European Event-Driven Analyst

Jesus Rodriguez Aguilar

Jesús is an Insight Provider (Event-driven) on the Smartkarma network, where he looks across sectors at opportunities arising from securities mispricing (both credit and equity), share classes, bid announcements, prospective bids, and special situations. He has served as Economic and Business Advisor at the Spanish Congress in Madrid. Prior to that, he has worked in the City of London: as a Credit Analyst at Bloomberg; Event-driven associate at former boutique European Research; and doubled as Special Situations and Equity-linked VP (convertible bonds) at Merrill Lynch. Jesús has an MBA from the London Business School, a BA (Hons.) degree in Economics from the Complutense University in Madrid, and a BA (Hons.) in Law from U.N.E.D., also in Madrid.

KAZ Minerals: Sweetened Offer but Maybe Not Convincing Enough

Event-Driven

This is an interesting special situation given copper's decent outlook and investor pushback on this takeover offer.
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By making it a straight takeover, the main acceptance threshold changes to 75% of the company shareholders rather than 75% of its minority shareholders voting at an EGM.
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However, it still means the offeror will need 50% of KAZ Minerals’ minority shareholders to vote in favour of the offer, which may prove difficult given soaring gold and copper prices.
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RWC Partners, fifth largest shareholder with a 3.3% stake, said on 8 November that the offer from Nova Resources significantly undervalues KAZ Minerals and plans to vote against the buyout by Nova. CFC Management, a Russia-based investment advisor that represents Maxim Vorobyev and other minority shareholders that jointly hold approximately 3.6%, said on 12 November that its clients intend to vote against the buyout.
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At the time of the offer announcement, copper reserves &amp; resources were valued at 2.24 £/lb. vs. a current price of 2.66 £/lb, c. 19% higher.
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KAZ minerals has 82% exposure (copper) to EV metals.
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Macro backdrop is supportive and medium-term copper fundamentals are robust; but KAZ will be vulnerable if the copper price consolidates.
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On 29 October the offer itself looked fair and my recommendation was long KAZ as the deal, albeit cheeky, looked likely to succeed,
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<li>hence irrevocable undertakings for c. 10.63% of the existing issued share capital, which,</li>
<li>together with the shares owned by the Consortium represents approximately 50.02% of the share capital.</li>
<li>The latest bid timetable means shareholders will be able to see FY results when they are announced in February.</li>
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At the close of 21 January, the share price of KAZ is 19.5% higher than the offer, which makes it increasingly difficult that shareholders tender their shares.
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Median target price from 15 analysts on Capital IQ is 668p.</li>
<li>Recent upward revisions mean this TP is likely to increase.</li>
<li>KAZ Minerals trades at 2021e EV/EBITDA of 5.7x, a discount to the 7.0x of the median of peers (Antofagasta is trading at 7.8x).</li>
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Recommendation from a fundamental point of view is LONG KAZ TP 787p (50% 7x EV/Fwd EBITDA, 50% NPV), 23% upside to the indicated offer price and 4% upside to the last closing. From an arbitrage perspective, things are less clear, unless Nova sweetens its bid, I do not see the current offer succeeding.
This insight is labelled "bearish" because I think the bid by Nova was opportunistic, and the share price of KAZ is on a bull-run and well above the offer price. It seems increasingly unlikely that Nova sweetens its bid, in my view.

This is an interesting special situation given copper's decent outlook and investor pushback on this takeover offer.


By making it a straight takeover, the main acceptance threshold changes to 75% of the company shareholders rather than 75% of its minority shareholders voting at an EGM.


However, it still means the offeror will need 50% of KAZ Minerals’ minority shareholders to vote in favour of the offer, which may prove difficult given soaring gold and copper prices.



RWC Partners, fifth largest shareholder with a 3.3% stake, said on 8 November that the offer from Nova Resources significantly undervalues KAZ Minerals and plans to vote against the buyout by Nova. CFC Management, a Russia-based investment advisor that represents Maxim Vorobyev and other minority shareholders that jointly hold approximately 3.6%, said on 12 November that its clients intend to vote against the buyout.





At the time of the offer announcement, copper reserves &amp; resources were valued at 2.24 £/lb. vs. a current price of 2.66 £/lb, c. 19% higher.


KAZ minerals has 82% exposure (copper) to EV metals.


Macro backdrop is supportive and medium-term copper fundamentals are robust; but KAZ will be vulnerable if the copper price consolidates.




On 29 October the offer itself looked fair and my recommendation was long KAZ as the deal, albeit cheeky, looked likely to succeed,

hence irrevocable undertakings for c. 10.63% of the existing issued share capital, which,
together with the shares owned by the Consortium represents approximately 50.02% of the share capital.
The latest bid timetable means shareholders will be able to see FY results when they are announced in February.

At the close of 21 January, the share price of KAZ is 19.5% higher than the offer, which makes it increasingly difficult that shareholders tender their shares.


Median target price from 15 analysts on Capital IQ is 668p.
Recent upward revisions mean this TP is likely to increase.
KAZ Minerals trades at 2021e EV/EBITDA of 5.7x, a discount to the 7.0x of the median of peers (Antofagasta is trading at 7.8x).

Recommendation from a fundamental point of view is LONG KAZ TP 787p (50% 7x EV/Fwd EBITDA, 50% NPV), 23% upside to the indicated offer price and 4% upside to the last closing. From an arbitrage perspective, things are less clear, unless Nova sweetens its bid, I do not see the current offer succeeding.
This insight is labelled "bearish" because I think the bid by Nova was opportunistic, and the share price of KAZ is on a bull-run and well above the offer price. It seems increasingly unlikely that Nova sweetens its bid, in my view.