Project Overview and Research Background

Hongda Co., Ltd. is participating in the development of world-class copper mine resources through its stake in Tibet Hongda Duolong Mining Co., Ltd. (hereinafter referred to as Duolong Mining). According to the latest equity structure, Hongda Co., Lt

According to the development and utilization plan reviewed and approved by the Natural Resources Department of Tibet Autonomous Region in February 2025, the designed production scale of the Duolong mining area is 75 million tons of ore processed per

I. Project Technical Parameters and Production Capacity Analysis

1.1 Ore Resources Reserve and Grade

The Duolong mining area is rich in mineral resources. According to the development and utilization plan, the designed ore resources amount to 144,058.3×10^4 tons, with an average grade of copper at 0.48%, gold at 0.21g/t, and silver at 1.22g/t. The m

The Duobuzhaixi copper mine is still in the detailed exploration stage. According to the Tibet Autonomous Region Geology and Mineral Resources Exploration and Development Bureau, thick copper ore bodies have been discovered in the deep and peripheral

1.2 Ore Processing Recovery and Product Plan

According to the development and utilization plan, the main technical indicators of the project design are as follows:

Technical indicator values

Open-pit mining recovery rate of 97%

Copper sulfide ore mining recovery rate is 87%

Copper oxide ore mining recovery rate 69.50%

Copper comprehensive recovery rate (sulfur-oxygen mixed selection in the past 10 years): 86.50%

Copper comprehensive recovery rate (after 12 years of sulfide mine) 87.00%

Copper concentrate grade 23%

Associated gold utilization rate: 60%

Associated silver utilization rate: 15%

Based on the above recovery rate, the amount of ore needed to produce 340,000 tons of copper metal per year is approximately 82 million tons (340,000 tons ÷ 0.48% ÷ 86.5%), which is slightly higher than the designed processing capacity of 75 million

Sales Revenue Estimation

2.1 Product Sales Price Assumption

Assuming the following tax-inclusive selling price for the product in 2030 based on the price information provided by the user:

Copper: 85,000 yuan per ton

- Gold: 900 yuan per gram (or 9 million yuan per ton)

- Silver: 10,000 yuan per kilogram (equivalent to 1 million yuan per ton)

Note that these prices refer to refined metal prices. If the project sells copper concentrate, the pricing coefficient for copper concentrate needs to be considered. According to industry practice, the selling price of copper concentrate is generally

2.2 Sales Revenue Calculation

Based on the assumption of producing 340,000 tons of copper, 8 tons of gold, and 12 tons of silver per year, the sales revenue is calculated as follows:n

Product Output Sales Price (including tax) Sales Revenue (billion yuan)

Copper 340,000 tons, RMB 85,000 per ton, total RMB 289 million

Gold 8 tons 900 million yuan/ton 72.00

Silver 12 tons 10 million yuan per ton 1.20

Total: 362.20

If copper concentrate is sold with a 90% valuation factor, the sales revenue will be:

- Copper concentrate: 340,000 tons × 76,500 yuan/ton = 26.01 billion yuan

Gold and silver: 7.32 billion yuan

Total: 33.33 billion yuan

Cost Analysis

3.1 Direct Production Cost

The mining cost is 20,000 yuan per ton (of copper metal), but this is only the direct mining cost. Based on the cost level of similar mines in Tibet, we need to analyze the complete cost structure.

The cost level of the main copper mines in Tibet is as follows:

Dragon Copper Mine: The complete cost per ton of copper in 2024 is expected to be around 33,000-36,000 yuan, and will decrease to 33,000 yuan in Q1 of 2025.

Yulong Copper Mine: Cash cost is about 23,000-25,000 yuan/ton, and total cost is about 36,000 yuan/ton

Zijin Mining's Tibet Project: Production cost is approximately RMB 30,000 per ton

The cost structure of the Duolong copper mine is estimated with reference to industry standards as follows:

Cost items Unit cost (Yuan/ton of copper) Calculation basis

Mining cost: 20,000 provided by user

Mining cost: 8,000, reference to industry level

Smelting cost 5,000, for example, selling electrolytic copper

Processing cost of 3,000 for crushing, grinding and other processes

Transportation cost: 10,000. Logistics cost in Tibet is high.

Administrative cost is estimated at 5,000 yuan, which is 1.5% of the income.

Safety and environmental protection cost: 2,000, estimated at 0.6% of revenue

Equipment depreciation amortization: 5,000, estimated at 5% of investment

Financial cost: 3,000, estimated at 6% of the loan

Total 41,000 -

3.2 Other costs

In addition to the above direct production costs, the following costs also need to be considered:

Exploration cost amortization: The detailed survey project of the Duo Bu Za West Copper Mine has lasted for three years with an investment of nearly one hundred million yuan, which needs to be amortized during the production period.

Land use and reclamation costs: corresponding expenses need to be calculated based on the mine geological environment and land reclamation plan.

3. R&D expenses on technology: including ore dressing process optimization, intelligent mine construction, etc.

Sales expenses: including product inspection, transportation insurance, etc.

Taking into account all factors, it is estimated that other costs will be around 3-5% of sales revenue, which translates to 1-1.8 billion yuan per year.

Section 4: Analysis of Tax Impact

Resource Tax

According to the resource tax policy of Tibet Autonomous Region, the resource tax rates for copper, gold, and silver are as follows:n

Mine type Taxable object Tax rate Remark

Copper ore 7.0%

Copper ore 5.0% such as sale of copper concentrate

Gold ore 6.0%

Gold Mining 5.0%

Silver ore 6.0%

Silver ore 4.8%

According to policy regulations, taxpayers are exempt from resource taxes when mining associated and concomitant minerals and tailings. Therefore, gold and silver, as concomitant minerals of copper, may enjoy the preferential treatment of being exemp

Resource tax calculation (assuming no tax on gold and silver):

- Copper resource tax (raw ore): 28.9 billion yuan × 7% = 2.023 billion yuan

- Copper resource tax (ore dressing): 26.01 billion yuan × 5% = 1.301 billion yuan

4.2 Value-added Tax

According to relevant policies, the value-added tax rate for copper products is 13%. The value-added tax is calculated as follows:

Revenue (including tax): RMB 36.22 billion

Tax-free income: 362.20 ÷ 1.13 = 320.53 billion yuan

Sales tax: 320.53 × 13% = 4.167 billion yuan

Tax deductions mainly include:)

Raw material and equipment procurement: about 2 billion yuan

Power and Fuel: Approximately 1 Billion Yuan

Transportation services: about 500 million yuan

Other services: about RMB 300 million

Total: 3.8 billion yuan

VAT due: 41.67 - 38 = 3.67 RMB billion

4.3 Corporate Income Tax

According to the policy of the western development strategy, from January 1st, 2021 to December 31st, 2030, enterprises in encouraged industries located in the western region will be taxed at a reduced rate of 15% for their income from encouraged ind

In addition, the Tibet Autonomous Region has special preferential policies. According to the opinion solicitation draft, from January 1, 2026 to December 31, 2030, companies that employ more than 70% of their workforce from the permanent population o

4.4 Other taxes

Including urban maintenance and construction taxes, education fees, local education surcharges, etc., calculated at 12% of value-added tax:

- Urban construction tax and educational surcharges: 3.67 × 12% = 0.44 billion yuan

5. Profit Calculation

5.1 Project Level Profit Calculation

Based on the previous analysis, the profit calculation at the project level is as follows:

Solution 1: Selling Electrolytic Copper

Sales revenue: 36.22 billion yuan

- Total cost: 340,000 tons × 41,000 yuan/ton + 1.5 billion yuan = 15.44 billion yuan

Tax and Additional Fees: 20.23 + 0.44 = 20.67 Billion Yuan

Total profit: 362.20 - 154.4 - 20.67 = 187.13 billion yuan

- Income tax (15%): 187.13 × 15% = 2.807 billion yuan

Net profit: 15.906 billion yuan

Sales of Copper Concentrate

Revenue: 33.33 billion yuan

- Total cost: 340,000 tons × 33,000 yuan/ton + 1.5 billion yuan = 12.72 billion yuan (excluding smelting cost)

Tax and Additional Fees: 13.01 + 0.44 = 13.45 Billion Yuan

Total profit: 333.30 - 127.2 - 13.45 = 192.65 billion yuan

- Income tax (15%): 192.65 × 15% = 2.89 billion yuan

Net profit: 16.375 billion yuan

5.2 Hongda stock equity profit

Based on Hongda's 30% shareholding, its equity profit is calculated as follows:

Proposal Project Net Profit (billion yuan) Hongda Stock Equity Ratio Equity Profit (billion yuan)

Sales of electrolytic copper: 159.06 with 30% increase to 47.72

Sale of copper concentrate 163.75 30% 49.13

Considering possible tax advantages in Tibet (corporate income tax at 9%), equity profits may be higher.

- Income tax (9%): 192.65 × 9% = 1.734 billion yuan

Net profit: 17.531 billion yuan

Hongda Co., Ltd.'s equity profit: 5.259 billion yuan

Sensitivity Analysis

6.1 Sensitivity to Metal Prices

The impact of metal price fluctuations on profits is significant. Assuming other conditions remain unchanged, analyze the impact of copper price changes.

Copper Price (Yuan/Ton), Change in Sales Revenue, Change in Net Profit, Change in Hongda Co., Ltd.'s equity profit

75000 - 11.8%-25.2% 3.674 billion yuan

80000 - 5.9%-12.6% 4.395 billion yuan

85000 (baseline) 0% 0% 4.913 billion yuan

90000 +5.9% +12.6% 5531 million yuan

95,000 +11.8% +25.2% 6.153 billion yuan

Cost sensitivity

The impact of cost changes on profits is also significant.

Unit cost change, Total cost change, Net profit change, Hongda stock equity profit change

-10% -3.3%+7.5% 5.299 billion yuan

-5% -1.6% +3.7% 5.104 billion yuan

Benchmark 0% 0% 4.913 billion yuan

+5% +1.6% -3.7% 4.722 billion yuan

+10% +3.3% -7.5% 4.540 billion yuan

6.3 Production Sensitivity

The impact of yield fluctuations on scale effect is significant.

Copper production (in tons), production changes, changes in sales revenue, changes in equity profit of Hongda Co., Ltd.

30 - 11.8%-11.8% 4.335 billion yuan

32 -5.9% -5.9% 4.659 billion yuan

34 (Baseline) 0% 0% 4.913 billion yuan

36 + 5.9%+5.9% 5.179 billion yuan

38 +11.8% +11.8% 5455 million yuan

Section 7: Risk Factors and Countermeasures

7.1 Project Development Risks

Risks in Mining Right Processing: Although the Duolong Copper Mine has completed the review and archival filing of the Mineral Resources Development and Utilization Plan, the application for mining rights still needs to be approved by the Tibet Auton

2. Construction cycle risk: The construction conditions in plateau areas are harsh and the infrastructure is weak, which may lead to the extension of the construction period. Taking the Julong Copper Mine as a reference, it usually takes 5-7 years fr

Technical risks: The ore grade may be lower than expected, and there may be fluctuations in the recovery rate of mineral processing, which will affect the actual production.

7.2 Market Risk

Price fluctuation risk: Copper prices are affected by the global economic situation, supply and demand, and other factors, resulting in intense price fluctuations. The copper price is expected to fluctuate within the range of 60,000-80,000 yuan per t

Exchange rate risk: If products are exported or equipment is imported, fluctuations in the exchange rate will affect earnings.

Demand risk: Changes in downstream demand for new energy and infrastructure may affect the market demand for copper.

7.3 Operating Risks

Cost control risk: The logistics cost in Tibet is high (three times as much as the mainland), with high labor costs and strict environmental protection requirements, which may lead to cost overruns.

2. Safety and environmental protection risks: Plateau mining faces challenges such as low temperature and hypoxia, and has greater safety risks. Environmental protection requirements are becoming increasingly stringent, which may increase investment

3. Managing Risks: The project is enormous in scale, with high management complexity, and requires professional team operation.

7.4 Policy Risk

Changes in Tax Policy: The preferential policies for the Western Development will expire at the end of 2030, and there is uncertainty about future policies.

Environmental policy tightening: may increase environmental protection standards and compliance costs.

Adjustment of resource tax: The resource tax rate may be adjusted according to market conditions.

Conclusion and Suggestions

8.1 Key conclusions

Based on detailed financial analysis, the following core conclusions are drawn:

Profit scale of equity: Under the assumption, Hongda Co., Ltd. can obtain an equity profit of 4.913 billion yuan per year in the Duolong copper mine project by selling copper concentrate with a 15% income tax. If it enjoys special tax preferences in

Investment return: with a further investment of 30 billion yuan, according to the capital allocation of 10 billion yuan and loan of 20 billion yuan, Hongda Co., Ltd is expected to invest another 3 billion yuan. Overall, it still has an extremely high

Profit drivers:

A copper price of 85,000 yuan per ton provides a good price basis

Gold and silver byproducts contribute about 20% of sales revenue

Significant tax incentives in Tibet have greatly improved net profits.

4. Risk is controllable: Although there are various risks, the project has superior resource endowment, significant scale effect, and strong long-term profitability.

8.2 Advice for Investors

Pay close attention to project progress: closely monitor key milestones such as the progress of mining rights processing and construction progress.

2. Price Risk Management: It is suggested to offset the risk of metal price fluctuations through futures hedging and other methods.

Cost control: Strengthen cost management during project construction and operation, especially for logistics cost and labor cost.

Tax planning: Make full use of tax incentives in Tibet and formulate tax plans well.

Long-term value: The Duolong copper mine is a world-class copper mine resource with long-term investment value. It is recommended to hold it for a long time.

8.3 Suggestions to Company Management

Accelerate project progress: fully promote the work of 'exploring and converting' to ensure early production.

2. Optimize technical solutions: Continuously optimize ore processing technology, improve metal recovery rate, and reduce production costs.

3. Industrial chain extension: Consider extending to the downstream smelting process to increase product value-added.

4. Strategic Cooperation: Seek strategic cooperation with large-scale smelting enterprises to ensure smooth product sales channels.

5. Risk Management: Establish a sound risk management system, especially for price risks, safety risks, and environmental risks.

The Duolong Copper Mine Project is an important opportunity for Hongda Co., Ltd to transform and upgrade, and it is expected to become the company's most important source of profit in the future. It is suggested that the company attach great importan