Kaz Minerals' profits boosted by rising copper production

Kaz Minerals on Thursday reported a rise in annual profits thanks to increased revenues driven by higher copper production from the FTSE 250 listed company's portfolio of low-cost open-pit mines.

For the year ended 31 December, the Kazakhstan-focused miner saw profit before tax increase to £0.64bn, which represented a rise of 10.7% from the year before, after revenue jumped by 30.0% to £2.16bn on the back of a 13.9% increase in copper production to 295 kt, coming in at the upper end of its guidance range of 270-300 kt.

Kaz's revenues were also assisted by the average LME copper price in 2018, which rose 6% compared to the year before to reach $6,526/t, although the company said prices were "volatile".

At 31 December, cash and cash equivalents stood at £1.22bn, down from £1.82bn at the same point the year before, while a recommended final dividend of 6.0 US cents per ordinary share brought the total dividend up to 12.0 cents.

Andrew Southam, chief executive of Kaz, said: "Kaz Minerals increased copper production by 14% and delivered a net cash cost of just 85 USc/lb in 2018, maintaining the Group's position in the first quartile of the industry cash cost curve. We also progressed our high growth strategy, commencing work on the expansion of Aktogay and securing a new world class project through the acquisition of Baimskaya in Russia."

First production from expansions at the Aktogay mine is scheduled for 2021 and the mine's expansion is expected to add 80ktpa to production between 2022 and 2027, delivering low-risk growth for the London-listed company.

Meanwhile, for the current year, the company said its copper production is expected to be in the region of 300 kt as continued growth at Bozshakol and Aktogay offsets lower forecast output from East Region.

"Our proven asset base is generating strong cash flows, enabling the group to invest in significant growth in copper production in both the near and long term, through value-accretive greenfield and brownfield projects. Over this period, the outlook for the copper price remains positive as supply from existing mines is set to decline, whilst demand from both traditional and new markets is forecast to continue to grow," said Southam.

Analysts at Shore Capital commented that Kaz Minerals' improved revenues and profits were unsurprising given the increase in production.

"Operational cash generation of US$673m was less than we expected, and were insufficient to cover investing and financing outflows of US$826m and US$451m, respectively. The cash balance fell to US$1.22bn, while net debt was reduced only slightly, to US$2.0bn (from US$2.1bn). KAZ noted that additional financing will be required for the Aktogay expansion project, which KAZ expects to obtain in H1 2019," said a note from the broker.

Kaz Minerals' shares were down 0.44% at 675.44p at 0907 GMT.