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Study to pass

17 November 2020 By Dasha Afanasieva

Copper is the new gold, except if you own shares in London-listed Kaz Minerals. An attempt by the Kazakh miner’s biggest shareholders to take it private for 3 billion pounds has been rejected as too cheap by some minority investors. Given the lack of clarity over the company’s biggest asset, they are probably right.

It’s easy to see why CFC Management, which represents trout tycoon Maxim Vorobyev, and RWC Partners, are objecting to the offer from Vladimir Kim and Chairman Oleg Novachuk, who between them own around 40% of Kaz. At 640 pence per share, it represents a 12% premium to Kaz’s undisturbed price, and values the group at just 7.9 times forward earnings, according to Refinitiv. That is in line with the 7.6 times average multiple over the previous six months, but below the peak of 8.9 times in June. Barclays analysts reckon Kaz’s shares are worth 750 pence each.

Disagreement about Kaz Minerals’ true worth lies in part on how to value a Russian mine in the Far East region of Chukotka. That asset, bought in 2018 from investors including Roman Abramovich, will require substantial investment and only come online in 2026. Concerns over the riskiness of the mine’s development caused some shareholders to dump the stock after the acquisition.

Still, those who still own it today have good reason to hold on a little longer. Kaz should soon publish a detailed feasibility study into the Baimskaya mine. It will provide updated estimates for capital expenditure needs and the quality of reserves. That may help analysts run more detailed models. It may also make it easier for Kaz to raise bank funding or third-party investment, reducing the burden for shareholders.

London-listed Kazakh miners have a chequered history. In 2013, Eurasian Natural Resources Corporation was delisted at a lowball price by its oligarch founders following a series of governance scandals. Kaz is different: it has been run well, and shareholders can easily reject the bid. With Kaz shares now trading modestly above the offer price, Novachuk and Kim may have to pay more for the deal to succeed. But the risk is that what looks like an opportunistic takeover gives investors one more reason to steer clear of companies from the region.


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