Kaz Minerals Share Discussion Threads

[racg] 29/12/2016 15:14

More like 4.10

[losses] 29/12/2016 14:53

310 hope not

[plastow] 29/12/2016 11:45

310 I'll be topping up

[bamboo2] 29/12/2016 10:01

KAZ, lower trendline/neckline needs to hold. 337/8 seems like a key level.

[bamboo2] 29/12/2016 09:53

Copper still making a flag. Will be interesting to see which way it breaks.

[losses] 28/12/2016 07:25

see a good start here today... Australian commods rallying overnight.

[plastow] 23/12/2016 10:37

At the end of the day we are in a upward trend this will shake out more weak holders in this consolidation period which to me is a good time to pick a few more up cheaper ..it's called back and fill industrial metals will do well next year .

[linton5] 23/12/2016 10:28

Stacks not stocks lol 🚚

[linton5] 23/12/2016 10:25

Yip totally agree with you bamboo,it's just that we're still close to it she might keep trending up and just fly(like in 2009)it could be a short term rest but the pattern could be A head forming as above looks like.if down to £3 and it's worth loading a few stocks of pipe on the truck. Have a good xmas as I say love your charts

[bamboo2] 23/12/2016 09:31

Linton, re gaps, not all will be filled.

Some types of gaps, particularly breakaway gaps remain open for years. They often occur at the beginning of long uptrends, eg FEVR. Bulkowski has an interesting page on gaps if you do a search.

There is another gap in the KAZ chart just above 200. This looks more like a breakaway gap to me than the more recent one around 315ish.

My concern with the KAZ chart and copper charts is the potential for them to making RH shoulders of H&S patterns. Confirmation of this pattern is with an eod close below the neckline. The tp for this pattern is approx 300.

[davr0s] 23/12/2016 07:37

I'd only vary my view if the recent low gave way

[davr0s] 23/12/2016 07:31

Just a retrace to trend in an otherwise uptrend IMO. We put in a reversal 2d ago and I have bought my shares back that I sold into the last rise.

[kamsingh87] 23/12/2016 07:20

Starting to feel like I'm catching a falling knife. Wonder how long investor confidence will remain...

[bigbigdave] 23/12/2016 06:59

Copper well off its lows so hopefully a better day here.

[smurfy2001] 22/12/2016 22:21

Infrastructure prospects will create a price floor

The election of Donald Trump as the forty-fifth President of the United States is likely to change the economic dynamics of the U.S. economy. With both houses of Congress behind him, President-elect Trump has pledged to rebuild the nation's roads, bridges, tunnels, airports and construct a security wall along the southern border. The largest infrastructure building project in the U.S. since the 1950s will increase the demand side of the fundamental equation for metals, minerals and energy and copper is no exception.

In the wake of the U.S. election, we have seen rallies in many industrial commodities despite a stronger dollar and higher interest rates. The potential for economic growth should put a floor under the price of copper.

[b2l] 22/12/2016 21:38

quite right @L5
to be carefull is never wrong ;)

btw .... have a look at CNR if you have some money left
I filled my boots over the years
this will be part of my old age pension
atb + merry christmas @all

[linton5] 22/12/2016 19:11

Fair enough b2L I ain't sitting waiting all my cash is in divi stocks now,I've road the commodity trail the last 6years and nearly lost the lot I was 75% down in 2015 having had 200k gcm (average96)I bailed all out at20p which was transferred all into Kirkland lake gold at 145 sold at 280 then started trading Canadian goldies in 2015 got back up to £80k than all into Vedanta at 340 with 23k trading it as well till I had 31k shares sold all at 650(mistake)then played Kaz from on and off from 125 upwards made 25k now all in divi stocks as I can finally sleep better at ngts for the 1st time in 6years( hope you understand)I got the market bug and nearly lost the lot(my life savings as no pension)so there you have it.ive Learned so much in that time be careful in the market it can destroy you(I got lucky)some guys don't. The toughest thing todo is sell at a big loss(you need balls for that believe me)gcm was 150k loss at the time also sold HMV at 46p on the way down when I had 350k average 58(phew they went to 0)lol What was the question again?be careful out there. All I want is get out the rat race

[b2l] 22/12/2016 11:33

not necessarily @Linton .... many gaps get filled but not all ... ;)
to sit and wait may be right .... or wrong
the next days we will see

[linton5] 22/12/2016 10:27

The gap needs filled be patient

[plastow] 22/12/2016 09:14

Like I said all the TA,s say 310 no reason to buy ..

[bamboo2] 22/12/2016 08:25

Since the copper price has not held firm overnight I sold. 5% in a few days is too hard to resist. Will be back!

Copper could head towards 2.388, although historical support at approx 2.4334

[b2l] 22/12/2016 06:36

indeed very interesting article @saltaire111
thx

[saltaire111] 21/12/2016 15:18

Interesting article from Seeking Alpha:

KAZ Minerals is a little followed miner with one of the best production profiles in the global copper industry that will see its output doubling by 2019.

You don't have to be a copper bull to invest in KZMYF: conservative valuation at spot copper and 16.6% cost of equity yields upside of 85%.

Copper outlook brightens with China's appetite for concentrate growing and likelihood of disruptions (including ban on Grasberg exports) rising.

The company's debt load looked scary in 2H16, but after new financing and copper price rally, it is set to fall from 7.2x EBITDA this year to below 2x EBITDA in 2019.

I would like to introduce you to a copper mining company called KAZ Minerals (OTC:KZMYF) that has so far gotten no coverage on SA. The reason I like it is that it has an exceptional growth profile among global copper companies due to the launch of two world-class assets sitting in the bottom quartile of the global copper cost curve. The launch of one asset has already taken place in December 2015, and the other one is set to start producing salable concentrate in 1Q17. Both assets will ramp up over the course of 2017-2018, doubling KZMYF production to around 300kt of copper cathode from 140kt expected this year. The one big issue for the company is its debt load (ND/EBITDA 2016E of 7.2x), but on my calculations the company will comfortably meet all debt repayments in 2016-2019 from its operating cash flow, reducing ND/EBITDA to below 4x by the end of 2017 and below 2.0x by 2019 (at spot). You don't have to be a copper bull (I'm not, more on that below) to believe in KZMYF story - even on spot it yields a valuation upside of 85%.

What is KAZ Minerals?

KZMYF is a Kazakhstan-based pure play copper miner traded on LME, with average daily turnover of $10-15M. This year it will produce around 140kt of copper cathode equivalent, mostly from legacy assets in Eastern Kazakhstan (the East Region), 110 koz of gold, 2.7M oz of silver, and just over 70kt of zinc (from the Bozymchak deposit in Kyrgyzstan). Copper concentrate from the East Region and Bozymchak is toll processed at the Balkhash smelter into finished products of copper cathode, gold bars and silver bars, which are sold to customers. Zinc concentrate is sold to regional and Chinese customers.

In 2011, KZMYF started a very ambitious project - the development of its two prime greenfields, Bozshakol and Aktogay. Each greenfield had production potential of about 100kt of copper cathode, i.e. each exceeded the output of the company's legacy assets (80kt) at the time. Both deposits were the largest copper greenfields in CIS and among the largest newly developed copper deposits globally. Development of these two assets was the reason why KZMYF's debt burden surged dramatically - total capex needs for both projects combined stood at $4.5B. In 2014, the company underwent quite a dramatic change - renaming itself from Kazakhmys to KAZ Minerals, it shed most of its legacy assets, as well as some non-core assets (including Kazakhstan's largest Ekibastuz hydro power plant), and focused exclusively on developing the greenfields.

Bozshakol and Aktogay - two exceptional greenfields under the same roof

Now these investments are coming to fruition - in late 2015, copper cathode production from oxide ore using heap leaching (HL) started at Aktogay, followed by the start of copper concentrate production at Bozshakol in February 2016. For Aktogay, current production from oxide ore is just a starting exercise, as the bulk of its ore is sulfide and as such is not amenable to HL, which basically consists in sprinkling the ore with acid. After that, the low-grade solution is upgraded into a solvent, from which copper is extracted with strong acid, and the process is completed through electrolysis (SX-EW). So, to produce its targeted 105kt of cathode equivalent, Aktogay still needs a concentrator. Good news is that testing and commissioning of the concentrator already started this month, and the deposit is on track to start producing concentrate from sulfide ore in 1Q17, planning to produce about 60kt of cathode equivalent in 2017 (including 15kt from oxide ore).

Bozshakol reached commercial production in October (commercial production means working at no less 60% capacity for at least 3 months, which allows to stop capitalizing the projects' revenues and costs and move them to the P&L) and is expected to achieve peak production of 115kt p.a. in 2018, thereupon declining slightly to 100-105 kt p.a. Bozshakol and Aktogay have expected mine lives of 40 and 50 years, respectively. Both projects will be selling concentrate to smelters in West China, which is a very convenient logistical arrangement considering that Aktogay is less than 300 km away from the Chinese border. (Admittedly, Bozshakol is a bit further - some 1,200 km from China's Alashankou, but there is a direct rail link).

KZMYF production profile



Source: company, my estimates

I have to say that the projects' delivery has been exceptional, considering mining industry standards where project delays and massive capex overruns are nothing out of the ordinary. For instance, Aktogay sulfide ore concentrator will start production 2-3 months ahead of schedule, while capex has been reduced by $100M to $2.1B (admittedly helped by a weaker tenge). Another important indicator of the company's serious approach to project management and safety standards is a dramatic reduction in fatalities - from 24 in 2011 to 3 in 2015.

Both projects sit at the bottom quartile of the global cost curve, with net copper cash costs of 70-90USc/lb at Bozshakol and 100-120 USc/lb at Aktogay, even despite the relatively low grades at both projects of 0.34-0.36%. Apart from by-product credits (i.e., net revenue from metals other than copper, like gold and silver), factors that explain such low costs are the relatively straightforward open pit mining with low stripping ratio and very competitive power costs. Bozshakol has a direct 220kv connection to Ekibastuz GRES-1, the largest hydropower plant in Kazakhstan (as I have mentioned, until 2014 belonged to KZMYF). Over the last 12 months, the devaluation of tenge by over 80% has become another important contributor to lowering the company's USD cash costs.

The excellent entry point into the stock, in my view, is now, when the bulk of capex into the two growth projects has been spent. Investment in Bozshakol will be completed this year, while the remaining 30% of Aktogay investment (around $600m) will be spread over 2017-2018. Thus, investors now stand to reap the benefits of growth both in production and cash flows this capex was made to produce.

Copper price - where from now?

Even though I have agnostically valued the company at spot, I believe a brief discussion of the copper price prospects is in order. I like the current spot of about $2.50, because it covers 95% of global production, as can be seen from the cost curve below. Therefore, from a fundamental long-term prospective, $2.5/lb is a very sound assumption.

Spot of $2.5/lb covers 95% of global production



Source: Mark Latham Commodity Equity Intelligence Service

Opinions on the supply-demand story vary. Until Trump's election, most brokers have been predicting a market surplus in copper in 2017; since November, we've seen a lot of revisions to deficit. We know that it doesn't take much to tweak a supply-demand model to do that. To what extent this is justified by Trump's infrastructure investment promises is debatable. US accounts for only about 8% of global copper demand, and even if we imagine that demand in the US begins to grow by 20% p.a., it's an addition of only about 300kt p.a. Gauged against the new supply of about 4mt Goldman Sachs expects to flow to the market over the next 3-4 years, this is really a trifle.

The one thing that encourages me, though, is that this time the rally in copper price is supported by the rising rates (see chart below). It looks like investors are beginning to have more confidence in the global economy prospects, and Dr. Copper together with rates is showing just that. Technically speaking, copper has just broken the 5-year resistance level, which is also rather bullish.

Copper rally supported by rising rates



Source: Bloomberg

Yet another bullish factor is the tripling of Chinese copper concentrate imports since 2012, with the trend accelerating lately. China is expanding dramatically its copper refining capacity and may become an exporter of refined copper in the foreseeable future. Even though some commentators are warning about a potential copper refining capacity glut in China brewing, this trend seems set to continue. KZMYF as a concentrate supplier close to the Chinese border is definitely set to benefit from this.

Demand for copper concentrate in China is on the rise



Source: Bloomberg

Also, copper's recent underperformance has been partly due to the unusually low disruptions rate of below 3% in 2016 vs. the long-term average of 5%. One such disruption could be the copper concentrate export ban expected to be put into effect in Indonesia from January 2017, threatening concentrate exports from the world's second-largest copper mine, Grasberg. This could be a major bullish factor for the copper price in 2017.

Leverage: not as bad as it appears

Now let's turn to the issue of KZMYF's indebtedness, which looks much more scary than it really is. As I have mentioned already, the company had amassed its $3.6B debt to fund its Bozshakol and Aktogay projects. The bulk of the company's current debt has been provided by China Development Bank (CDB) at a rate of approximately 6%. As of 1H16, the company's ND/LTM EBITDA stood at a somewhat scary 14x. However, given the copper price rally in 2H16, 2016 EBITDA will be shaping up at close to $350M, which will reduce ND/EBITDA ratio to about 7.3 by the end of the year. With next year's EBITDA more than doubling, ND/EBITDA is going to fall to below 4x by the end of 2017 and below 2x by 2019.

Another source of concern for investors before the copper price rally has been the expected liquidity shortfall in 2017-2019, given significant debt repayments and outstanding capex commitments. At the 1H16 average copper price of $2.12/lb and prior to obtaining a $300M facility from the National Bank of Kazakhstan in December, the company faced a liquidity gap of about $400M in 2H16-2019. By liquidity gap, I mean the difference between the company's available liquidity of $1.1B and its expected cumulative operating cash flow (OCF) over the period, on the one hand, and its total debt repayment and capex requirements, on the other hand (see chart below).

KZMYF's liquidity situation in 1H16 (before new financing)



However, in early December, KZMYF reached an agreement on a new $300M credit facility with the Development Bank of Kazakhstan (DBK), with repayment starting in 2018. Thus, the liquidity gap has been reduced to below $200M. At the spot price of about $2.5/lb, the gap turns into a $400M surplus (see chart below).

KZMYF's current liquidity situation (at spot and after DBK financing)



In case of any deterioration in the copper price (I don't see it much below $2/lb, which is still way above the company's net cash costs), I believe that, given KZMYF's strong execution record at both Bozshakol and Aktogay and CDB's long-term commitment to the project, the company will face little problem in refinancing its obligations. KZMYF has already announced its intention to resume discussions with the PXF bank syndicate over a longer-term refinancing of the facility in 1H17. In any case, thanks to Bozshakol and Aktogay's successful ramp-up and rising oil price, there should be no deficit of willing lenders. So the risk of an additional equity raise to fund the shortfall appears pretty small and is likely to materialize only if the copper price drops significantly below $2/lb.

Financials and valuation

In the current situation of a rallying copper price and given a dramatic change in production profile starting next year, analysis of KZMYF's current financials looks a bit like looking into a rear view mirror. I will only note that an 11% decline in the 1H16 revenue (the company reports semi-annually) exactly mirrors an 11% decline in the copper price y-o-y. The 30% increase in EBITDA was largely driven by a massive tenge devaluation over the period of more than 80%, although management's cost optimization efforts also hide somewhere behind the lower cost figure. With KZMYF, you really have to look ahead in terms of financials, and this is possible due to a clear production development path.

I've put together a small DCF for the company, starting with production, revenue and EBITDA forecasts by deposit, based on the company information. In my model, I'm conservatively penciling in cash costs at the upper end of company guidance, even though in my view the real risk to costs is on the downside, given the bearish outlook for tenge.

EBITDA forecast by deposit



In the model, I'm using WACC of 9.5% derived from the assumptions below. This is derived using very conservative assumptions (pre-tax cost of debt at 6.5% vs. 6% actual, beta of 1.7x and equity risk premium of 8% to reflect country-specific and corporate risks).



As can be seen from the model below, the stock yields an upside of 84%



Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

[smurfy2001] 21/12/2016 14:25

So copper is currently consolidating according to chart above.