Zijin lowers bar for gold output as profit slides
Fujian miner expects further decline in gold and copper prices after earnings tumble 54pc in the first half despite rise in bullion sales
Zijin Mining has cut its gold output target for the year and warned that prices of its mainstay products, gold and copper, may fall further after it posted a worse-than-expected interim profit.
"Gold price is expected to fall further after a rebound, while base metals will likely see more downside," it said in a statement to the Shanghai stock exchange last night.
Net profit of the mainland's largest listed gold producer for the six months to June tumbled 54 per cent year on year to 1.1 billion yuan (HK$1.4 billion), worse than the 1.2 billion yuan average estimate of two brokerage analysts polled by Bloomberg.
The result is also close to the low end of the 45 to 55 per cent fall estimated by the management last month.
Excluding non-recurring losses, net profit dropped 48.3 per cent to 1.28 billion yuan. It included 332 million yuan of asset devaluation losses, including write-downs for the fair value of assets and for inventory due to lower metal prices.
The Fujian-based firm said it had cut its full-year gold output goal from 33 tonnes indicated in March to 31 tonnes after considering market conditions.
"The move is within our expectations since it may incur losses on a small portion of high-cost production if it sticks with its original production plan, given the sharp fall in gold prices," said UOB-Kay Hian Securities analyst Helen Lau, adding that she had estimated full-year output at 31.5 tonnes even before last night's statement.
Turnover climbed 24 per cent to 26 billion yuan on the back of a 32 per cent rise in bullion sales to 56 tonnes and a 51 per cent jump in copper sales to 157,586 tonnes.
Such growth was partially offset by an 11.5 per cent drop in gold selling price to 292.40 yuan per gram, while copper selling price fell 0.6 per cent.
Gross profit margin of self-mined gold dropped to 48 per cent from 67 per cent, while that of self-mined copper slid to 56 per cent from 69 per cent. About 26 per cent of gold sales were self-mined and 33 per cent of copper sales were self-mined.
Much of the margin erosion was caused by a 20 per cent fall in gold content of ore mined at its mainstay Zijinshan mine and facility maintenance that cut potential output. This resulted in a 36.5 per cent jump in production cost to 146 yuan per gram.
Processing of third-party gold and copper incurred losses due to stiff competition and overcapacity, with gross margin for gold processing at minus 1.1 per cent and that for copper processing at minus 3.9 per cent.
Gold accounted for 56 per cent of Zijin's first-half pre-tax profit, compared with 33 per cent for copper, 10 per cent for iron ore, 3 per cent for silver and 2 per cent for lead and zinc.
Shares in Zijin fell 1.1 per cent yesterday to HK$1.84 before the results announcement.