Following forecasted copper costs, organisationmay want to triple

Following the divestment of the high cost assets in October 2014, KAZ has transformed into a copper development company focused on two large scale copper mines, Bozshakol and Aktogay. Both are similar in size (~100 ktpa) and design, and are guided to take group production up to ~300 kt by 2018Monetary results correspond to the volumes. thinking about thestage of manufacturing and additionally the forecasted copper costs, organisationmay want to triple its sales through 2020. At its core, KAZ Minerals is a low costmanufacturer and because of the synergistic effect from the release oncomplete-ability of Bozshakol and Aktogay the organisation would maintainto keep low coins cost and, as result, excessive earnings marginsExpectation of the copper deficit as the main increase aspect.The demand increase in China, weakening US dollar, strong PMIsigns in Euro quarter are assisting copper expenses moves at hugemines in Chile and export restrictions in Indonesia in advance this 12 monthsand contemporary rumors about viable ban on copper scrap import inChina additionally supported copper expenses. one of the foremost elements in theincrease of copper inside the lengthy-time period is a scarcity of recent massive scaletasks to catch up on the exhaustion of manufacturing on the oldmines. A small deficit within the copper market is expected in 2018, withits subsequent increasePerfomance outlook – Thanks to the growth in copper prices and a significant increase volume of production Kaz Minerals demonstrated strong results for 1H2017. The total revenue reached $ 837 million, which 2.3 times more than in the same period in 2016. Index EBITDA reached $ 429mn, which is 3.7 times more than EBITDA in 1H2016. The Company’s operating profit increased 4.3-fold, having made $ 291 mln. Total cash cost decreased by 17% from 173 cents per pound ($ 3,813 per tonne) to 144 cents per pound ($ 3,174 per tonne) in 1H2017. Free cash flow Companies in 1H2017. was $ 155mln after the payment interest on liabilities. Net debt decreased from $ 2,669 million as of December 31, 2016 up to $ 2 442 mln as of June 30, 2017. As of June 30 2017. The liquid position of the Company was $ 1 563 million, from of which $ 1,223 million are represented by cash and $ 340 million are available in the form of borrowings. The decrease in net debt was due to the increased operating income, lower capital costs, and refund of VAT on projects in Bozshakol and Aktogay in the amount of $ 176 mln. The company has updated the forecast for the cost of 2017g. So on Aktogay the projected cost price was decreased by an average of 11%, to 110-130 cents per pound ($ 2,424-2 865 per ton) compared to the forecast at the beginning of the year, at Bozshakol cost is expected at the level of 115-135 cents per pound ($ 2,535-2,975 per tonne), which is 7.5% less than before of the declared range, in the Eastern region and Bozymchak on level of 205-225 cents per pound ($ 4 518-4 959 per tonne), which is 10.5% less than the previous forecast. Projects Bozshakol and Aktogay inherently have a low cost of production and due to increase in their share in total production, the Company reduces the cost of its products. Capital expenses of the Company for 1H2017. amounted to $ 108 million, of which $ 23 million for maintenance and $ 85 million for expansion of projects. KAZ Minerals raised the lower limit of the range forecasted copper production for 2017. from 225-260 thousand tons up to 235-260 thousand tons. Achievement of full production capacity in Bozshakol is expected in 2H2017. Also in 2P2017 expected to achieve commercial production of sulphide concentrate on Aktogay. Company also raised the lower limit of the production range Gold from 135-170 thousand ounces to 150-170 thousand ounces due to more high level of content at Bozshakol and projected range for silver from 2 750-3 000 thousand ounces to 3 100-3 350 thousand ounces.The Company’s management notes the possibility of considering dividend payments in 2018.The best growth rates. The company is on track to achieve previously declared level of copper production at 225-260 thousand tons per this year. Taking into account the decline in production in the East region and Bozymchak, achievement of the calculated level of production at the Bozshakol and Aktogay GOKs will allow the Company to approach indicator of 300 thousand tons of copper per year in the medium term, which two times above the level of 2016y. The projected growth in Kaz production Minerals for the period 2016-2020. will be about 17% y / y, which is one of the best indicators in the industry.Financial results correspond to volumes. Given the levels production, as well as a forecast for copper prices, the Company may triple revenues by 2020. In its essence Kaz Minerals is a manufacturer with a low cost and due to the synergistic effect of starting full capacity of Bozshakol and Aktogay GOKs, the Company can continue to maintain a low cash cost and, as consequence, high margin. Debt load as a decreasing risk factor. On the current projected since 2019. main capital investments of KAZ Minerals will mainly have to maintain production. According to our given the total capital expenditure in 2017-2018. will amount to $ 470mln, $ 543 million, respectively. Further average annual costs are expected at the level of $ 124 million. Given the significant increase in free cash flow in the medium term, it is expected to reduce net debt of the Company by 22% to $ 2,080mn at the end of 2019, that will give the business more flexibility. As of December 31, 2016. The Company’s net debt was $ 2,669mn. Reduction of debt The burden will increase the Company’s attractiveness, which in the end is positive will affect the cost of capital. The copper market in the long-term growth perspective. At the beginning2017, the ban on exports to Indonesia and the miners’ strike onThe two largest mines in Chile were provisionalThe negative effect on supply in the copper market, triggering growththe price of metal. Later, after reaching an agreement with thestriking and export permitting, the price of copper has returned tothe point of the beginning of growth. However, do not exclude repetitionsimilar events in the future. Since the middle of 2017g. prices for copperagain demonstrated a significant increase, from partcaused by speculation about a possible ban on imports of copperscrap in China. In addition, support prices for raw materialshas a depreciation of the dollar against majorcurrencies.The main fundamental factors in the market of basicthe demand and supply remain. The period of low prices forcopper from the middle of 2015. until the end of 2016. forced manyproducers to review long-term plans and refusefrom some new projects due to insufficientconfidence in their economic value. As a result, inmedium-term supply in the copper marketIn view of the depletion of old deposits andabsence of new large-scale projects.According to 2016, China accounted for 42% of the worldconsumption of copper. According to the country’s development strategy, Chinatransition from an export-oriented model tomodel of the economy, customer-oriented. howeffect, the target GDP growth rate in 2016-2020 is6.5%, which is somewhat lower than the target for 2011-2015. at7%. Despite this, the government continues to increasespending on infrastructure projects to stimulateeconomy. China also reaffirmed its commitment toproject “One belt one way”, which should connectChina, Central Asia, Europe and the Pacificregion. It is planned to create railways, highways,oil pipelines, ports and other infrastructure to strengthentrade and economic cooperation between countries. ByApproximate estimates of the investment in this project will beabout $ 8.4 trillion in 2016-2030. Also execution of plansPresident of the United States Donald Trump on investment of $ 1 trillion ininfrastructure projects and tax burden reductioncan increase the demand for metal.Copper is one of the basic metals used inindustrial production. The PMI index determineseconomic activity in the relevant sector.Values ??above 50 show an increase, below 50-reduction. PMI indicators in the leading industryeconomies since the beginning of 2017. are in positiveterritory. Significant activity in the industrial sectoris observed in the Eurozone, where for the last 3 months PMIwas at the level of 57.According to analysts’ forecasts, a small deficit is expectedmarket of copper in 2018-2019. with its possible subsequentincrease. Some analysts see the risk of revisioncurrent consensus forecasts for copper upward in theterm perspective. Given that the price of copperexceeded our expectations for 1H2017, and somean increase in the consensus forecast of Bloomberg since 2020, wewe take as a basis in the calculations the current consensus forecast for 2017.at $ 5 800 and assume a subsequent increase of 3.5% y / y, whichcorresponds to the consensus of Bloomberg for 2017-2021.

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