Kazakhmys Gains on Less-Than-Expected Payment to Split Mines

Kazakhmys Plc rose to the highest level in 14 months in London after paying less than analysts expected for running the copper mines and smelters passed on to its former chairman’s company.

The shares in Kazakhstan’s largest producer of the metal jumped 8.2 percent at the close in London to 344.80 pence, the highest since May 21, 2013.

The company agreed to pay about $240 million as working capital and other expenses while divesting two-thirds of its copper assets to Cuprum Holding Group, owned by former Chairman Vladimir Kim and Kazakh operations head Eduard Ogay, according to a statement today. Shareholders will vote Aug. 15 on the deal, which includes renaming the company KAZ Minerals Plc.

“Working capital payment of $240 million needed for disposal of high-cost assets,” Ben Davis, an analyst at Liberum Capital Ltd., said in an e-mailed answer to questions. “Would take as a positive with market expectation of $300 million to $400 million, and expect minority shareholders to vote through.”

Kazakhmys will pay $150 million in cash toward working capital, according to the statement. Cuprum will retain about $80 million of unspent capital expenditure and receive about $10 million, mainly as tax refunds, from the Kazakh government, Kazakhmys said.

Smaller Operations

Kazakhmys’s operations will shrink by two-thirds and the workforce by 80 percent, the London-based company said in February, when it first announced the plan. KAZ Minerals would have 10,000 employees after the split and the disposed assets 43,000, it said in a presentation today.

“Transferring these assets to a private entity allows Kazakhmys to move forward with operations more suited to the demands and financial returns of a listed company,” Chief Executive Officer Oleg Novachuk said in the statement. “This transaction will both strengthen the group’s financial position and move the company toward its strategic goal of production dominated by large-scale, low-cost, open-pit mines.”

The reorganization seeks to cut copper production to as low as 80,000 metric tons from 294,000 tons last year. The company will seek to boost output again to about 300,000 tons in 2018 after developing the Bozshakol and Aktogay sites, it said today.

“In the short term, the transaction will increase net debt in the continuing group due to the working capital payment transferred to Cuprum Holding,” Kazakhmys said in the statement. “However, in the medium to longer term, net debt in the continuing group is expected to trend at a lower level due to the ongoing cash savings resulting from the target companies no longer being part of the group.”

Kim, who owns a 33 percent stake in Kazakhmys according to the company, will retain his holding and plans to remain on the board after the transaction, the statement shows.

Before it's here, it's on the Bloomberg Terminal.