Overview of the Metals and Mining Sector

The latest sector update by UOB Kay Hian focuses on the performance of the metals and mining industry amidst evolving economic conditions. The report highlights the impact of a hawkish Federal Reserve, robust U.S. jobs data, and inflation concerns on gold and copper markets. Optimism surrounding China’s economic stimulus and demand for raw materials is also in the spotlight.

Key Highlights from the Report

• Gold prices remain resilient, supported by U.S. policy uncertainties and geopolitical factors.
• The People’s Bank of China (PBOC) continues to increase its gold reserves, signaling sustained central bank demand.
• Copper prices hit a one-month high driven by China’s demand optimism and stimulus measures.
• UOB Kay Hian maintains an OVERWEIGHT rating on the metals and mining sector.

Zijin Mining: Positioned for Growth

Recommendation: BUY

Target Price: HK\$21.20

Share Price (as of 14 Jan 2025): HK\$15.38

Upside Potential: 37.84%

Key Strengths

Zijin Mining stands out for its robust volume growth and effective cost management strategies. These factors have significantly enhanced its margin outlook for 2024, making it a competitive player in the industry. The company’s extensive pipeline of projects provides high earnings visibility over the next five years. Additionally, its product diversification strategy has bolstered earnings resilience, ensuring stability even in volatile market conditions.

Valuation and Outlook

UOB Kay Hian pegs Zijin Mining’s valuation to 14x 2025F PE (+1SD). The company is well-positioned to capitalize on favorable market dynamics, including rising demand for metals driven by energy-transition sectors such as electric vehicles, solar photovoltaics, and wind turbines. With stabilizing home sales and infrastructure construction expected to pick up in 2025, Zijin Mining is poised for sustained growth.

Shandong Gold: Pure-Gold Exposure

Recommendation: BUY

Target Price: HK\$19.00

Share Price (as of 14 Jan 2025): HK\$14.24

Upside Potential: 33.43%

Key Strengths

Shandong Gold is a leading player in the gold mining sector, with the largest domestic gold mine output. The company’s pure-gold exposure and consistent production growth make it a preferred choice for investors. It is on track to achieve its annual gold output target of 47 tonnes in 2025, up from 41.78 tonnes in 2023. This positions the company as a key beneficiary of the ongoing gold price rally.

Valuation and Outlook

With a valuation pegged to 15x 2025F PE, Shandong Gold offers significant growth potential. Its focus on operational efficiency and increasing gold output aligns with the favorable long-term outlook for gold, driven by factors such as inflation, geopolitical risks, and central bank purchases. This positions the company to deliver strong returns for investors.

Sector-Wide Insights

Gold Market Trends

The report underscores the resilience of gold prices, which remain supported by geopolitical uncertainties and a weaker U.S. dollar. While North American gold ETFs experienced outflows due to the Federal Reserve’s hawkish stance, Asia and Europe saw increased holdings. Central banks, including the PBOC, continue to expand their gold reserves, signaling sustained demand.

Copper Market Dynamics

Optimism surrounding China’s economic stimulus has propelled copper prices to a one-month high. The expansion of China’s household appliances trade-in program and robust demand for refined copper imports are positive indicators. Additionally, infrastructure investments and energy transition-related sectors are expected to drive copper consumption in 2025.

Conclusion

UOB Kay Hian maintains an OVERWEIGHT rating on the metals and mining sector, reflecting its bullish outlook on both gold and copper markets. Zijin Mining and Shandong Gold are highlighted as top picks, offering significant upside potential and strong fundamentals. With favorable market conditions and robust demand drivers, these companies are well-positioned to deliver value to investors in 2025 and beyond.