Extra: Kaz Production Continues Soaring Toward Full Year Target

KAZ Minerals Begins Testing And Commissioning At Aktogay

LONDON (Alliance News) – Kazakhstan-focused KAZ Minerals PLC on Thursday reported a large lift in copper cathode production after the Bozshakol mine was declared a commercial operation and Aktogay benefited from warmer weather, which could help the miner beat its full year guidance this year.

KAZ shares were trading 5.3% higher on Thursday afternoon at 298.0 pence per share, one of the best performers on the FTSE 250, with shares trading almost three times higher than at the start of 2016.

KAZ maintained its production target for 2016 but narrowed its guidance range to 135,000 to 145,000 tonnes of copper cathode equivalent from the original range of 130,000 to 155,000 tonnes.

The miner has already produced more in the first nine months of this year than it did in the whole of 2015, guaranteeing a year-on-year rise in production in 2016 from the 81,100 tonnes produced last year.

In the first three quarters of this year, KAZ has produced 97,100 tonnes, tracking 22% higher than the 58,400 tonnes produced in the same period in 2015.

If delivered, production in 2016 will be between 66% to 79% higher than 2015 – and KAZ currently looks more than capable of even beating its full year target range following a very successful third quarter.

The lift in production between the second and third quarters of 2016 was significant, rising 43% to 44,500 tonnes from 31,100 tonnes. Compared to a year earlier, third quarter production more than doubled.

That was primarily thanks to the miner’s two major growth development projects in Kazakhstan. The largest new addition to the portfolio, Bozshakol, was declared a commercial operation by KAZ on Thursday as production more than doubled to 16,900 tonnes in the third quarter from the 7,500 tonnes produced in the second.

The concentrator at Bozshakol has managed to maintain ore throughput levels above 60% for a three-month period, allowing KAZ to formally mark the asset as a commercial one within its portfolio.

Aktogay, the second major growth project, also delivered better results in the third quarter after oxide production benefited from seasonally warmer conditions, upping copper cathode output by 69% to 6,600 tonnes from the 3,900 tonnes produced in the second quarter.

“KAZ Minerals continues to deliver sector-leading production growth, with our copper output growing by 66% in the first nine months of this year. Given the progress made in ramping up Bozshakol, our first major growth project, we have declared it a commercially producing asset from today,” said Chief Executive Oleg Novachuk.

“We are also making good progress on the construction of the Aktogay sulphide project, which will deliver the next phase of our production growth in 2017,” he added.

Turning to the more established operations, the East Region and Bozymchak delivered copper cathode equivalent production of 21,000 tonnes in the third quarter, 7.0% higher than the second quarter, supported by a release of work in progress from the Balkhash smelter.

In order to hit its guidance for the full year, KAZ would only need to produce 37,900 tonnes of copper cathode equivalent to hit the bottom end of the target range or 47,900 tonnes to hit the very top, implying KAZ is more than capable of beating its guidance based on the strong rise in the third quarter that suggests a further rise in copper production should be delivered in the final three months of 2016.

To hit the top end of the guidance range, production would need to be 7.6% higher in the fourth quarter than it was in the third.

KAZ does not only produce copper. The miner, like many, produces by-products from its operations of gold, zinc and silver, minerals commonly found where copper discoveries are made, and vice-versa.

The miner said third quarter production of zinc in concentrate declined to 16,600 tonnes from 19,700 tonnes, with production in the first nine months of 2016 also falling to 56,200 tonnes from 73,300 tonnes a year ago.

The East Region remains on track to achieve the full year guidance range for zinc in concentrate output of 70,000 to 75,000 tonnes. Again, KAZ could comfortably hit or possibly beat that target as it would only have to produce 13,800 tonnes in the final quarter to hit the bottom end or 18,800 tonnes to hit the top.

Quarterly production of gold bar equivalent amounted to 40,900 ounces, soaring from 26,100 ounces in the previous quarter. Production in the first three quarters has almost trebled to 80,000 ounces from only 28,200 ounces last year.

“By-product output in the first nine months of the year has been strong with all by-products on track to achieve their guidance. Gold output has benefited from the consistent operation of Bozymchak at 100% of its design capacity and a high short-term gold grade at Bozshakol,” said KAZ.

A total of 806,000 ounces of silver bar equivalent was produced in the third quarter, up from 679,000 ounces in the second. Nine-month production, unlike gold, has still dropped to 2.2 million ounces from 2.5 million ounces.

“Silver bar production is now expected to exceed the top end of the 2016 guidance range due to a lower than expected reduction in silver grades in the East Region mines,” said KAZ.

Turning to sales, KAZ has seen rises in line with movements in production, with copper and gold sales increasing in the first nine months of the year whilst sales of zinc and silver have fallen.

A total of 95,300 tonnes of copper cathode equivalent has been sold compared to 57,900 tonnes last year whilst gold sales have risen to 80,000 ounces from 28,100 ounces. Zinc sales fell to 56,300 tonnes from 74,900 tonnes and silver sales declined to 2.3 million ounces from 2.4 million ounces.

Gold and silver prices in the first nine months of this year have been slightly higher than a year earlier. Th average gold price achieved was USD1,271 per ounce compared to USD1,205 per ounce last year whilst the average silver price edged upwards to USD17 per ounce from USSD16.

Zinc prices however, dipped slightly to USD1,131 per tonne from USD1,162 whilst copper cathode prices experienced the largest drop, to USD4,743 per tonne from USD5,707 per tonne.

KAZ does not operate a hedging programme, making it fully exposed to movements in commodity prices, both up and down.

Net debt at the end of September had risen to USD2.59 billion from USD2.53 billion at the end of June. Although gross debt declined to USD3.50 billion from USD3.62 billion, cash dwindled at a faster rate to USD872.0 million from USD1.05 billion.

Of the current cash balance, USD249.0 million has been earmarked for further development of the Aktogay growth project.

By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance

Copyright 2016 Alliance News Limited. All Rights Reserved.