Event:

2011 results slightly below expectation. Zijin reported operating revenue of RMB39.82bn (unaudited) for 2011, up 39.51% YoY, with net profit attributable to shareholders increasing 20.03% YoY to RMB5.795bn. 2011 basic EPS of RMB0.266 came in slightly lower than our forecast of RMB0.32. Comment:

Earnings disappointment caused by lagging gold production and ASP decline of copper, lead and zinc. Despite a strong gold price rally in 2H11, the 2H11 estimated net profit was only RMB2.646bn, even less than, and only 84% of, the net profit of RMB3.15bn in 1H11. We believe this was due to the following two reasons: 1) Lagging gold production for its own mines, which dropped 9.6% YoY in 1H11, and the 2H11 level could still be lower than expectation. We expect its full year mine-produced gold production to be around 28.8 tonnes, around 3.3% lower than our previous forecast of 29.76 tonnes. 2) Significant ASP decline of its non-gold products like copper, lead and zinc in 2H11. The two factors explained the lower-than-expected earnings results.

The recent accident brought a negative impact to Zijin’s reputation. It was reported that 4 workers of Zijin’s subsidiary, Zijin Copper Corporation, were injured and killed during an accident on 26 Jan 2012. It was the third accident since June 2010, revealing the company’s inadequacy in safety management. In response to the accident, Zijin Copper has suspended production in the plant. While production may be resumed in 2-3 months, the damages on its financials and images would be irrecoverable. The accident, in our view, will bring certain negative impacts on Zijin’s share price and valuations.

Maintain “LT-Buy”. Zijin Mining gradually expands its production scale in non-gold mining businesses in recent years. It has become a multi-metal mining company specializing in the production of gold, copper, lead and zinc while supplemented by other metal businesses. The contribution of gold mining business to total revenue is falling and the production growth of its mine-produced gold slows, reflecting lower contribution to its earnings growth. We estimate FY12F/FY13F EPS to reach RMB0.31/0.34 and we cut our FY12F earnings estimate by 12.7%. The current share price trades at FY12F/FY13F P/E of 9.9x/8.9x. We maintain “LT-Buy” on the counter while trimming its TP from HK$4.6 to HK$4.2, equivalent to FY12F P/E of 11.0x.