$KAZ.L – Kazakhmys as a spinoff situation

KAZ (Kazakhmys) mines copper. It recently announced the disposal of its stake in ENRC. ENRC has been an albatross for KAZ, and they are more than happy to get rid of it.

I would argue that the disposal is very much in the nature of a spin-off. The returns on ENRC have been poor for KAZ, and its disposal will fetch $850m. It intends to buy back 77m of its own shares, which will cost about £200m at today’s prices.

Now there’s a few things going on here. Firstly, it raises cash, and eliminates a poorly performing asset. This allows the company to invest in assets that are likely to earn greater returns. Secondly, KAZ has a PBV of 0.4, so it is buying back shares at a very cheap price.

Their half-yearly report hinted at other aspects of spin-off type behaviour. “The development of our major growth projects will transform Kazakhmys, as our output will be dominated by these two modern, large, low cost, open pit mines.”. “In response to structural changes in our cost base, we are carrying out an optimisation programme in order to improve cash generation and emphasise profitable production rather than volume targets.”

Also worth noting is that directors have a very large stake in the business, so they would be expected to act in a business-oriented way.

Q3 2013 production report and IMS is due tomorrow, so we’ll see what the market makes of the company then.

The company is trading at one of its lowest level since flotation.



About mcturra2000

Computer programmer living in Scotland.
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