WOOD Flash – KAZ Minerals: 3Q19 trading update – on track to exceed guidance
KAZ Minerals released its 3Q19 trading update this morning (24 October). It reiterated its 2019E production guidance for copper at 300kt, but said that it should exceed its gold production guidance of 170-185koz, by 5%. It is also ahead of the run-rate to meet its silver guidance, and management reiterated the zinc production target of 40-45kt. Overall, we see the results as positive for the stock. We continue to like KAZ, although it is a high-risk investment given the ongoing trade war and its leverage ahead of a capital-intensive growth phase. While we did not support the Baimskaya acquisition, the stock has more than discounted the cost of the transaction. The company has: a good track record of project delivery (more than tripling production since 2015); bottom-quartile of the cost curve assets, which should finance most of the growth capex; and the potential to nearly double production in the next decade. We currently see its 5.2-6.1x 2019/20E EV/EBITDA ratios as too cheap. For copper exposure, we see few better-value stocks in the global mining space and we believe the metal is likely to enter a large deficit in the early-2020s, if prices do not increase to incentivise investment in new capacity.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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