Low gold price spells lacklustre profit outlook for Zijin

Zijin Mining, China's largest gold producer, is being hit by a lower gold prices and a decline in the gold content of ore at its mainstay mine.

Analysts said that although the Fujian-based metals miner and refiner had a string of new projects in the pipeline to help offset a decline in output from its Zijinshan mine, which is nearing the end of its life, their high production costs meant Zijin's future profits were likely to be lacklustre.

"Beneath the Zijinshan gold belt is a layer of copper ore, which will be mined, and Zijin has other gold projects with five to six tonnes of annual output in the pipeline," said Helen Lau, a senior analyst at UOB Kay Hian.

"Zijin is expected to be able to maintain gold output at 33 to 34 tonnes in the next few years even as Zijinshan's output dries up in 2018. The concern is if metal prices stay flat, and if Zijin's production costs remain high given the nature of its new projects,its profit [growth] will likely be sluggish."

Zijin's net profit is forecast to fall 5.6 per cent to two billion yuan (HK$2.5 billion) this year, and a further 4.4 per cent to 1.91 billion yuan next year, before rising 20.8 per cent in 2016 to 2.31 billion yuan, according to the average forecast in a Thomson Reuters analyst survey.

The company posted a 59 per cent fall in net profit to 2.13 billion yuan for last year. Excluding asset-impairment losses and investment income, operating profit fell 42 per cent to 4.8 billion yuan.

The decline was mostly to do with an 18.6 per cent drop in the average selling price of the gold produced by its mines, and a 6 per cent fall in copper's selling price.