UBS gave a lift to KAZ Minerals PLC shares (LON:KAZ) on Friday, upgrading its rating for the miner to ‘buy’ from ‘neutral’ on copper price leverage, and thinks risks from last year’s Baimskaya acquisition are discounted in the share price.
The Swiss bank raised its target price for the FTSE 250-listed firm to 900p from 700p, with the shares at 740p in late afternoon trade, up 2.9% on Thursday’s close.
In a note to clients, UBS’s analysts said they believe KAZ offers an attractive mix of leverage to copper price upside and clear stock-specific catalysts over the next 12-18 months that have the potential to drive material medium-term share price upside, with or without copper price upside.
They pointed out that the US$900mln purchase of the Baimskaya copper project in Russia in the third quarter of 2018 transformed the investment case for KAZ from a balance of growth and debt reduction/cash returns, to a high-risk long-term growth story.
The analysts noted that until the feasibility study is released in the first half of 2020 the economics of Baimskaya will remain uncertain and KAZ is unlikely to be able to address key concerns around infrastructure.
But, they added that in their view, this is discounted in the share price – noting that KAZ has underperformed blue-chip peer Antofagasta PLC (LON:ANTO) by around 20% since the Baimskaya purchase - and the risk of operational disappointment at existing mines in 2019/2020 is low.
The analysts concluded: “While some shareholders may not have approved of this strategy, we think most of these are likely to have now exited.”
KAZ shares were also helped on Friday by a target price upgrade from Barclays, one of a number of changes to targets in a big review of the European Metals & Mining sector.
Barclays raised its target for KAZ to 750p from 695p and reiterated an ‘overweight’ stance on the stock.
The UK bank’s analyst said: “An environment of Fed pausing, China credit cycle turning, commodity-intensive stimulus underway and potential positive progress on trade is a ‘Goldilocks’ backdrop for the sector, in our view.”
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