Kazakhmys, Chairman Kim’s loans and the binary event…

Vladimir Kim

And so we are back to our “favourite” stock again – the enigma that is Kazakhmys and that has been the cause of copious amounts of pain here…

Every financial site/commentator has one or two – companies or markets they get spectacularly wrong and where the fundamentals appear, the lower (or in reverse if a bear, higher) the price goes, ever cheaper and that seems to further validate the original view even more. That the market tells you that you are wrong almost every day is somewhat annoying to say the least!

That we called the Nikkei floor almost to the week in 2012, then the Nikkei peak last year literally to the day, the floor in Spanish and Italian stocks in 2012, GBPAUD’s floor within 2 cents, various US equity rallies to within hours, numerous gold countertrend rallies, the USDJPY’s floor; we also turned ultra bull on gold miners in early Dec and full bears on the US at what looks to be the peak at the turn of the year etc etc are all out of the window… we have become known for a few banana skins in the mining and oil sectors. These banana skins being BLVN, GPX, AVM and of course… KAZ! Sadly we can’t get them all right… 🙁

With 2 key announcements due out of KAZ in the next few weeks, starting with a trading update on the 30th Jan, we believe we will find out whether there is a real reason for the company to trade at the, frankly, unbelievably low valuation or whether the stock price is yet another example of the excessive swing on the pendulum of human emotions of greed and fear that plays out in the markets, and helped along in this instance by Mr Odey and his band of merry shorters (who are now short according to latest data a tub thumping 13m+ shares – how they get these back on a reversal without motoring the price dramatically will be interesting to watch…) and those wonderful market participants, yes the “anal”-ysts!

We have seen a lot in the markets over the years and are not surprised anymore to see stocks actually get sold down to 1 times PE and bought up to pretty much infinite PE’s (TWTR anyone?) and so nothing is out of the question. One issue does perplex us with KAZ however and that is Chairman Vladimir Kim’s stance in this meltdown…

It was reported here nearly 15 months ago – (http://www.telegraph.co.uk/finance/newsbysector/industry/mining/9646670/Kazakhmys-chairman-Vladimir-Kim-has-17pc-of-company-shares-backing-loans.html) in the Telegraph that he had pledged some 91m shares as loans for non related investments. Back then the stock price was closer to 800p than 200p. He cannot have been selling however & nor can his lenders have been selling the stock collateral or there would have been RNS holding announcements. And so why is he seemingly content to see the stock edge further down the abyss? Over at Vedanta Agarwal put on a show of strength on their recent stock rout pumping tens of millions of pounds into the shares to say “Mr Market” you are wrong!

After the great ENRC ‘robbery’, could it actually be the Kim is also planning on taking KAZ off the market cheaply? That seems the only real explanation to us for the laissez faire attitude and with the recent de facto share buy back through the ENRC takeover process that reduced the number of shares outstanding has now resulted in Kim owning over 30% of the outstanding stock. This would give him a real platform to acquire the balance entity, and at precisely the low point in the cycle… Conspiracy? Look at the shenanigans in Exillon and of course the ENRC story before you dismiss it outright…

Where do we now stand? In looking at the weekly chart below over the last 2 years we may, just may, in fact have the first signs of a bottom forming with the RSI measure showing clear divergence with the price. Additionally, the 37 week EMA sits at 300p, and unless Kim has disappeared down the mines with the circa $2.2bn of cash receipts that the company now has from the ENRC & Ekibastuz sales, then given that this cash backing (presently cash as we realise that they are committed to another couple $bn of debt over the next 2 years in building out their new mines) being around 120p per share, any sell off on a poorly received update probably is the last lap on the down leg and the shorters will take the opportunity to cover. After all, to hang around for another 10-30p against possibly 100p+ upside is poor risk/reward to us as traders. At some point the stock price will very likely meet the 37 wk ema and the updates over the next few weeks will remove this “uncertainty” issue surrounding the shares that some are no doubt using in pushing the stock price lower.

Remember, stock prices move on fear and uncertainty and so with this out of the way it could provide the catalyst for a return to a semblance of reality in the valuation of the group. The next few weeks are binary to us – either insiders have known of something fundamentally wrong within the group for months hence the incessant falls and Joe Public will shortly be enlightened or management and Kim have been only too happy to see the stock price trade lower for a cheap exit from the public markets or, perhaps the third alternate – KAZ is just another example of the irrationality that is always present in areas of the marketplace at any one time…