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Kazakhmys polishes its strategy

RESULTS: Kazakhmys continues to cut costs and slim down its operations by selling off mature assets

Kazakhstani copper miner Kazakhmys (KAZ) is making major progress in its attempts to transform itself into a lean, fast-growing, cash-generative company. In April it sold off the last of its non-core assets, Ekibastuz, for $1.25bn (£0.7m). And in August it released the final details of its key restructuring plan, which will see Kazakhmys dispose of old mines that "do not currently generate sufficient free cash flow" but require huge capital expenditure and employ tens of thousands of labourers.

IC TIP: Buy at 305p

Kazakhmys's major shareholder Vladimir Kim and another executive director will take ownership of the assets. Their operations will receive $240m from Kazakhmys to cover working capital commitments. But it leaves Kazakhmys in a much stronger position, only running large-scale, low-cost, open-pit mines that generated $389m in cash profits last year (before special items and $94m in mineral extraction taxes). It will also have three major growth projects, two of which should start production in the second half of next year.

In the meantime, Kazakhmys has been focusing on improving margins. It could do little about a falling copper price, but net cash costs of production reduced by 13 per cent in the first six months of this year. That was helped by a 17 per cent fall in the value of the tenge, Kazakhstan's local currency, as most costs are incurred in the country. Net cash flow from operations rose to $200m, $73m greater than in the first half of last year.

True, net debt is set to increase in the short term because of the restructuring payments and mine building. But the hard work has already been done to clean up the balance sheet, which had just $192m in net debt at 30 June, down from $771m at the year-end.

Broker JP Morgan Cazenove forecasts adjusted EPS of 18¢ this year, falling to 14¢ in 2015, after the divestments.


TOUCH:304-305p12-MONTH HIGH:355pLOW: 170p

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