Rising cash costs dampen
operating performance
KOZAL posted 4Q12 net income of TRY155.6m, above our estimates (TRY144.0m) and consensus estimates (TRY149.3m) on lower than expected tax expenses. Despite higher than expected revenues, EBITDA (TRY186.3m) was below our (TRY190.6m) and consensus (TRY192.6m) estimates on rising cash costs.
Decline in ore grade and increased share of underground mining
Ore grades declined remarkably at Mastra and Cukuralan while the share of underground mining increased. Moreover, administrative expenses increased by 40% on new mining projects (Himmetdede and Sogut). Hence, EBITDA margin declined 3.5% y-y and 8.2% q-q to 71.0%.
Cut our TP 2% as we raise cash cost estimates by 7% for 2013-14E
We maintain our production and revenue estimates for 2013 and 2014 but cut our EBITDA and net income estimates by 3%. Our TP is based on a blended valuation with 75/25 weights assigned to our DCF and peer comparables. Apart from risks due to gold price movements and USD/TRY rates, industry operational and regulatory risks are significantly high.
KOZAL posted 4Q12 net income of TRY155.6m, above our estimates (TRY144.0m) and consensus estimates (TRY149.3m) on lower than expected tax expenses. Despite higher than expected revenues, EBITDA (TRY186.3m) was below our (TRY190.6m) and consensus (TRY192.6m) estimates on rising cash costs.
Decline in ore grade and increased share of underground mining
Ore grades declined remarkably at Mastra and Cukuralan while the share of underground mining increased. Moreover, administrative expenses increased by 40% on new mining projects (Himmetdede and Sogut). Hence, EBITDA margin declined 3.5% y-y and 8.2% q-q to 71.0%.
Cut our TP 2% as we raise cash cost estimates by 7% for 2013-14E
We maintain our production and revenue estimates for 2013 and 2014 but cut our EBITDA and net income estimates by 3%. Our TP is based on a blended valuation with 75/25 weights assigned to our DCF and peer comparables. Apart from risks due to gold price movements and USD/TRY rates, industry operational and regulatory risks are significantly high.
Offers decent upside. Maintain BUY on our positive outlook
We remain positive on KOZAL as we project a CAGR of 11% in gold production to 511,000 oz. by 2016 thanks to three new mine projects (Himmetdede, Sogut and Diyadin) which will become fully operational in 2014, 2015 and 2016. As the Sogut mine replaces the Mastra mine in 2014, we expect relief in cash costs as the grade levels at Sogut are significantly high and should make up for a potential increase in cash costs resulting from Himmetdede and Diyadin. Hence, we do not expect a sharp increase in cash costs between 2013 and 2016.
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