Owing to rise in copper prices and significant increase in production volumes Kaz Minerals provided strong results for 1H2017.
Total revenue in 1H2017 reached $837mln, which is 2.3 times higher yoy. EBITDA equaled to $429mln that is 3.7 times more than in 1H2016. Operating profit increased 4.3 times, reaching $291mln. Gross cash cost decreased by 17% yoy to 144 cents per pound ($3 174 per ton) in 1H2017. The Company’s 1H2017 free cash flow after interest payments amounted to $155mln. Net debt decreased from $2 669mln at 31 December 2016 to $2 442mln at 30 June 2017. As of 30 June, the liquidity position of the Company amounted to $ 1 563mln, consisting of $1 223mln in cash and $340mnl of available credit.
The decrease in net debt was due to the increase in operating income, lower capital expenditures and payback of $176mln VAT on Bozshakol and Aktogai projects. The Company has updated its forecast of cash cost for 2017. For Aktogai the forecasted gross cash cost was decreased by 11% on average to 110-130 cents per pound ($2 424-2 865 per ton) relative to the forecast in the beginning of the year. In Bozshakol the gross cash cost is expected to be between 115-135 cents per pound ($2 535-2 975 per ton), which is 7.5% lower than the previously stated range. In Eastern region and Bozymchak the gross cash cost forecasted to be 205-225 cents per pound ($4 518-4 959 per ton), which is 10.5% lower than in previous estimates. Bozshakol and Aktogai projects by their models have low production costs and by increasing their share in overall volume of production, the Company decreases cash cost of its products. Company’s capital expenditures for 1H2017 was $108mln consisting of $23mln on maintenance and $85mln on projects’ expansion.
Kaz Minerals raised the low end of its forecasted copper production range for 2017 from 225-260kt to 235-260kt. Achievement of full production capacity at Bozshakol is expected in 2H2017. Achievement of commercial production level of sulphide concentrate at Aktogai is also expected in 2H2017. The Company also raised the low end of gold production range from 135-170k ounces to 150-170k ounces because of higher grade at Bozshakol and increased forecasted range for silver from 2 750-3 000k ounces to 3 100-3 350k ounces.
The management of the Company highlighted the possibility of considering dividend payments in 2018.
The Company’s results exceeded our conservative expectations mainly due to larger volumes of production and lower cash cost in 1H2017, as well as due to the increasing prices of copper and gold throughout 1H2017. Average cash cost in our forecast in the beginning of the year was 170 cents per pound ($3 747 per ton), actual figure for 1H2017 equaled 144 cents per pound ($3 174 per ton).
It is worth to notice that the Company’s net debt decreased by 8.5% to $2 442mln. We believe that consequent reduction of debt burden could be one of the drivers for Kaz Minerals capitalization growth. The Company stands out from competitors for its growth rate and products’ cash costs. In case of stable metal prices and fulfilment of planned production levels, the Company remains one of the most attractive investments in the sector. Our recommendation on the Company is currently under review.