WOOD Flash – KAZ Minerals: 2H18 financial results - broadly in line with consensus but higher capex in 2019E

KAZ Minerals reported its 2H18 financial results this morning. EBITDA beat consensus by 3% and net income by 2%, while net debt fell 3% hoh to USD 1,986m, 6% below consensus due to below-guidance capex. In addition, KAZ announced a final dividend of US¢ 6/share. With the interim dividend having been of the same size, KAZ has paid US¢ 12/share in 2018, a 1.4% yield, marginally above our US¢ 11/share forecast. On guidance, the 300kt total copper production is in line with our forecast for 2019E, but more should come from Aktogay and less from the East Region than we expected. Capex should be USD 220m higher in 2019E than we previously forecast, but c USD 130m appears to be rolled over from the lower 2018 number and USD 70m is on Baimskaya, where we expected significant spending to start only in 2020E. Higher capex is usually taken negatively, but the acceleration of the project should not be seen in that way, in our view. Production-weighted cost guidance is US¢ 153/lb vs our US¢ 149/lb forecast (and USc144/lb in 2018A) but KAZ is usually conservative so this is in line with our expectations. Overall, we believe the results, and production and cost guidance, should be taken as broadly neutral by the market. The shares are likely to trade slightly lower due to the higher capex, although we do not see this as a significant negative. We have been buyers of KAZ, but it is now trading close to our GBp 679/share price target after the recent rally, having risen c 50% since we wrote our last note. We will reassess our model in light of these results and recent macro trends, but believe the upside will be limited in the short term, without a meaningful improvement in copper prices.