KAZ Minerals: Target Price increase

Increase of 12M TP to GBp 436/share, recommendation "BUY".

Dias KabyltayevNovember 23, 2016

Since our last report on October 5, share price of Kaz Minerals increased by another 26%. Overall, since the beginning of July the Company's shares demonstrated an impressive growth of 210%. In our opinion, the main reason for continuing increase is a sharp rise in copper prices since early November this year. Following the consensus forecast, we are raising our 2017-2020 copper price forecast by 4% on average  and increase our 12M TP on KAZ Minerals Plc. to GBp 436/ share, whilst maintaining our BUY recommendation.

Base metals market re-entered the "bull" phase. After significant market downturn of industrial metals in 2015, indicators again point to the "bullish" trend. Thus, according to the Bloomberg, LMEX index increased by almost 21.5% since the beginning of the year. Copper prices soared by 14% since early November to $ 5597 per ton, breaking the annual maximum.

Improved economic situation in China, the largest consumer of a number of industrial metals, strongly supported the copper prices. According to Macquarie research, the majority of Chinese players expect growth in copper demand next year by 3% to 5% due to the steady policy of the government towards stimulating the economy. Reduction in LMEX stocks by 30% over the past month also impacted copper value.

Changes in copper prices forecast. According to revised data from Bloomberg consensus for Q3 this year, as well as based on the positive market background, our forecast has been adjusted for an increase by an average of 4% for the 2017-2020 period. Taking into account high sensitivity to copper price changes, this fact greatly influenced the modeling target price.

Attractiveness of growth projects. Obvious stabilization of the copper market, long-term projects and relatively cheap costs of production all have a positive effect on shares demand. It is also worth noting that the rate of decline of Kaz Minerals shares in 2015 was significantly higher than for its peer companies, nearly by 86% against 55%.

Increase in 12M TP to GBp 436/share, preserving BUY recommendation. Increase in copper price forecast in 2020, considering achievement of Company’s performance targets in 2016-2022 and timely growth projects commissioning during 2016-2018,  allow us to increase our 12M TP to GBp 436/share or 20.9% from the current price.

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