Company Report Excerpt January 5, 2009

Jiangxi Copper (600362): Influence from

Production Loss Being Limited; Short-term
Performance Risk to Be Released --- Neutral By Zhou Zhuowei

1. Event:
On December 31, 2008, Jiangxi Copper announced that its production was badly affected by equipment
failure; during the overhaul in December 2008, vane wheel of No. 5 oxygen generator & air compressor was
found damaged and it wouldn’t be repaired until over 6 months later, which would affect ~20% capacity.

2. Our Analysis and Estimation

1) Cathode copper output will slightly fall in 2009.
Cathode copper output loss is calculated to be ~50 thousand ton in 2009. Oxygen generator defect mainly
affects the smelting step from copper concentrate to blister copper, of which the capacity is ~47 thousand
ton. In accordance with the ~20% impact proportion and 6-month period, cathode copper output loss is
predicted to be ~50 thousand ton in 2009.

Output loss will limitedly influence profit of the company. Despite current lower copper price, profit of copper
industry chain still mainly arises from by-products of copper ore and gold, etc, with profit from smelting
section accounting for a quite low proportion. As far as we are concerned, if TC/RC of copper concentrate
sharply rises and output loss cost goes up in 2009, total profit loss is calculated to be ~ Rmb5000-10000.

2) Nose dive of copper price in the short run led substantial loss in Q4 2008.
Nose dive of copper price brought more loss to high-priced raw materials. Copper price plummeted by over
50% in October, with a margin equal to those of other metals in one year; while more raw materials of
copper concentrate were outsourced before Q4 2008, we predicted over half of the Rmb8.5bn stocks to be
copper materials in Q3 2008 report. Based on 78% outsourcing and 40% loss rate, total loss would exceed
Rmb1bn (which might be shown by cost increment or stocks depreciation).

Breach of copper processing orders downstream caused future hedge losses. The company set up long
position for some products to lock in the copper price on futures market while signing orders downstream,
while some downstream processing enterprises refused the orders after the copper price suffered sharp fall
in a short period, and drop in copper price was far more than proportion of the earnest, which resulted in
deficit of these businesses (predicted to be over Rmb500mn).

Average price of domestic electrolytic copper was Rmb27,386/ton in Q4 2008, with not much profit from
home-made copper, gold and silver being the main source of profits. Thus, we forecast the company will see
sharp loss in Q4 2008 and EPS is at -0.49.

3) Recovery of copper price still needs time; business risk has sharply dropped.
Copper smelting is expected to profit.
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Due to vast suspension of smelting recently and spot price climb of copper concentrate TC/RC,
to-be-determined copper concentrate TC/RC is hopeful to grow; we project TC/RC to be ~70/7, up by 40%
than that of 2008 and copper smelting is expected to profit. On the other hand, the “copper from smelting
slag” project is put into production, thus the smelting recovery is expected to further improve to 97.5-98%.

Operating cost will decline.

As prices of all raw materials and energy sources fall, the production cost will also go down; however, it
accounts for only a small proportion in mining cost, so mine production cost will fall limitedly and ore grade is
the main factor affecting mine production cost. Furthermore, we predict that the company will cut the
expenditure in 2009 and general expenses are also to decrease by 10-15%.

Copper price is difficult to recover, but it will perform better than other basic metals.
Due to supply and demand surplus, we forecast that copper price is hard to see substantial recovery in 2009;
while the situation that copper price stays below marginal cost for a long term doesn’t appear yet, so we
believe that once the demand recovers, copper price will go back above marginal cost. Seen from history,
duration of copper price operating below marginal cost and the margin falling below marginal cost both excel
those of other basic metals; in addition, we deem copper to be the best choice at industry recovery.

3. Investment Advice
Supposing 2009 copper price at Rmb30000/ton, we predict 2008-2009E EPS to be Rmb0.73 and Rmb0.41.
Current A-share price is Rmb9.98, representing 2008 PB ratio of 1.51x; although the price has not reached
the extreme valuation, it is already close to the historic low. As risk of earning loss has not been fully
released in short term and we still maintain “Neutral” rating for the counter, but we hold that from long-term
return, strategic layout can be considered after the risk is released.

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