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Kaz Minerals offering excitement for all the wrong reasons

That was Kaz Minerals (KAZ) chairman Oleg Novachuk in 2018, after agreeing to buy the Baimskaya copper project in Russia for $900m (£655m). After that announcement, Kaz’s share price plunged from a six-year high as investors baulked at another massive capital commitment. 

The miner had just finished two major copper projects, the red metal was trading close to $7,000 a tonne and shareholders had been looking forward to owning a stable, dividend-paying stock. 

Now Novachuk and Kaz major shareholder Vladimir Kim, who owns 31.6 per cent of the company, see Baimskaya as attractive enough to borrow $3.5bn to buy the 61 per cent of Kaz they don’t already own. This is being framed as a way of saving shareholders from a long and expensive mine build. On top of the sale price, Kim and Novachuk - operating as Nova Resources - will have to find the $8bn-or-so needed to actually build Baimskaya, although cash flow from the existing mines will help cover this cost. 

The takeover move was announced in October, and this past week Nova raised its offer from 640p to 780p after investor pressure. Now shareholders face the choice of banding together and pushing for more again - in the belief that Kim and Novachuk will be able to find more cash - or taking the 780p offer. Shares quickly advanced beyond that level and made it as high as 817p in the following days, raising hopes for another offer. 

The largest single institutional shareholder RWC Capital, which has 3.4 per cent of Kaz, is leading the vote-no charge. Even after the increased offer, it has set 1,000p as a “more acceptable” price for shareholders, given this was the level Kaz traded at before the Baimskaya purchase. 

Analysts have said the 780p offer should get Nova over the line, however. Barclays suggested Kaz sell Baimskaya, effectively giving investors back the old Kaz, but Nova also needs the cashflow from the other two copper mines to fund the project, hence the full takeover. 

Viewed purely on price terms, the new offer is 9 per cent above Liberum analyst Ben Davis’ estimate of how Kaz’s share price would have performed without the takeover offer. This 717p “undisturbed” figure is an educated guess, but the strong recent performance of Antofagasta (ANTO) and non-London copper producers shows this could be on the money. One knock to Kaz’s share price was the announcement - helpful to Nova -  that Baimskaya would likely cost $1bn more than the previous estimate of $7bn. 

Investors might have a similar feeling to when Kaz bought Baimskaya in the first place: excluded from a company-changing decision that seemed at odds with previous strategies, which focused on low-cost operations, with "low risk growth", as chief executive Andrew Southam put it in early 2018. 

This would be a different situation if a third party had come in and tried to buy Kaz for Baimskaya and its well-performing mines Aktogay and Bozshakol, but the in-house nature of the takeover, where a board committee agreed on a sale price negotiated by the chairman, means shareholders are right to be on edge.

As a copper bull, I would take the current premium over the offer price and put the cash into Antofagasta.