In the past week, the price of gold has surged to unprecedented levels, marking a historic high that has prompted a significant rise in the stock price of Zijin Mining GroupThis rally has ignited yet another wave of wealth creation, reminiscent of the fervor surrounding stock market boomsSince its debut on the A-share market, Zijin Mining has attracted considerable attention from investors; however, its aggressive expansion strategy also carries inherent risks.

The team at Zijin Mining seems poised to engage in another round of wealth generation amidst this backdrop.

On March 8, the price of Zijin Mining's shares soared to 14.89 CNY per share, pushing its total market capitalization beyond 390 billion CNY, thus achieving a record high since the company went public.

In varying macroeconomic environments, the same inventory may hold vastly different valuations; the surge in Zijin Mining's stock price is indicative of an enhanced value of its copper, zinc, and gold reserves

Recently, prices for these primary metals have skyrocketed, particularly gold, which has hit record levels on the COMEX market for five consecutive trading days.

It's worth noting that despite Zijin Mining's history of creating wealth since its public listing, a closer examination of the changes in equity among its top ten shareholders reveals significant divisions among current investors.

The Precious Metals Frenzy and Its Impact on Stock Prices

On March 8, Zijin Mining experienced continued stock price growth, closing at 14.89 CNY, with the market capitalization reaching 392 billion CNY, only a stone’s throw away from the 400 billion mark

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Over the last three trading days, the stock price has surged by 7.51%.

Factors influencing this uptick include the astonishing rise in precious metal prices, which has likely catalyzed the sharp increase in Zijin Mining's stock priceFor context, the COMEX gold futures have set record closing prices for five straight daysLikewise, the gold price in China's market has demonstrated robust performance, with the Shanghai Gold Exchange spot price exceeding 500 CNY per gram on March 7, reaching as high as 506 CNY per gram before closing at 505.1 CNY, with trading volume hitting 5.379 billion CNY.

In addition to gold, April prices for copper and zinc futures have also escalated, reflecting increases of 1.24% and 2.77%, respectively, over three days.

Zijin Mining, often dubbed as "China's Mining King", boasts rich mineral resources, with a projected copper production of 1.01 million tons in 2023, marking an increase of 11% year-on-year and accounting for over 50% of China's total output

The company also expects a gold production of 67 tons, a significant 20% growth that constitutes more than 20% of the nation's total gold output in 2022.

On a global scale, Zijin Mining ranks seventh, eighth, and seventh in terms of copper, gold, and zinc reserves, respectivelyBy 2025, it anticipates production figures of 1.17 million tons of copper, 90 tons of gold, and 48,000 tons of zinc, reflecting robust annual compound growth rates of 11%, 17%, and 3%.

Fundamentally, the recent strength in precious metal prices is expected to sustain its upward trajectory in the long run.

As the United States approaches a cycle of interest rate cuts combined with slower balance sheet reduction, it is likely that U.S

treasury yields will enter a declining phase, thereby reducing the real interest rate of the dollarTypically, in a scenario of dollar depreciation, gold prices tend to increase logicallyHistorical trends during the Federal Reserve's interest rate cut cycles show a tendency for gold prices to rise more often than not.

Moreover, since last year, central banks globally have ramped up their gold purchases, which could emerge as a key driving force behind ongoing increases in gold prices through 2024.

Morgan Stanley has expressed an optimistic outlook on Zijin Mining's future stock performanceAccording to their report, although Zijin Mining is less sensitive to gold price fluctuations compared to pure gold mining companies like Shandong Gold or Zhaojin Mining, Zijin benefits from strong growth in copper and gold sales as additional catalysts

They predict that for every 1% increase in gold prices, Zijin's net profit will rise by 0.6%, forecasting that gold will contribute around 30% of the group's total gross profit this year.

The Frenzied Wealth Generation Movement

Since Zijin Mining entered the A-share market, it has not only raised funds for development in the secondary market but also sparked a significant wealth generation movement.

Among the original shareholders, the most notable are Chen Fashu and Ke XipingWhen Zijin Mining returned to the A-share market in April 2008, Xinhua Dudu Group held 2.178 billion shares, and with an issuance price of 7.13 CNY, its market value was approximately 15.53 billion CNY – a figure that translated to hundreds of times their investment.

By 2009, just two months post the lifting of the share suspension, Chen Fashu had sold 294 million shares, cashing out 2.7 billion CNY and affording him the title of "Fujian's Richest Person". He subsequently invested in Qingdao Beer and participated in the restructuring of Yunnan Baiyao

Similarly, Ke Xiping sold 74.77 million shares for around 670 million CNY, which he used to acquire a stake in BOE Technology Group, becoming its second-largest shareholder.

As time progressed, with several original shareholders exiting, Zijin Mining garnered favor from institutional funds.

For instance, the Gao Yi Xiaofeng No2 Fund managed by Deng Xiaofeng was listed among Zijin Mining's top ten circulating shares for the first time in 2019 and participated in a private placement in the fourth quarter, acquiring 117 million shares at a price of 3.41 CNY per shareJust 14 months later, the stock price soared to a new high of 14.28 CNY in February 2021.

Moreover, Dong Chengfei, a current partner at Rui Jun Asset Management, displayed a strong preference for Zijin Mining during his tenure with public funds

Zijin Mining first appeared in his holdings in the mid-2017 report of Xingquan Trend Investment, ranking 12th with a position worth 184 million CNY, constituting 2.21% of the fund’s net valueBy the second quarter of 2019, Zijin Mining entered the list of the top ten holdings of Xingquan Trend Investment.

However, current institutional perspectives on Zijin Mining have divergedIn the first three quarters of last year, funds managed by Deng Xiaofeng at Gao Yi Asset have been steadily reducing their holdings, with the Gao Yi Xiaofeng No1 Ru Yuan Fund exiting the top ten circulating shareholders' list in the second quarter.

Conversely, funds under Hillhouse Capital aggressively increased their stakes in the second quarter of last year, entering Zijin Mining's top ten shareholders

Additionally, foreign investors also adopted a bullish stance, as Goldman Sachs and UBS AG joined the ranks of Zijin Mining's top ten shareholders in 2023, while Abu Dhabi Investment Authority continued to increase its holdings in the second quarter.

As of the end of the third quarter last year, aside from the controlling shareholder, Minxi Xinghang State-Owned Assets Investment Management Co., external investors included Gao Yi Xiaofeng No2 Fund and Gao Yi Xiaofeng Hongyuan Fund holdings of 411 million shares and 298 million shares, representing 1.56% and 1.13% of the total, respectivelyGoldman Sachs held 0.99%, Abu Dhabi Investment Authority was at 0.58%, and Hillhouse Capital’s HHLR held 0.54%.

Concerns Behind the Wild Growth

Zijin Mining's evolution from a small mining company in Shanghang to a global mining giant can be attributed not just to its exceptional extraction techniques and management philosophy but also to its aggressive mergers and acquisitions strategy.

In 2005, as Zijin Mining began to find its footing, it initiated its "going out" strategy by purchasing 21% of Canadian Peak Mining for 1.95 million Canadian dollars, marking its first step toward globalization.

Since then, Zijin Mining has evolved into an "acquisition machine," with a footprint in major mining regions worldwide.

Notably, Zijin Mining seems to prefer making acquisitions during downturns in the mining industry

In 2015, as gold prices plummeted, many mining giants suffered enormous losses, including Vale, which lost approximately 12.1 billion USD, Barrick, facing a loss of around 3.1 billion USD, and Glencore, which reported losses nearing 5 billion USD.

While other players were reeling, Zijin Mining began aggressively acquiring assets, purchasing Tibet Julong Copper, Wuyitic Gold Mine, Barrick (Papua New Guinea), Australia’s Phoenix Gold, and Norton Gold Fields, targeting high-quality mineral properties.

As the calendar turned to 2022, Zijin Mining again opted to seize opportunities during industry lows, acquiring a 20% stake in Zhaojin Mining, Haiyu Gold Mine, Rosebel Gold Mine in South America, along with secondary market acquisitions of Jiangnan Chemical shares and control of Longjing Environmental Protection, engaging in over ten transactions in that year alone, amounting to nearly 35 billion CNY.

These large-scale acquisitions have dramatically expanded Zijin Mining's asset base

By the end of September 2023, its total assets reached 330.8 billion CNY, an increase of 255.6 billion CNY from 751.6 billion CNY in 2014.

However, the rapid expansion through acquisitions has also led to a sharp rise in debt levels, with total liabilities reaching 195.3 billion CNY by the end of the third quarter of 2023 and a debt-to-asset ratio climbing to 59.02%.

This increase in debt has led to higher financial costs — by the end of the first three quarters of 2023, interest expenses amounted to 3.6 billion CNY, up by 1.3 billion CNY from the same period last year and exceeding the total for the entire previous year, which has severely impacted net profit and resulted in a drop in earnings for the first time since 2019.

Additionally, Zijin Mining's robust appetite for overseas mineral resources has exposed it to significant operational risks abroad.

As per its 2023 semi-annual report, overseas assets comprised 45% of its total assets