Kazakhstan floating rate decision helps Kaz Minerals shares to gain 14 per cent

Kazakhstan’s decision to introduce a floating exchange rate could help Kaz Minerals
KAZAKH copper producer Kaz Minerals cut its cost forecasts for the year, helped by a weaker tenge currency, and the prospect of more benefits sent its shares soaring yesterday.

Kaz, which is listed on the stock market in London, said the decision to introduce a floating exchange rate in Kazakhstan announced yesterday could help it to lower costs further if the currency continues to weaken.

The company, which pays its bills in the local tenge currency but makes revenues in US dollars, reduced its full-year forecasts for production costs.

“We are not able to tell you any level we should expect, it’s a free float exchange rate. [Tenge weakness] will help us because about 60 per cent of our costs are in tenge,” chief executive Oleg Novachuk said.

“We attribute this reaction to expectations that some of the cost benefits of a currency depreciation would be retained by the company,” Morgan Stanley analysts said in a note.

“However, we maintain that cost benefits of a weaker currency are typically eroded by an increase in underlying inflation.”

The lower cost forecasts are a relief as the company said its first-half earnings more than halved following a drop in copper prices and that it would not pay an interim dividend.

Earnings before interest, tax, depreciation and amortisation (Ebitda), excluding special items, fell 55 per cent to $88m ($56m) in the six months to the end of June.

The commissioning of its Bozshakol project in northern Kazakhstan, initially expected in the fourth quarter of this year, was now expected in the first quarter of 2016, following a fire there this month.

Shares closed up nearly 14 per cent to 177.40p, well off their peak of 250p at the turn of the year.