Goldman Sachs initiates Kaz Minerals at 'buy'

Goldman Sachs initiated coverage of Kaz Minerals at 'buy' with a 700p price target saying it expects output growth and deleveraging ahead.

The bank sees strong volume growth - the highest among EMEA copper peers - and said the company's low-cost positioning and a decline in capex from 2018 should drive substantial deleveraging, even with Goldman's conservative copper price forecast.

In the short term, GS reckons the copper price could rise to $6,200 a tonne on the back of substantial disruptions this year. However, in the medium to long term, it remains cautious, expecting average prices of $5,500/5,300/t for 2018/19 versus a spot price of around $5,850/t.

It expects Kaz to generate around a 10% annual free cash flow yield over 2018-2020, reducing its net debt to EBITDA to 1.9x by end-2020 from 7.6x at end-2016.

"Kaz Minerals screens more strongly than its peers on three of four key financial metrics (top-line growth, EBITDA dynamics, cost positioning and leverage), providing the highest revenue and EBITDA compound annual growth rates, and operating at the lowest cash cost.

"The company screens poorly only on leverage (it has the highest leverage among peers, although this is well known). However, we expect the company to substantially deleverage over the coming years, reflecting strong FCF generation and a decrease in capex."

Key risks to Goldman's view include a lower-than-expected copper price, lower-than-expected copper output from key projects such as Bozshakol and Aktogay and higher-than-expected capex and opex.

At 1420 BST, the shares were up 2.8% to 627.72p.