KAZ team takes $900m bet on future of copper

KAZ Chairman Oleg NovachukA consortium led by KAZ Minerals chairman Oleg Novachuk and his fellow director Vladimir Kim this week agreed to take the FTSE copper mining concern private, in an all-cash deal that values the firm at around £3 billion. The news broke today, 24 hours after the prices of copper and other industrial metals fell as surging coronavirus infections raised fears that new lockdowns will stifle economic recovery. Benchmark copper on the London Metal Exchange (LME) finished Wednesday around 4% down from last week’s 28-month high of $7,034.

Neither Novachuk nor Kim will have batted an eyelid at this temporary price fluctuation because these two senior KAZ Minerals directors are taking a long-term bet on the global economy’s future reliance on copper, more specifically on the Baimskaya deposits in the Chukotka Autonomous Okrug. Situated on Russia’s Far Eastern frontier and one of the world’s most significant undeveloped copper assets, the deposit sits in an area so remote that 250km of roads need to be built just to connect the mine to an existing road, which is then 100km away from the nearest town.

Chukotka RussiaDeveloping the mine is expected to cost $7 billion and take seven years to complete, but the consortium is confident that all the money and effort will be justified by the returns it expects to recoup from the soaring demand for copper in the coming decades that it predicts will accompany the exponential growth in renewable energy (copper is frequently used in solar panels and wind turbines and many LEED certified sustainable buildings); and in electric vehicles (where it serves as a high-performance cathode in lithium-ion batteries).

But investors had begun to run out of patience and  KAZ shares never really recovered from the $900 million acquisition of Baimskaya in 2018 which saw them halve in value.

“Mr. Kim and I believe that KAZ Minerals has made notable progress as a public company since listing on the London Stock Exchange in 2005,” Novachuk said. “However, driven by the current market uncertainty and the corporate circumstances of sequential development projects, we believe that KAZ Minerals’ long-term interests would be best served as a private company.”