European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 26 March, the last day to revise the previous bid under UK takeover rules, <a href="https://www.kazminerals.com/en/repository/news-container/news/2021/final-increased-cash-offer/" target="_blank" rel="noopener">Nova Resources increased its offer</a> from 780p to 850p for the 60.62% of <a href="https://www.smartkarma.com/entities/kaz-minerals-plc" target="_blank" data-smartkarma-citation="entities:21999:1" rel="noopener">KAZ Minerals (KAZ LN)</a> it does not already own, the offer includes a special dividend of $0.27 subject to the final increased offer becoming unconditional.
<ul>
<li>The Final Increased Offer represents an aggregate amount of 869p, according to the release.</li>
<li>The financial terms are final and will not be increased.</li>
<li>That is the second increase to its original offer, and it represents a 33% vs. the first offer.</li>
<li>The improved offer values the equity of KAZ at £4,012 mn (not including the special dividend), and 4.8x EV/21e EBITDA (vs. 5.6x for the initial offer, the Capital IQ consensus 2021e EBITDA has since been revised upwards by c. 26%). It is also a 4.5% discount to the median Ind. NAVPS (Capital IQ consensus).</li>
</ul>
In my 5 February Insight (<a href="https://www.smartkarma.com/insights/kaz-minerals-sweetened-offer-but-maybe-not-convincing-enough" target="_blank" data-smartkarma-citation="insights:47800" rel="noopener">KAZ Minerals: Sweetened Offer but Maybe Not Convincing Enough</a>) I had mentioned that the 4 February sweetened offer was not final and that an improved offer could come and would take into account the lower end of what investors estimate Baimskaya is worth, an equity value of 846p.
Chinese demand is contributing to the copper price increases. The spot price of copper reached a 5-year high on 25 February 2021 of $9,456/t.
Deadline to accept the offer is 13.00 (London time) on 9 April, two weeks from now, which translates the pressure to either accept the improved and final offer (a good return from the first offer) or let it lapse and trust Chinese demand will keep on pushing copper prices.
In the absence of any material change, I believe this is it (and a good run from the initial offer). Kim and Novachuk will have the company for themselves (with its commodity and political risks) and shareholders have (fairly) grabbed a 33% increase (part of the future FCF from Baimskaya). Recommendation is Long KAZ TP 869 and tender. Gross spread is 0.57%, or c. 2.3% annualized.

On 26 March, the last day to revise the previous bid under UK takeover rules, Nova Resources increased its offer from 780p to 850p for the 60.62% of KAZ Minerals (KAZ LN) it does not already own, the offer includes a special dividend of $0.27 subject to the final increased offer becoming unconditional.

The Final Increased Offer represents an aggregate amount of 869p, according to the release.
The financial terms are final and will not be increased.
That is the second increase to its original offer, and it represents a 33% vs. the first offer.
The improved offer values the equity of KAZ at £4,012 mn (not including the special dividend), and 4.8x EV/21e EBITDA (vs. 5.6x for the initial offer, the Capital IQ consensus 2021e EBITDA has since been revised upwards by c. 26%). It is also a 4.5% discount to the median Ind. NAVPS (Capital IQ consensus).

In my 5 February Insight (KAZ Minerals: Sweetened Offer but Maybe Not Convincing Enough) I had mentioned that the 4 February sweetened offer was not final and that an improved offer could come and would take into account the lower end of what investors estimate Baimskaya is worth, an equity value of 846p.
Chinese demand is contributing to the copper price increases. The spot price of copper reached a 5-year high on 25 February 2021 of $9,456/t.
Deadline to accept the offer is 13.00 (London time) on 9 April, two weeks from now, which translates the pressure to either accept the improved and final offer (a good return from the first offer) or let it lapse and trust Chinese demand will keep on pushing copper prices.
In the absence of any material change, I believe this is it (and a good run from the initial offer). Kim and Novachuk will have the company for themselves (with its commodity and political risks) and shareholders have (fairly) grabbed a 33% increase (part of the future FCF from Baimskaya). Recommendation is Long KAZ TP 869 and tender. Gross spread is 0.57%, or c. 2.3% annualized.

On 4 February, Nova Resources caught up with KAZ Minerals' share price bull run and <a href="https://www.kazminerals.com/media/21872/increased-offer-announcement-4-feb-2020.pdf" target="_blank" rel="noopener">sweetened its offer to 780p</a>, just shy of my previous TP of 787p (see my insight <a href="https://www.smartkarma.com/insights/kaz-minerals" target="_blank" data-smartkarma-citation="insights:47013" rel="noopener">KAZ Minerals</a>), in an effort to woo minority shareholders.
<ul>
<li>The increased offer price represents a premium of c. 22% vs. the 640p per share offer (from 28 October) and values the equity of KAZ at £3,685 mn, 6.4x EV/21e EBITDA.</li>
</ul>
Nova and KAZ Minerals aim to complete the deal in H1 2021. If successful, the miner will be delisted in both London and Almaty.
Relevant points:
<ul>
<li>As per the release, the offer is not final, and therefore Nova could raise the offer again.</li>
<li>Over 50% gives chairman Oleg Novachuk and director Vladimir Kim (only shareholders of Nova) a stronger majority compared to which they now have, but to delist KAZ, they need 75% acceptances, whilst to squeeze out minority shareholders and fly solo they need over 90% acceptances.</li>
</ul>
Improving market sentiment, vaccines, industry return to normal and prospects for copper have outrun the initial offer, which in hindsight looks a bit opportunistic. However, this improved offer lays the ground for a "final offer".
<ul>
<li>The shares closed at 799p on 4 February vs the increased 780p offer.</li>
<li>Most shareholders will choose to keep their shares, and they will stand in the way of Nova's plan to delist unless there is another increase in the offer price, in my view.</li>
<li>The tussle is being very civilized so far, there has not been a huge rebellion, but minority shareholders are airing (and arguing) their views.</li>
<li>An improved offer could be made by raising the prospects for Baimskaya.</li>
<li>This offer could come at the lower end of what some investors estimate for Baimskaya, i.e. 846p per KAZ's share, an 8% increase vs. the improved offer and 32% above the original offer, which does not look unreasonable.</li>
</ul>
Recommendation is LONG KAZ LN.
<div>

The shares closed at 799p, 3.3% higher vs. the previous close and 2.4% above the improved offer (with c. £57 mn traded).
</div>

On 4 February, Nova Resources caught up with KAZ Minerals' share price bull run and sweetened its offer to 780p, just shy of my previous TP of 787p (see my insight KAZ Minerals), in an effort to woo minority shareholders.

The increased offer price represents a premium of c. 22% vs. the 640p per share offer (from 28 October) and values the equity of KAZ at £3,685 mn, 6.4x EV/21e EBITDA.

Nova and KAZ Minerals aim to complete the deal in H1 2021. If successful, the miner will be delisted in both London and Almaty.
Relevant points:

As per the release, the offer is not final, and therefore Nova could raise the offer again.
Over 50% gives chairman Oleg Novachuk and director Vladimir Kim (only shareholders of Nova) a stronger majority compared to which they now have, but to delist KAZ, they need 75% acceptances, whilst to squeeze out minority shareholders and fly solo they need over 90% acceptances.

Improving market sentiment, vaccines, industry return to normal and prospects for copper have outrun the initial offer, which in hindsight looks a bit opportunistic. However, this improved offer lays the ground for a "final offer".

The shares closed at 799p on 4 February vs the increased 780p offer.
Most shareholders will choose to keep their shares, and they will stand in the way of Nova's plan to delist unless there is another increase in the offer price, in my view.
The tussle is being very civilized so far, there has not been a huge rebellion, but minority shareholders are airing (and arguing) their views.
An improved offer could be made by raising the prospects for Baimskaya.
This offer could come at the lower end of what some investors estimate for Baimskaya, i.e. 846p per KAZ's share, an 8% increase vs. the improved offer and 32% above the original offer, which does not look unreasonable.

Recommendation is LONG KAZ LN.


The shares closed at 799p, 3.3% higher vs. the previous close and 2.4% above the improved offer (with c. £57 mn traded).


KAZ Minerals: Sweetened Offer but Maybe Not Convincing Enough

This is an interesting special situation given copper's decent outlook and investor pushback on this takeover offer.
<ul>
<li>
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.
</li>
<li>
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.
<ul>
<li>
<div data-bind="text: settings.caption">
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.
</div>
</li>
</ul>
</li>
<li>
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.
<ul>
<li>
KAZ minerals has 82% exposure (copper) to EV metals.
</li>
<li>
Macro backdrop is supportive and medium-term copper fundamentals are robust; but KAZ will be vulnerable if the copper price consolidates.
</li>
</ul>
</li>
</ul>
On 29 October the offer itself looked fair and my recommendation was long KAZ as the deal, albeit cheeky, looked likely to succeed,
<ul>
<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>
</ul>
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.
<ul>
<li>
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>
</ul>
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.

Nova Resources BV has agreed to acquire the remaining 60.62% interest in Kazakh copper miner <a href="https://www.smartkarma.com/entities/kaz-minerals-plc" target="_blank" data-smartkarma-citation="entities:21999:1" rel="noopener">Kaz Minerals (KAZ LN)</a> it does not already own.
<ul>
<li>Nova will pay 640p per share in cash</li>
<li>The deal that values the Kazakh copper producer at about £3.0 bn.</li>
<li>Nova is controlled by KAZ Chairman Oleg Novachuk and KAZ Director (and former Chairman) Vladimir Kim.</li>
</ul>
Upon the news release, KAZ shares went up by 9.5%.
<div>
<div>
Adding the stakes owned the main shareholders plus the pledges received gives 45.51%. This and the operational and political risks involved makes it difficult that any interloper would dare to come out with an improved bid.
</div>
</div>
The bid represents 3x implied EV/Forward revenue (vs. 2.0x mean for comparable miners), 5.4x EV/Forward EBITDA (vs. 4.5x for comparable miners) and 7.2x P/Forward EPS. Antofagasta trades at 3.2x EV/Forward revenue and 6.2x EV/Forward EBITDA.
The deal value/consensus NAV is 100.4%. On this basis, the price offered looks fair.
This deal has all the chances to complete. The current price of 626p offers a 2.2% gross spread (c.9% annualised), which seems an interesting entry level, in my view.

Nova Resources BV has agreed to acquire the remaining 60.62% interest in Kazakh copper miner Kaz Minerals (KAZ LN) it does not already own.

Nova will pay 640p per share in cash
The deal that values the Kazakh copper producer at about £3.0 bn.
Nova is controlled by KAZ Chairman Oleg Novachuk and KAZ Director (and former Chairman) Vladimir Kim.

Upon the news release, KAZ shares went up by 9.5%.


Adding the stakes owned the main shareholders plus the pledges received gives 45.51%. This and the operational and political risks involved makes it difficult that any interloper would dare to come out with an improved bid.


The bid represents 3x implied EV/Forward revenue (vs. 2.0x mean for comparable miners), 5.4x EV/Forward EBITDA (vs. 4.5x for comparable miners) and 7.2x P/Forward EPS. Antofagasta trades at 3.2x EV/Forward revenue and 6.2x EV/Forward EBITDA.
The deal value/consensus NAV is 100.4%. On this basis, the price offered looks fair.
This deal has all the chances to complete. The current price of 626p offers a 2.2% gross spread (c.9% annualised), which seems an interesting entry level, in my view. 

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<a href="https://www.smartkarma.com/entities/6358" target="_blank" data-smartkarma-citation="entities:6358:1">Zijin Mining Group Co Ltd H (2899 HK)</a>/<a href="https://www.smartkarma.com/entities/24628" target="_blank" data-smartkarma-citation="entities:24628:1">Zijin Mining Group (601899 CH)</a>  <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0906/LTN20180906025.pdf" target="_blank">announced</a> a friendly, all-cash bid for <a href="https://www.smartkarma.com/entities/25784" target="_blank" data-smartkarma-citation="entities:25784:1">Nevsun Resources (NSU CN)</a> at C$6/share, a 26% premium to the unsolicited &amp; hostile bid from <a href="https://www.smartkarma.com/entities/25356" target="_blank" data-smartkarma-citation="entities:25356:1">Lundin Mining (LUN CN)</a> of C$4.75/share, and a 57% premium to the undisturbed price prior to Lundin’s <a href="https://www.nevsun.com/news/2018/may8/" target="_blank">first announcement</a> in April.  
The deal implies an equity value of C$1.86bn for Nevsun. The transaction requires a minimum of 66⅔% of Nevsun’s 302.6mn outstanding shares being tendered, including those held directly or indirectly by Zijin and its affiliates. Zijin currently owns 3.2mn shares or 1.1% of shares out.
Regulatory approvals required include: Canada's Investment Canada Act and the Competition Act, and China's National Development and Reform Commission, the Ministry of Commerce, and the State Administration of Foreign Exchange. Nevsun's CEO Peter Kukielski does not foresee any specific bottlenecks in securing these approvals. This offer appears priced to complete.

Zijin Mining Group Co Ltd H (2899 HK)/Zijin Mining Group (601899 CH)  announced a friendly, all-cash bid for Nevsun Resources (NSU CN) at C$6/share, a 26% premium to the unsolicited &amp; hostile bid from Lundin Mining (LUN CN) of C$4.75/share, and a 57% premium to the undisturbed price prior to Lundin’s first announcement in April.  
The deal implies an equity value of C$1.86bn for Nevsun. The transaction requires a minimum of 66⅔% of Nevsun’s 302.6mn outstanding shares being tendered, including those held directly or indirectly by Zijin and its affiliates. Zijin currently owns 3.2mn shares or 1.1% of shares out.
Regulatory approvals required include: Canada's Investment Canada Act and the Competition Act, and China's National Development and Reform Commission, the Ministry of Commerce, and the State Administration of Foreign Exchange. Nevsun's CEO Peter Kukielski does not foresee any specific bottlenecks in securing these approvals. This offer appears priced to complete.

United Kingdom

KAZ Minerals is a copper-focused company operating large-scale, low-cost open-pit and underground mines primarily in Kazakhstan and Kyrgyzstan. The company produces copper along with by-products such as zinc, silver, and gold. KAZ Minerals was founded in 1930 and is headquartered in London, United Kingdom.

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