Zijin Mining's 1Q26 results were in line with expectations, with QoQ declines in gold and copper costs
AI summary card
Zijin Mining's 1Q26 results were in line with expectations, with QoQ declines in gold and copper costs
Morgan Stanley maintains an "Overweight" rating on Zijin Mining 2899.HK, believing that 1Q26 net profit nearly doubled year over year, unit costs for gold, copper, and lithium improved quarter over quarter, and the dividend policy was also enhanced.
- 1Q26 net profit was RMB 20.1 billion, higher than RMB 10.2 billion in 1Q25 and RMB 13.9 billion in 4Q25, benefiting from higher metal prices and increased output.
- Gold output was 23.5 tonnes, +23% YoY and -4.5% QoQ; copper output was 259kt, -9.9% YoY and +1.6% QoQ; lithium output was 16.2kt LCE, +22.4% QoQ.
- Unit costs of major metals declined quarter over quarter: gold to RMB 276/g, -5.8% QoQ; copper to RMB 27k/t, -3.4% QoQ; lithium to RMB 39.1k/t LCE, -14% QoQ.
- The company announced a three-year dividend plan for 2026-2028, with an average payout ratio target of 35%, higher than the 30% in the previous three-year plan.
Report interpretation
Overview
This report is Morgan Stanley's review of Zijin Mining 2899.HK's 1Q26 results. The report believes the company's first-quarter performance was broadly in line with expectations, with earnings growth mainly driven by higher metal prices and output, while unit costs for gold, copper, and lithium all declined quarter over quarter.
Core views
The core view is that Zijin Mining delivered solid operating performance in 1Q26, and quarter-over-quarter cost improvement enhanced earnings quality; Julong Phase 2 started production and ramp-up in late January, and the Manono project is expected to start production in June 2026, which should support the lithium output target; the new three-year dividend plan raises the average payout ratio to 35%, improving visibility on shareholder returns.
Analysis framework
The report uses earnings comparison, breakdowns of production, sales volume, and unit costs, valuation models, and risk scenario analysis. The earnings section focuses on comparing 1Q26 with 1Q25 and 4Q25; the valuation section is based on DCF and combines the A-share target price, exchange rate, and A-H premium adjustments to derive the H-share target price.
Methodology notes
DCF valuation
The report is based on a DCF model, with key assumptions including a 7.5% WACC, 1.4 beta, and a 3% long-term stable revenue growth rate.
Morgan Stanley internal forecasting framework
Unless otherwise specified, the financial metrics in the report are based on the Morgan Stanley ModelWare framework.
Relative rating system
Overweight means the stock's expected total return over the next 12-18 months, on a risk-adjusted basis, is above the average of the analyst's industry coverage universe.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Zijin Mining Group (2899.HK)Report subject and covered H-share target
- Strengths
- Earnings rose sharply year over year, gold, copper, and lithium costs declined quarter over quarter, and the Overweight rating and 44% target-price upside reflect positive expectations.
- Weaknesses
- Copper output declined year over year, some businesses were affected by projects such as Kamoa, and costs remained higher than last year on a year-over-year basis.
- Comparison
- 1Q26 net profit was higher than in 1Q25 and 4Q25; gold output increased year over year but declined quarter over quarter, while copper output declined year over year but rebounded slightly quarter over quarter.
- Risks
- Weaker copper prices, project execution falling short of expectations, and geopolitical events causing production disruptions.
- Zijin Mining Group (601899.SS)A-share mapped target of the same company
- Strengths
- The report's valuation method mentions that it is based on the A-share target price with adjustments for exchange rate and A-H premium.
- Weaknesses
- A-H premium and exchange-rate assumptions will affect the H-share target price conversion.
- Comparison
- The H-share target price is derived from the A-share DCF target price adjusted by a CNY/HKD exchange rate of 0.9 and a 5% A-H premium.
- Risks
- Changes in exchange rates, A-H price spreads, and market risk appetite may affect relative valuation.
- Copper businessCore commodity exposure
- Strengths
- Copper unit cost declined quarter over quarter, Julong Phase 2 started production and ramp-up, and Julong produced 60kt of copper in 1Q26.
- Weaknesses
- 1Q26 copper output declined 9.9% year over year.
- Comparison
- Copper unit cost was -3.4% QoQ, but +11.9% YoY.
- Risks
- Weaker global demand, US recession concerns, insufficient policy support from China, or changes in supply disruptions in major copper-producing countries.
- Gold businessCore commodity exposure
- Strengths
- Gold output was +23.2% YoY, and ASP was +64.9% YoY, supporting earnings growth.
- Weaknesses
- Gold output was -4.5% QoQ, and sales volume was -3.3% QoQ.
- Comparison
- Gold unit cost was -5.8% QoQ, but +9.9% YoY.
- Risks
- A decline in gold prices or continued year-over-year cost pressure.
- Lithium businessGrowth and project ramp-up exposure
- Strengths
- Lithium output was +22.4% QoQ, unit cost was -14% QoQ, and the Manono project is expected to start production in June 2026.
- Weaknesses
- It still depends on projects starting production and ramping up on schedule.
- Comparison
- The expected start-up of Manono will contribute to the company's annual output target of 120kt LCE.
- Risks
- Project execution delays, lithium price volatility, and output targets missing expectations.
Key data
- 1Q26 net profitRMB 20.1 billionCompared with RMB 10.2 billion in 1Q25 and RMB 13.9 billion in 4Q25; +97.5% YoY and +44.3% QoQ.
- 1Q26 revenueRMB 98.498 billion+24.8% YoY and +3.8% QoQ.
- 1Q26 gold output23.5 tonnes+23.2% YoY and -4.5% QoQ.
- 1Q26 copper output259,214 tonnes-9.9% YoY and +1.6% QoQ; the YoY decline was mainly affected by Kamoa.
- 1Q26 lithium output16.2kt LCE+22.4% QoQ.
- Gold unit costRMB 276/g+9.9% YoY and -5.8% QoQ.
- Copper unit costRMB 26,969/t+11.9% YoY and -3.4% QoQ.
- Lithium unit costRMB 39.1k/t LCE-14% QoQ.
- 2026-2028 dividend planAverage payout ratio of 35%Higher than the 30% in the previous three-year plan and also above the actual 32-33% level in 2024-2025.
- Target price and upsideHK$55.00; 44%Calculated based on the closing price of HK$38.20.
Impact & implications
The report's investment implication for Zijin Mining is positive overall: first-quarter results did not deviate from expectations, cost improvements and project ramp-up provide support for subsequent earnings, and the higher dividend target enhances the attractiveness of shareholder returns. The main uncertainties still come from the copper price cycle, project execution, and geopolitical disruptions.
Risks
- Copper prices may weaken due to deteriorating economic data, US recession concerns, or insufficient policy support from China.
- Project execution may fall short of expectations, affecting production ramp-up and resource realization.
- Geopolitical risks may cause production disruptions.
- Metal price volatility may weaken earnings and valuation support.
- Changes in A-H premium, exchange rates, and key DCF assumptions may affect the target price.
What to watch
- Trends in copper, gold, and lithium prices and their impact on ASP and profit margins.
- Ramp-up progress of Julong Phase 2 and its contribution to copper output.
- Whether the Manono project can start production as planned in June 2026.
- Execution of the 2026-2028 plan for a 35% average payout ratio.
- Whether unit cost improvements are sustainable, especially the impact of exchange rates, sales mix, and operating efficiency on costs.