profit is expected to increase 58% YoY in 2026, while operating cash flow and the net gearing ratio have both improved significantly.

  Weaknesses

  Realized selling prices in some businesses lagged the increases in benchmark commodity prices, while ore grades, transportation distances, royalties and production input costs created pressure.

  Comparison

  The target valuation corresponds to 15.5x P/E based on the long-term copper price, at the high end of the global peer mid-cycle valuation range of 12-16x.

  Risks

  Gold and copper price volatility, slower project execution, and foreign-exchange and country risks associated with overseas assets.

Key data

• 1H26 net profitRmb39.2bnUp 68% YoY, in line with the previous profit alert
• 1H26 EPSRmb1.47/shareUp 68% YoY
• 1H26 recurring net profitRmb38.8bnUp 77% YoY, broadly in line with Goldman Sachs and Bloomberg consensus estimates
• 1H26 interim dividendRmb0.42/sharePayout ratio of 28%, versus 25% in 1H25
• 1H26 free cash flowRmb37.2bnNegative Rmb0.3bn in 1H25
• Net gearing ratio36%As of end-June 2026, down from 53% at end-2025
• Copper business gross profitUp 58% YoY7% above Goldman Sachs' expectation, accounting for 39% of total gross profit
• Gold business gross profitUp 92% YoY7% below Goldman Sachs' expectation, accounting for 47% of total gross profit
• Lithium business gross profitUp 26-fold YoY26% below Goldman Sachs' expectation, accounting for 4% of total gross profit
• 2026 recurring profit forecastRmb80.6bnUp 58% from Rmb50.9bn in 2025
• 2026 earnings forecast adjustmentRaised by 2%Reflecting year-to-date mark-to-market adjustments in commodity prices
• 2028 earnings forecast adjustmentRaised by 32%Long-term copper price assumption increased from US$10,000/t to US$13,700/t
• H-share target priceHK$51.0Current price HK$38.56, implying 32.3% upside
• A-share target priceRmb49.0Current price Rmb34.74, implying 41.0% upside
• H-share implied copper priceUS$9,090/tAssuming the 2028 target is achieved, 36% below the spot price of US$14,113/t

Impact & implications

The report believes Zijin Mining's net profit growth is driven not only by higher gold and copper prices but also by production expansion, expense control and improved cash flow. Positive free cash flow and a lower net gearing ratio have strengthened balance-sheet resilience, while the higher long-term copper price assumption significantly raises the 2028 earnings forecast. Although selling prices and gross profit in the gold and lithium businesses were below expectations, better performance from the copper business and lower taxes kept overall results within the expected range. If the 2026 production and price assumptions materialize, Goldman Sachs expects the company to sustain strong profit growth.

Risks

• For every US$100/oz change in the gold price, 2026 earnings are expected to change by 1.5%; for every US$0.10/lb change in the copper price, 2026 earnings are expected to change by 1.1%.
• Poor project execution or slow progress may affect the company's ability to continue delivering its growth targets.
• Overseas assets are exposed to foreign-exchange volatility and country risks.