Will KAZ Minerals’ (LON: KAZ) Baimskaya project get impacted by Russian government’s new infrastructure plans?

  • November 19, 2020 10:51 AM GMT
  • Team Kalkine
Will KAZ Minerals’ (LON: KAZ) Baimskaya project get impacted by Russian government’s new infrastructure plans?

Summary

  • Kaz Minerals is expected to provide a high-level project plan to create infrastructure for the Chukotka region.
  • The copper mining company will share a portion of the infrastructure capital costs under the Complex Development Plan
  • The Complex Development Plan (CDP) incorporates several public and private entities and target dates for activities planned by the Russian government 

Metal and mining company Kaz Minerals Plc (LON: KAZ) anticipates higher risks for its Baimskaya copper project located in Russia's Chukotka region due to new infrastructure plans passed by the Russian government. Focused on large scale, low cost, open pit mining in Kazakhstan and Russia, Kaz Minerals is a high-growth copper company.

The metal and mining businesses is a capital-intensive business with large gestation cycles. These businesses require huge investments in mustering resources such as energy, labour and infrastructure. Kaz Minerals, which is based in Kazakhstan, seeks adequate availability of transport and power infrastructure in the Chukotka region and is currently involved in discussions with the Russian government regarding the provision of these facilities.

However, the company might have to spend a lot of money on these resources. Notably, the capital and operating costs of the project might go up as the outcome time of these discussions cannot be ascertained.

On 18 November, the Ministry for the Development of the Russian Far East and Arctic had submitted a multi-party Complex Development Plan (CDP) for new infrastructure in the Chukotka region that awaits the approval of the Prime Minister of the Russian Federation. The infrastructure

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The CDP incorporates several public and private entities and target dates for activities planned by the Russian government. Kaz Minerals is expected to provide a high-level project plan to create infrastructure for the Chukotka region. The copper mining company will share a portion of the infrastructure capital costs under the CDP.

The capital construction budget for the Baimskaya project now stands at around US$8 billion due to the one-year delay in execution of the project. The prices are scheduled along with the revised cost for the tailings storage facility.

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The bankable feasibility study is in progress given the changes in the infrastructure plan and is expected to be completed by mid-2021. Being an integral part of the CDP will cause a significant amount of delay to the project schedule.

KAZ’s Baimskaya project is strongly backed by the Russian government. As an integral part of the CDP, the copper mining company is expected to develop some sections of the port along with a 200-km-long section of the permanent road to ensure proper connectivity. These developments are additional construction expenses and are expected to cost the copper mining company as much as US$600 million.

KAZ’s Baimskaya project is expected to have an annual ore processing capacity of 70 million tonnes per annum and is now expected to commence production by the end of 2027. The life of mine is of extreme importance in this business. According to BFS, the lifespan of the Baimskaya project is approximately 20 years. However, recent drilling results indicate a higher life span of the mine, that is around 25 years.

From the company’s perspective, the CDP for development of the Chukotka region could lead to a significant amount of delay to the bankable feasibility study and might also result in higher infrastructure costs for KAZ.

KAZ shares last traded at GBX 640 on 18 November. KAZ market capitalisation stood at £3,023.76 million. KAZ shares delivered a price return of nearly 30 per cent in a year’s time.

 

 


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