2016 production results review

Dias KabyltayevFebruary 01, 2017

KAZ Minerals 2016 production results were slightly higher (1%) than our estimates, amounting to 140kt of copper, with planned annual range of 135-145kt. Company continues to demonstrate leading growth rate among competitors.  Average growth rate, according to our estimates is 24% y/y up to 2020. Low production costs (≈$2,7 ths./t) and continued metals rally allow us to increase our 12M TP to GBp 552/share.  

2016 production results. KAZ Minerals operating results are positive, however, within the planned annual scope. As a result of mining operations at Aktogay and Bozashkol, KAZ Minerals significantly increased its copper production over the past year by 73% y/y up to 140.3kt of copper, while the planned production was forecasted in the range of 135 -145kt. For 12 month KAZ Minerals produced 75.4kt of zinc with planned annual range of 70-75kt. Gold and silver production was 119.7 and 3103 koz, respectively.

Production rump up. Bozashkol in 2016 produced 44.8kt of copper, which is at the bottom of the planned production range of 44-55kt. Based on the Company data, we expect the production of about 74kt of copper in 2017, and further to achieve the maximum amount of 113kt.  On the Aktogay there was produced 18.1kt of copper in 2016. At the moment, the commissioning activities are carried out at the factory. Commercial production is expected in the first quarter of 2017. We expect a gradual increase in production to 104kt during 2017-2020. Total production of KAZ Minerals during the period from 2016 to 2020 will almost double and could reach 138kt.

Copper cash price estimate change. Since our last report in November 2016, the copper price rose by 1,5%, reaching a level of $5811 per ton. According to our revised data supported by Bloomberg consensus in 2016-2017, as well as due to a positive metal prices trend, our forecast has been increased by an average of 7% for the period 2017-2020.

Leverage is still high. According to our forecasts, by the end of 2019 the size of the Company's net debt will increase to $3.6 billion (increase of net debt/market capitalization ratio from 1,47x at the end of 2016 to 1,77x at the end of 2019). During 2017-2018, the Company will have to refund more than $700 million credit facilities.

Increase in 12M TP to GBp 552/share, preserving BUY recommendation. Since our last report, due to a rising prices of copper, shares of KAZ Minerals also increased by 24%. We made some adjustments in our DCF-model, which allow us to increase our 12M TP to GBp 552/share or 17.3% from the current price. 

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