Koza Gold: On the verge of a brighter era

We increase our target price for KOZAL to TL262.8/shr (previously TL202.7/shr) on our new macro and operational estimates. While we raise our gold price estimate for 2022-23 to USD1,875/oz from USD1,800, we also lower our unit cash cost assumption from USD850/oz to USD820/oz for 2022 following a much better than expected unit cash cost of USD766/oz in 1Q22.

Additionally, we assume a 1.1 P/NPV ratio to reflect the long-term growth potential of reserves. Apart from these changes, the Company is now on the verge of a new era as a new law in Parliament could well pave the way for the resolution of long lasting shareholding issues. Such a development would be a significant catalyst for all Koza Group stocks, in our view. Better than expected 1Q22 results should also be supportive of the near-term stock performance. The stock currently trades at undemanding 2022E 3.1x EV/EBITDA and 5.2x P/E multiples.

With this note, we also revise upwards our target price for KOZAA (*) to TL42.2/shr from TL29.0/shr and maintain a BUY recommendation. In addition to the change in KOZAL’s fair value, we decrease the NAV discount for KOZAA from 20% to 10% (i.e. the past one year’s average).

A new era on the horizon: According to a current bill, the state can seize the shares of persons affiliated w ith terror in companies under the management of Saving Deposit Insurance Fund. If passed in Parliament, the law would be a huge step tow ards resolve long lasting shareholding issues of Koza Group companies, paving the w ay for the transfer of these shares to Turkey Wealth Fund, or else their sale to another company. Such a development might also result in a more efficient management for Koza Group in various aspects (exploration, cost management, higher production, etc.). A sizable dividend payment might also be on the agenda as the AGM would be able to convene after seven years. All in all, w e expect the law to be a good long term catalyst.

Strong 1Q22 results. KOZAL’s bottom line of TL1.1bn in 1Q22 has surpassed estimates (YKYe: TL935mn, consensus: TL885mn) on the back of a beat in net financial gains and operating margin. We particularly w elcome the significant improvement in cash costs, dropping around USD100/oz (to USD766/oz) compared to the 2H21 average despite a similar sales volume. We expect the results to be a near-term trigger for the stock.

Reserves up 14% y/y. KOZAL released its YE21 reserves in its quarterly interim report. Accordingly, reserves of 2.08mn oz are up 14% y/y (production adjusted) w ith a flat 1.5 g/t avg. grade. Inferred resources remain nearly
unchanged at 5.2mn oz. Results will be subject to the approval of a third party(SRK).


Yapi Kredi Yatirim,