After our discussion we went to meet Kaz Minerals, listed on both the London and Kazakh stock exchanges (KAZ LN), which is one of the most attractive listed copper miners in the region. With operations in Kazakhstan, Kyrgyzstan and Russia, the company is in the process of doubling production at its flagship Aktogay mine which should be completed within the next year. KAZ, besides Halyk Bank, is arguably the most transparent listed company in Kazakhstan and offers pureplay exposure to what is widely expected to become an increasing global copper deficit over the next decade as exploration spend remains low and substantial high-grade mine discoveries have been few and far between over the past decade. KAZ has 2 flagship open pit mines in Kazakhstan which have average grades of 0.3% and three Soviet era underground mines whose ore grades average 1.0%.
Due to their geographic location, the vast majority of KAZ’s copper concentrate is sent to China for refining, while a modest portion is refined locally and then sold onto the spot market based on London Metals Exchange prices.
The next day I met with Halyk Bank which is also dual listed in London and Kazakhstan (HSBK LI) and whose name literally translates to the “People’s Bank.” It also happens to be the largest bank in Kazakhstan in terms of market share in assets, loans and deposits. Due to a banking crisis earlier this decade, which the country is still working through, there was a wave of M&A in the sector of which several banks were either taken over or merged into Halyk Bank. However, with the macro environment much more stable, Halyk Bank has emerged as the strongest bank in Kazakhstan in terms of capital, especially after its merger with Kazkommertsbank. In fact, in the frontier market universe Halyk Bank is one of the most fundamentally sound banks with a RoE of 26.8% and capital adequacy ratio of 20.9%. The bank also has a stable mix of loans between corporate, retail and SME (small and medium enterprises) and in the first quarter of 2019 net profits grew by 20% as loan losses were recovered due to an improving economy and cost efficiencies of the merger with Kazkommertsbank began to come through. Given its robust fundamentals, at a price to book ratio of 1.1x the bank is cheap on a relative basis compared to Tier-1 banks in other frontier and emerging markets. Furthermore, the bank has recently received a license to begin operations in Uzbekistan and this is one more step in it becoming one of the leading banks in Central Asia, as it already has operations in Kyrgyzstan and Tajikistan.
The next day was a Saturday so before departing back to Uzbekistan I took the opportunity to visit the mountains surrounding Almaty with some friends. With snow visible all year, it was nice to escape the valley floor where it was a pleasant 30 degrees Celsius, in exchange for 20 degrees Celsius. Driving 15km south of Almaty we entered Ile-Alatau National Park. Once entering the park we began climbing a relatively perilous set of switchbacks as the road could use some repairs and, in some areas, it was wide enough for just one car, making my time driving through the mountains in Southern Shan State, Myanmar seem like a cake walk.
We were going to the near end of the road and after the better part of an hour of driving we approached a large steel pipe running up from the valley floor as the lake we were driving to supplies Almaty with fresh water. After another ten minutes or so of driving, the lake appeared from nowhere and it was a sight to see amid the snowcapped mountains surrounding us. However, as the snowpack had only just begun melting the lake was not yet full and I am told it is much more serene in the summer time, though it was great nonetheless.