Recommendation: HOLD (downgraded)
Shining
less brightly
Downgraded to HOLD given the strong share performance… Reducing the risk
free rate, utilizing new production volumes for 2012 and 2013 (2013+ remains
unchanged) and new set of macro assumptions, we end up with a 12M blended
target of TL40.15/share for Koza Altin (up from TL35.9/share in January) with
an 9% US$ upside potential. Peer valuation still offers a much higher value
compared to our conservative DCF (50% weight for each), which excludes terminal
value and assumes no new resources (including the terminal value upside
potential hits 16% in US$ terms). Koza Altin shares rose by 52% in US$ absolute
terms YTD, outperforming the ISE by 15%.
Production rates should increase in 2013 and 2014, but
remaining quarters of 2012 should be weaker than 1Q... Koza Altin plans to
initiate Himmetdede processing plant at mid-2013 and Mollakara-Diyadin at
mid-2014 (each with 100k oz production capacity and at around US$120mn
investment), elevating total gold sales to 400k oz in 2014 from 2011’s 295k oz
(capacity will hit 500k oz). 2012 guidance is ~355k oz vs. 99.k oz in 1Q12,
indicates that we may see declining volumes q/q, in the coming quarters.
· Investment incentives will have some positive impact… KOZAL’s Himmetdede
project will benefit from Zone 5 incentives (up to 50% investment amount) while
Mollakara will benefit from Zone 6 incentives (up to 60% of investment). We
expect the company to deduct the investments in the coming years, and the
positive impact on the valuation should be ~4% (not included in our numbers
yet). On the other hand, KOZAA plans to initiate one of the major copper mining
investments in Turkey, hence the benefits from this investment scheme should be
sizeable (we have limited information at this stage).
· Still bullish for KOZAA, but neutral for IPEKE now… KOZAA may announce
initial results of its promising Konakli project in August. IPEKE recently
started exploratory drilling in this field as deep as 4,000m to search for oil
(details on page 8 and 11).
·
Risks… Fluctuations in gold prices/grades, cash
costs, execution risk and legal cases are major risks.
BGC PARTNERS
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