Kazakh miner offloads power assets to invest in copper

By bne IntelliNews December 10, 2013

bne -

Kazakhmys has agreed to sell its power assets to sovereign wealth fund Samruk-Kazyna. The cash will help the Kazakh mining giant increase investment at its new copper projects, as it returns its focus solely back onto its core business.

Kazakhmys said in a statement on December 9 that it will sell its 50% stake in Ekibastuz GRES-1 to Samruk-Energo. The subsidiary of Kazakh sovereign wealth fund Samruk-Kazyna currently holds 50% in the country's largest power plant. The pair has also agreed a deal for 100% of KazHydro.

The Kazakh miner's statement said that it will receive around $1.25bn in cash for the assets, which "will substantially strengthen the group's financial position during the development phase of the group's major copper growth projects, Bozshakol and Aktogay".

Kazakhmys bought Ekibastuz GRES-1 in 2008 for $1.28bn. It sold 50% to Samruk-Energo in 2010, for $681m. Although noting that the power generator offers significant potential due to a forthcoming review by Astana of tariffs - which end in 2015 - analysts at VTB Capital suggest that the seller has managed to secure a handsome premium.

"In our recent model, we introduced a $900m fair value for 50% in Ekibastuz GRES-1 based on amended long-term electricity prices (to a 30% EBITDA margin from the current 60-70%)," they write in a note. "The deal implies $400m of additional value."

That sum almost matches the hike in investment at the Boszhakol copper mine announced by Kazakhmys in the same press release. The project requires a second contractor (a company called Non Ferrous China), it said, which will cost an extra $350m. Total capital expenditure at Boszhakol will thus expand around 20% to $2.4bn. "This increases overall 2014-15 capex 16% to $3.3bn," VTB points out, adding that similar action could be on the way at Aktogay.

The deal is also in line with Kazakhmys' strategy to concentrate on its core copper business. "Ekibastuz GRES-1 is a key asset in Kazakhstan and we are proud of the role Kazakhmys has played since 2008 in its restoration," Chairman Simon Heale said. "We believe that this disposal realises an attractive return on the group's original investment and will allow the group to focus on the development of its large scale, long life, low-cost copper growth projects."

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