I know three things about Kazakhstan: it's a vast country, Borat is not actually from there, and a lot of money has been made by early investors in Kazakhmys
(LSE: KAZ)
, the country's copper miner.
It's almost a year since the company was floated in London, and since then it has more than doubled in value, with profits forecast to rise by a similar proportion. The price of copper has risen 85% over this period, and has more than quadrupled in recent years.
Much of this is driven by development in the emerging economies such as China and India; while billions of people aspire to indoor plumbing and electric lighting, copper will be in demand -- China alone accounts for 20% of world consumption.
It hasn't been all plain sailing, of course. From a peak in May, the price of copper fell 25% in a couple of weeks, a trend echoed by other hard commodities. It and has bounced around considerably since then, partly as a result of industrial unrest at the giant Escondida mine in Chile -- Escondida, mostly owned by BHP Billiton
(LSE: BLT)
and Rio Tinto
(LSE: RIO)
, accounts for 8% of world copper production. And with copper accounting for 83% of Kazakhmys' output, shares in the company have been closely correlated with the copper price.
Steps have been taken to try to reduce the company's dependence on one metal: It has an option to buy 25% of EKH, a Kazakh producer of chrome, iron ore and alumina, for $825m. This would be bought from the Executive Chairman of Kazakhmys, so clearly shareholders are reliant on an independent committee of the board to act in their best interests.
Even if this deal goes through, the fortunes of Kazakhmys will still be closely bound to the price of copper. So if you are thinking of investing, you need to have an opinion on this. Experts are divided, which is what makes a market; for example, American guru Bill Miller says the boat has sailed on commodities, while 'Investment Biker' Jim Rogers thinks we're in the early stages of a 17 year bull run. And prices are denominated in dollars, so currency volatility should also be considered.
Kazakhmys' interim results this morning, here and here, show profits for the first half exceeding the 2005 full-year figures, and the company is bullish on future prospects. Its forecast P/E for the full year is in single figures.
If you believe the commodity bull case, you could just take spread bets on your preferred basket of commodity prices. If, on the other hand, you desire the additional risks and opportunities associated with a single-product single-country miner situated next door to China, then Kazakhmys may be for you.
> Where Next For Mining Shares?
