Kaz Minerals Plc – Operating with Strong Cash Flow Generation

Kaz Minerals Plc (LON: KAZ) is a FTSE 250 listed Copper Company, which is focused in open pit mining in the Commonwealth of Independent States (CIS) region.

On 29 October 2020, the Company will release the Q3 FY2020 production report.

Financial Highlights (H1 FY2020)


(Source: Company Website)

On 18 August 2020, the Company provided a half-yearly report for the period ended 30 June 2020, with no material disruption to output or sales from Covid-19 in the year to date. Led by 11% lower average LME (London Metal Exchange) copper price, the revenues decreased by 6% year-on-year to US$991 million in H1 FY20 (H1 FY19: US$1,052 million). Meanwhile, it has shown an increase in copper sales volumes of 2% year-on-year and 16% higher gold revenues. Copper sales and gold sales were lower than production volumes due to the timing of shipments. In the first half of 2020, the EBITDA decreased to US$559 million as compared with the corresponding period of the last year, with an EBITDA margin of 56% (H1 FY19: 59%). The Company had reported a reduced operating profit of US$357 million (H1 FY19: US$410 million) and profit before tax of US$249 million (H1 FY19: US$289 million), driven by the lower copper price in the period. It witnessed a strong cash generation, with a US$310 million of net cash flows from operating activities. First quartile net cash cost stood at 68 USc per lb (H1 FY19: 80 USc per lb), supported by strong gold by-product credits, surged copper sales volumes and weaker tenge exchange rate in the period.

Share Price Performance

 
1-Year Chart as of 18 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Kaz Minerals Plc’s shares were closed at GBX 573.20 on 18 August 2020, down by 1.14% against the last day closing price. Stock 52 week High and Low were GBX 599.80 and GBX 256.20, respectively.

From the technical standpoint, shares were trading slightly above the short-term support level of 50-day simple moving average price, which reflects an uptrend in the stock and carrying the potential to move up further.

Key Risks

During the first half of 2020, the emergence of the Covid-19 pandemic has significantly impacted global markets and presented major challenges for the mining industry.It operates in multiple geographies, and the profits can be impacted negatively due to foreign exchange rate fluctuations.Furthermore, the financial performance is highly dependent on the Gold and Copper price, and the Gold and Copper market is cyclical and sensitive to the economic changes and numerous factors, which are beyond the KAZ’s control.

Valuation Methodology



Conclusion

The Company has responded comprehensively to the challenges posed by Covid-19. While the production guidance is maintained after a strong first-half performance with copper and gold tracking towards the top end of ranges. It has maintained a low-cost position with a net cash cost of 68 USc/lb, amongst the lowest in the industry. Long term outlook for copper remains positive due to lack of new supply to replace declining output. However, Covid-19 delays may exacerbate future supply deficit. The consistent operational performance provides a strong platform to deliver the industry-leading growth pipeline at Aktogay and Baimskaya.

Over the past four years (FY15 - FY19), the Company’s net income surged from US$665.00 million in FY15 to US$2,266.00 million in FY19. Compounded annual growth rate (CAGR) stood at 35.87%.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on Kaz Minerals at the closing market price of GBX 573.20 (as on 18 August 2020) and will recommend fresh buying at the right time.

Nostrum Oil & Gas Plc - Decrease in Profit Due to Challenging Global Macroeconomic Conditions

Nostrum Oil & Gas PLC (NOG) is an independent oil and gas Group. The Company is involved in the development, exploration, and production of independent gas and oil in the pre-Caspian Basin.

On 30 October 2020, the Company will announce the Q3 FY2020 operational update.

Financial Highlights (H1 FY2020)


(Source: Company Website)

On 18 August 2020, the Company provided a financial result in respect to the six-month period ending 30 June 2020. The revenue for the first half of 2020 decreased by 46.8% year-on-year to US$92.6 million (H1 FY19: US$174.2). The average production after treatment for H1 FY20 stood at 23,528 boepd, with average sales volumes of 22,624 boepd. Drilling activities suspended for 2020. For the first half of 2020, the EBITDA reduced by 64.9% year-on-year to US$38.7 million (H1 FY19: US$110.2 million), with an EBITDA margin of 41.8%. According to the balance sheet, the Company has closing cash for the period of US$75.7 million and total debt at 30 June 2020 of US$1,139.7 million.

Share Price Performance
 
1-Year Chart as of 18 August 2020, after the market close (Source: Refinitiv, Thomson Reuters)

Nostrum Oil & Gas Plc’s shares were closed at GBX 10.82 on 18 August 2020, down by 7.68% against the last day closing price. Stock 52 week High and Low were GBX 37.89 and GBX 3.00, respectively.

From the technical standpoint, the shares were trading slightly below the support level of 50-day simple moving average prices, which reflects a downward trend in the stock.

Key Risks

During the first half of 2020, the COVID-19 pandemic has brought considerable change to the risk landscape. Led by abundant supply and low gas prices, the US gas market continues to operate in a difficult environment. The Company operates in multiple geographies, and profits can be impacted negatively due to foreign exchange rate fluctuations.

Conclusion
The successful well intervention & workover programme hasreduced the expected rate of decline of productions above expectations.The Company remain exposed to low prices for the products. While the price of oil and related products has improved in the last few months. However, the price received for dry gas may stay at a relatively low level for the rest of the year and possibly beyond. Also, NOG’s business is exposed to economic and market fluctuations, which may adversely affect the Company’s business and financial performance. However, it has taken actions to mitigate any impact of COVID-19 on operations.

Based on the above rationale, we have given a “Watch” stance on Nostrum Oil & Gas at the closing market price of GBX 10.82 (as on 18 August 2020), while we look for upcoming catalysts in the near term.
 
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
*Dividend Yield may vary as per the stock price movement.

Disclaimer

PLEASE BE ADVISED THAT YOUR CONTINUED USE OF THIS SITE OR THE INFORMATION PROVIDED HEREIN SHALL INDICATE YOUR CONSENT AND AGREEMENT TO THESE TERMS.
References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.
This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332.
The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine is not responsible for material posted on this website and does not guarantee the content, accuracy, or use of the content in this site. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated.
Kalkine do not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional licensed financial planner and adviser.