As the most profitable nonferrous metal company in A-share in 20 19, Zijin Mining (60 1899. SH) will remain unchanged in 2020.

In July, two international rating agencies, Standard & Poor's Global Rating (S&P) and Fitch Ratings Limited (Fitch Ratings), successively downgraded Zijin Mining due to the increase in leverage ratio caused by acquisition and construction capital expenditure. Among them, Fitch adjusted the long-term issuer default rating and senior unsecured rating of Zijin Mining from "BBB-" to "BB+".

In Fitch's view, the acquisition of Julong Copper will increase the net leverage ratio of Zijin Mining by about 4 times, which is higher than the leverage ratio threshold of 2.5 times.

"The net leverage ratio of 2.5 times is the result of comprehensive consideration after comparing the leverage ratios of other mining companies with Fitch Ratings." Jiang Anlun, co-director of Fitch Ratings Asia-Pacific Enterprise Rating, told Caijing that if the net leverage ratio of Zijin continues to be higher than 2.5 times compared with other mining enterprises in the BBB range, its rating will no longer meet the BBB- level.

Zijin Mining replied to the Caijing reporter that this international rating adjustment has not had a significant impact on the company's financing, the company's financing channels are still relatively smooth, and the financing cost is still controlled at a low level.

Before the downgrade, that is, in April this year, Bogra Gold Mine was the main profit source of Zijin Mining's gold plate, and its application for extension of mining rights was rejected by the Papua New Guinea government, which once became the focus of market attention.

Recently, Zijin Mining said that BNL, a joint venture company of the company, submitted an application to the International Center for Settlement of Investment Disputes (ICSID) under the World Bank to initiate mediation procedures in response to the Papua New Guinea government's refusal to extend the application for special mining rights of Bogra gold mine.

Some brokers pointed out that Pogra Gold Mine is currently facing the risk of nationalization. If the mining right cannot be successfully renewed, it will have a certain negative impact on the company's mineral gold output and performance expectations. "However, the negotiations are still going on, and it is not ruled out that it is still possible to properly resolve it."

"ICSID mediation is only one way to solve the problem of mineral rights in Bogla." Zijin Mining told Caijing that it will actively discuss with barrick Gold and actively push all parties to reach a new solution through various means according to the investment agreement and relevant laws and regulations.

Wind data shows that after two years, Zijin Mining returned to the top of the A-share non-ferrous metals industry with a net profit of 4.284 billion yuan attributable to shareholders of the parent company in 20 19. In the first quarter of 2020, the company still ranked first in this data.

It will take time to test whether Zijin Mining, whose overseas mining rights have been frustrated and its rating has been downgraded, can continue to stabilize its position as the first scholar in the industry.

Zijin Mining's non-net profit in the first quarter decreased by 65,438+02.67% year-on-year, and was recently downgraded due to large-scale acquisition and increased capital expenditure.

On July 20th, Fitch released the credit rating update report of Zijin Mining, which changed the default rating and senior unsecured rating of Zijin Mining's long-term issuer from "BBB-" to "BB+" and removed them from the negative rating watch list.

This rating change was made after the company completed the acquisition of Tibet Julong Copper Co., Ltd. (referred to as "Julong Copper").

As of July 10, Tibet Zijin, a wholly-owned subsidiary of Zijin Mining, has completed the acquisition of 50. 1% equity of Julong Copper at a transaction price of 3.9 billion yuan. When the acquisition plan was released, the company said that the acquisition funds would be solved through its own funds and syndicated loans.

Copper mine exploration and development is the main business of Julong Copper. The company owns Qulong Copper Polymetallic Mine, Murong Cuola Copper Polymetallic Mine and Zhibula Copper Polymetallic Mine. The total copper in the three mining areas is 7,957,600 tons, and the total associated molybdenum is 370,600 tons. At the same time, there are a lot of low-grade copper (molybdenum) resources in porphyry bodies. The data shows that from 20 17 to 20 19, the net profit of Julong Copper lost1070,000 yuan,1780,000 yuan and 370 million yuan respectively.

In Fitch's view, the acquisition of Julong Copper increased the net leverage ratio of Zijin Mining from 2020 to 202 1 year to about 4 times, which was higher than the leverage ratio threshold of 2.5 times.

In the rating released on June 16, Fitch listed the long-term issuer default rating "BBB-" and the senior unsecured rating "BBB-" of Zijin Mining on the negative rating watch list due to the acquisition of Julong Copper. Fitch believes that in the short term, Zijin Mining's resource expansion scale and aggressive acquisition strategy make its operating conditions face unpredictable variables and lead to fluctuations in its financial indicators.

When talking about the rating change, Jiang Anlun told Caijing that after Zijin announced the acquisition, it is estimated that the debt increase caused by the acquisition will make its leverage level continue to be higher than 2.5 times in the future, which will lead to a downgrade. However, the acquisition was not completed at that time, and the usual practice was to put the rating on the negative watch list first. "After the acquisition is completed, we will re-examine the company's situation. If the acquisition is consistent with previous expectations, we will take rating action and downgrade the rating. "

In addition to the acquisition of Julong Copper, Zijin Mining recently completed an asset acquisition. 13 In June, Zijin Mining said that it planned to acquire 0/00% equity of Guiana Jintian/kloc-0 for 323 million Canadian dollars (about1700 million yuan) in cash. The main assets of Jintian in Guyana are all the interests of Aurora Gold Mine (in production) and 15 independent exploration assets held through wholly-owned subsidiaries, all of which are located in Guyana, South America. In 20 19, the company's net profit loss was $263 million, due to the decline in operating income and the impairment of assets such as mining rights by $235 million.

In March this year, the company completed the acquisition of all shares of Continental Gold listed in Toronto, Canada. The agreed acquisition transaction amount is about 7.03 billion yuan, and the acquisition method is cash.

It is worth noting that on July 14, Standard & Poor's also downgraded Zijin Mining's long-term issuer rating and its long-term unsecured bond rating from "BBB-" to "BB+". The reason given by Standard & Poor's is that due to the recent mergers and acquisitions and construction capital expenditures of the company, debt and cash expenditures have increased, corporate debt leverage ratio has increased, and liquidity has weakened.

Zijin Mining told Caijing that although the rating was downgraded, the two rating agencies also agreed that the company's future trend of capacity release, cash flow improvement and debt reduction has not changed. I believe Zijin Mining can gradually reduce the leverage ratio within the threshold in the next 2-3 years.

It is reported that after the downgrade of Zijin Mining's international rating, on July 2 1, the syndicate led by Credit Agricole of France issued a financing loan of US$ 800 million to the company, which was 3 1 BP lower than the previous syndicated loan interest rate of Jianya International, and could save more than US$120,000 in five years.

In addition to acquiring assets, Zijin Mining is also increasing its investment in the project. In June this year, the company indicated that it planned to issue convertible bonds, and the total amount of funds to be raised was no more than 6 billion yuan, which was mainly used for the construction of the Kamoa-Kagula copper mine project in Kamoa, the mining belt on the Timaker copper-gold mine in Heilongjiang and the Tongshan mine project.

In response to the above rating downgrade, Zijin Mining said that the increase in leverage ratio involved in this rating adjustment is short-term and will not have a substantial impact on the company's production and operation. "The company will actively promote the construction of major projects such as Camoa-Kagula copper mine. With the continuous release of gold and copper production capacity, strong operating cash flow and strong solvency, the leverage ratio of corporate debt will be greatly reduced. "

In Zijin Mining's view, in the domestic bond market, the company's main body and debt rating have not been adjusted, all of which are AAA, and the issuance of convertible bonds is not affected. "At the end of the first quarter of 2020, the company's asset-liability ratio was 58%, which was basically the same as the overall asset-liability ratio of listed companies in Shenwan nonferrous metals industry. The company still has about 654.38 billion yuan of available bank credit. Although the short-term leverage ratio has increased, it will not have a big impact on the company's production and operation and capital expenditure. "

TF Securities believes that the issuance of convertible bonds is expected to reduce the financing cost and optimize the financial structure to some extent.

Jiang Anlun said that the above bonds have been reflected in the calculation of their leverage ratio. They believe that Zijin's acquisition through debt financing this year and next will lead to its leverage ratio maintaining at around 4 times.

"Due to the increase in gold and copper production and the stabilization of global commodity prices, Zijin Mining's profits and cash flow will remain strong." Fitch said, however, due to the increase in capital expenditure, Zijin Mining is expected to have a free cash flow deficit in the next 24 months, which will limit its short-term deleveraging ability.

In addition to the downgrade, Zijin Mining's unexpected event of mining right extension of Bogra Gold Mine in April this year has also become the focus of market attention.

On April 27th, Zijin Mining announced that BNL, a joint venture company of the company and Barrick Gold of Papua New Guinea (hereinafter referred to as "PNG"), applied for extending the special mining right of its Bogra gold mine, which was rejected by the PNG government.

Zijin Mining and barrick Gold respectively hold 50% equity of BNL, and BNL holds 95% equity of Bogra Gold Mine.

The mining right of Pogra Gold Mine expired in August 2065438+2009. According to the judgment of the National Court of Papua New Guinea, Pogra gold mine can continue to produce until the Papua New Guinea government makes a decision to extend the mining right.

However, on April 24, 2020, the Papua New Guinea government decided not to approve the application for extension of the special mining right of Pogra Gold Mine, and said that it would set up a national negotiating team to negotiate on follow-up matters.

According to the data, Bogra Gold Mine is located in Nga Province of Papua New Guinea, which is the second largest investment project of China Company in Papua New Guinea, second only to Ramu Nickel Cobalt Project of MCC. It is one of the top ten gold mines in the world, with gold resources of 3 14 tons, daily ore processing capacity of170,000 tons, annual processing capacity of 5.8 million tons, and annual gold production of 15.5 tons. Dongxing Securities said that the remaining recoverable life of the mine resources is 9 years for open-pit mining and 1 1 year for underground mining.

According to the mine development contract of Pogra project, BNL still owns the ownership of mine equipment and facilities in Pogra Gold Mine.

Zijin Mining 20 15 invested 298 million US dollars to acquire 50% equity of BNL, and the annual gold output attributable to the company is about 8 tons. As of April this year, the company has recovered all the investment costs of the project.

The background of this decision by the Papua New Guinea government is that the government successfully nationalized the OK Tedi copper and gold mine because of the simple land ownership and smooth transformation and operation.

At that time, some brokers analyzed that the application for extension of the special mining right of Bogra Gold Mine, which accounted for about 30.4% of the net profit of Zijin Mining's core gold plate, was rejected, or it would have a greater impact on the company.

Zijin Mining mainly produces mineral products or smelting products of metals such as gold, copper, lead and zinc, and the gold business is an important source of profit for the company. According to the company's 20 19 annual report, the sales income of gold business accounts for 57.98% of the operating income (after offset), and the gross profit of this business accounts for 30.94% of the gross profit of the group.

Among them, the operating income of the company's mine gold production in this period increased by 27.74% year-on-year to11600 million yuan, and the gross profit margin increased by 10.45 percentage points year-on-year to 4 1.82%. The income of this product accounts for 8.5% of the company's operating income of 65,438+0,366,5438+0 billion yuan.

Bogla gold mine is the main gold output of Zijin Mining. In 20 19, among the major enterprises or mines in the company's gold mining business, Bogra Gold Mine ranked first with 8.83 tons of mineral gold output, accounting for 2 1.6% of the company's mineral gold output.

At the same time, Pogra Gold Mine is also the mine with the highest contribution to the net profit of the company's gold plate. In 20 19, the equity income attributable to the company of Bogra Gold Mine was 2.796 billion yuan, and the net profit attributable to the company was 527 million yuan. The net profit ranks first among the six core gold mines of Zijin Mining, accounting for about 30.4% of the net profit of the company's core gold plate.

Dongxing Securities said that from the observation of Zijin Mining's total net profit of 20 19, Bogra gold mine accounts for about 12.3% of the company's net profit, which may have a structural impact on the company's actual profitability.

In order to offset the impact of the Bogra gold mine incident on the company's gold output, Zijin Mining said that it would speed up the technical transformation and construction of gold-producing mines such as Longnan Zijin, and strive to keep the mineral gold output equal to 20 19 in 2020.

"With the release of the company's existing gold incremental project capacity, it is expected that the company's future gold production will still maintain good growth." Zijin Mining said that at the same time, the company will continue to pay attention to market opportunities and conduct mergers and acquisitions of gold mines in production in a timely manner to further increase the company's gold output.

On July 9th, BNL submitted a request to the International Center for Settlement of Investment Disputes under the World Bank, and initiated mediation procedures for the Papua New Guinea government's refusal to extend the application for special mining rights of Pogra gold mine. BNL hopes to reach a fair and reasonable extension agreement with PNG stakeholders through this mediation procedure.

In the first quarter of 2020, Zijin Mining's operating income increased by 24.52% year-on-year to 36.2 billion yuan, and its net profit increased by 65,438+08.93% year-on-year to 6,543.80 billion yuan.

"Supported by rising gold prices and increased copper production, Zijin Mining is expected to perform strongly in the first half of this year." Fitch said that the suspension of production of Pogra gold mine did not have a great impact on the company's gold production, and the increase in gold production of other projects in the second quarter will offset the potential losses of Pogra gold mine.

Zijin Mining told Caijing that the company is implementing technological transformation and expansion of gold mine projects such as Longnan Zijin, Norton Jintian and Shanxi Zijin. Under the background of high gold price, it has good profits and cash flow, and the funds needed for construction projects are mainly raised by its own enterprises (including its own funds and some loans). "In addition to the above projects, the company has also increased the potential of other gold projects, and strived to keep the output of mineral gold at the same level as that of 20 19 in 2020, which can basically make up for the short-term capacity gap of Bogra gold mine."