Rising costs, falling production and declining quality of ore all made for a miserable first half for Kazakh copper miner Kazakhmys. Underlying pre-tax profits collapsed from $866m to $307m, but chief executive Oleg Novachuk is confident that, after a slow first half - during which production of copper cathode, at 135,000 tonnes, was 12 per cent lower than in the previous half-year - a rise in second half output will allow the mining group to hit a target range of 285,000-295,000 tonnes. That would only be slightly down from the 299,000 tonnes produced in 2011.
But even if Kazakhmys does hit the production target, there are still concerns. For instance, the grade of ore slipped from 1.01 per cent to 0.99 per cent (and is expected to fall further in the second half) and net production costs have soared from $93 per pound at this stage last year to $171 per pound. This is at the same time as Kazakhmys is planning to increase capital spend from $454m in the first half to $850m in the second to develop the Bozshakol mine and other projects. Unsurprisingly with rising capital expenditure, falling sales and rising costs, free cash flow reversed from a $554m inflow in the same period last year to a $129m outflow.
The shares have lost over 40 per cent of their value since early February and analysts at Liberum Capital note that they are now trading on a forward PE ratio of 8.2 for 2013 - materially cheaper than peers - after adjusting for Kazakhmys' 26 per cent stake in ENRC.
KAZAKHMYS (KAZ) | ||||
|---|---|---|---|---|
| ORD PRICE: | 680p | MARKET VALUE: | £3.6bn | |
| TOUCH: | 679-680p | 12-MONTH HIGH: | 1,223p | LOW: 642p |
| DIVIDEND YIELD: | 2.1% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 1,654c | NET DEBT: | 5% | |
| Half-year to 30 Jun | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share (c) | Dividend per share (c) |
|---|---|---|---|---|
| 2011 | 1.82 | 1.00 | 157 | 8.00 |
| 2012 | 1.52 | 0.18 | 22 | 3.00 |
| % change | -17 | -82 | -86 | -63 |
Ex-div: 5 Sep Payment: 3 Oct £1=$1.5872 | ||||
