Copper low creates KAZ buy opportunity

Despite the lack of supply, the price has settled at the bottom of the two-year range at $5,800 per tonne. This is thanks to trade war-linked uncertainty. Wood Mackenzie copper analyst Eleni Joannides says, “people are reining in what they're doing and that is having a knock-on effect in terms of the consumption of commodities and copper." However, heavy shorting of the metal coupled with the developing supply issues means this could prove to be a buying opportunity for shares in copper miners. 

Of the London-listed miners, we think KAZ Minerals (KAZ) offers the best prospects of a rerating. Its share price is still depressed following the Baimskaya acquisition last year, which gave it 9.5m tonnes of copper and 16.5m ounces of gold in the ground for $426m in cash and 22m shares up front (with $225m deferred). This copper is as good as theoretical before a $70m feasibility study is done next year, but its current production profile is also compelling thanks to heavy recent investment. 

KAZ produced 295,000 tonnes of copper in 2018, at a net cash cost of $1,873/t, thanks to its byproduct income. The two major operations, Bozshakol and Aktogay, will contribute 105,000t-115,000t and 130,000t-140,000t in 2019, respectively, with a third operation taking guidance above 300,000t. There is still $470m of expansionary capital expenditure (capex) to go out this year ($400m at Aktogay), so cash generation won’t skyrocket on the back of a higher copper and gold price. That said, the copper market is expected to remain tight for a couple of years, which would see KAZ benefit from increasing production. 

While the trade war has been terrible for copper, it has helped drive gold up. And KAZ produces plenty of gold. Guidance for 2019 is a whopping 170,000-185,000 ounces (oz), higher than many established gold miners. If gold can stay above $1,400/oz for much longer, this will be a significant boost for KAZ’s cash flow.