New stock outlook | Cathode copper is "popular", why is Jinxun Stock's expansion stuck at the "money" issue?

The colored metal is the cornerstone of the modern industrial system, widely used in power generation, construction, transportation, and manufacturing industries, providing support for traditional industries and infrastructure. Among them, cathode copper, as the core colored metal, is a key material for power industry wires and cables, electronic information integrated circuits, building pipelines, and decorations. With the global economic recovery and the development of new industries such as new energy vehicles and 5G, its demand continues to grow, and the market size is steadily expanding. Against this background, Yunnan Jin Xun Resources Co., Ltd. (referred to as "Jin Xun Co., Ltd.") submitted an application for listing on the Hong Kong Stock Exchange Main Board on June 1, with Huatai International as the sole sponsor. Jin Xun Co., Ltd. plans to use the funds raised in this listing to expand its core business, including expanding the production capacity of the Congo (Gold) copper smelting Phase II project and enhancing the production capacity of the Zambia copper smelting plant, further consolidating its market position in the field of colored metals. The 5th largest Chinese cathode copper producer in the Congo (Gold) It is understood that the history of Jin Xun Co., Ltd. can be traced back to 2010. In the early stages of business development, it mainly engaged in the trading of colored metals. The company started local copper processing and/or smelting businesses in Zambia and the Congo (Gold) in 2017 and 2023, respectively. Currently, Jin Xun Co., Ltd. has developed a business model that integrates mineral processing, smelting, and colored metal trading. Jin Xun Co., Ltd.'s copper ore processing and smelting are mainly carried out by the company's local production facilities in Zambia and the Congo (Gold). As of the last practicable date (May 25, 2025), the company has four production facilities, including two copper smelters in Zambia, a copper concentrate flotation plant, and a copper smelter in the Congo (Gold), in addition to a cobalt processing plant under construction in China. The company's colored metal trading business is mainly carried out through its subsidiaries in Singapore and China. According to Frost & Sullivan data, as of December 31, 2024, based on production volumes in the Congo (Gold) and Zambia, the company ranked fifth among Chinese cathode copper producers in the Congo (Gold) and Zambia, and was the only Chinese company in the top five in both jurisdictions. Specifically, in 2024, the company produced approximately 16,000 tons and 5,000 tons of cathode copper in the Congo (Gold) and Zambia, respectively. Among private enterprises in China, based on 2024 production volumes, the company ranked third in the Congo (Gold) and first in Zambia. During the historical period, the company's revenue came from (i) production and sale of cathode copper, (ii) production and sale of copper concentrate, and (iii) trading of colored metal products. In 2024, the company's cathode copper achieved sales revenue of 1.229 billion yuan, accounting for 69.4% of the revenue. In terms of performance, in the financial years 2022, 2023, and 2024, Jin Xun Co., Ltd. achieved revenues of approximately 637 million yuan, 676 million yuan, and 1.77 billion yuan, respectively; during the same period, the comprehensive income for the year totaled approximately 99.445 million yuan, 32.588 million yuan, and approximately 206 million yuan. During the historical period, Jin Xun Co., Ltd.'s sales revenue increased mainly due to the commissioning of its Congo (Gold) copper smelter in August 2023 and increased production in 2024, leading to increased revenue from cathode copper production. Increasing consumer demand, boosting cathode copper production capacity Frost & Sullivan reports show that as the world accelerates its transition to green energy, the rapid development of new energy fields such as electric vehicles, wind power, and photovoltaic energy has greatly increased the demand for cathode copper. Copper, with its excellent conductivity and thermal conductivity, has become a key material for electric vehicle motors, charging stations, photovoltaic systems, and wind power generation equipment. In particular, each electric vehicle requires approximately 2.5 to 4 times more copper than a traditional internal combustion engine vehicle, mainly because of the widespread use of copper in batteries, circuits, and power electronic equipment. Against this backdrop, from 2020 to 2024, global cathode copper production increased from 19.70 million tons to 21.40 million tons, a compound annual growth rate of 2.1%; consumption increased from 22.50 million tons to 27.00 million tons, a compound annual growth rate of 4.7%. In the future, consumption is expected to increase from 27.80 million tons in 2025 to 30.50 million tons in 2029 (CAGR 2.3%), and the supply-demand gap is expected to expand to 5.80 million tons, driving copper prices higher. According to Frost & Sullivan reports, global copper prices have steadily risen in recent years, from 42,600 yuan per ton in 2020 to 66,500 yuan per ton in 2024, with global copper prices expected to further increase to 68,800 yuan per ton in 2025. Facing industry opportunities, Jin Xun Co., Ltd. is making improvements or expansions to its cathode copper production lines in Zambia and the Congo (Gold). In 2022, 2023, and 2024, Jin Xun Co., Ltd. produced 5,949.8 tons, 7,368.1 tons, and 20,934.8 tons of cathode copper. The company plans to significantly increase its total effective cathode copper production capacity in the Congo (Gold) to around 25,000 tons by 2025, and to around 55,000 tons after the full production of the second phase of the Congo (Gold) project. Large capital expenditures and debt pressure It is worth noting that, while the industry outlook is positive, Jin Xun Co., Ltd. also faces challenges at the financial level. The company disclosed in its prospectus that the estimated capital expenditure for the expansion project of the Zambia copper smelter is 71.5 million yuan, while the estimated capital expenditure for the second phase project of the Congo (Gold) copper smelter is as high as 576 million yuan. From a financial perspective, the company's debt pressure is already evident. In 2024, Jin Xun Co., Ltd.'s asset-liability ratio reached 50.2%, a significant increase of 25.6 percentage points compared to 24.6% in 2022; the company's current ratio in 2024 was 0.9 times, and its quick ratio was only 0.3 times, indicating that the company faces some short-term debt pressure. In this context, seeking a Hong Kong listing has become an important strategic choice for Jin Xun Co., Ltd. to alleviate its financial pressure and provide funding for its capacity expansion plans. However, the road to financing and expanding production is not without challenges. Jin Xun Co., Ltd.'s prospectus specifically points out that the company faces multiple challenges such as overseas operational risks, price volatility risks, and exchange rate risks, which these potential risks may become key variables affecting its future development.Libya and the Democratic Republic of Congo. These regions have complex and ever-changing political, economic, and legal environments, posing multiple challenges to companies. Adjustments in local government taxation policies, reforms in mining policies, and other factors can directly increase operating costs, squeeze profit margins; strikes, social unrest, and other factors of social instability can lead to production stagnation and disrupt business operations; and the differences and changes in the legal environment can expose companies to compliance risks. All of these factors could have a significant adverse impact on the company's daily operations and business performance.The fluctuation of non-ferrous metal prices is also one of the core risks faced by the company. The price of cathode copper is significantly affected by factors such as the global economic cycle, supply and demand relationship, and policy control. If the future price drops significantly, it may have a major adverse impact on the company's operating performance and financial condition. In addition, the company's overseas operating entities contribute mainly to its performance, with daily settlements mainly in local currency or US dollars. If there is a significant fluctuation in exchange rates, the translation of overseas business income into Renminbi will result in exchange losses, posing a threat to the overall performance stability. In summary, Jin Xun shares have certain growth potential based on their production capacity layout in the African market and industry demand dividends, but their development depends on production capacity expansion progress, stability of the capital chain, and risk response capabilities. Although the company seeks financing support through a Hong Kong stock listing, multiple challenges such as the uncertainty of the overseas political and economic environment, the cyclical pressure of copper price fluctuations, and exchange rate risks still need to be continuously monitored. When evaluating their investment value, investors need to comprehensively consider industry opportunities and the operational risks faced by the company, and judiciously assess the sustainability of their performance growth.