WOOD Flash – KAZ Minerals: 2017 trading update weaker-than-expected & lower-than-expected guidance for Bozshakol in 2018E

This morning, KAZ Minerals reported its 4Q17 trading update, which is likely to be taken negatively by the market, in our view. Copper production of 259kt for 2017 was in the middle of the updated guidance range (and the top of the range set in February, before being increased later in the year), while gold production hit the top end of the guidance range at 179koz in 2017. However, full-year zinc production of 58kt missed the guidance marginally and silver was at the lower end of the guidance range (3,506koz) due to lower-than-expected grades in 4Q, due to getting delayed access to the higher grade areas of the Artemyevsky ore body. However, the most negative news was for guidance of 100kt of Bozshakol production in 2018E, flat yoy vs. our expectations for 116kt due to a change in the mine plan. Further details will be provided in February, but this represents a risk for our 2018E forecasts.
We remain BUYers of KAZ (GBp 1,002/share price target (PT)) following the recent pullback. The stock peaked at GBp 965/share, close to our PT, before selling off in the last week. At 5.6x 2018E EV/EBITDA, with 40% copper production growth expected between 2017 and 2022E, which should be funded from its own cash flow, we believe KAZ remains too cheap. Given its strong track record in project execution, it remains our preferred EMEA copper producer, but the lower guidance at Bozshakol does represent a risk for our 2018E forecasts.