Kazakhmys Plc (KAZ) rose the most in three months in London as Bank of America Merrill Lynch said plans to cut operations by two-thirds may add 61 percent to company value.
Kazakhstan’s largest copper producer gained 4.3 percent, the most since Feb. 27, to 276.40 pence. The company’s restructuring may add 161 pence ($2.70) to its value, Jason Fairclough, a Bank of America analyst, said today in a note.
Kazakhmys plans to spin off its lower-margin operations into a private company run by former Chairman Vladimir Kim this year, shrinking operations by two-thirds and the workforce by 80 percent. The transaction seeks to cut copper production to as low as 80,000 metric tons from 294,000 tons last year.
“A slimmed-down new Kazakhmys will have substantially lower capital expenditure and costs,” Fairclough said.
Kazakhmys may be valued at five times the ratio of equity value-to-earnings before interest, tax, depreciation and amortization, he said. Taking into account Kazakhmys’ Ebitda estimate next year, the value would rise 161 pence a share, or 61 percent, from yesterday’s close, according to the analyst.
The company will seek to boost output again to 350,000 tons after developing the Bozshakol and Aktogay sites, each bringing in about 100,000 tons of copper a year by 2017, and adding about 80,000 tons from the newly acquired Koksay project.
Kazakhmys needs to pay Kim and the Kazakh government $400 million to $450 million to gain their support for the split, Fairclough said. Kim’s private company won’t be generating free cash flow and will need the funds to run the business, he said.
“While the restructuring does come at a cost, we think it is worth paying to the extent that it allows Kazakhmys to focus on its growth assets without the overhang of political involvement and labor cost inflation hampering restructuring at its legacy assets,” Fairclough said.
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