RPT-BREAKINGVIEWS-Gold miner requires lasting Midas touch

By Ka Sing Chan

HONG KONG, Sept 19 (Reuters Breakingviews) - Zijin Mining 601899.SS is asking investors to dig deep. The $93 billion extractor of copper, zinc and lithium from the earth is spinning off its overseas gold mines into a separate listing in Hong Kong. Yet the unit's target market capitalisation of up to $25 billion in its initial public offering, which launched on Friday, implies it can sustain a Midas' touch for a long time. That will require a lot of good fortune.

Assuming the over-allotment option is exercised, Zijin Gold's market capitalisation would be 51 times its $481 million earnings last year, or 2.3 times the multiple of its parent which is one of Hong Kong's best performing blue chips. Newmont NEM.N, a mature company and the global industry leader by production, is trading on 14 times even though its New York shares have more than doubled this year.

Zijin Gold is one of the world’s fastest growing gold producers with net profit increasing at a compound annual rate of 62% since 2022 but it will take another four consecutive years of breakneck growth for the Chinese firm to match Newmont’s 2024 earnings. On the production front, assuming current growth rates, it will take Zijin Gold a decade to match its larger rival, which last year produced 6.5 million ounces of the yellow metal.

Growing fast is in the company's DNA. Its parent has been arguably the most acquisitive Chinese firm of the past decade. The strategy transformed what started as a small county-level state-owned enterprise to a global mining conglomerate. Zijin Gold has also set its sight on acquiring more overseas projects.

Zijin Gold is relying on its proprietary technologies, such as bioleaching, to allow it to acquire and extract value from low-grade mines its rivals view as unpromising. Some of the group's most recent acquisitions, the Buriticá project in Colombia and Akyem mine in Ghana, were sold by Newmont.

Yet blistering growth through M&A is always risky. The company reckons thieves stole 38% of the Buriticá project's annual output in 2023, for example. Rivals may opt to use similar technology and hold onto their mines if gold prices keep rising. At a $25 billion valuation, though, Zijin's performance will need to keep glistening.

CONTEXT NEWS

China's Zijin Gold International, the overseas gold-mining unit of Zijin Mining, opened the books for a Hong Kong initial public offering of around HK$24.98 billion on September 19. The company is selling 349 million shares at HK$71.59 a piece. Assuming an over-allotment option is fully exercised, the offer price implies a $25 billion market capitalisation for the goldminer.