Credit Suisse warns of FX risk and balance-sheet concerns at KAZ Minerals
Credit Suisse has said investors of KAZ Minerals should keep an eye out for currency movements and balance-sheet concerns at the Kazakhstan-focused copper producer, as it reiterated its ‘underperform’ rating for the stock.
FTSE 250
19,601.98
17:09 25/04/24
FTSE 350
4,434.34
17:09 25/04/24
FTSE All-Share
4,387.94
16:49 25/04/24
KAZ Minerals
849.00p
16:40 10/05/21
Mining
10,403.74
17:09 25/04/24
The bank downgraded its rating on KAZ from ‘neutral’ on 13 January, saying that project delays and the balance sheet were “key risk factors”.
Net debt is forecast to peak at over $3bn by 2016-2017, equating to over two times KAZ’s current market value.
In a research note on Monday, Credit Suisse said: “Any unexpected project delays and/or weaker copper prices could pressure the balance sheet. At spot copper prices we would anticipate a funding gap which would require additional facilities and/or capex deferrals.”
The shares have fallen sharply over the past week after the dramatic collapse in copper prices to their lowest in nearly six years.
“In the near term a potential depreciation in the Kazakh currency is an upside risk to be aware of,” Credit Suisse said.
The tenge is pegged against the US dollar but has been devalued several times in recent years, most recently in early 2014, the bank said.
“Back then KAZ rallied almost 20% on the day and a further 10% in the following week. The move in the rouble suggests the currency could see an even larger devaluation if the government allows it.
“With around 60% of costs in local currency there are obvious near-term benefits; however, inflation will rise and we would expect the devaluation to be accompanied by agreed labour increases (10% increase agreed in early 2014).”
The bank kept a 230p target price for the stock, which was up 0.5% at 195p by 09:40.