KAZ Minerals: Stretching the balance sheet (stays BUY)
Since our previous update on KAZ Minerals, following the Baimskaya acquisition, the stock rallied 63% from the level at the time to exceed our price target (PT) in April. Since then, the escalation of the US-China trade wars and slower growth have dragged copper prices lower, down 12% since the April high to USD 5,739/t now. With lower copper prices potentially delaying Baimskaya’s development and the increasing leverage, we have lowered our PT by 25%, to GBp 509/share, but this still leaves 21% upside, after the 15% decline after the results, which we believe to be an overreaction. The stock lacks catalysts until 1H20E, when we expect the feasibility study for Baimskaya; until then, it will remain a leveraged play on copper prices, which could decline further, without a Chinese-US agreement on trade. However, we remain positive on the long-term outlook for copper and believe this could present a buying opportunity. We maintain our BUY on the stock.Kaz Minerals is a holding company. Co. and its subsidiaries operates in the natural resources industry through five divisions: Bozshakol, Aktogay and East Region, which are engaged in the mining and processing of copper and other metals in Kazakhstan; Bozymchak, which is engaged in the mining and processing of copper and gold in Kyrgyzstan; as well as Mining Projects, which is engaged in the development of metal deposits and processing facilities in Kazakhstan. Co. operates the Bozshakol and Aktogay open pit copper mines in Pavlodar and the East Region of Kazakhstan, three underground mines in the East Region of Kazakhstan and the Bozymchak copper-gold mine in Kyrgyzstan.
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