Analysis: Kazakhmys rises in price

/IRBIS, Nov 01, 01/ - Today when less than a month is left until the sale at open market state block of shares of largest in Kazakhstan producer of copper, a question of the market value of Corporation Kazakhmys OJSC does matter. It is interested because of the government first time for the whole history of Kazakhstan stock exchange decided to offer on exchange for free sale to domestic investors large state block of shares of one of the most interesting companies of real sector of economy. The matter is that real market price of Corporation Kazkahmys doesn't exist for today. Anyway, it isn't known to large range of domestic investors. They, among which there are pension accumulated funds, need directions. Corporation Kazakhmys OJSC is not only copper of Kazakhstan. Among comparable on enterprises volume of production it is one of the first that consolidated in its structure a full domestic cycle from exploitation of necessary fossils and energy bearers to final products in the form of metal of high quality. For nine months of current year company increased volume of refined copper to 309.2 th. tons from 291.5 th. tons for similar period of last year. For the same period 484,956 kg of silver (corresponding value of 2000 - 415,150 kg), 4,254 kg of gold (2,787 kg), 53.0 th. of zinс concentrate (68.9 th tons) were produced. Copper volume reached 29.4m tons (27.6m), coal volume - 5.0m tons (4.7m). The company produces electrical and thermal energy. Total volume of production in prices of world market accounted for 9 months 85.3bn tenge (82.3bn tenge). Results of activity of Corporation Kazakhmys in year 2001 (on year results net income increased to 32.5bn tenge from 4.6bn tenge in 1999) allowed the company to put into development of production 26.3bn tenge and 2.0bn tenge - into formation of reserve capital. At the same time 4.3bn tenge (about $30m) were put into fund of dividends. According to 2001 year results value of dividends is determined at 871.0 tenge per each privileged and common stock at their face value 600 tenge. As an official date of beginning of dividends payment was accepted January 1,2002. Not less interesting were dividends at results of year 1999: 871 tenge per stock plus 580 tenge per stock as a result of its face value increase due to profit (before face value was 20 tenge). Rising parameters of production and dividend component converted common (KZMS) and privileged (KZMSp) shares of Corporation Kazakhmys OJSC into attractive and deficit good at stock exchange of republic during last 2 years. Most actively these shares were traded in 1999, especially in first quarter (table where data on exchange and over-the-counter market on quarterly business are given). In this period brokers actively bought out securities from public and as it's seen in the table - at minimum price. It's interesting that this period is characterized by lowest prices for copper at world markets in 1998-2001. While profitability of company increases mainly due to rise of world prices for copper and also in the result of more effective management, price of stocks has decreased and volume of deals declined. Less number of shareholders wanted to get rid of securities that guaranteed high dividends. Only at the beginning of the forth quarter of year 2000 after general meeting of shareholders on results of 1999 (the meeting was held on July 10, 2000), at which it was decided about payment of first big dividends, some shareholders of common stocks sold them at maximum prices for the last 2 years. Value of dividends justified their high bid price, and start of declining of copper price at world markets determined arising of this assumption. As a consequence, stocks had almost disappeared from the market. It's worth to note that most of deals didn't reflect real market value of stocks because of insignificant volume of deals or because of that most deals at KASE were direct, that means made without trade at negotiation between brokers (participants at exchange are able to make such deals). Low representativeness of prices are reflected in following fact. Till October 17 including market-maker of shares of Corporation Kazakhmys OJSC at KASE - RG Securities LLP held ask prices at the level $12.00 (KZMS) and $5.00 (KZMSp) per share. In the next days the market-maker started to rise prices regularly and on November 01 they reached $22.00 and $15.00 respectively. However, despite significant increase of prices, ask was absent yet. His fact shows that shares of the largest producer of copper in Kazakhstan were underestimated at organized exchange of republic. Last news from trade floor of KASE - deals on KZMS and KZMSp on November 01 of current year, at which prices were fixed at level $40.00 and $30.00 respectively. But again deals were direct and their total value didn't exceed 100 shares at each type of securities. Underestimation of Corporaton Kazakhmys OJSC in domestic market of country is proved by settlements of balance value of shares. According to existing at KASE financial reporting of issuer on July 01 of current year it accounts 16,495.4 tenge or at exchange rate - $112.13. Based on data of audited KPMG Janat financial statements on January 01, 2001 balance value of shares accounted $79.17. Balance value - disputable base since this parameter depends on method of company's assets estimation, and these methods might be different. Situation with the estimation of Corporation Kazakhmys is made a little bit worse by the behavior of world prices for copper, which during last year steadily decline and now are at the level of their historical minimum. Only in 2001 price of copper at London metal exchange (LME) decreased by 20%. It's not excluded that exactly this fact was a reason for sale of 15% block of Corporation Kazakhmys OJSC shares by SAMSUNG. However, there are maybe other reasons. Value of this deal and new owner also are not declared officially yet. Different sources show different prices, but all they are above balance value. The deal is interesting because it is made at histirically minimum prices. And historical minimums are good because of their price has a feature to push out and go up. Therefore, lower limit of market value of Corporation Kazakhmys appears pretty well. Upper limit, as at any trade, will be dictated by the interest of investors. Even surface survey of professional participants of the market says that there is no union in its estimation. Some believe that all offered by the Ministry of finance 15% finally will be in one hand - that already has a block bought out from SAMSUNG. That means there will be forming of blocking block and interests of investor in this case will be high, no matter what the price is. Another critical opinion is absence of demand, especially from side of pension funds since the policy of the company concerning dividends on common shares in nearest future may change, profit because of low copper prices will fall and new shareholders will not be able to influence on management of the company because of share of charter capital that will belong to them. Now doubts of investors may be solved by issuer himself holding series of presale presentations, introducing interested investors with fresh news of activity of the company and forecasts, and also answering many questions of professional participants of the market. It's accepted over the world. But Corporation Kazakhmys OJSC still keeps a silence. Weighted average prices and deal volumes of Corporation Kazakhmys shares at kazakhstan stock exchange and price of copper at LME -------------------------------------------------------- Common stocks Privileged Common stocks stocks Av. copper price -------------- -------------- ---------------- Quar Price, Volume, Price, Volume, LME (cash), Year ter USD th. USD USD th. USD USD for ton ---- ---- ------ ------- ------ ------- ---------------- 1998 II 26.413 148.0 - 0 1,729.0 III 25.856 62.1 - 0 1,640.6 IV - 0 2.670 69.5 1,545.3 ---- ---- ------ ------- ------ ------- ---------------- 1999 I 7.392 72.4 3.070 225.8 1,405.9 II 9.917 891.2 5.383 117.2 1,465.9 III 8.831 86.5 5.111 48.5 1,680.6 IV 18.566 275.3 8.917 249.3 1,737.4 ---- ---- ------ ------- ------ ------- ---------------- 2000 I 17.971 57.9 7.341 89.7 1,790.8 II 17.829 35.4 10.000 0.1 1,743.9 III - 0 - 0 1,873.9 IV 20.674 157.2 3.500 84.0 1,847.7 ---- ---- ------ ------- ------ ------- ---------------- 2001 I 11.980 29.7 4.700 28.9 1,765.1 II - 0 4.710 14.5 1,654.1 III - 0 - 0 1,475.1 IV 40.000 4.0 30.000 3.0 1,377.4 --------------------------------------------------------