* Tenge devaluation sends Kazakhmys 25 percent higher
* Miners benefit from lower domestic costs
* Ukraine and Russia exposed stocks also benefit
By Alistair Smout and Silvia Antonioli
LONDON, Feb 11 (Reuters) – London-listed miners received a
boost on Tuesday after the Kazakhstan central bank said it would
let its currency devalue, pushing up shares of commodity stocks
with operations in the region by as much as 25 percent.
Kazakhstan said it would let the tenge currency devalue by
19 percent to around 185 per dollar from its central band, in a
bid to prevent large-scale speculation on the forex market after
a slide in other emerging market currencies.
While weakness in emerging markets has cut 5.5 percent off
world shares, miners in those markets that sell
to developed economies can benefit from depreciations in their
currencies as it cuts their local costs.
As a result, the move to devalue the tenge sent shares in
FTSE 250 member Kazakhmys up 25 percent.
Kazakhmys has around 60 percent of its cost base in Kazakh
tenge, and analysts at Citi said a 20 percent devaluation in the
currency could almost double its EBITDA earnings to $626
million.
All of Kazakhmys’ production is sold in dollars, or dollar
equivalents if sold within Kazakhstan, the company said.
Kazakhmys also said it exported nearly all the production,
meaning it is set to benefit from the improved competitiveness
from a weaker exchange rate.
The loss-making copper business could be transformed from a
“free cash drain to roughly break even”, JP Morgan Cazenove
said, although it also noted the medium term risk of higher
inflation.
In 2009, Kazakhmys shares rose 474 percent, buoyed by a
strengthening copper price and a devaluation in February of that
year.
But inflation then quickened to 7.8 percent in 2010 from 6.2
percent the year before. Kazakhmys shares are down 85 percent
since early 2010.
“We did see in 2009 a similar devaluation, and the stock
reacted in a similar way to today,” said Alon Olsha, analyst at
Macquarie.
“But… fast forward 12 months and inflation in the country
had increased fairly significantly.”
Kazakhstan will not revise its official forecast for
inflation of 6 to 8 percent in 2014, despite the central bank’s
decision, the finance minister said on Tuesday.
Even if the relief does prove short-lived, it is well timed,
as Kazakhstan focused miners with London listings have struggled
in recent years.
Kazakhmys fell out of the blue chip FTSE 100 last
year, and Eurasian National Resources Corporation was
taken private after a controversial period in Britain.
“Based on recent conversations with investors, a devaluation
was really seen as one of the remaining potential positive
catalysts that could turn momentum around for KAZ,” analysts at
Nomura said in a note.
While Kazakhmys is the only pure Kazakh miner left in
London, the tenge devaluation has had reverberations around the
British listed mining sector, with Ukrainian-focused Ferrexpo
up 6.3 percent as the hyrvnia also suffered.
Polymetal rose 3.5 percent, with the Russian miner
that has operations in Kazakhstan also benefiting from a
weakening rouble.