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Kaz Minerals offers a buying opportunity on this dip

By Gary Newman | Sunday 13 August 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Kaz Minerals (KAZ) is a great example of the extent that commodity prices can effect larger miners, and the recovery in copper prices has seen the share price trading at multiples of where it was just 18 months ago.

When copper hit lows of $2/lb, Kaz was looking very weak with large amounts of debt and was making a net loss, and as a result its share price was only at around the 100p level as recently as the start of 2016.

That is in stark contrast to today, where copper prices are nudging the $3/lb level and the shares are trading at around 663p to buy, with a market cap of nearly £3 billion.

Of course that recovery could reverse if copper was to plummet once again, but currently it is showing no signs of weakness, and in coming years many are expecting prices to strengthen even more.

Having watched a share price on a company of this size rise so much in such a short space of time, I can see why some may have concerns about buying shares at current prices, but recently it has shown a fairly strong uptrend from the high 400s it was trading at towards the end of June. At the end of last week it did experience a fairly sharp drop, with nearly 10% wiped off over the space of a couple of days, but rather than viewing that as a sign of weakness, I see it as offering a buying opportunity, even if just for a trade.

Interim results, up to the end of June, are out on Friday, and given the level copper has been trading at during that period I would expect a fairly decent set of financials, certainly showing an improvement on the previous ones.

We’ve already had the production report for that period, which showed that production more than doubled to 118kt as the result of a ramp up in operations, and Q2 contributed 66kt to that total, showing the continued growth that is being achieved from its operations in Kazakhstan. Full year guidance is for 225-260kt, and the company is on track to deliver that.

It wasn’t just copper which performed well for the company, with gold production also more than doubling to 93koz, and given current strength in prices for the metal, that bodes very well for the future.

The Aktogay operation has performed better than had been expected and we should see a strong performance in H2 which will put the company online to achieve the 65-85kt that it is hoping for.

Bozshakol has also seen rapid production growth and is expected to be at full capacity in H2, as well as having had a large increase in the amount of gold it is producing.

Its other operations at Bozymchak and East Region have seen a reduction in copper and zinc output, but are still inline with guidance, and silver and gold are expected to be towards the top end of expectations for the year.

During 2016 the company generated revenue of $766 million and that resulted in a net profit of $177 million, despite copper prices being generally weak, as a result of significant cost reductions.

One concern you might have here is the level of debt, which stood at neary $2.7 billion at the end of 2016, but the company does seem to have that under control and recently extended its pre-export finance loan facility maturity until June 2021, as well as increasing it by $600 million – at the end of 2016 it did have over $1.1 billion in cash and equivalents, although that would have reduced due to capex on operations in the meantime.

The success of Kaz moving forwards really all comes down to the price of copper, and if, like me, you are still bullish on the metal, then I think this company is well worth a look at the current price, although should copper start to take a tumble I’d be looking to get out, as it is very geared towards that.  

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