jiangxi copper - jrj.com.cnpg.jrj.com.cn/acc/res/hk_res/stock/2013/5/13/f5557d0e-71c5-437… · 13...

Please refer to the important disclosures and analyst certification on page 2 and the inside back cover of this document, or on our website www.macquarie.com/disclosures.

HONG KONG

358 HK Neutral

Price (at 08:01, 10 May 2013 GMT) HK$16.42

12-month target HK$ 15.00

Upside/Downside % -8.6

Valuation HK$ 15.00 - Sum of Parts

GICS sector Materials

Market cap HK$m 56,846

30-day avg turnover US$m 38.6

Market cap US$m 7,324

Number shares on issue m 3,462

Investment fundamentals

Year end 31 Dec 2012A 2013E 2014E 2015E

Revenue bn 158.0 167.6 170.2 175.8 EBIT bn 7.1 5.5 4.2 4.5 EBIT growth % -15.4 -21.8 -24.3 6.7 Reported profit bn 5.2 4.1 3.0 3.2 Adjusted profit bn 5.2 4.1 3.0 3.2 EPS rep Rmb 1.49 1.19 0.87 0.93 EPS rep growth % -21.5 -20.2 -27.3 7.1 EPS adj Rmb 1.49 1.19 0.87 0.93 EPS adj growth % -21.5 -20.2 -27.3 7.1 PER rep x 8.7 10.9 15.0 14.0 PER adj x 8.7 10.9 15.0 14.0 ROA % 9.7 6.8 4.8 5.0 ROE % 12.6 9.4 6.5 6.7 EV/EBITDA x 5.6 6.7 7.8 7.3 Net debt/equity % 4.6 12.0 19.4 20.4 P/BV x 1.1 1.0 1.0 0.9

Source: FactSet, Macquarie Research, May 2013

(all figures in Rmb unless noted)

Analyst(s) Matty Zhao +852 3922 1293 [email protected] Ivan Lee +852 3922 3572 [email protected] Annie Li +852 3922 3884 [email protected]

13 May 2013 Macquarie Capital Securities Limited

Jiangxi Copper Not quite copper-bottomed We transfer coverage of Jiangxi Copper (JXC) to Matty Zhao with a cautious

view (downgrade to Neutral from OP) and price target of HK$15 (from HK$22),

9% downside. We expect copper price to remain weak in 2013-14F due to a

worsen supply surplus. It will be hard for JXC to outperform the HSI given its

high EPS sensitivity to copper prices, ROE drop from 18% in 2011 to below 7%

in 2014E and potential consensus EPS cut (we are 16%/40% below consensus

in 2013/14F). It is at 15x 2014E PER, and our PT implies 13.7x 2014PER.

Our commodity team expects $6,550/t copper price in 2014

Supply surplus to worsen in 2014: Given the strong investments in copper

projects in the past few years, our commodity team forecasts 3%/8% mined

copper supply growth in 2013/14F but 3.5%/4.8% demand growth only.

Our commodity team see a worsen surplus in 2014 of 728kt (vs. 221kt in 2013)

and remain cautious on copper prices with a 6% drop in 2013E to $7,458/t

and another 12% in 2014E to $6,550/t. The strong YTD supply growth (8%y-y

from Chile mines) and high inventory level add more near term concerns.

Revenue growth not turning into earnings growth

Revenue growth mainly driven by low margin business: We expect JXC

to undertake more copper trading/smelting to boost revenue. Despite a better

TC/RC in 2013/14E, JXC‟s smelting lines may just break even and its trading

segment would deliver 1% profit margin. Thus, while trading/ smelting account

for over 80% of revenue, they only contribute 10/14% to gross profit in 13/14E.

Low cash cost but… We like JXC‟s quality assets and its low C1 cash cost

at US¢84-85/lb ($1850-1870/t vs. over US$5000/t for high cost producers).

Our calculated total cost (incl. noncash cost and before netting of by-product

credits) may amount to ~$4700/t in 13-15E, and we see limited management

incentives for cost reduction.

Mined copper GPM may drop from 45% in 2012 to 26% in 2014: we expect

mined copper production to remain stable at 209kt in 2013-15E. Amid weaker

copper prices, we see self-mined copper concentrate GPM to drop to 36%/26%

in 2013/14F along with a 20/27% EPS drop. A 1% copper price drop leads to

a 1.7% EPS decline in 2013.

DCF value of HK$15 and EV/t reserves value of HK$13-16

We value JXC‟s mined copper segment using DCF (10.8% WACC) and apply

6x 2014E PER for its trading & smelting business to derive our target price of

HK$15 (HK$14.7 from mines and HK$0.3 from trading & smelting). It is at 15x

2014PER (vs. 12x historical average, 13.8x sector average) and 1x P/B. Our

PT implies 13.7x 2014E PER and 0.9x 2014E PB.

JXC is trading at US¢32/lb EV/t of reserves. Copper M&A deals in 2005-2011

implied EV/t of reserves ranging from US¢39-75/lb. We think the copper

supply surplus in 2013/14F is more similar to 2008/09 when average EV/t of

reserves was US¢40-49/lb. We apply a 20% discount to value JXC (not a bid)

and the implied value is HK$13-16; and our PT is within the range.

[email protected] FIRST LAST 05/14/13 01:21:44 PM Hong Kong Highpower

Macquarie Research Jiangxi Copper

13 May 2013 2

Inside

Not quite copper-bottomed 3

Valuation unattractive on PE, P/B,

EV/t basis 7

Earnings drivers and sensitivity 11

Supply surplus lead to weak price 13

Solid assets but limited production

growth 15

Revenue growth =/= earning growth 18

Key assumptions and financials 22

Copper industry – worse 2014 supply

surplus 24

Appendices 36

358 HK rel HSI performance, & rec history

Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.

Source: FactSet, Macquarie Research, May 2013

(all figures in Rmb unless noted)

Jiangxi Copper Company profile

Jiangxi Copper (358 HK, 600362 CH, “JXC”) was listed in HK in June 1997

(40% of the shares), and Shanghai in December 2001 (60%). JXC‟s parent co,

Jiangxi Copper Corporation, is its biggest shareholder, which is fully-owned by

SASAC of Jiangxi Province.

Jiangxi Copper integrates copper mining, smelting, copper trading, and by-

products (gold/silver/sulphuric acid) business. It owns 6 operating copper

mines domestically and 2 projects overseas (under development), with

combined copper reserves of 17.3mnt (China mines reserves of 10.5mnt) gold

reserves of 340t and silver reserves of 9,664t at the end of 2012. It also owns

1 smelter and 7 processing plants.

In 2012, copper accounted for 86% of revenue and 67% of gross profit; while

by-products made up 14% of revenue and 33% of gross profit.

JXC produced 1,090kt of copper cathodes in 2012, including mined copper of

211kt (19%) and the remaining ~880kt (81%) from its smelting business, of

which JXC purchased copper concentrates from third parties (25%/5% from

international/China suppliers and 50% from copper scrap & blister market).

1. Mined copper - is the major earnings driver (8% revenue and 68% gross

profit) for JXC, given its high GPM (45%)

2. Copper smelting - as JXC‟s mined copper production cannot support its

cathode capacity (1mnt), it purchased copper concentrates from third

parties and thus only earns TC/RC less smelting &refining cost for this

segment. Despite accounting for 37% of revenue in 2012 (by recording all

third-party concentrate sales as revenue), it made a loss of RMB700m in

2012 per our calculation.

3. Copper trading: JXC trades copper of 650kt/1,135kt in 2011/12 based

on our calculation accounting for 37%/41% of revenue. Yet with less than

1% margin, trading only amount to 4%/8% of total gross profit 2011/12F.

4. By-products - During the copper smelting and refining process, JXC

obtains by-products of gold/silver/sulphuric acid/rare metals etc. In 2012,

by products accounted for 14% of revenue and 33% of gross profit.

Fig 1 JXC: 2012 Revenue and gross profit mix of each segment

Source: Company data, Macquarie Research, May 2013

8%

68%37%

-9%

41%8%

14% 33%

-20%

0%

20%

40%

60%

80%

100%

120%

2012 Revenue mix 2012 Gross profit mix

Mined copper Copper smelting Copper trading By products



13 May 2013 3

Not quite copper-bottomed JXC hard to outperform during supply surplus and price decline

We expect 2014 copper price of US$6,550/t: We remain cautious on copper price

outlook, expecting a 6% drop this year and another 12% next year, leading to US$6,550/t

2014 average price and expect below US$6,200/t in 3Q14. (Please refer to our commodity

team report “Seeking shelter as the stars fall”) Our weaker copper price assumptions are

based on:

Worsening supply surplus in 2014: high copper prices in the past few years have

driven a period of strong investment into copper projects, with a resulting supply

surplus since late 2012. Our commodities team expects supply surplus in 2013 and a

deteriorating situation in 2014E. We model 3% mined production growth in 2013 and 8%

in 2014. YTD copper production growth has also been very strong, led by 8%YoY

growth from Chilean mines and 10% from large producers that release results (50% of

total copper supply), with copper supply disruptions unusually quiet.

Current price is well above cost curve: Our analysis suggests that while the 100th

percentile of the cost curve is $6,600/t, the 90th percentile – the traditional yardstick of

commodities analysts – remains sub-$5,000/t; which is well below current prices.

Surging copper inventory is a major concern with copper exchange inventory

doubling in the past 6 months, increasing to over 800kt recently.

JXC share price has high correlation with copper price- the R-squared of the past 5

years (on daily price basis) is up to 0.66. While the stock outperformed the copper price

from Sep 2012 to Jan 2013, it has underperformed copper by 14% YTD, thus over the past

12 month-period, JXC traded just in line with copper prices. With our cautious view on

copper price in the next 12months, we believe it will be difficult for Jiangxi Copper to

outperform given its high earning sensitivity to copper prices; and the ROE deterioration

during weak copper price (ROE drop from 18% in 2011 when copper price as at $8812/t to

potentially below 7% in 2014 when our estimate copper price at $6550/t)

Fig 2 Growing copper supply surplus in 2013/14F Fig 3 JXC: PB-ROE

Source: ICSG, Macquarie Research, May 2013 Source: Bloomberg, Macquarie Research, May 2013

Medium-term price support at US$6,500/t: we see both capital cost and operating cost

continuing to increase, with the majority of new projects likely at lower grades and at the

higher end of the cost curve. We see much China new supply this year having operating

cost in excess of $6,000/t. The steepening cost curve supports our long-term copper price

assumption of US$6,500/t.

3684

67337126

6952

5164

7539

8811

7950

7459

65506800

75257875

7875

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

-1000

-800

-600

-400

-200

0

200

400

600

800

1000

Copper price US$/tkt

Surplus

Surplus/Deficit (kt) Copper price (US$/t)

Deficit

21.8%

47.4%

13.0%

12.6%11.7%

17.9%17.9%

12.6%9.4% 6.5%

6.7%

4.2x

2.9x

1.9x 1.8x1.7x

1.2x

1.1x1.0x 1.0x 0.9x 0.9x

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

ROE (%) PB (x)


https://www.macquarieresearch.com/rp/d/r/publication.do?pub_id=7201114&file_name=e147093.html&uid=MTE3OTU2&


13 May 2013 4

Fig 4 Copper price still well above cost curve Fig 5 Copper inventory rising very fast

Source: Bloomberg, Macquarie Research, May 2013 Source: LME, COMEX, SHFE, CRU, Macquarie Research, May 2013

Fig 6 JXC share price has 0.66 correlation to copper price in the past 5 years

Fig 7 Past 12m JXC share price vs. copper price

Source: Bloomberg, Macquarie Research, May 2013 Source: Company data, Macquarie Research, May 2013

We like its assets& low cash cost, but we see margin squeeze and limited mined output growth

Jiangxi Copper owns 6 high quality copper mines in China, with copper reserves of

10.5mnt as at 31 December 2012 and mined copper production of 211kt.

Thanks to its large mine size and favourable mining conditions of its flagship mine (Dexing)

its cash cost was at USc83-84/lb (US$1,830-1,850/t) in the past few years. In 2013-15F,

we expect 1-2% pa growth and cash cost to remain below US$2,000/t, which is at the

lowest end of the global copper cost curve.

We expect mined copper gross margin to drop from 45% in 2012 to 26% in 2014F:

after considering the depreciation and other costs and without netting the by-product

credits, our calculated total cost for its mined copper segment is US$4700/t in 2013-15F.

With limited room for cost reduction and a deteriorating price outlook, we expect the

copper gross margin to drop from 45% in 2012 to 26% in 2014F.

No production growth until 2017. JXC‟s 6 domestic mines have reached full capacity,

with limited production growth in the near term; meanwhile, its overseas projects are still in

the early development stage, which may not start to produce until 2016/17F (we factored in

50kt output from 2017). As such we only expect mined copper production to stay stable at

209kt in 2013-15F.

2000

3000

4000

5000

6000

7000

8000

9000

10000

Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13

US$/t

Mid-cost Producers

Higher Cost Chinese Producers

Low Cost producers

50

100

150

200

250

300

350

400

450

500

0

200

400

600

800

1000

1200

1400

Ja

n-0

9

Ma

y-0

9

Se

p-0

9

Ja

n-1

0

Ma

y-1

0

Se

p-1

0

Ja

n-1

1

Ma

y-1

1

Se

p-1

1

Ja

n-1

2

Ma

y-1

2

Se

p-1

2

Ja

n-1

3

Exchange stocks (mostly LME) Producer stocks

Consumer + Other LME price (RHS)

Usc/lbKt

R² = 0.6594

-100

-50

0

50

100

150

200

250

300

350

-80 -60 -40 -20 0 20 40 60 80

JXC share price performance

Copper price performance -25

-20

-15

-10

-5

0

5

10

15

20

25

%

Jiangxi Copper Copper price

In the past 12m share price traded in line with copper price



13 May 2013 5

Segment analysis: revenue growth may not turn into earnings growth

Jiangxi Copper emphasizes revenue growth and we expect it would boost its revenue by

adding more copper trading and smelting volume. However, given both trading and

smelting have limited earnings contribution (~1% margin for trading and merely breakeven

for smelting), while the major driver (self-mined copper) may face margin squeeze, we do

not think the revenue growth will turn into earnings growth. On the contrary, we see 20%/

27% earnings drop in 2013/14F.

Fig 8 JXC: 2013 Revenue mix and gross profit mix Fig 9 JXC segments gross profit margin in 2013

Source: Company data, Macquarie Research, May 2013 Source: Company data, Macquarie Research, May 2013

Self-mined copper - the biggest earnings driver: Given self-mined copper has much

higher margins (36% in 2013) than its smelting (0%) and trading (1%) businesses, we

expect self-mined copper to be the major earnings driver, accounting for 56% of gross

profit in 2013, although it only accounts for 7% of revenue in 2013.

Jiangxi Copper earnings are most sensitive to copper price and mining cost. A 1% price

drop could lead to a 1.6% earnings drop, while a 1% cash cost increase could result in 0.5%

earnings decline. JXC share price has over 90% correlation with copper price.

Copper smelting / TC/RC: With enlarging smelting capacity in 2013-15 and stable mined

copper concentrate production, we expect JXC‟s smelting copper volume to grow from

880kt in 2012 to 1140kt in 2015F. With a loosening supply in 2013/14F, we see TC/RC on

an upward trend in 2013/14F and JXC‟s smelting segment to break even from 2013.

Copper trading: We believe enlarging copper trading volume will act as the biggest driver

for JXC‟s revenue. In line with management, we expect copper trading to account for over

50% of its revenue in 2013-15F (vs. 41% in 2012 and 19% 5 years ago). Yet, given the ~1%

profit margin, the trading business only contributes 10%/12% for 2013/14F gross profit.

By-products: we expect total of by-products to take up 12% of 2013 revenue and 31% of

gross profit. 1% drop in gold/ silver prices could lead to 0.2% /0.02% drop in 2013 EPS.

Fig 10 JXC: Sensitivity analysis

Sensitivity analysis 2013 EPS change

1% copper price 1.65% 1% gold price 0.21% 1% silver price 0.02% 1% cash cost -0.50% 1% mined copper vol. 1.84% 1% smelting copper vol. 0.09%

Source: Macquarie Research, May 2013

7%

56%29%

0%

52% 10%

12%34%

-20%

0%

20%

40%

60%

80%

100%

120%

2013E Revenue mix 2013E Gross profit mix

Mined copper Copper smelting Copper trading By products

36%

0%1%

15%

5%

31%

2%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Gross margin



13 May 2013 6

Fig 11 JXC: Revenue growth Fig 12 JXC: Net profit growth


Valuation: DCF value of HK$15 and EV/t reserves value of HK$13-16

We value JXC‟s mined copper segment using DCF (10.8% WACC) and apply 6x 2014E

PER for its trading & smelting business to derive our target price of HK$15 (HK$14.7 from

mines and HK$0.3 from trading & smelting). It is at 15x 2014PER (vs. 12x historical

average, 13.8x sector average) and 1x P/B. Our PT implies 13.7x 2014E PER and 0.9x

2014E PB.

JXC is trading at US¢32/lb EV/t of reserves and US$25k/t of production, which is not

attractive compared to Oz Minerals of US$8k/t, Antofagasta of US$18k/t and Freeport of

US$15k/t.

Per our deep dive study of Copper M&A deals in 2005-2011, the implied EV/t of reserves

range from US¢39-75/lb. We think the copper supply surplus in 2013/14F is more similar to

2008/09 when average EV/t of reserves was US¢40-49/lb. We apply a 20-30% discount to

value JXC (not a bid) and the implied value is HK$13-16; and our PT is within the range.

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

0%

10%

20%

30%

40%

50%

60%

2011 2012 2013E 2014E 2015E

RMB mn

Revenue y-y %

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2011 2012 2013E 2014E 2015E

RMB mn

NPAT y-y %



13 May 2013 7

Valuation unattractive on PE, P/B, EV/t basis HK$15 price target based on sum-of-the parts

We transfer coverage of Jiangxi Copper from Ivan Lee to Matty Zhao, with a cautious view

and a price target of HK$15, implying 9% downside. We derive our target price based on a

sum-of-the parts methodology.

We value the self-produced copper mining business (including the gold/silver etc. by-

products generated from its mines) using DCF methodology. We employ a WACC of

10.8 % and a terminal growth value of 1% and detering the copper mines are worth

HK$14.7 per share.

We apply a target P/E of 6x 2014 estimated earnings to its copper-smelting and copper-

trading business. Given the low profit margin of both smelting and trading businesses, we

value these parts of the business at only HK$0.3 per share.

Our PT implies 13.7x 2014E PER and 0.9x 2014E PB which looks fair compared to its 5-year

historical average of 12x PER and 1.5x P/BV, considering its deteriorating ROE in the near

term (from 12.6% in 2012 to 9.4% in 2013 and further to 6-7% in 2014-15F) with its long-term

ROE (post 2017F) returning to 10%.

Fig 13 JXC sum of the parts valuation: DCF for its own copper mines and 6x 2014 target PE for smelting and trading


Fig 14 JXC: 12m forward PE band Fig 15 JXC: 12m forward PB band

Source: Bloomberg, Macquarie Research, May 2013 Source: Bloomberg, Macquarie Research, May 2013

DCF methods for self-owned mines

WACC Valuation Sensitivity table

Risk Free Rate 4.0% Sum of PV of FCF 11,276 --- Terminal Growth Rate ---

Market Risk Premium 6.0% Terminal growth value 31,254 15 0.25% 0.50% 0.75% 1.0% 1.25% 1.50% 1.75%

Equity Beta 1.61 DCF 42,530 10.0% 16.2 16.6 16.9 17.2 17.6 18.0 18.4

Cost of Equity 13.7% Less: Net debt 1,891 10.2% 15.7 16.0 16.3 16.6 17.0 17.4 17.8

Cost of Debt (Pre-tax) 4.7% Less: Goodwill 10.4% 15.2 15.5 15.8 16.1 16.4 16.8 17.1

Cost of Debt (After tax) 4.0% EV (RMB mn) 40,639 10.6% 14.7 14.9 15.2 15.5 15.8 16.2 16.5

Target Debt weight 30.0% EV (HKD mn) 50,798 10.8% 14.2 14.5 14.7 15.0 15.3 15.6 15.9

Target Equity weight 70.0% No. of Ord shares (mn) 3,463 11.0% 13.7 14.0 14.2 14.5 14.8 15.1 15.4

Tax Rate 15.0% Value per share (RMB) 11.74 11.2% 13.3 13.5 13.8 14.0 14.3 14.6 14.9

WACC 10.8% Value per share (HKD) 14.67 11.4% 12.9 13.1 13.3 13.6 13.8 14.1 14.4

Termial growth rate 1.0% CNY/HKD 1.25 11.6% 12.5 12.7 12.9 13.1 13.4 13.6 13.9

Target PE method for smelting and trading business

PE Valuation 2011 2012 2013E 2014E

EPS (RMB/share) -0.1 -0.2 0.0 0.0

EPS (HK$/share) -0.1 -0.3 0.0 0.1

Target PE 6.0

Target price (HK$/share) 0.3

Sum of the parts

Value per share (HKD) 15.0

---W

AC

C--

-

0

5

10

15

20

25

30

35

40

45

50

5x

10x

15x

20x

Historical avg PE: 12x

0

5

10

15

20

25

30

35

40

0.5x

1.0x

2.0x

Historical avg PB: 1.5x

1.5x



13 May 2013 8

Fig 16 JXC: PB- ROE Fig 17 JXC: PE- EPS growth

Source: Bloomberg, Macquarie Research, May 2013 Source: Bloomberg, Macquarie Research, May 2013

JXC worth HK$13.3-16.2 via EV/t reserves (past M&A deals) method

We did a deep dive analysis on EV/t valuation by mapping all the major transactions in the

copper industry in the past 7 years (since 2005) (Fig20). We identified that buyers tend to

pay a much higher price for copper reserves when prices were on a rising trend (from

2005-07, in 2010). For example, in 2010 the average EV/t of reserves (based on Cu value)

of M&A transactions was at 0.75 (copper price at US$7539/t) vs. $0.49 in 2009 and $0.40

in 2008 (when copper price dropped from $7126 in 2007 to $5164 in 2009). Fig 18 below.

JXC worth HK$16.6-20.3 by applying average EV/t reserves of 2008/09 M&A deals:

JXC is currently trading at USc32/lb. Our DCF valuation price target of HK$15) implies a ‟s

EV/t reserves of US$0.29/lb, which is at the low level in the range of all M&A transactions

under our monitor in the past 7 years. We believe the current supply-and-demand situation

and pricing trend are more comparable to the 2008-2009 period, during which we saw

supply surplus and price decline. If we apply the average EV per tonne of reserves for

2008 M&A deals (US$0.4/lb) and for 2009 M&A transactions (US$0.49/lb) to JXC China

reserves of 10.52mnt, JXC should be worth HK$16.6 to HK$20.3 per share.

We apply a 20% discount to the EV/t reserves and JXC worth HK$13.3–16.2: we

believe M&A would normally pay a premium compared to an existing company, and we

apply a 20% discount to the average EV/t reserves of 2008/09 M&A transactions, and

arrive at the pricing range of HK$13.3–16.2 per share. Our price target of HK$15 falls in

the mid range of this valuation.

Bear case analysis: As we expect JXC‟s 2014/15F ROE to be ~7%, half of its cost of

equity of 14%. If investors are bearish on copper sector outlook, we believe the P/B

support of 0.5x 2014 would imply a price of HK$8-9. In terms of PE, we believe the 1

standard deviation below mean (7x 2014PER) would be the bear case support. This would

imply an HK$8 price target.

21.8%

47.4%

13.0%

12.6%11.7%

17.9%17.9%

12.6%9.4% 6.5%

6.7%

4.2x

2.9x

1.9x 1.8x1.7x

1.2x

1.1x1.0x 1.0x 0.9x 0.9x

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

ROE (%) PB (x)

16.9%

-21.5% -20.2%-27.3%

7.1%

6.7x

8.6x

10.8x

14.8x13.8x

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

-30.0%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

2011 2012 2013E 2014E 2015E

EPS growth (%) PE (x)



13 May 2013 9

Fig 18 EV/t reserves valuation (US$/lb)


Fig 19 JXC is trading at US$25k/t of production, which is not attractive compared to Oz Minerals at US$8k/t, Antofagasta at US$18k/t and Freeport at US$15k/t)


-40%

-20%

0%

20%

40%

60%

80%

100%

-0.3

-0.1

0.1

0.2

0.4

0.5

0.7

2005 2006 2007 2008 2009 2010 2011 2012 2013E 2014E

US$/lb

EV/t reserve Copper price growth y-y %

Our forecast

0

10

20

30

40

50

60

70

EV/t production (US$000/t)



13 May 2013 10

Fig 20 EV/t reserves of major copper M&A range from USc39-75/lb on yearly average basis and JXC is at USc32/lb. With weak / declining copper prices in 2008-09, M&A EV/t reserves range from USc40-49/lb. We apply 20% discount to value JXC given it’s not a bid and the implied PT is HK$13-16


Fig 21 Copper peers valuation comparison

Source: Bloomberg, Macquarie Research, May 2013; Price as of 10 May.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Oxia

na

(G

old

en

Gro

ve

…In

co

(F

alc

on

bri

dg

e)…

Xstr

ata

(F

alc

on

bri

dg

e)…

An

tofa

ga

sta

(E

qu

ato

ria

l Min

ing)…

Xstr

ata

(F

alc

on

bri

dg

e)…

Inco

(F

alc

on

bri

dg

e)…

Xstr

ata

(T

inta

ya

(B

HP

))…

An

tofa

ga

sta

(E

qu

ato

ria

l Min

ing)…

Fre

ep

ort

McM

ora

n (P

he

lps …

Qu

ad

ra M

inin

g (E

qu

ato

ria

l …R

io T

into

(Iv

an

ho

e M

ine

s)…

An

tofa

ga

sta

(T

eth

ya

n C

op

pe

r)…

CA

ME

C (K

ata

ng

a M

inin

g)…

Rio

Tin

to (

Iva

nh

oe

Min

es)…

Da

era

h M

aju

Be

rsa

ing

…F

irst Q

ua

ntu

m (E

qu

ino

x …

Ch

ina

lco

(P

eru

Co

pp

er)

…

AK

A F

ors

akri

ng

(B

olid

en

AB

)…C

ap

sto

ne

Min

ing

(S

he

rwo

od

…M

aru

be

ni (

Esp

era

nza

/ E

l …F

irst P

acif

ic (P

hile

x M

inin

g)…

Ca

tala

Glo

ba

l (A

nvil M

inin

g)…

Da

era

h M

aju

Be

rsa

ing

…F

irst Q

ua

ntu

m (S

ca

nd

ina

via

n …

Hu

dB

ay M

ine

rals

(L

un

din

…K

OR

ES

Co

nso

rtiu

m (E

l Bo

leo

…S

terl

ite

Ind

ustr

ies (A

sa

rco

)…H

ud

Ba

y M

ine

rals

(L

un

din

…

Tw

o R

ive

rs P

acif

ic H

old

ing

s …

Min

me

tals

(O

Z M

ine

rals

)…M

inm

eta

ls (O

Z M

ine

rals

)…P

uku

afu

Ind

ah

(N

ew

mo

nt N

usa

…D

ae

rah

Ma

ju B

ers

ain

g …

Rio

Tin

to (

Iva

nh

oe

Min

es)…

GM

P S

ecu

ritie

s (L

un

din

Min

ing)…

Gru

po

Me

xic

o (A

sa

rco

)…T

rafi

gu

ra (A

nvil M

inin

g)…

Ba

rric

k G

old

(E

l M

orr

o)…

Qu

ad

ra M

inin

g (F

NX

Min

ing

)…S

tate

Gri

d In

tern

atio

na

l (S

ierr

a …

PT

T M

inin

g (S

tra

its M

eta

ls)…

Rio

Tin

to (

Iva

nh

oe

Min

es)…

Te

ma

se

k (In

me

t Min

ing

)…E

qu

ino

x M

ine

rals

(C

ita

de

l …P

eri

lya

(G

lob

esta

r M

inin

g)…

Inm

et M

inin

g (L

as C

ruce

s …

Sta

te G

rid

In

tern

atio

na

l …C

ST

Ho

ldin

gs (L

ad

y A

nn

ie …

Rio

Tin

to (

Iva

nh

oe

Min

es)…

Ch

ina

Go

ld (S

kyla

nd

Min

ing

)…C

ita

de

l Re

so

urc

e G

rou

p (Ja

ba

l …G

rup

o M

exic

o (S

ou

the

rn …

Stillw

ate

r M

inin

g (M

ara

tho

n …

Rio

Tin

to (

Iva

nh

oe

Min

es)…

So

jitz

Co

nso

rtiu

m (G

ibra

lta

r …Jin

ch

ua

n G

rou

p (C

on

tin

en

tal …

EN

RC

(C

am

rose

Re

so

urc

es)…

KO

RE

S C

on

so

rtiu

m (R

ose

mo

nt …

Ne

w G

old

(E

l M

orr

o (

Xstr

ata

))…

Th

om

pso

n C

ree

k M

eta

ls …

CS

T H

old

ing

s (C

ha

rio

t …M

itsu

i (C

ase

ron

es (P

an

Pa

cif

ic …

Ba

rric

k G

old

(E

qu

ino

x M

ine

rals

)…M

inm

eta

ls R

eso

urc

es (E

qu

ino

x …

Eq

uin

ox M

ine

rals

(L

un

din

…Jin

ch

ua

n (M

eto

rex)…

En

am

co

(B

ish

a (N

evsu

n))

…M

itsu

bis

hi (

An

glo

Am

eri

ca

n …

Va

le (M

eto

rex)…

Tra

fig

ura

(Ib

eri

an

Min

era

ls)…

Min

me

tals

Re

so

urc

es (A

nvil …

Atla

s C

on

so

lid

ate

d (C

arm

en

…X

str

ata

(C

lon

cu

rry (E

xco

))…

Go

ld F

ield

s (F

SE

(L

ep

an

to))

…K

GH

M P

ols

ka

(Q

ua

dra

FN

X)…

Lu

nd

in M

inin

g (In

me

t Min

ing

)…M

aru

be

ni (

An

tuco

ya

…G

len

co

re (M

ina

Ju

sta

(C

ST

…H

ud

Ba

y M

ine

rals

(N

ors

em

on

t …A

lum

bre

ra (A

gu

a R

ica

…

US$/lb Cu Jiangxi Copper EV/t reserve level

2005 2006 2007 2008 2009 2010 2011

Company Ticker Rating Mkt Cap P/E (x) P/B (x) EV/EBITDA (x) ROE (%)

Name USD $m 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E

Jiangxi Copper 358 HK Outperform 7,324 8.7 10.9 15.0 1.1 1.0 1.0 5.6 6.7 7.8 12.6 9.4 6.5

Rio Tinto RIO AU Outperform 25,471 11.6 11.7 10.0 2.3 2.1 1.8 6.7 6.2 5.1 18.7 18.5 19.2

BHP Billiton BHP AU Outperform 111,612 10.8 15.2 14.4 2.8 2.6 2.4 6.0 7.3 7.0 27.9 17.8 17.5

Glencore Xstrata GLEN LN Outperform 70,036 12.0 11.3 10.5 1.2 1.1 1.0 11.7 7.3 6.6 10.1 13.0 10.1

Anglo American AAL LN Outperform 34,046 10.8 14.9 12.9 0.8 0.8 0.8 4.7 5.0 4.6 7.4 5.5 6.2

Sumitomo Metal Mining 5713 JP Outperform 7,972 9.4 11.0 8.5 1.2 1.1 0.9 6.9 7.7 6.4 13.4 10.6 11.7

PanAust PNA AU Outperform 1,552 10.5 13.3 17.6 1.7 1.5 1.4 4.8 5.7 6.8 16.8 11.8 8.3

Oz Minerals OZL AU Neutral 1,408 9.4 nmf nmf 0.5 0.5 0.6 1.7 6.2 4.7 5.4 -2.3 -2.1

Sandfire Resources SFR AU Neutral 1,036 nmf 6.4 7.4 8.7 3.6 2.5 -44.2 4.4 4.8 -18.7 80.3 40.5

MMG Limited 1208 HK Outperform 1,718 7.2 3.5 3.0 1.0 0.8 0.6 3.2 1.8 2.0 15.3 25.8 23.5

Zijin Mining 2899 HK Underperform 6,548 7.7 10.2 15.2 1.4 1.3 1.3 4.2 5.0 5.7 19.6 13.5 8.7

Antofagasta ANTO LN Neutral 13,820 10.0 15.2 19.4 1.9 2.0 1.9 2.9 4.3 5.1 20.8 12.9 10.0

Kazakhmys KAZ LN Underperform 2,969 10.6 9.9 13.4 0.5 0.5 0.4 4.2 6.3 7.8 3.8 4.7 3.3

Freeport-McMoran Copper FCX US Neutral 30,914 10.8 10.9 10.8 1.8 1.6 1.5 4.6 4.3 4.2 17.4 15.5 14.3

Capstone Mining CS CN Outperform 939 15.0 12.2 4.9 0.7 0.6 0.5 2.8 2.7 1.5 4.5 5.2 11.8

First Quantum Minerals FM CN Neutral 11,101 16.0 13.2 8.9 1.7 1.2 1.2 nmf 5.5 4.1 12.4 10.4 13.3

HudBay Minerals HBM CN Outperform 1,444 nmf 80.4 29.3 0.8 0.7 0.7 5.7 7.1 5.3 -1.2 0.9 2.3

Lundin Mining LUN CN Outperform 2,431 19.7 11.0 13.1 0.7 0.7 0.6 11.8 8.2 10.2 3.5 14.0 0.9

Mercator Minerals ML CN Neutral 83 7.8 nmf 11.9 0.4 0.5 0.5 -2.1 241.6 5.3 -52.7 -8.9 4.9

Turquoise Hill Resources TRQ CN Outperform 7,703 nmf nmf 35.8 1.2 1.2 1.2 -38.3 56.1 12.4 -18.4 -0.6 3.3

Average 11.1 15.4 13.8 1.6 1.3 1.1 0.2 20.0 5.9 5.9 12.9 10.7



13 May 2013 11

Earnings drivers and sensitivity Jiangxi Copper is both a copper miner and a smelter. It produces or purchases copper

concentrate or copper scrap and produces copper cathodes. During the process, they also

produce and sell precious metals and chemicals as by-products.

Fig 22 JXC: Revenue mix Fig 23 JXC: Gross profit mix


SHFE Copper price – The biggest driver for earnings

Copper is traded on both the London (LME) and Shanghai (SHFE) exchanges on a

daily basis. The SHFE and LME copper prices can move quite differently at times, as

SHFE‟s price premium/discount reflects China‟s import demand variance apart from

the tariff and VAT factors.

The SHFE copper price is the most important factor driving Jiangxi Copper‟s revenue

and earnings, given that copper and copper products account for 88% of revenue and

66% of gross profit in 2013F. Yet, for copper trading (52% of revenue), we assume a 1%

gross profit margin in our models, and the copper price fluctuation would have a less

impact to gross profit compared to self-produced/smelted copper.

Per our calculation, a 1% of copper price change equals to 1.7% of JXC‟s earnings

change in 2013. Our commodities team forecast copper prices to be US$7,459/

US$6,550 per tonne in 2013/14F (vs. US$7950/t in 2012). The price decline is one of

the major drivers for JXC‟s EPS drop.

Copper concentrate production volume

Given self-mined copper has a much higher margin compared to copper trading and

copper smelting (36% GPM vs. 0% for copper smelting and 1% for copper trading in

2013F), the production volume is also critical for the company‟s earnings.

Jiangxi Copper has been trying to increase its annual copper concentrate production

capacity through technical enhancements and further exploration, but this has been

progressing at a slow pace. According to management, its mined copper output

volume is to remain stable at 209kt from 2013-15F, given JXC mines have reached full

capacity.

1% volume growth accounts for 1.8% earnings growth.

12% 10% 8% 7% 6% 6%

53%

38%37%

29% 30% 31%

21%

37% 41%52% 53% 52%

14% 15% 14% 12% 12% 11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013E 2014E 2015E

Self-mined copper Copper smelting Copper trading By products

71%61% 68%

56%44% 45%

-8%-3%

-9%0%

2% 2%

2%

4%

8%

10%12% 12%

35%38%

33%

34%42% 40%

-20%

0%

20%

40%

60%

80%

100%

120%

2010 2011 2012 2013E 2014E 2015E

Self-mined copper Copper smelting Copper trading By products



13 May 2013 12

Mining costs

Mining costs include ore mining, milling, labour, electricity, utility and resources tax.

Yet JXC does not disclose its mining cost breakdown. It generally only provides verbal

comments on total mining costs when asked during its annual Analyst Presentation.

Per our latest updates with management in April 2013, current cash cost is at

USc83/lb. We have factored in a 2%/1% cash cost hike in 2013/14F, given grade

deterioration in its Dexing mine and increasing underground operation in

Chenmengshan.

1% mining cost increase account for 0.5% earnings drop.

Gold and silver price

Jiangxi Copper produces gold and silver as by-products from its copper mines to some

extent, and extracts the rest from imported concentrate through the smelting process.

Both gold and silver prices are traded on the LME and SGE. Either way, the

company‟s margins of precious metals are higher than copper as a whole, as JXC

combines the copper trading (low margin business) into the copper segments.

In 2013, we expect combined gold and silver to account for 7% of the company‟s

revenue and 19% of gross profit.

1% gold price drop equals to 0.2% earnings drop while 1% silver price decline may

lead to 0.02% earnings drop.

TC/RC

Treatment and refining charges (TC/RC) are the smelting and refining costs that

copper concentrate suppliers pay to smelters. For copper smelting, the gross cash

margin would be the TC/RC less the processing and smelting cost. Thus, a smelter‟s

final cost of copper concentrate is purchasing cost based on Cu content minus TC/RC

plus processing cost.

For Jiangxi Copper, 90% of its external copper concentrate is bound by long-term

contracts, which are set on an annual basis, usually at the beginning of the year, and

is only 10% is linked to the spot TC/RC. The movement of spot TC/RC around year-

end is important, as it sets the tone for the following year‟s annual TC/RC.

Copper cathode, copper wire rod, gold and silver sales volume

Jiangxi Copper announces copper cathode, gold and silver production volume targets

at the beginning of the year in the previous year‟s annual report, with the copper

concentrate production volume target. Usually these targets are met without much

difficulty, as they are more related to processing than mining and produced volumes

and can be fully sold, as China is in net shortage of copper, gold and silver.



13 May 2013 13

Supply surplus lead to weak price We see worsening supply surplus to drive copper price to $6,550/t

Copper has been a supply story over the past decade; underinvestment in new capacity

led to average growth rates of only ~2% annually. Yet, the last year has seen the copper

market swing into surplus.

In our view, global copper will remain in surplus in 2013 and the copper balance is set to

deteriorate further in the next 12 months due to increased supply growth driven by a period

of strong investment of copper projects expansion. We model a 3% mined copper growth

(or ~520kt) in 2013 and 8% (1398kt) in 2014. To sum up, we expect almost 1mnt additional

capacity from greenfield projects to ramp up in the next 12 months and top 10 expansion

projects will add ~2mnt annual capacity in the next 2 years.

Fig 24 Global copper supply-demand model and price expectations

'000t 2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f

Mine Production 15561 15838 16014 16006 16698 17218 18616 19404 19759 20405 20535 % Change 0.6% 1.8% 1.1% -0.1% 4.3% 3.1% 8.1% 4.2% 1.8% 3.3% 0.6% Refined Production 18140 18161 18787 19493 20099 20763 22250 23090 23496 24194 24425 % Change 1.9% 0.1% 3.4% 3.8% 3.1% 3.3% 7.2% 3.8% 1.8% 3.0% 1.0% Refined Consumption 18010 17454 18969 19901 19844 20542 21522 22469 23378 24311 25172 % Change 0.2% -3.1% 8.7% 4.9% -0.3% 3.5% 4.8% 4.4% 4.0% 4.0% 3.5% Balance 130 708 -183 -409 256 221 728 621 118 -118 -748 Reported stocks 1115 1358 1183 1174 1078 1298 2026 2647 2765 2647 1899 LME Cash Price (US$/t) 6952 5164 7539 8811 7950 7459 6550 6800 7525 7875 7875 LME Cash Price (US¢/lb) 315 234 342 400 361 338 297 308 341 357 357

Source: CRU, ICSG, Wood Mackenzie, Macquarie Research, May 2013

We expect a growing surplus will gradually see the copper “scarcity premium” fade,

bringing the copper industry‟s cost curve back into focus. As a result, we expect a 6% drop

in 2013 copper price and another 12% next year with 2014 average price to US$6,550/t

and expect a 3Q14 average price below US$6,200/t.

Fig 25 Mac: Copper price forecast Fig 26 Mac: we recently downgraded copper price

Source: CRU, ICSG, Wood Mackenzie, Macquarie Research, May 2013 Source: CRU, ICSG, Bloomberg, Macquarie Research, May 2013

7,539

8,811

8,090

7,8077,950

7,5677,350

7,459

6,550

6,800

7,525

7,875 7,875

6,504

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

2010 2011 1H12 2H12 2012 1H13E2H13E 2013E 2014E 2015E 2016E 2017E 2018E LT $2012

Copper price ($/t)

3000

4000

5000

6000

7000

8000

9000

10000

Apr-08 Apr-09 Apr-10 Apr-11 Apr-12 Apr-13 Apr-14 Apr-15

Actual/New Forecast

Old forecast



13 May 2013 14

Chinese demand is not stellar: Loose monetary policy and investment acceleration have

driven a rebound in Chinese copper consumption, in line with our base case expectations.

In the near term, we expect the market is still underestimating Chinese growth; however

the likelihood of a return to double-digit copper consumption (which would be needed to

balance the market) has diminished considerably. Inflation headwinds are likely to force

tighter credit availability in the medium term; meanwhile a new leadership policy focussed

on reform from the investment-driven model is likely to see Chinese consumption growth

rates peak this year.

High inventory as major concerns: Copper exchange inventory has doubled in the past

6 months, increasing to over 800kt recently, with Asian, European and US warehouses all

seeing an increase.

Price is still well above cost curve with downside risk during supply surplus: Our

analysis suggests that while the 90th percentile – the traditional yardstick of commodities

analysts – remains sub-$5,000/t, the 100th percentile of the cost curve is nearer $6,600/t.

Moreover, this steep gradient at the top end of the curve leads to a sharp „hockey stick,‟

one which is also likely to widen given the position of new supply. Under a supply surplus

situation, copper prices themselves do have some downside risk associated until the larger

rational producers start to see losses being generated.

Jiangxi Copper ASP in line with copper price

JXC sells copper products in the form of copper cathodes, copper rods & wires or other

copper processing products, all of which could be counted as end-products. As a result, we

could use the SHFE copper price as a good reference to evaluate JXC‟s ASP. Based on

our assumptions, copper cathodes‟ ASP is the same as SHFE price, and copper rods &

wires ASP is applied a 3% discount to SHFE price.

Based on historical trends, SHFE copper cash price implied a 14–17% premium to the

LME price due to imports tariff and VAT. Going forward, we continue to apply a 16%

premium for the SHFE price to LME price.

Fig 27 JXC ASP vs. benchmark copper price

Copper price 2010 2011 2012 2013E 2014E 2015E

Benchmark price LME Copper price ($/t) 7,540 8,812 7,950 7,458 6,550 6,799 SHFE Copper price ($/t) 8,767 10,304 9,096 8,652 7,598 7,887 … SHFE premium to LME 16% 17% 14% 16% 16% 16% SHFE Copper price (RMB/t) 58,935 66,153 57,371 54,505 47,107 48,110 JXC copper price (RMB/t) Copper cathodes 58,935 66,153 57,371 54,505 47,107 48,110 … % premium to SHFE 0% 0% 0% 0% 0% 0% Copper wires&rods 52,092 56,705 54,996 52,870 45,694 46,667 … % premium to SHFE -12% -14% -4% -3% -3% -3%

Source: Company data, LME, SHFE, Macquarie Research, May 2013



13 May 2013 15

Solid assets but limited production growth Rich reserves and quality assets

Jiangxi Copper is the largest copper producer in China in terms of both reserves and

production. By the end of 2012, Jiangxi Copper owned copper reserves of 17.3mnt (incl.

domestic and overseas mines) compared with 11.6mnt of Zijin, 2mnt of Tongling

Nonferrous and 1.8mnt of Yunnan Copper, all of which are leading copper players in China.

China lacks high grade copper resources. The reliance on copper raw material imports is

up to ~80% from 2003-11. As a result, copper smelters with integrated upstream copper

resources are more likely to stand out.

Fig 28 Copper reserves comparison 2012 Fig 29 Mined copper production comparison 2012


Jiangxi Copper owns 100% of 6 copper mines (3 mining zones in Dexing Mine District) in

Jiangxi, China, and holds stakes in mines in Peru and Afghanistan.. All 6 domestic mines

are under operation, while the 2 overseas mines will not start production until 2016/17,

according to management.

The domestic mines‟ combined reserve is 10.5mnt with an average 0.4% Cu grade. The

calculated mine life is over 40 years based on current production pace.

Fig 30 JXC: Copper mines snapshot

Mines

Stake

Location

Copper Reserves (kt)

Cu grade

Production capacity (ktpa)

Cash cost (USc/lb)

Note

Domestic (6) Dexing Mine (Tongchang) 100% Dexing/Jiangxi 2830 0.43% 135 80 Acquired from

Jiangxi Copper Group in 1997

Dexing Mine (Fujiawu) 100% Dexing/Jiangxi 2470 Dexing Mine (Zhushahong) 100% Dexing/Jiangxi 1200 Yongping Mine 100% Shangrao Jiangxi 960 15 160 Acquired from

Jiangxi Copper Group in 1997

Chengmenshan Mine 100% Jiujiang/Jiangxi 1790 0.7% 18 50 Acquired from Jiangxi Copper Group in 2007

Wushan Mine 100% Shangrao Jiangxi 1090 >1% 18 Acquired from Jiangxi Copper Group in 2000

Dongxiang Mine 100% Fuzhou/Jiangxi 170 5 Yinshan Mine 100% Dexing/Jiangxi 810 10 Overseas (2) Minmetal-JXC North Peru Mine 40% Peru 3220 180 Start 2016/17 Afghanistan Aynak Mine 25% Afghanistan 2750 200 Start 2016/17


17300

11613

2000 1795

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

Jiangxi Copper Zijin Tongling Nonferrous

Yunnan Copper

kt

Copper reserves

211

100

4865

0

50

100

150

200

250

Jiangxi Copper Zijin Tongling Nonferrous

Yunnan Copper

kt

Mined copper production



13 May 2013 16

Limited near term supply growth & overseas projects as long term driver

Domestic mines have reached capacity and limited production growth near term:

After capacity expansion projects at the Dexing (130ktpd), Chengmenshan and Yinshan

(5ktpd) mines have concluded and finished ramping up to reach full running capacity, we

do not expect any material growth for copper concentrates output in the near term. On the

contrary, we believe the output from existing mines will shrink mildly due to the mining

grade depletion. As the company has guided, 2013 copper concentrate production is

targeted at 209kt vs. 211kt in 2012.

Dexing Mine is the flagship mine, with copper concentrate production accounting for

75% (158kt) of the total. It is the largest open-pit copper mine in Asia, with production

ranking No.1 in China and No.2 globally, just following Escondida copper mine in Chile

(760kt). Average Cu content is 0.43%, depleted from 0.45% 3-5 years ago. Per

management, the deterioration of grade will be gradual and the current grade will be

maintained in the next 2-3 years. We estimate Dexing‟s mine life is above 20 years

with a stable production in the next 5 years.

Yongping mine is an underground copper mine, locating close to Dexing mine. It is

one of the oldest assets owned by JXC. The production capacity is 15ktpa with limited

upside. According to management, Yongping cash cost is relatively higher compared

to other mines due to its lack of by-products.

Chengmenshan mine located in Jiujiang, Jiangxi. The copper reserve is quite decent

with 1.8mnt and production capacity reaching 18ktpa. Chengmenshan was acquired

from JXC Group back in 2007 and we expect mine life to be above 30 years. Cash

cost is also competitive at only USc50/lb due to its rich by-products content.

Wushan mine located in the same as Yongping. It‟s also an underground mine with

relatively higher grade. It produced 12kt copper p.a as well as a significant amount of

gold, silver and sulphur.

Dongxiang is a smaller mine with 5ktpa capacity, high cash cost due to small size.

Yinshan mine produces polymetallic and lead and produces copper as co-products.

Fig 31 JXC: Copper concentrate production growth Fig 32 JXC: Copper cathode output growth


-5%

0%

5%

10%

15%

20%

25%

30%

-

50

100

150

200

250

300

350

400

450

2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

kt

…Dexing Mine …Other domestic mines

…Overseas mines y-y %

-

200

400

600

800

1,000

1,200

1,400

1,600

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2011 2012 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E

kt

Using self-produced concentrates Using purchased concentrates y-y %



13 May 2013 17

Long-term growth relies on two overseas projects which will not contribute until 2017F

Jiangxi Copper owns stakes in two overseas projects which are still under development,

the Aynak copper project in Afghanistan (25% stake) and the Galeno Project in northern

Peru (40% stake). However, the projects have been slow and encountered many delays

over the years. Management expects the projects to start production in 2016, while we

factor the output in our model from 2017 onwards.

Galeno Peru project (100ktpa, 2017 start, feasibility study): Jiangxi Copper, together with

China Minmetals Nonferrous Metals Co (an unlisted arm of China Minmetals Group),

acquired all of the outstanding shares of Northern Peru Copper Group for C$455m

(US$450m) in cash in 1Q08. The Galeno project is located 600km north of Lima.

According to a pre-feasibility study, the project could have probable copper reserves of

3.2m tonnes with annual capacity of 100ktpa.

Aynak project in Afghanistan (200ktpa, 2017 start; development on hold): A consortium

formed by Jiangxi Copper and the China Metallurgical Group (not listed) was selected as

the preferred bidder for the development of the Aynak copper mine in Afghanistan in 2008

and Jiangxi Copper took a 25% stake; at least 50% of the output will be sold to Jiangxi

Copper under international terms and conditions.

The Aynak copper mine is the second-largest known unexploited copper deposit in the

world, with total estimated copper resources of 11m tonnes, and an average ore grade of

1.6%. According to the preliminary feasibility study, the mine could produce up to 200ktpa

of copper-in-concentrate when it is up and running.

While the company‟s initial plan was to start producing from 2013, this has been delayed

due to the discovery of archaeological ruins around the mining area at the end of 2010. It

could take 2-3 years to unearth the ruins, according to the company.

Fig 33 Jiangxi Copper mine assets




13 May 2013 18

Revenue growth =/= earning growth Jiangxi copper‟s revenue hiked above 35% y-y in 2012 to RMB158bn from RMB117bn in

2011 mainly due to trading volume surge (volume almost doubled and revenue contribution

from trading is up to 50% now).

However, earnings dropped by 22% in the meantime due to declining copper price. In 2013-

15F, we expect JXC will show stable top line growth. Yet, on the back of weak copper price,

limited near term production growth and very thin copper trading margin, we expect 20%

earning decline in 2013F and another 27% drop in 2014F.

Fig 34 JXC: Revenue growth Fig 35 JXC: Net profit growth


Self produced copper has limited upsides

C1 cash production cost below US$2000/t (net of by-products): Jiangxi Copper does

not provide breakdown of its cost in the financial statements. Each year, management

provides its cash production cost (taking consideration of by-product credits) orally post its

annual results. Per our latest update with management in April 2013, JXC‟s cash

production cost (after deducting the gold/ silver by product credits) is around USc83/lb in

2012 (or US$1830/t) (vs. USc84/lb in 2011). JXC‟s cash cost is located in the lowest

quartile from the global cost curve. This is due to:

Competitive copper grade at 0.43%

Large scale and decent size of copper output of the Dexing flagship copper mine

Credits contribution from gold, silver and molybdenum etc. by-products.

Fig 36 Jiangxi Copper located at lowest quartile of cost curve

Source: Bloomberg, Macquarie Research, May 2013

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

0%

10%

20%

30%

40%

50%

60%

2011 2012 2013E 2014E 2015E

RMB mn

Revenue y-y %

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2011 2012 2013E 2014E 2015E

RMB mn

NPAT y-y %

0

1000

2000

3000

4000

5000

6000

Sandfire

Ziji

n M

inin

g

Jia

ngxi C

opper

Inm

et M

inin

g

Sum

itom

o M

M

PanA

ust

Anto

fagasta

Fre

eport

Turq

uois

e H

ill

Oz M

inera

ls

First Q

uantu

m

Xstr

ata

Capsto

ne M

inin

g

Rio

Tin

to

BH

P

Lundin

Min

ing*

Anglo

Am

erica

Min

meta

ls

Gle

ncore

Merc

ato

r M

inera

ls

Kazakhm

ys

Cash Cost per/tonne



13 May 2013 19

Our calculated total cost is ~US$4700/t in 2013-15F: based on the segment revenue/

operating cost provided by Jiangxi Copper, and our calculation of the copper smelting/

copper trading business profit, we calculated the total unit cost of the self-produced copper

(including depreciation and other and without taking out by-product credits) of ~4200/t in

2012 and we estimate such cost to go up to ~US$4700/t in 2013-15F.

Fig 37 JXC: C1 Cash cost Fig 38 JXC: Total production cost


Only around 20% of JXC‟s copper cathodes production uses self-mined copper

concentrates as raw materials. The gross profit contribution of this segment, however,

represented 61% of its total gross profit in 2011 and 68% in 2012.

Given our expectation of deteriorating copper prices and limited mined copper production

growth, we forecast self-produced copper margin to drop from 53% in 2011 to 26% in

2014F. And self-mined copper may account for 56%/44% of total gross profit in 2013/14F.

Fig 39 JXC: Copper segment margin comparison Fig 40 JXC: Gross profit mix of copper segment


1,852

1,830

1,874

1,896

1,918

-1%

-1%

2%

1%

1%

-2%

-1%

-1%

0%

1%

1%

2%

2%

3%

3%

1,780

1,800

1,820

1,840

1,860

1,880

1,900

1,920

1,940

2011 2012 2013E 2014E 2015E

C1 Cash cost y-y %

USD/t

4,428

4,892

5,476 5,506 5,546

40%

10%12%

1% 1%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

1,000

2,000

3,000

4,000

5,000

6,000

2011 2012 2013E 2014E 2015E

USD/t

Total cost y-y %

36%

0% 1%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Self-mined copper Copper smelting Copper trading

Gross profit margin

Self-mined copper

56%

Copper smelting

0%

Copper trading

10%

Others34%



13 May 2013 20

Smelting business may improve but margin remain thin

Jiangxi Copper has smelting capacity of 1.12mnt in 2013 and will grow to 1.5mnt in 2015-

16F; as it only mines 209kt of copper concentrates, it purchases the remaining 80-85%

from other miners. For 2013, we expect JXC to mine 19% of its copper cathodes sold,

import 30%, and buy 49% from copper scrap/blister and ~ 3% from other China miners.

JXC hedges 100% of purchased copper so that it can avoid copper price fluctuation. Thus,

theoretically the smelting business would not be affected by copper prices, while the gross

profit is actually the TC/RC less the smelting cost.

Yet, its smelting business made a loss given international copper price (after considering

17% VAT) was higher than SHEF price (only at 14% premium to LME price in 2012).

TC/RC (Treatment and Refining charges for processing copper concentrates) is the price

difference between copper concentrates and copper cathodes. TC/RC has both spot price

and contract price. Contract TC/RC is generally negotiated between copper concentrate

producers and copper smelters every October. After one of the large-scale miners and one

of the large-scale smelters reach an agreement on TC/RC of the next year, the settled

TC/RC would be applied to all the buyers and sellers.

According to the latest information, Jiangxi Copper has settled 2013 TC/RC with Freeport

and Antofagasta at USD70/t and USD7c/lb. This led to a 10% hike of TC/RC compared to

63.5/6.35 in 2012.

With a loosening mined copper supply, our commodity team expect TC/RC price to

improve to USD80/t and USD8c/lb in 2014/15F. We expect smelting business to turn

profitable in 2014/15F with the assumption of SHFE price at 16% premium to LME price.

Fig 41 Copper TC: Historical and Macq forecast Fig 42 JXC: 80% copper output depend on TC/RC

Source: CRU, Macquarie Research, May 2013 Source: Company data, Macquarie Research, May 2013

Copper trading accounts for 50% of revenue with ~1% margin

To boost revenue, Jiangxi Copper‟s copper trading volume has increased by over 600%

from 188kt in 2008 to 1,135kt in 2012. And copper trading accounted for 41% of total

revenue in 2012 (vs. 19% in 2008).

Management has high incentive to continue increase its trading volume in 2013-15F so as

to drive up the top line growth. They guide that copper trading will account for around half

of JXC‟s revenue in 2013-15F. We forecast 1.6mnt copper trading in 2013 and 1.9mnt p.a.

in 2014/15F.

However, the trading business only earned a gross profit margin of 1% in 2008-2012F.

Going forward, we have factored in 1% margin for such business. Given the low

profitability, we expect trading to account for 10%/12% of 2013/14F gross profit.

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

2009 2010 2011 2012 2013E 2014E 2015E

USD/t

Copper TC

Self-mined concentrates

19%

Import concentrates

30%

Domestically purchased

concentrates

3%

Scrap and blister

48%



13 May 2013 21

Fig 43 JXC: Copper trading volume growth Fig 44 JXC: Copper trading gross profit


By-products play an important role in gross profit

During the copper production process, some by-products like gold, silver or some chemical

products will be produced too. By-products of JXC include gold, silver, sulphuric

concentrates (acid) and rare metals (molybdenum etc).

In 2012, by-products only account for around 15% of JXC‟s revenue. However, gross profit

mix of by-products is up to 33%. We believe by-products will continue to play a very

important role in JXC‟s bottom line performance.

Yet, our commodity team also has a conservative view on gold and silver prices, which

would likely hurt the profitability of by products.

Fig 45 Mac: Gold price forecast Fig 46 Mac: Silver price forecast

Source: Macquarie Research, May 2013 Source: Macquarie Research, May 2013

329

265652

1,135

1,589

1,906 1,906

75%

-19%

146%

74%

40%

20%

0%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

160%

0

500

1,000

1,500

2,000

2,500

2009 2010 2011 2012 2013E 2014E 2015E

kt

Copper trading volume y-y %

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

0

100

200

300

400

500

600

700

800

2009 2010 2011 2012 2013E 2014E 2015E

RMB mn

Copper trading gross profit y-y %

1,226

1,572 1,669

14671385 1383

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2010 2011 2012 2013E 2014E 2015E

Gold price (US$/oz)

20.2

35.1

31.2

25.8

21.520.3

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2010 2011 2012 2013E 2014E 2015E

Silver price (US$/oz)



13 May 2013 22

Key assumptions and financials

Fig 47 JXC: Key drivers and assumptions

2011 2012 2013E 2014E 2015E

Production volume Copper concentrates kt 202 211 209 209 209 Copper cathodes kt 940 1,090 1,120 1,300 1,350 Gold t 25 27 27 27 27 Silver t 526 555 555 555 555 Chemical products kt 4,070 4,561 5,119 5,643 6,389 Rare metals t 6,703 7,058 7,058 7,058 7,058 ASP Copper RMB/t 60,344 56,452 53,687 46,401 47,388 Gold RMB/g 312 342 298 277 272 Silver RMB/g 7 6 6 5 4 Chemical products RMB/t 566 483 483 483 483 Rare metals RMB/t 386,951 884,879 884,879 884,879 884,879 Unit cost Copper RMB/t 53,773 52,713 50,120 44,322 45,181 Gold RMB/g 252 292 254 236 232 Silver RMB/g 5 6 5 4 4 Chemical products RMB/t 320 333 333 333 333 Rare metals RMB/t 371,897 869,484 869,484 869,484 869,484 Unit profit Copper RMB/t 6,571 3,739 3,567 2,078 2,208 … Self-mined copper RMB/t 31,919 25,596 19,190 12,261 13,556 … Smelting copper RMB/t 0 -1 0 0 0 … Copper trading RMB/t 662 574 436 377 385 Gold RMB/g 59 50 44 41 40 Silver RMB/g 2 0 0 0 0 Chemical products RMB/t 246 151 151 151 151 Rare metals RMB/t 15,055 15,395 15,395 15,395 15,395 Gross margin Copper % 11% 7% 7% 4% 5% … Self-mined copper % 53% 45% 36% 26% 29% … Smelting copper % 0% 0% 0% 0% 0% … Copper trading % 1% 1% 1% 1% 1% Gold % 19% 15% 15% 15% 15% Silver % 27% 5% 5% 5% 5% Chemical products % 44% 31% 31% 31% 31% Rare metals % 4% 2% 2% 2% 2%




13 May 2013 23

Fig 48 JXC: Key financials page

Financials 2011 2012 2013E 2014E 2015E

P&L (RMB mn) Revenue 117,119 158,006 167,634 170,154 175,780 Gross profit 9,771 7,435 6,434 5,124 5,484 EBIT 8,384 7,096 5,549 4,204 4,485 Profit after tax 6,648 5,248 4,190 3,044 3,259 NPAT 6,587 5,170 4,128 2,999 3,211 EPS (RMB/share) 1.90 1.49 1.19 0.87 0.93 Balance sheet (RMB mn) Cash 11,082 16,678 17,444 14,998 15,361 Inventories 14,097 15,936 17,061 17,467 18,024 AR 12,570 14,156 15,019 15,245 15,749 PPE 18,092 19,934 24,340 29,390 31,915

Total assets 68,150 78,088 85,248 88,483 92,432

ST debt 9,809 12,417 17,000 17,999 18,997 LT debt 174 618 20 22 23 Bonds 5,422 5,681 5,947 6,224 6,510 AP 8,810 11,647 12,470 12,766 13,173

Total liabilities 28,344 34,226 39,299 40,872 42,566

Share capital 3,463 3,463 3,463 3,463 3,463 Reserves 34,109 37,581 40,461 42,456 44,591

Total equities 39,806 43,862 45,949 47,611 49,866

Cash flow (RMB mn) Net Cash in Op Activities 7,190 6,882 7,591 4,500 4,580 Net cash in investing -4,973 -3,163 -6,361 -6,840 -4,500 Net cash in financing 5,563 5,472 -464 -106 282

Net Cash/Borrowing movement 7,775 9,154 766 -2,446 363

Ratios GPM 8% 5% 4% 3% 3% EBIT margin 7% 4% 3% 2% 3% Net margin 6% 3% 2% 2% 2% ROE 18% 13% 9% 7% 7% ROA 10% 7% 5% 3% 3% Net D/E ratio -1% -4% 4% 12% 13%




13 May 2013 24

Copper industry – worse 2014 supply surplus Market expectations have shifted from deficit to surplus in 2013, given projected supply

growth on the back of prolonged period of strong investment in new capacity.

The high copper prices in the past few years have driven a period of strong investment of

expansion in copper projects. Chile, China and Peru are three largest producers in the

world in terms of mined copper production. Aggregate production of the three in 2012

accounted for nearly 50% of the world‟s total. However, looking forward, we expect major

supply growth drivers on country side are Indonesia (+57%, 225kt), Congo DR (+21%,

136kt) and the US (+7%, 85kt) in 2013.

Fig 49 High copper prices have driven a period of strong investment in expansion projects

Fig 50 2012 Top 10 mined copper producing countries

Source: LME, Wood Mackenzie, Macquarie Research, May 2013 Source: Wood Mackenzie, Macquarie Research, May 2013

We expect 3% supply growth in 2013 and 8% in 2014F

Our commodity team models 3% mine copper growth (or ~520kt) in 2013 and 8% (1398kt)

in 2014. To sum up, we expect almost 1mnt additional capacity from Greenfield projects to

ramp up in the next 12 months and the top 10 expansion projects will add ~2mnt annual

capacity in the next 2 years. (Please refer to our commodity team report “Seeking shelter

as the stars fall”)

The major drivers for 2013 production growth are PT Freeport in Indonesia (+232kt),

Antapaccay in Peru (+95kt) and Candelaria in Chile (+82kt).The major drivers for 2014

output growth are Collahuasi in Chile (+195kt), Oyu Tolgoi in Mongolia (+116kt),

Toromocho in Peru (+105kt) and Caserones in Chile (+100kt).

Fig 51 Global copper supply and demand model

'000t 2008 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f 2018f

Mine Production 15561 15838 16014 16006 16698 17218 18616 19404 19759 20405 20535 % Change 0.6% 1.8% 1.1% -0.1% 4.3% 3.1% 8.1% 4.2% 1.8% 3.3% 0.6% Refined Production 18140 18161 18787 19493 20099 20763 22250 23090 23496 24194 24425 % Change 1.9% 0.1% 3.4% 3.8% 3.1% 3.3% 7.2% 3.8% 1.8% 3.0% 1.0% Refined Consumption 18010 17454 18969 19901 19844 20542 21522 22469 23378 24311 25172 % Change 0.2% -3.1% 8.7% 4.9% -0.3% 3.5% 4.8% 4.4% 4.0% 4.0% 3.5% Balance 130 708 -183 -409 256 221 728 621 118 -118 -748 Reported stocks 1115 1358 1183 1174 1078 1298 2026 2647 2765 2647 1899 LME Cash Price (c/lb) 6952 5164 7539 8811 7950 7459 6550 6800 7525 7875 7875 LME Cash Price ($/t) 315 234 342 400 361 338 297 308 341 357 357

Source: CRU, Macquarie Research, May 2013

0

5

10

15

20

25

30

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

US$bln Total capital investment in commited copper projects

Expansion Capex Sustaining Capex

Chile

32%

Russia

4%Australia

6%

Zambia

5%

Canada

3%

Congo DR

4%

Mexico

3%

Others

21%

USA

7%

Peru

7%

China

8%





13 May 2013 25

Fig 52 2013 copper production growth profile

Source: Wood Mackenzie, Macquarie Research, May 2013

Fig 53 Top 10 expansion projects in the next two years will add ~2mnt of annual copper production capacity

Fig 54 Top growth drivers by country for 2013 copper mine production- Indonesia and Congo play the key

Source: Wood Mackenzie, Macquarie Research, January 2013 Source: Wood Mackenzie, Macquarie Research, May 2013

Top 16 companies account for 60% of copper supply: Our commodity team expects

the production mix from top 16 big giants to maintain at similar level in the next 3 years at

~60%, as the production growth from new acquired mines of these companies will be partly

offset by reducing output from grade depletion.

16698

232

9582

7067 63

5753

36 33 32

521 18040 -822

17218

16500

16700

16900

17100

17300

17500

17700

17900

18100Major growth drivers by mines for

2013 copper production

('000t copper contained) Total Change Total Change

Country Mine 2010-2013 Country Mine 2012-2015

Chile Los Bronces 175 Indonesia PT Freeport Indonesia 456

Chile Esperanza 175 Peru Toromocho 225

Mexico Buenavista (Cananea) 140 Chile MMH 205

Peru Antamina 118 Chile Collahuasi 200

Peru Antapaccay 100 Mongolia Oyu Tolgoi 190

Congo DR Tenke Fungurume 75 Indonesia Batu Hijau 179

Australia DeGrussa (Sandfire) 75 Brazil Salobo 162

Congo DR Mutanda 73 Mexico Buenavista (Cananea) 160

Mongolia Oyu Tolgoi 70 Chile Caserones 160

Brazil Salobo 70 Peru Antapaccay 155

Total 1,072 Total 2,092

After 10% disruption 1,883

('000t) Cu 2011 2012 2013f

YoY

('000t)

YoY %

Change

Indonesia 543 398 623 225 57%

Congo DR 526 658 794 136 21%

USA 1,136 1,165 1,250 85 7%

Zambia 697 711 788 77 11%

Mongolia 124 120 180 60 50%

Australia 936 920 978 57 6%

China 1,375 1,545 1,589 44 3%

Other 10,667 11,180 11,016 164- -1%

Total 16,006 16,698 17,218 520 3%



13 May 2013 26

Fig 55 Mined copper production from international top players

Mined copper production (kt) 2011 2012 2013 2014 2015

1 Codelco 1830 1705 1758 1888 1924 2 Freeport McMoran Copper & Gold 1231 1187 1493 1526 1850 3 BHP Billiton 982 1182 1271 1302 1322 4 Xstrata 920 740 834 960 1074 5 Anglo American 673 676 748 789 766 6 Southern Copper 600 650 707 781 896 7 Rio Tinto 553 585 687 740 822 8 KGHM Polska Miedz 434 423 408 408 403 9 Antofagasta 407 460 452 430 432 10 Rao Norilsk 359 374 374 383 390 11 Teck 296 339 357 348 334 12 Kazakhmys 355 367 378 396 397 13 Barrick Gold Corp 123 153 145 177 205 14 Glencore 198 195 247 281 333 15 Vale 276 267 297 292 279 16 First Quantum 353 362 394 460 628 Sub-total 9591 9665 10548 11161 12054 % of total 59% 58% 61% 60% 61% Others 6536 6899 6883 7495 7712 Total mined production 16127 16564 17430 18656 19765


But we are aware of potential risk of failure…

Underperforming mine supply has been the persistent feature of the copper market.

Record high prices were only rewarded by ~1% CAGR mine growth per annum during

2004-2011; while 2012‟s 4% is an above-trend supply growth. In our view, the key reasons

for disappointing mine output growth include:

Grade decline in existing mines: According to Brook Hunt, copper mining grade in the

past 25 years has been declining by average 1% p.a. Currently global average mining

grade is 1.02%, which is 32% worse compared with the 1.48% as of 1992. With continuing

exploration of existing mines and lack of grade advantage of new mines vs. old copper

mines, average mining grade may be at further downside risk. The top 10 mines produced

5mnt copper in 2005 and only less than 4mnt in 2012.

Delays and interruptions of new copper mines: Based on our observation, quite a few

new copper projects have been experiencing delays or interruptions. Many new mines find

it hard to compete with existing mines given inferior copper reserves and grade, tougher

mining conditions, more difficult ore processing, labour cost/energy cost inflation; and

water resources/labour forces shortage, etc. Significant disruptions from plan are also the

norm for copper supply, such as strikes, technical issues, weather etc.

Fig 56 Significant disruptions from plan are the norm for copper supply, driven by a plethora of reasons

Fig 57 The top 10 mines in the world produced 5mt in 2005, but only less than 4mnt in 2012

Source: Company reports, Wood Mackenzie, Macquarie Research, May 2013 Source: Company reports, Wood Mackenzie, Macquarie Research, May 2013

Copper mine supply disruptions from plan

0

200

400

600

800

1000

1200

1400

1600

2005 2006 2007 2008 2009 2010 2011 2012

'00

0t

cu

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

los

s a

s %

of

init

ial o

utp

ut

Pit Walls Strikes TechnicalRamp Up Weather GradesOther as % of production

5%

-4%-4%

-9%

4%

-4%

-12%

0%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

3500

3700

3900

4100

4300

4500

4700

4900

5100

5300

2005 2006 2007 2008 2009 2010 2011 2012

000't Cu

Output volume YoY change

Evolution of production from world's top 10 mines



13 May 2013 27

Copper production growth has been strong YTD

Chile's National Statistics institute released data this week showing mined copper

production increased by 8.4% YoY in March, totalling 484kt of copper contained. March

production confirms a strong quarter for Chile's mines, with output up 8% YoY vs a ten

year average of 1.5% YoY.

Outside of Chile quarterly production reports from the major miners have also been beating

analyst expectations. So far producers responsible for ~50% of global mined copper output

have published Q1 results, showing output increased by 10% YoY (200kt) in Q1 2013.

It is important to note the base effect from a weak Q1 2012 has exaggerated supply

performance, particularly at Escondida and Grasberg, and as a result we expect

production supply growth rates over the next six months to slow from Q1. However the

recent data has given the market a taste of what to expect in 2014. A spate of new mine

projects, ramping up over the next twelve months, are expected to see copper supply

growth rates almost double next year, driving an increase in the market S&D surplus.

Copper supply disruptions unusually quiet in Q1…Other than persistent issues at

Collahuasi‟s SAG ball mill, which worsened in April, disruptions in the first three months of

the year were below our modelled expectations of 70kt per month. Disruptions have

increased in Q2, most notably a dramatic pit wall failure at Bingham Canyon (~20kt per

month of disruption), a protracted outage of Collahuasi‟s SAG mill for repairs (~30kt per

month of disruption) and a force majeure declared at Codelco‟s Radomiro Tomic.

Fig 58 Major copper producing regions have provided a protracted period of supply growth in the past twelve months

Source: ICSG, Macquarie Research, May 2013

The world‟s two largest copper mines have both played a role in driving copper supply

growth so far this year. BHP‟s Escondida has been boosted by improving ore grades, while

Freeport‟s Grasberg mine has recovered after strikes dented production this time last year.

The two mines combined have contributed an additional 80kt of copper in Q1 2013,

accounting for almost half of the increase in output reported in results so far.



13 May 2013 28

Fig 59 The world’s largest copper producers have contributed to strong YoY growth in Q1


China is playing a vital role in copper supply

Global copper production structure is quite concentrated, with top-10 mined copper

producing countries accounting for ~80% of total output. Chile, China and Peru are three

biggest mined copper producing countries with aggregate production of 8,089kt in 2012,

accounting for 49% of total output. China has taken over from Peru and become the 2nd

largest mined copper producing country since 2010. For refining copper, top 3 producers -

China, Chile and Japan represent 50% of total output. China is the biggest copper

importing country. In 2011/ 2012, it produced 1.4/1.5mnt mined copper but consumed

8.1/8.3mnt, with imports of 6-7mnt p.a.

China is the largest refined copper producer and the second largest mined copper

producer in the world. Jiangxi ranks No.1 in terms of copper production, with refined

copper production representing 21% of total China‟s. Top 10 aggregate output accounted

for 90% of total China‟s output.

Mine supply growth and the impact on the Chinese market…For the most part the

increase in copper mine supply has been exported to China as concentrates, in order to be

converted into metal by Chinese smelters. As shown in Figure 59 Chinese copper

concentrates have increased by an average of 30% YoY in the previous six months,

allowing Chinese copper smelters to increase domestic refined supply by 11% YoY.

Domestic smelter production above 6Mt on an annualised basis has cushioned the impact

improving Chinese demand has had on inventory levels, and reduced the need for higher

refined copper imports (allowing LME stocks to rise).



13 May 2013 29

Fig 60 Chinese smelters have absorbed the increase in ex-China’s supply growth, while ramping up refined copper production

Source: NBS, CNIA, Macquarie Research, May 2013

Copper demand – eye for China

Copper demand growth is not the major driver for copper price surge in the past. Over the

past decades, global copper consumption has only seen a CAGR of 3%, well below other

metals. Refined copper consumption reached 20mnt in 2012, slightly dropping by 0.2% y-y.

Yet, China is leading the global copper consumption pace with 12% growth CAGR in the

past 10 years while in the world ex-China, the growth CAGR is -1% in 2002-2012. China is

now the biggest copper consumption country, accounting for 41% of global copper demand

(vs. 15% in 2001)

Fig 61 China keeps driving copper demand growth and grabbing market share

Source: Wood Mackenzie, Macquarie Research, May 2013

China continues to be important market to focus on in 2013-14F

While China has been 88% of the total global copper demand growth in the past 10 years,

we believe it is set to remain the dominant force for growth over the next 5 years. In

contrast, developed world demand remains well below peaks of the middle of last decades.

Yet, China‟s copper demand growth slowed down from 2012 to only 2%. We have long

made the case that growth rates must slow down as the China model matures. Our

commodity team modelled 6% CAGR over the next 5 years for China copper demand, vs.

13% CAGR in the past 5 years.

0

4000

8000

12000

16000

20000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

kt

North America Japan Europe India Asia others Other China



13 May 2013 30

Fig 62 World copper consumption Fig 63 China Copper consumption

Source: MGS, CRU, Macquarie Research, May 2013 Source: MGS, CRU, Macquarie Research, May 2013

Chinese demand has been robust, but not stellar…

Loose monetary policy and acceleration in investment has driven a rebound in Chinese

copper consumption, in line with our base case expectations. In the near term, we expect

the market is still underestimating Chinese growth; however, the likelihood of a return to

double-digit copper consumption growth (which would be needed to balance the market)

has diminished considerably.

Inflation headwinds are likely to force tighter credit availability in the medium term;

meanwhile a new leadership policy focussed on reform from the investment driven-model

is likely to see Chinese consumption growth rates peak this year.

Fig 64 China copper demand: infrastructure and construction demand expected to contribute in 2013

Source: NBS, Macquarie Research, May 2013

1692017435

179741801017454

18969

1990119844

20542

21522

22469

-0.4

3.0 3.1

0.2

-3.1

8.7

4.9

-0.3

3.5

4.8

4.4

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

10000

12000

14000

16000

18000

20000

22000

24000

2005 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f

kt

World copper consumption y-y %

3780 39304600

5180

6550

7300

8103 82898828

93589919

6

4

17

13

26

11

11

2

66 6

0

5

10

15

20

25

30

0

2000

4000

6000

8000

10000

12000

2005 2006 2007 2008 2009 2010 2011 2012 2013f 2014f 2015f

kt

China copper consumption y-y %

17%

13%

26%

11% 11%

2%

6% 6% 6% 6% 6%5%

0%

5%

10%

15%

20%

25%

30%

% growth in Chinese copper demand



13 May 2013 31

Fig 65 2001: World refined copper consumption map Fig 66 2012: China became biggest copper consumer

Source: ICSG, Macquarie Research, May 2013 Source: ICSG, Macquarie Research, May 2013

Global copper drivers vs. China copper demand drivers

From a global perspective, copper usage is concentrated in the electrical& electronic and

construction industries, while for China, copper demand is highly leveraged to

infrastructure spend (it represents 39% of total copper demand in China); power cable

plays the biggest part by accounting for 18%, making it the biggest copper demand driver,

followed by building wire (13%) in construction use and air conditioners (8%) in general

consumer.

Fig 67 China copper demand breakdown

Source: ICSG, Macquarie Research, May 2013

Steepening cost curve supports long term price

Price is still well above cost curve: Copper is still the one commodity where the price is

well-above the cash cost of production. Our analysis suggests that while the 90th

percentile – the traditional yardstick of commodities analysts – remains sub-$5,000/t, the

100th percentile of the cost curve is nearer $6,600/t. Moreover, this steep gradient at the

top end of the curve leads to a sharp „hockey stick,‟ one which is also likely to widen given

the position of new supply.

Under a supply surplus situation, copper prices themselves have some downside risk

associated until the larger rational producers start to see losses being generated.

Japan

8%

Other

8%

North America

19%Asia (Excluding

Japan and

China and

India)

17%

India

2%

China

15% Europe

31%

China

41%

Other

7%North

America

10%

Japan

5%

Europe

18%India

3%

Asia

(Excluding

Japan and

China and

India)

16%

Transport7%

Construction21%

Infrastructure39%

General consumer

19%

Industrial equipment

8%

Others6%



13 May 2013 32

Fig 68 The major listed plays cash costs are still well below the current copper price


Both capital cost and operating costs continue to increase

On a medium-to-longer-term basis, one factor which limits severe downside to the copper

price is cost inflation. Compared to aluminium, where average industry costs have risen

just 5% over the 2006-2011 period, for copper average costs rose 16%.

Indeed, compared to 2003, average copper production costs were 3.5 times higher, driven

by plethora of reasons. These include quasi-cyclical factors such as escalation of

equipment cost and oil prices, but also some structural elements like falling run of mine

grades, water shortages (a need to desalinate) and increased environmental costs.

However, price gains have matched this, such that copper continues to trade well above

the 90th percentile of the cost curve.

Fig 69 Global Cost Curve - Chinese dominate the higher end and costs keep increasing


0

1000

2000

3000

4000

5000

6000

Sandfire

Ziji

n M

inin

g

Jia

ngxi C

opper

Inm

et M

inin

g

Sum

itom

o M

M

PanA

ust

Anto

fagasta

Fre

eport

Turq

uois

e H

ill

Oz M

inera

ls

First Q

uantu

m

Xstr

ata

Ca

psto

ne M

inin

g

Rio

Tin

to

BH

P

Lundin

Min

ing*

Anglo

Am

erica

Min

meta

ls

Gle

ncore

Merc

ato

r M

inera

ls

Kazakhm

ys

Cash Cost per/tonne

0

2,000

4,000

6,000

8,000

10,000

12,000

1980 1984 1988 1992 1996 2000 2004 2008 2012

$/t

Price Lower Quartile

Median Upper

Ninth Decile 100th Percentile



13 May 2013 33

Fig 70 Rapid copper cost inflation in recent years Fig 71 … but this has been matched by price hikes

Source: Wood Mackenzie, Macquarie Research, May 2013 Source: LME, Wood Mackenzie, Macquarie Research, May 2013

New mines are likely at lower grade and at the higher end of the cost curve

With degradation in volumes of existing major copper mines, a constant stream of new

organic growth projects would be required. The top 10 mines in the world in 2005 produced

over 5 million tonnes copper ,while the same mines are expected to produce just under 4

million tonnes in 2012.

Yet, compared with peer commodities, where new projects tend to enter at the middle of

the cost curve (in particular iron ore and aluminium), newer copper projects are much more

likely to enter towards the top end.

Chinese copper mine output continues to grow, rising 20% YoY over the 2012. We believe

the majority of new supply this year has operating cost in excess of $6,000/t – right at the

very top of the curve. Many of the new projects in areas such as Shandong and Xinjiang

province have open pit grades below 0.3% copper or underground grades well below 1%,

necessitating high opex. Also, while existing Chinese projects have benefitted from large

by-product credits – particularly from gold – this is not the case in many new operations.

International projects are facing a similar scenario in terms of average grades. We expect

the average head grade of new copper projects in the 2012-2017 period to be 0.51%Cu,

compared with 0.73%Cu in 2006-2011 and 1.10%Cu in 2000-2005. In particular, a

number of large projects in Africa (Frontier ([restart], Konkola Deep and North) are set to

see costs above $5,000/t, while others in Latin America may enter in the $6-7,000/t range.

With incentive prices for a decent proportion of new copper projects coming in above

$6,500/t, and average LOM head grades trending below 0.5%Cu, we expect a further

above-inflation rises in the long-run price expectations into the middle of the decade.

0

20

40

60

80

100

120

140

160

180

200

220

240

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012F

$/lb

Ninth Decile

Upper Quartile

Median

Lower Quartile

Copper costs Index of copper operating and capital costs

100

150

200

250

300

350

400

450

500

550

600

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Ind

ex:

2003 =

100

Capital costs Operating costs LME price



13 May 2013 34

Fig 72 Looking at mine costs in 2012, it is clear to see those commissioned recently come in at the top end

Fig 73 Chinese copper mine output has risen steeply this year – this is expensive supply

Source: Wood Mackenzie, Macquarie Research, May 2013 Source: NBS, China Metals, Macquarie Research, May 2013

Fig 74 Many new ex-China project operating costs are also expensive compared to current incumbents

Fig 75 New copper project supply growth has been lower grades and higher costs, both capex and opex

Source: Company reports, Wood Mackenzie, Macquarie Research, May 2013

Source: Company reports, Wood Mackenzie, Macquarie Research, May 2013

Average mine cash cost in 2012 by year of

commissioning

2000

2500

3000

3500

4000

4500

5000

All mines 1996-2002 2003-2006 2007-2010 2011-12

$/t

on

ne

Monthly Chinese copper mine output

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Ja

n-0

3

Ja

n-0

4

Ja

n-0

5

Ja

n-0

6

Ja

n-0

7

Ja

n-0

8

Ja

n-0

9

Ja

n-1

0

Ja

n-1

1

Ja

n-1

2

ton

ne

s

New copper project operating cost estimates

0

1000

2000

3000

4000

5000

6000

7000

8000

Boseto

Konkola

Deep

Konkola

Nort

h

Mih

eevskoye

Antu

coya

Tsagaan

Suvra

ga

Akto

gay

Fro

ntie

r

Kapulo

Sentin

el

$/t

on

ne C

u

Weighted average copper project by year of delivery

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

0 5000 10000 15000 20000 25000 30000 35000 40000

Life of mine capital intensity

Avera

ge h

ead

gra

de

2000-2011

2012-2018f

2000

2001

2002

2004

2005

2006

2007

2008 2009

2010

2011

2012f

2013f

2014f

2015f

2016f

2017f

2018f



13 May 2013 35

High inventory as major concerns

Surging copper inventory reflects a market surplus and expected to be worsen

Copper exchange inventory has doubled in the past 7 months (three major exchanges

LME, COMEX and SHFE aggregate inventory surged from 430kt in Aug-2012 to 854kt by

the end of Mar-2013).

We believe the copper inventory increase reflects a market that has been in surplus for

much of the past 12 months. Seasonality coupled with improving Chinese demand should

see copper inventory fall in Q2, but without stronger than expected Chinese consumption,

the market surplus is expected to worsen through year-end. We estimate the global market

balance swung from a 300kt deficit in 2011 to a 200kt surplus in 2012, set to remain this

year.

Fig 76 Exchange inventory has doubled in the past 7 months

Fig 77 All major copper-consuming regions have seen inventory increasing

Source: LME, COMEX, SHFE, Macquarie Research, May 2013 Source: LME, COMEX, SHFE, Macquarie Research, May 2013

50

100

150

200

250

300

350

400

450

500

0

200

400

600

800

1000

1200

1400

Ja

n-0

9

Ma

y-0

9

Se

p-0

9

Ja

n-1

0

Ma

y-1

0

Se

p-1

0

Ja

n-1

1

Ma

y-1

1

Se

p-1

1

Ja

n-1

2

Ma

y-1

2

Se

p-1

2

Ja

n-1

3

Exchange stocks (mostly LME) Producer stocks

Consumer + Other LME price (RHS)

Usc/lbKt



13 May 2013 36

Appendices Business models

Jiangxi Copper is both a miner and a smelter. The main copper product is copper cathodes,

which could be further processed or fabricated into copper wire& rods or other copper end-

products; the remaining part of copper cathodes could be directly sold to the market. By

products including gold, silver and sulphuric acid would be generated during smelting and

refining.

Copper concentrate is the raw material to produce copper cathodes. However, due to the

lack of copper resources in China, copper smelting plants in China generally do not have

ability to self-supply copper concentrates. Most of concentrates are imported from rich-

copper countries like Chile, Peru or South Africa.

Jiangxi Copper has highest self-sufficient ratio of copper concentrates in China. 20% of

copper concentrates are produced from their 6 domestic mines and 2 foreign mines, which

would not be producing at least until 2016/17F

Fig 78 Jiangxi Copper: Copper production value chain


Fig 79 Jiangxi Copper: SWOT analysis

Strength Weakness

Biggest copper producer with highest copper reserves in China

High self-sufficient ratio

Low cash cost

Large smelting capacity benefit from TC/RC hike

High gold and silver content

Domestic mining capacity has reached bottleneck

Two foreign mines continue to be delayed

Opportunity Threat

Grid investment accelerated

Potential oversupply globally implies TC/RC upward trend

Tightening liquidity from global perspective

Mining cost increase


20% 30% 10% 40%

End-products

Raw materials

By-products

Copper wire& rodsOther copper end products

(copper foil, belt, etc)

Copper cathodes Gold Silver Sulfuric acid

Self-produced

copper

concentrates

Imported copper

concentrates

Domestically

purchased copper

concentrates

Purchased copper

scrap and copper

blister

Smelting and refining

Processing and

fabricating



13 May 2013 37

Jiangxi Copper (358 HK, Neutral, Target Price: HK$15.00) Interim Results 2H/12A 1H/13E 2H/13E 1H/14E Profit & Loss 2012A 2013E 2014E 2015E

Revenue m 75,843 87,170 80,464 88,480 Revenue m 158,006 167,634 170,154 175,780 Gross Profit m 3,569 3,346 3,088 2,664 Gross Profit m 7,435 6,434 5,124 5,484 Cost of Goods Sold m 72,274 83,824 77,376 85,816 Cost of Goods Sold m 150,570 161,199 165,031 170,297 EBITDA m 4,006 3,671 3,389 3,117 EBITDA m 8,345 7,060 5,994 6,460 Depreciation m 600 785 725 931 Depreciation m 1,249 1,510 1,790 1,975 Amortisation of Goodwill m 0 0 0 0 Amortisation of Goodwill m 0 0 0 0 Other Amortisation m 0 0 0 0 Other Amortisation m 0 0 0 0 EBIT m 3,406 2,886 2,664 2,186 EBIT m 7,096 5,549 4,204 4,485 Net Interest Income m -399 -281 -259 -293 Net Interest Income m -832 -540 -564 -588 Associates m 5 0 0 0 Associates m 9 0 0 0 Exceptionals m 0 0 0 0 Exceptionals m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Forex Gains / Losses m 0 0 0 0 Other Pre-Tax Income m 0 0 0 0 Other Pre-Tax Income m 0 0 0 0 Pre-Tax Profit m 3,011 2,605 2,404 1,892 Pre-Tax Profit m 6,273 5,009 3,639 3,897 Tax Expense m -492 -426 -393 -309 Tax Expense m -1,026 -819 -595 -637 Net Profit m 2,519 2,179 2,011 1,583 Net Profit m 5,248 4,190 3,044 3,259 Minority Interests m -37 -32 -30 -23 Minority Interests m -78 -62 -45 -48

Reported Earnings m 2,481 2,147 1,981 1,560 Reported Earnings m 5,170 4,128 2,999 3,211 Adjusted Earnings m 2,481 2,147 1,981 1,560 Adjusted Earnings m 5,170 4,128 2,999 3,211

EPS (rep) 0.72 0.62 0.57 0.45 EPS (rep) 1.49 1.19 0.87 0.93 EPS (adj) 0.72 0.62 0.57 0.45 EPS (adj) 1.49 1.19 0.87 0.93 EPS Growth yoy (adj) % -21.5 -20.2 -20.2 -27.3 EPS Growth (adj) % -21.5 -20.2 -27.3 7.1

PE (rep) x 8.7 10.9 15.0 14.0 PE (adj) x 8.7 10.9 15.0 14.0

EBITDA Margin % 5.3 4.2 4.2 3.5 Total DPS 0.50 0.40 0.29 0.31 EBIT Margin % 4.5 3.3 3.3 2.5 Total Div Yield % 3.8 3.1 2.2 2.4 Earnings Split % 48.0 52.0 48.0 52.0 Weighted Average Shares m 3,463 3,463 3,463 3,463 Revenue Growth % 34.9 6.1 6.1 1.5 Period End Shares m 3,463 3,463 3,463 3,463 EBIT Growth % -15.4 -21.8 -21.8 -24.3

Profit and Loss Ratios 2012A 2013E 2014E 2015E Cashflow Analysis 2012A 2013E 2014E 2015E

Revenue Growth % 34.9 6.1 1.5 3.3 EBITDA m 8,345 7,060 5,994 6,460 EBITDA Growth % -12.4 -15.4 -15.1 7.8 Tax Paid m -1,026 -819 -595 -637 EBIT Growth % -15.4 -21.8 -24.3 6.7 Chgs in Working Cap m 625 -1,165 -335 -654 Gross Profit Margin % 4.7 3.8 3.0 3.1 Net Interest Paid m -832 -540 -564 -588 EBITDA Margin % 5.3 4.2 3.5 3.7 Other m -231 3,056 0 0 EBIT Margin % 4.5 3.3 2.5 2.6 Operating Cashflow m 6,882 7,591 4,500 4,580 Net Profit Margin % 3.3 2.5 1.8 1.9 Acquisitions m 0 0 0 0 Payout Ratio % 33.5 33.5 33.5 33.5 Capex m -2,647 -6,361 -6,840 -4,500 EV/EBITDA x 5.6 6.7 7.8 7.3 Asset Sales m 0 0 0 0 EV/EBIT x 6.6 8.5 11.2 10.5 Other m -516 0 0 0

Investing Cashflow m -3,163 -6,361 -6,840 -4,500 Balance Sheet Ratios Dividend (Ordinary) m -1,731 -1,731 -1,382 -1,004 ROE % 12.6 9.4 6.5 6.7 Equity Raised m 0 0 0 0 ROA % 9.7 6.8 4.8 5.0 Debt Movements m 6,295 1,267 1,277 1,287 ROIC % 13.5 10.1 6.8 6.6 Other m 908 0 0 0 Net Debt/Equity % 4.6 12.0 19.4 20.4 Financing Cashflow m 5,472 -464 -106 282 Interest Cover x 8.5 10.3 7.4 7.6 Price/Book x 1.1 1.0 1.0 0.9 Net Chg in Cash/Debt m 9,154 766 -2,446 363 Book Value per Share 12.4 13.1 13.6 14.2

Free Cashflow m 4,235 1,230 -2,340 80

Balance Sheet 2012A 2013E 2014E 2015E Cash m 16,678 17,444 14,998 15,361 Receivables m 9,444 10,019 10,170 10,506 Inventories m 15,936 17,061 17,467 18,024 Investments m 3,069 3,069 3,069 3,069 Fixed Assets m 21,228 25,635 30,684 33,209 Intangibles m 0 0 0 0 Other Assets m 11,733 12,020 12,095 12,263 Total Assets m 78,088 85,248 88,483 92,432 Payables m 11,647 12,470 12,766 13,173 Short Term Debt m 12,417 17,000 17,999 18,997 Long Term Debt m 618 20 22 23 Provisions m 139 139 139 139 Other Liabilities m 9,404 9,670 9,947 10,234 Total Liabilities m 34,226 39,299 40,872 42,566 Shareholders' Funds m 41,043 43,924 45,918 48,054 Minority Interests m 1,088 643 688 737 Other m 1,731 1,382 1,004 1,075 Total S/H Equity m 43,862 45,949 47,611 49,866 Total Liab & S/H Funds m 78,088 85,248 88,483 92,432

All figures in Rmb unless noted. Source: Company data, Macquarie Research, May 2013



13 May 2013 38

Important disclosures:

Recommendation definitions

Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield

Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10%

Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return

Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return

Volatility index definition*

This is calculated from the volatility of historical price movements. Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Medium – stock should be expected to move up or down at least 30–40% in a year. Low–medium – stock should be expected to move up or down at least 25–30% in a year. Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Australian/NZ/Canada stocks only

Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations

Financial definitions

All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards).

Recommendation proportions – For quarter ending 31 March 2013

AU/NZ Asia RSA USA CA EUR Outperform 45.12% 53.24% 50.00% 40.70% 62.98% 43.30% (for US coverage by MCUSA, 10.55% of stocks followed are investment banking clients)

Neutral 41.52% 28.01% 41.43% 55.01% 32.60% 34.10% (for US coverage by MCUSA, 9.05% of stocks followed are investment banking clients)

Underperform 13.36% 18.74% 8.57% 4.29% 4.42% 22.60% (for US coverage by MCUSA, 0.00% of stocks followed are investment banking clients)

Company Specific Disclosures: Macquarie Capital Securities Limited makes a market in the securities in respect of Jiangxi Copper Co Ltd. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.

Analyst Certification: The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd ABN 94 122 169 279 (AFSL No. 318062) (MGL) and its related entities (the Macquarie Group) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General Disclaimers: Macquarie Securities (Australia) Ltd; Macquarie Capital (Europe) Ltd; Macquarie Capital Markets Canada Ltd; Macquarie Capital Markets North America Ltd; Macquarie Capital (USA) Inc; Macquarie Capital Securities Ltd and its Taiwan branch; Macquarie Capital Securities (Singapore) Pte Ltd; Macquarie Securities (NZ) Ltd; Macquarie First South Securities (Pty) Limited; Macquarie Capital Securities (India) Pvt Ltd; Macquarie Capital Securities (Malaysia) Sdn Bhd; Macquarie Securities Korea Limited and Macquarie Securities (Thailand) Ltd are not authorized deposit-taking institutions for the purposes of the Banking Act 1959 (Commonwealth of Australia), and their obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL) or MGL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of any of the above mentioned entities. MGL provides a guarantee to the Monetary Authority of Singapore in respect of the obligations and liabilities of Macquarie Capital Securities (Singapore) Pte Ltd for up to SGD 35 million. This research has been prepared for the general use of the wholesale clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient you must not use or disclose the information in this research in any way. If you received it in error, please tell us immediately by return e-mail and delete the document. We do not guarantee the integrity of any e-mails or attached files and are not responsible for any changes made to them by any other person. MGL has established and implemented a conflicts policy at group level (which may be revised and updated from time to time) (the "Conflicts Policy") pursuant to regulatory requirements (including the FSA Rules) which sets out how we must seek to identify and manage all material conflicts of interest. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. In preparing this research, we did not take into account your investment objectives, financial situation or particular needs. Macquarie salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions which are contrary to the opinions expressed in this research. Macquarie Research produces a variety of research products including, but not limited to, fundamental analysis, macro-economic analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research, whether as a result of differing time horizons, methodologies, or otherwise. Before making an investment decision on the basis of this research, you need to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of your particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. This research is based on information obtained from sources believed to be reliable but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. No member of the Macquarie Group accepts any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. Clients should contact analysts at, and execute transactions through, a Macquarie Group entity in their home jurisdiction unless governing law permits otherwise. The date and timestamp for above share price and market cap is the closed price of the price date. #CLOSE is the final price at which the security is traded in the relevant exchange on the date indicated. Country-Specific Disclaimers: Australia: In Australia, research is issued and distributed by Macquarie Securities (Australia) Ltd (AFSL No. 238947), a participating organisation of the Australian Securities Exchange. New Zealand: In New Zealand, research is issued and distributed by Macquarie Securities (NZ) Ltd, a NZX Firm. Canada: In Canada, research is prepared, approved and distributed by Macquarie Capital Markets Canada Ltd, a participating organisation of the Toronto Stock Exchange, TSX Venture Exchange & Montréal Exchange. Macquarie Capital Markets North America Ltd., which is a registered broker-dealer and member of FINRA, accepts responsibility for the contents of reports issued by Macquarie Capital Markets Canada Ltd in the United States and sent to US persons. Any person wishing to effect transactions in the securities described in the reports issued by Macquarie Capital Markets Canada Ltd should do so with Macquarie Capital Markets North America Ltd. The Research Distribution Policy of Macquarie Capital Markets Canada Ltd is to allow all clients that are entitled to have equal access to our research. United Kingdom: In the United Kingdom, research is issued and



13 May 2013 39

distributed by Macquarie Capital (Europe) Ltd, which is authorised and regulated by the Financial Services Authority (No. 193905). Germany: In Germany, this research is issued and/or distributed by Macquarie Capital (Europe) Limited, Niederlassung Deutschland, which is authorised and regulated by the UK Financial Services Authority (No. 193905). and in Germany by BaFin. France: In France, research is issued and distributed by Macquarie Capital (Europe) Ltd, which is authorised and regulated in the United Kingdom by the Financial Services Authority (No. 193905). Hong Kong & Mainland China: In Hong Kong, research is issued and distributed by Macquarie Capital Securities Ltd, which is licensed and regulated by the Securities and Futures Commission. In Mainland China, Macquarie Securities (Australia) Limited Shanghai Representative Office only engages in non-business operational activities excluding issuing and distributing research. Only non-A share research is distributed into Mainland China by Macquarie Capital Securities Ltd. Japan: In Japan, research is issued and distributed by Macquarie Capital Securities (Japan) Limited, a member of the Tokyo Stock Exchange, Inc. and Osaka Securities Exchange Co. Ltd (Financial Instruments Firm, Kanto Financial Bureau (kin-sho) No. 231, a member of Japan Securities Dealers Association and The Financial Futures Association of Japan and Japan Investment Advisers Association). India: In India,

research is issued and distributed by Macquarie Capital Securities (India) Pvt Ltd., 92, Level 9, 2 North Avenue, Maker Maxity, Bandra Kurla Complex, Bandra (East), Mumbai – 400 051, India, which is a SEBI registered Stock Broker having membership with National Stock Exchange of India Limited (INB231246738) and Bombay Stock Exchange Limited (INB011246734). Malaysia: In Malaysia, research is issued and distributed by Macquarie Capital Securities (Malaysia) Sdn. Bhd. (Company registration number: 463469-W) which is a Participating Organisation of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission. Taiwan: Information on securities/instruments that are traded in Taiwan is distributed by Macquarie Capital Securities Ltd, Taiwan Branch, which is licensed and regulated by the Financial Supervisory Commission. No portion of the report may be reproduced or quoted by the press or any other person without authorisation from Macquarie. Nothing in this research shall be construed as a solicitation to buy or sell any security or product. Research Associate(s) in this report who are registered as Clerks only assist in the preparation of research and are not engaged in writing the research. Thailand: In Thailand, research is produced with the contribution of Kasikorn Securities Public Company Limited, issued and distributed by Macquarie Securities (Thailand) Ltd. Macquarie Securities (Thailand) Ltd. is a licensed securities company that is authorized by the Ministry of Finance, regulated by the Securities and Exchange Commission of Thailand and is an exchange member of the Stock Exchange of Thailand. Macquarie Securities (Thailand) Limited and Kasikorn Securities Public Company Limited have entered into an exclusive strategic alliance agreement to broaden and deepen the scope of services provided to each parties respective clients. The strategic alliance does not constitute a joint venture. The Thai Institute of Directors Association has disclosed the Corporate Governance Report of Thai Listed Companies made pursuant to the policy of the Securities and Exchange Commission of Thailand. Macquarie Securities (Thailand) Ltd does not endorse the result of the Corporate Governance Report of Thai Listed Companies but this Report can be accessed at: http://www.thai-iod.com/en/publications.asp?type=4. South Korea: In South Korea, unless otherwise stated, research is prepared, issued and distributed by Macquarie Securities Korea Limited, which is regulated by the Financial Supervisory Services. Information on analysts in MSKL is disclosed at http://dis.kofia.or.kr/fs/dis2/fundMgr/DISFundMgrAnalystPop.jsp?companyCd2=A03053&pageDiv=02. South Africa: In South Africa, research is issued and distributed by Macquarie First South Securities (Pty) Limited, a member of the JSE Limited. Singapore: In Singapore, research is issued and distributed by Macquarie Capital Securities (Singapore) Pte Ltd (Company Registration Number: 198702912C), a Capital Markets Services license holder under the Securities and Futures Act to deal in securities and provide custodial services in Singapore. Pursuant to the Financial Advisers (Amendment) Regulations 2005, Macquarie Capital Securities (Singapore) Pte Ltd is exempt from complying with sections 25, 27 and 36 of the Financial Advisers Act. All Singapore-based recipients of research produced by Macquarie Capital (Europe) Limited, Macquarie Capital Markets Canada Ltd, Macquarie First South Securities (Pty) Limited and Macquarie Capital (USA) Inc. represent and warrant that they are institutional investors as defined in the Securities and Futures Act. United States: In the United States, research is issued and distributed by Macquarie Capital (USA) Inc., which is a registered broker-dealer and member of FINRA. Macquarie Capital (USA) Inc, accepts responsibility for the content of each research report prepared by one of its non-US affiliates when the research report is distributed in the United States by Macquarie Capital (USA) Inc. Macquarie Capital (USA) Inc.‟s affiliate‟s analysts are not registered as research analysts with FINRA, may not be associated persons of Macquarie Capital (USA) Inc., and therefore may not be subject to FINRA rule restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. Information regarding futures is provided for reference purposes only and is not a solicitation for purchases or sales of futures. Any persons receiving this report directly from Macquarie Capital (USA) Inc. and wishing to effect a transaction in any security described herein should do so with Macquarie Capital (USA) Inc. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures, or contact your registered representative at 1-888-MAC-STOCK, or write to the Supervisory Analysts, Research Department, Macquarie Securities, 125 W.55th Street, New York, NY 10019. © Macquarie Group Auckland Tel: (649) 377 6433

Jakarta Tel: (62 21) 515 1818

Mumbai Tel: (91 22) 6653 3000

Singapore Tel: (65) 6601 1111

Bangkok Tel: (662) 694 7999

Johannesburg Tel: (2711) 583 2000

Munich Tel: (089) 2444 31800

Sydney Tel: (612) 8232 9555

Calgary Tel: (1 403) 218 6650

Kuala Lumpur Tel: (60 3) 2059 8833

New York Tel: (1 212) 231 2500

Taipei Tel: (886 2) 2734 7500

Denver Tel: (303) 952 2800

London Tel: (44 20) 3037 2000

Paris Tel: (33 1) 7842 3823

Tokyo Tel: (81 3) 3512 7900

Frankfurt Tel: (069) 509 578 000

Manila Tel: (63 2) 857 0888

Perth Tel: (618) 9224 0888

Toronto Tel: (1 416) 848 3500

Geneva Tel: (41) 22 818 7777

Melbourne Tel: (613) 9635 8139

Seoul Tel: (82 2) 3705 8500

Hong Kong Tel: (852) 2823 3588

Montreal Tel: (1 514) 925 2850

Shanghai Tel: (86 21) 6841 3355

Available to clients on the world wide web at www.macquarieresearch.com and through Thomson Financial, FactSet, Reuters, Bloomberg, and CapitalIQ.


http://www.thai-iod.com/en/publications.asp?type=4

http://www.thai-iod.com/en/publications.asp?type=4

http://dis.kofia.or.kr/fs/dis2/fundMgr/DISFundMgrAnalystPop.jsp?companyCd2=A03053&pageDiv=02

Asia Research Head of Equity Research

John O’Connell (Global – Head) (612) 8232 7544

Peter Redhead (Asia – Head) (852) 3922 4836

Automobiles/Auto Parts

Janet Lewis (China) (852) 3922 5417

Amit Mishra (India) (9122) 6720 4084

Clive Wiggins (Japan) (813) 3512 7856

Michael Sohn (Korea) (82 2) 3705 8644

Banks and Non-Bank Financials

Ismael Pili (Asia, Hong Kong) (852) 3922 4774

Victor Wang (China) (852) 3922 1479

Suresh Ganapathy (India) (9122) 6720 4078

Nicolaos Oentung (Indonesia) (6221) 2598 8366

Alastair Macdonald (Japan) (813) 3512 7476

Chan Hwang (Korea) (822) 3705 8643

Matthew Smith (Malaysia, Singapore) (65) 6601 0981

Alex Pomento (Philippines) (632) 857 0899

Passakorn Linmaneechote (Thailand) (662) 694 7728

Conglomerates

Alex Pomento (Philippines) (632) 857 0899 Somesh Agarwal (Singapore) (65) 6601 0840

Consumer and Gaming

Gary Pinge (Asia) (852) 3922 3557

Linda Huang (China, Hong Kong) (852) 3922 4068

Amit Mishra (India) (9122) 6720 4084

Lyall Taylor (Indonesia) (6221) 2598 8489

Toby Williams (Japan) (813) 3512 7392

HongSuk Na (Korea) (822) 3705 8678

Alex Pomento (Philippines) (632) 857 0899 Somesh Agarwal (Singapore) (65) 6601 0840

Best Waiyanont (Thailand) (662) 694 7993

Emerging Leaders

Jake Lynch (China, Asia) (8621) 2412 9007 Adam Worthington (ASEAN) (852) 3922 4626

Michael Newman (Japan) (813) 3512 7920

Industrials

Janet Lewis (Asia) (852) 3922 5417

Patrick Dai (China) (8621) 2412 9082

Saiyi He (China) (852) 3922 3585

Inderjeetsingh Bhatia (India) (9122) 6720 4087

Kenjin Hotta (Japan) (813) 3512 7871 Juwon Lee (Korea) (822) 3705 8661

Sunaina Dhanuka (Malaysia) (603) 2059 8993

David Gambrill (Thailand) (662) 694 7753

Insurance

Scott Russell (Asia, Japan) (852) 3922 3567

Chung Jun Yun (Korea) (822) 2095 7222

Software and Internet

David Gibson (Asia) (813) 3512 7880

Jiong Shao (China, Hong Kong) (852) 3922 3566

Steve Zhang (China, Hong Kong) (852) 3922 3578 Nitin Mohta (India) (9122) 6720 4090

Nathan Ramler (Japan) (813) 3512 7875

Prem Jearajasingam (Malaysia) (603) 2059 8989 Alex Pomento (Philippines) (632) 857 0899

Oil, Gas and Petrochemicals

James Hubbard (Asia) (852) 3922 1226 Jal Irani (India) (9122) 6720 4080

Polina Diyachkina (Japan) (813) 3512 7886

Brandon Lee (Korea) (822) 3705 8669 Sunaina Dhanuka (Malaysia) (603) 2059 8993

Trevor Buchinski (Thailand) (662) 694 7829

Pharmaceuticals and Healthcare

Abhishek Singhal (India) (9122) 6720 4086 Eunice Bu (Korea) (822) 2095 7223

Property

Callum Bramah (Asia) (852) 3922 4731

David Ng (China, Hong Kong) (852) 3922 1291 Jeffrey Gao (China) (8621) 2412 9026

Abhishek Bhandari (India) (9122) 6720 4088

Norihiko Sawano (Japan) (813) 3512 7873 Sunaina Dhanuka (Malaysia) (603) 2059 8993


Tuck Yin Soong (Singapore) (65) 6601 0838 Corinne Jian (Taiwan) (8862) 2734 7522

Patti Tomaitrichitr (Thailand) (662) 694 7727

Resources / Metals and Mining

Ivan Lee (Asia) (852) 3922 3572 Graeme Train (China) (8621) 2412 9035

Matty Zhao (Hong Kong) (852) 3922 1293

Rakesh Arora (India) (9122) 6720 4093 Adam Worthington (Indonesia) (852) 3922 4626

Riaz Hyder (Indonesia) (6221) 2598 8486

Polina Diyachkina (Japan) (813) 3512 7886 Chak Reungsinpinya (Thailand) (662) 694 7982

Andrew Dale (852) 3922 3587

Technology

Jeffrey Su (Asia, Taiwan) (8862) 2734 7512 Lisa Soh (China) (852) 3922 1401

Steve Zhang (China, Hong Kong) (852) 3922 3578

Nitin Mohta (India) (9122) 6720 4090 Claudio Aritomi (Japan) (813) 3512 7858

Damian Thong (Japan) (813) 3512 7877

David Gibson (Japan) (813) 3512 7880 George Chang (Japan) (813) 3512 7854

Daniel Kim (Korea) (822) 3705 8641

Soyun Shin (Korea) (822) 3705 8659 Andrew Chang (Taiwan) (8862) 2734 7526

Daniel Chang (Taiwan) (8862) 2734 7516

Tammy Lai (Taiwan) (8862) 2734 7525

Telecoms

Nathan Ramler (Asia, Japan) (813) 3512 7875

Lisa Soh (China, Hong Kong) (852) 3922 1401

Riaz Hyder (Indonesia) (6221) 2598 8486 Prem Jearajasingam (Malaysia, Singapore) (603) 2059 8989

Alex Pomento (Philippines) (632) 857 0899 Joseph Quinn (Taiwan) (8862) 2734 7519

Transport & Infrastructure

Janet Lewis (Asia, Japan) (852) 3922 5417

Bonnie Chan (Hong Kong) (852) 3922 3898

Nicholas Cunningham (Japan) (813) 3512 6044 Sunaina Dhanuka (Malaysia) (603) 2059 8993

Corinne Jian (Taiwan) (8862) 2734 7522

Utilities & Renewables

Ivan Lee (Asia) (852) 3922 3572 Inderjeetsingh Bhatia (India) (9122) 6720 4087

Prem Jearajasingam (Malaysia) (603) 2059 8989


Commodities

Colin Hamilton (Global) (4420) 3037 4061

Jim Lennon (4420) 3037 4271

Duncan Hobbs (4420) 3037 4497 Bonnie Liu (65) 6601 0144

Graeme Train (8621) 2412 9035

Rakesh Arora (9122) 6720 4093

Economics

Peter Eadon-Clarke (Asia, Japan) (813) 3512 7850

Aimee Kaye (ASEAN) (65) 6601 0574

Richard Gibbs (Australia) (612) 8232 3935 Tanvee Gupta (India) (9122) 6720 4355

Quantitative / CPG

Gurvinder Brar (Global) (4420) 3037 4036

Josh Holcroft (Asia). (852) 3922 1279 Burke Lau (Asia) (852) 3922 5494

Simon Rigney (Asia, Japan) (852) 3922 4719

Eric Yeung (Asia) (852) 3922 4077

Strategy/Country

Viktor Shvets (Asia) (852) 3922 3883 Chetan Seth (Asia) (852) 3922 4769 Joshua van Lin (Asia Micro) (852) 3922 1425 Peter Eadon-Clarke (Japan) (813) 3512 7850

Jiong Shao (China) (852) 3922 3566

Rakesh Arora (India) (9122) 6720 4093 Nicolaos Oentung (Indonesia) (6121) 2598 8366

Chan Hwang (Korea) (822) 3705 8643

Yeonzon Yeow (Malaysia) (603) 2059 8982 Alex Pomento (Philippines) (632) 857 0899

Conrad Werner (Singapore) (65) 6601 0182

Daniel Chang (Taiwan) (8862) 2734 7516 David Gambrill (Thailand) (662) 694 7753 Find our research at Macquarie: www.macquarie.com.au/research Thomson: www.thomson.com/financial Reuters: www.knowledge.reuters.com Bloomberg: MAC GO Factset: http://www.factset.com/home.aspx CapitalIQ www.capitaliq.com TheMarkets.com www.themarkets.com Email [email protected] for access

Asia Sales Regional Heads of Sales

Robin Black (Asia) (852) 3922 2074 Chris Gray (ASEAN) (65) 6601 0288

Peter Slater (Boston) (1 617) 598 2502

Jeffrey Shiu (China & Hong Kong) (852) 3922 2061 Thomas Renz (Geneva) (41) 22 818 7712

Andrew Mouat (India) (9122) 6720 4100

Miki Edelman (Japan) (813) 3512 7857 JJ Kim (Korea) (822) 3705 8799

Chris Gould (Malaysia) (603) 2059 8888

Gino C Rojas (Philippines) (632) 857 0861 Eric Roles (New York) (1 212) 231 2559

Paul Colaco (New York) (1 212) 231 2496

Sheila Schroeder (San Francisco) (1 415) 762 5001 Erica Wang (Taiwan) (8862) 2734 7586

Regional Heads of Sales cont’d

Angus Kent (Thailand) (662) 694 7601

Angus Innes (UK/Europe) (44) 20 3037 4841

Sean Alexander (Generalist) (852) 3922 2101

Regional Head of Distribution

Justin Crawford (Asia) (852) 3922 2065

Sales Trading

Adam Zaki (Asia) (852) 3922 2002 Phil Sellaroli (Japan) (813) 3512 7837 Grace Lee (Korea) (822) 3705 8601

Matthew Ryan (Singapore) (65) 6601 0216

Sales Trading cont’d

Mike Keen (Europe) (44) 20 3037 4905 Chris Reale (New York) (1 212) 231 2555

Marc Rosa (New York) (1 212) 231 2555

Stanley Dunda (Indonesia) (6221) 515 1555 Kenneth Cheung (Malaysia) (603) 2059 8888

John Fajardo (Philippines) (632) 857 0840

Michael Santos (Philippines) (632) 857 0813 Isaac Huang (Taiwan) (8862) 2734 7582

Dominic Shore (Thailand) (662) 694 7707


jiangxi copper - jrj.com.cnpg.jrj.com.cn/acc/res/hk_res/stock/2013/5/13/f5557d0e-71c5-437… · 13...

Documents