KAZ Minerals announced financial results for 1H2018

Andrey KozhokaruAugust 17, 2018

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Revenue for 1H2018 amounted to 1 098mn USD, an increase of 31% y/y. Copper sales increased by 22% y/y, while copper price (LME) raised by 20% y/y to 6 917 USD/ton. EBITDA reached 690mn USD (+36.6% y/y) with an EBITDA margin of 63%. The gross cash cost of the Company for 1H2018 amounted to 3 197 USD/ton against 3 175 USD/ton in 1H2017. As of June 30, 2018, net debt equaled to 2 052mn USD (2 056mn USD by the end of 2017) with a total debt of 3 705mn USD. The Company announced an interim dividend of 6 USc/share for the first time since 2013, suggesting that the final dividend for 2018 will be at a similar level (~12 USc/share total dividend for 2018).

The Company reiterated its annual production and cost guidance.

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According to 1H2018 results, gross cash cost amounted to 2 800 USD/ton at Bozshakol, 2 403 USD/ton at Aktogay and 5 125 USD/ton at Eastern Region and Bozymchak. An increase in gross cash cost in 2H2018 at Bozshakol and Aktogay is expected due to lower grades and higher processing volumes. Conversely, a decrease in gross cash cost is projected at Eastern region and Bozymchak due to higher production levels.

Our opinion:

Strong financial results of KAZ Minerals for 1H2018 were derived from the growth in production and higher copper price. Meanwhile, the observed negative dynamics of copper since the beginning of 2H2018 (average price 6 212 USD/ton) puts pressure on the Company's value. Despite the persistence of optimistic medium-term forecasts for the base metal, the trade confrontation between the US and China, the strengthening of the USD and a reduction in the risk of possible strikes at large copper mines could put pressure on prices in the short run. We do not expect a significant increase in the production of KAZ Minerals until 2022 when the second sulphide factory at Aktogay will be launched and the annual copper output could exceed 350kt.

We do not forecast considerable pressure on the Company's margins from the expenditure side in the medium term. The major stress of KAZ stock price refers to the alteration of the investment horizon and to the reassessment of the risks associated with the implementation of the Baimskaya project. Our recommendation is under review.