Suspension of Bozymchak operations and subsequent resumption

Andrey KozhokaruNovember 03, 2017

KAZ Minerals announced the suspension of operations at Bozymchak for three months. On the next day, the representative of the Company announced the resumption of activities.

On November 2, the Company reported that the Kyrgyz authorities suspended operations at the Bozymchak mine. According to the published press release, the suspension period was 3 months. On November 3, Bloomberg reported with reference to the representative of the Company that Bozymchak operations were resumed, the license was renewed.

Earlier, the Company raised its production forecasts for 2017 up to 250-270k tons of copper, up to 160-180k ounces for gold and up to 3 450-3 700k ounces for silver. For 9M2017, 5.7k tons of copper (2.95% of the total volume), 31.9k ounces of gold (23.1%) and 193k ounces of silver (7.1%) were produced on Bozymchak.

Even if Bozymchak stops its operations till the end of the year, the effect on the total volume of copper production, which is the main product of KAZ Minerals (75.5% of total revenue for 1H2017), will be insignificant. As for gold and silver, the Company will most likely fulfill its production guidance in case of suspension of Bozymchak operations for the next three months. Gold is the second product of the Company in terms of share of total revenue (12.7% in 1H2017), silver accounts for a smaller share of revenue (4.2% in 1H2017).

Our opinion:

In our opinion, the suspension and subsequent renewal of the license for the Bozymchak project have some political background. Short-term stoppage of Bozymchak operations will not entail significant financial and operating losses for the Company. However, a prolonged shutdown of the Kyrgyz mine could have some negative effect on the results of KAZ Minerals. At present, we maintain our Hold recommendation.