Summary

The latest financial report of Zijin Mining Group Co., Ltd (Zijin Mining or Company) showed that the Company`s achieved sales income in Q3 was RMB 4.61 billion, up 16% YOY, with RMB 830 million net profits, climbed 37% YOY. EPS in the first three quarters totaled RMB 0.18. Affected by the weakening gold and copper prices, the gross margin was 36% in Q3，lower than the 41% for the first half year.

Zijin Mining is the largest mineral gold producer in China. The Company`s mineral gold production in 2007 reached up to 21.43 tons, ranked at the tenth place of global major gold producing enterprises, up 7 places than 2006.

Gold operation made the prime contribution. Gold (including mineral and processed gold) business accounted for more than 60% of the Company`s operating income, while only the mineral gold accounted for more than 30%. In addition, Zijin Mining`s mineral gold production is expected to exceed 29 tons in 2008.

We forecast that the Company`s achieved EPS in 2008 and 2009 will be RMB 0.221 and RMB 0.274, and give P/E 10X 2009 EPS. Therefore corresponding 12-month price will be HK$ 3.114, 50.43% higher than current price, with the “Buy” rating.

Basic operation analysis

Main business for the Company consists of four parts: gold (including mineral and processed gold), copper (including copper concentrate), zinc (including zinc concentrate) and iron ore concentrate.

Zijin Mining is the largest mineral gold producer in China, with mineral gold production accounts for more than 30% and processed gold accounts for around 30% of current production. With regard to profit, owing to processed gold only generating processing fee, the gross margin is quite low, therefore it merely takes very small proportion among the Company`s main businesses. Mineral gold is the pillar for the Company`s profit. Mineral-gold-contributed profit accounts for 50% above of Zijin Mining`s main businesses. Therefore the fluctuation of mineral gold production and prices will greatly impact the Company`s profit.

Copper ore concentrate and copper of copper-zinc mines are also major parts of Zijin Mining`s operating incomes. Some of the large gold mines of the Company, for example, Zijinshan Gold-copper Mine and Shuguang Gold-copper Mine are composite mines, except from gold production, they also can synchronically produce copper or copper ore concentrate. In the first half year, Zijin Mining produced 23,995 tons copper, and profit from copper and copper ore concentrate accounted for around 15% of the Company`s operating incomes. Copper and copper ore concentrate`s profit contribution only takes small proportion in Zijin Mining, but they have higher gross margin, and accounts for almost 25% of the gross profit.

Proportion for zinc and zinc concentrate is comparatively small, only about 10%.This part of revenue is generally contributed by Ashele Copper-zinc Mine and Wutalehouqi Zinc Mine. In addition, iron ore concentrate produced by Mengku Iron Ore Mine, which is 56% held by the Company, also offers certain contribution for Zijin Mining`s income and profit.

Among the current products for Zijing Mining, as of the end of 2007, reserves were respectively gold 638.19 tons, copper 9.37 million tons, zinc 3.19 million tons, iron ore 168 million tons.

In addition, Zijin Mining is also the largest metal resources holder among the domestic mining enterprises. In 2007, the Company`s gold production ranked at the 10th place of global major gold mining enterprises, and mineral gold production accounted for 10.5% of China`s total mineral gold production that year. And the Company`s mineral copper accounted for 5.9% of China`s total production. Furthermore, Zijin Mining owns 165 prospecting rights, 32 exploring rights, with mineral area totals 5,074 square kilometer.

From the mineral distribution, Zijin Mining`s mineral resources have presence in China`s 20 provinces (regions), and the countries and regions like Mongolia and Peru.

Gold reserves topping domestic listing gold enterprises

Gold and other non-ferrous metal sectors belong to resource-based industry. An extensive control on resources is a vital factor for the engaging enterprises` development. Zijin Mining holds the resources expansion as the principal target for development, through a series of acquisitions and mergers, and strengthens the mineral geological exploration on a voluntary basis. Currently, the Company`s gold reserves tops the China`s listing gold enterprises.

As of the end of 2007, Zijin Mining owns 638 tons gold reserves, while for other listing gold enterprises, it was only 120-190 tons, less than one third of Zijin Mining`s amount. The ample resources reserves will ensure a stable and sound performance growth for the Company over the coming years.

Core competence promotion guarantees development

Zijin Mining`s competence lays on integrated low costs, unique area prospecting, and low grade mines selection technology. At the same time, the Company is gradually expanding its sole gold exploration, selection and smelting businesses to copper, zinc and other non-ferrous metals sectors, starting to get involve into some non-ferrous metal deep processing business. Through this, Zijin Mining will form an industrial chain for gold, copper, zinc and other non-ferrous metals throughout upstream and downstream, and resist the market risks by multiple combinations and production expansion.

At present, Zijin Mining has become the manufacturer with the lowest production costs in China`s gold industry, meanwhile one of the lowest costs manufacturers among the global counterparts. Except from adopting geological survey, exploration, selection, smelting and others processes integrated production and operation mode, leading industry ore self-sufficiency rate, superior resources advantage, open-air mining and selection, strip and other projects` outsourcing operation modes, Zijin Mining`s core factor is the Company`s complete technical innovation capability, and constantly has the “production-applied scientific research” as the major operation ideology. Only in this way, Zijin Mining can maintain extremely low costs on the numerous low grade ores.

Gold and copper price prospect

With regard to recent gold prices, on November 6, Shanghai Gold Exchange Au (T+D) closed at RMB 163.87/g, dropped RMB 3.37 (or 2%). Au100g closed at RMB 166.06/g, declined RMB 3.30 (or 1.9%). Au9995 closed at RMB 165.6/g, down RMB 2.08 (or 1.12%). Au9999 closed at RMB 165.51/g, lowered RMB 1.99 (or 1.2%). Irrational global market prices slump was caused by the gold prices` over-dependence on futures market. Currently gold market is in the face of crisis, recession, price index higher than central banks setting ceiling, as well as extensive interest rate cut for crisis saving and continuously injected liquidity, therefore, the key factor for a stable prospective gold price, is laying on the depreciation and downward space for US dollar. For current situation, the US Bureau of Statistics released that, in Q3, US economy shrank for 0.3%, the largest decline for seven years. The economy decline is expected to expand in Q4, which will really get the economy into recession, meanwhile speed up the global financial system`s reform. In order to save its financial system and maintain the US dollar`s hegemony, US will definitely inject more liquidity into the market, which may plant more severe problems for future inflation. We forecast gold-relating assets will attract more attentions, and gold`s appreciation potential is much higher than any other time.

And copper, the US economy is still hovering at the edge of recession; Europe and Japan`s economy also gradually declines. Domestic economy growth slow down and economy recession anxiety forge major bearish effect on copper market. On metal supply and demand pattern, the mediocre global real estate and manufacturing, coupling with decelerating copper demand concern, are continuously affecting the market. If the domestic demand condition in Q4 does not represent any great improvement, cooper market will still be trapped in a vulnerable atmosphere.

Valuation

We forecast that gold sales price in 2009 will averagely rise 5% YOY, with production will advance 11.63%. Copper price will basically maintain the same, while production may gain 45%. Calculating on these figures, Zijin Mining`s EPS for 2008 and 2009 will expected to be RMB 0.221 and RMB 0.274. Meanwhile, taking historical P/E as reference, we conservatively give 10X 2009 EPS, and 12-month target price will be HK$ 3.114, which is 50.43% higher than current price. We give “Buy” rating.

Financial Date