Park Elek. Madencilik

Transcription

1 Equity / Mid Cap. / Utilities Park Elek. Madencilik Bloomberg: PRKME TI Reuters: PRKME IS Breathless growth to continue We are initiating our coverage for Park Elektrik with OUTPERFORM recommendation and target price of TL8.32/share, implying a rewarding 84% upside potential from current levels. We base our optimistic stance for the stock on capacity expansions at copper and asphaltite businesses which will boost production volumes, increasing penetration in growing energy sector, buoyant outlook for copper prices and bargain multiples compared to international peers. At current levels the stock trades at 4.6x 2012E EV/EBITDA and 5.7x 2012E P/E versus international peers median of 5.0x and 11.7x respectively, i.e 9% and 51% discounts. Increasing copper prices to support profitability. After reaching all time high levels around US$10,160/tons in February, 2011 copper prices fell as low as to US$6,800/tons in the fourth quarter of Yet, prices are again in an uptrend since the beginning of the year. Copper prices rose by 6% month to date in March reading at US$8,300/tons. Acting conservatively we kept copper prices constant throughout the forecast horizon, to say at US$8,000/tons. Therefore increase in the prices will definitely be in favor of the company both in terms of operations and the stock performance, since Park Electrik shares move in tandem with the copper prices with a correlation of 80%. Note that 15-month forward copper price hovers around US$8,500/ton currently. Capacity investments pave the way for higher production. Park Elektrik increased its concentrated copper capacity in Madenkoy to 1.2mn tons/year from 750K tons/year in October On top of that, new capacity expansion to 1.8mn tons/year which is planned to be completed in 2013 will further increase the total concentrated copper production to c.130k dmt in 2013 from 86K dmt in Secondly, Park Elektrik sells all produced 400K tons of asphaltite to another group company, Silopi Electricity Production, with a fixed price and with the increasing capacity of Silopi Electricty from 135MW to 405MW in 2015 Park Elektrik will triple its asphaltite production. Energy investments are on the cards. The company plans to build 50.5MW run of river type of HEPP in Diyarbakır with total capital expenditure of US$60mn for which the production licence will be valid for 49 years. Construction of the HEPP is expected to start in 2013 and will take approximately three years for the plant to generate revenues. Aluminum production may be the long term catalyst. Although not included in our valuation, the company has operating licences for aluminum production in Gaziantep. Management underlined that aluminum projects take a back seat compared to copper production and no guidance for the short-term is provided. Risks to our valuation. Although Park Elektrik receives interest, TL198mn fund provided to the parent company raises concerns on the mind of investors regarding the repayment. In addition decrease in copper prices and delay in the upcoming projects may put pressure on the share price. Note that we did not include the receivables from the parent to our valuation, which is an upside risk to our model if collected. Please refer to important disclaimer at the end of this report. 1 Initiating Coverage OUTPERFORM Upside Potential* 84% Stock Data TRY US$ Price at Month Target Price Mcap (mn) Float Mcap (mn) No. of Shares Outstanding 149 mn Free Float (%) Avg.Daily Volume (3M, mn) Market Data TRY ISE ,009 US$ Spot Rate US$ 12-Month Forw ard Price Performance (%) 1 Mn 3 Mn 12 Mn TRY US$ Relative to ISE Price / Relative Price TL PRKME 13/03/2012 Relative Relative to ISE Week Range (Close TRY) Burak Berki bberki@isyatirim.com.tr

2 Summary of Key Financials (TL mn) Income Statement (TL mn) 2009A* 2010A* 2011E 2012E 2013E 2014E Revenues EBITDA Depreciation & Amortisation EBIT Other income (expense), net (1) (3) Financial expenses, net Minority Interests Income before tax Taxation on Income (4) (8) (15) (23) (36) (36) Net income Cash Flow Statement (TL mn) Net Income Depreciation & Amortisation Indemnity Provisions Change in Working Capital (15) (15) 16 (27) (31) (23) Cash Flow from Operations Capital Expenditure Free Cash Flow (28) Rights Issue Dividends Paid Other Cash Inflow (Outflow ) 53 (0) (8) (5) (4) (1) Change in net cash Net Cash Balance Sheet (TL mn) Tangible Fixed Assets Other Long Term Assets Intangibles Goodw ill Long-term financial assets Inventories Trade receivables Cash & equivalents Other current assets Total assets Long-term debt Other long-term liabilities Short-term debt Trade payables Total Debt Other short-term liabilities Total liabilities Minority Interest Total equity Paid-in capital Total liabilities & equity Ratios ROE (%) ROIC (%) Net debt/ebitda (x) Net debt/equity (%) Capex/Sales (%) Capex/Depreciation (x) EBITDA Margin EBIT Margin Net Margin Valuation Metrics EV/Sales (x) 5.4x 6.7x 3.6x 2.5x 1.8x 1.7x EV/EBITDA (x) 17.3x 12.7x 6.9x 4.6x 3.1x 3.0x EV/IC (x) 1.4x 1.7x 1.6x 1.4x 1.3x 1.2x P/E (x) 17.3x 11.0x 6.2x 5.7x 3.9x 3.8x FCF yield (%) -8% 5% 8% 9% 21% 21% Dividend yield (%) 0% 0% 0% 0% 0% 0% *based on average Mcap during the year 2

3 Investment Case Investment Positives Higher copper prices to boost profitability. Park Elektrik s price performance is very much correlated with copper prices, to say there is a 80% correlation with copper prices and Park Elektrik s price performance. Copper prices reached all time high level US$10,160/tons in February, 2011 and plunged to as low as US$6,800/ton levels in the fourth quarter of Since then, copper prices increased by 22% to date reaching to US$8,300/ton. Note that Chinese demand is one of the main determinants of the copper prices globally as the country can meet just 40% of its copper need via its own mines while importing the rest. According to a study from ICSG, Chinese concentrated copper imports are expected to rise by 9% on annual basis from 531K tons in 2011 to 580K tons in 2012 which is likely to provide support for copper prices. As Park Elektrik exports all of its concentrated copper production to China and 90% of revenues are derived from copper sales in 9M11, increase in copper prices and buoyant Chinese demand are positive for the company. Capacity expansion investments will pave the way for higher revenues. Park Elektrik initiated investments for 450K tons additional processing capacity, totaling EUR3.5mn. The investment will increase company s total processing capacity to 1.2mn tonnes, the full impact of which on total production volume will be seen in With an additional EUR4mn investment the company plans to increase its processing capacity further to 1.8mn tons by Accordingly, we expect Park Elektrik to produce 86K tons of concentrated copper in 2012, up by 30% YoY from 66K tons in 2011 and further rising to 130K tons in 2013, up significantly by 51% YoY. Asphaltite is the other segment of mining operations. In addition to copper operations, Park has an asphaltite mine with 400K tons annual production. All of the production is sold to Silopi Electricity Production that has 135MW generation capaicty. As Silopi PP s capacity will be increased from 135MW to 405MW by 2015, asphaltite capacity of Park is expected to triple by This is estimated to grow asphaltite operations share in total revenues from 10% in 2011 to 15% in Profitable HEPP project is in the pipeline. Park Elektrik plans to build 50.5MW run of river type HEPP in Diyarbakır with a capital expenditure of US$60mn. The plant is expected to generate electricity by Recall that, HEPPs generates around 90% margin at the EBITDA level and Park s HEPP will be no exception. Secondly, although we did not include it to our model Park Elektrik has another power plant project in Ceyhan, Adana. The PP is planned to be a NG-fired Power Plant (NGPP) with a generation capacity of 423MW. The forecasted capex for the investment is 250mn. Aluminum, a prospective new business. Although we did not include in our valuation, the company has operating licences for aluminum production as well. Bargain cash costs, mouth-watering operational profits. We calculate the company s cash costs as US$413 per tonne in 2011 versus average copper price of US$8,300, providing the company with 51% EBITDA margin. We expect EBITDA margin to expand further to 55% in 2012, with cash costs estimate of US$403/tonne. Trading at deep discount wrt its international peers. At its current Mcap of TL674mn, Park Elektrik shares trade at 5.7x 2012E P/E and 4.6x 2012E EV/EBITDA versus the peers median of 11.7x and 5.0x P/E and EV/EBITDA, respectively, i.e. 51% discount based on P/E and 9% discount based on EV/EBITDA. Investment Negatives The company has TL198mn outstanding receivables from the parent company for a long time. The company had TL198mn receivables from related parties as of end of 3Q11. The company finances the parent company for about the last ten years and we do not think that the receivables will be collected in the short-term. However we did not include it in our valuation although Park Elektrik receives interest from this fund. Therefore, possible collection of this receivable is an upside risk to our valuation Fall in copper prices. Although global outlook for copper prices seems favorable, a sharp slowdown in China leading to decline in copper demand would impact the company negatively. Delays in the upcoming investments. Postponement in the upcoming capacity expansion projects will make us to lower our production estimates and accordingly the valuation. 3

4 Valuation & Recommendation We are initiating our coverage for Park Elektrik with an OUTPERFORM recommendation on the basis of a hefty 84% upside potential to our target Mcap of US$694mn from the current Mcap of US$375mn. In spite of our stable copper price estimate of US$8,000/ton for the next ten years, we believe that the risk for the prices are on the upside, which is valid for Park Elektrik. The stock s story is not just increase in copper prices, higher production volume as well. Despite with a limited extent compared to copper business, higher production in asphaltite business and profitable power plant projects are the supporters of our valuation. We think that the brilliant performance of the stock y-t-d, to say a 13% outperformance relative to the benchmark index, should not shy away the investors given the 51% discount to the peers in terms of P/E for We adopted a blended approach when valuing Park Elektrik and attached 50% both to DCF and global peers comparison. DCF Model Main assumptions of the DCF model are as follows: Our forecast horizon is ten years between 2012 and We also have included US$260mn terminal value derived from mining operations due to the significant amount of 40mn tons of resources which will be sufficient for Park Elektrik to be operational over two decades. We valued company s 10% participation Park Termik at book value of US$5.6mn In order to be on the conservative side, we expect concentrated copper prices to average around US$8,000/ton in 2012 and stabilize at that level till the end of the forecast horizon despite increasing demand from world consumption. On the other hand, we also projected asphaltite prices to remain unchanged during our forecast horizon. We envisage Park Elektrik to produce 86K dmt in 2012 increase to 135K dmt in 2013, thanks to the additional capacity to become operational in 2013, and remain unchanged at 135K dmt concentrated copper production onwards with a CUR of 75%. With the new capacity addition annual asphaltite production is expected to increase from 400K tons to 1.35mn tons after We expect US$13.2mn revenues from HEPP in the first full year operation in Our EBITDA margin estimate for HEPP ranges between 88%-90% in the remainder of forecast horizon. Revenues are expected to post a CAGR of 8% and EBITDA to rise a at a CAGR of 9% in TL terms over the next ten years. The company is projected to generate TL245mn total turnover in 2012E, up by 42% on annual basis due to the growth in copper production from 86K tons in 2011 to 130K tons in 2012E. The revenues are expected to climb even further to TL351mn in 2013 owing to the hike in production due to 0.6mn tons of new capacity raising annual copper production to 1.8mn tons. In addition to that we expect cost of sales to increase TL120mn in 2013 from TL90mn in 2012 due to the capacity expansion of copper business. While our EBITDA margin projections for mining business are 55% in 2012 and 57% in 2013, EBITDA margin for energy business stands at 89% in For the rest of the projection period we estimate EBITDA margin (mining business) to range between 54% and 57% during our forecast horizon. We estimate total capex of US$100mn until 2015 (for mining operations) and envisage a capex/sales ratio of 8% in the remaining years. Benchmarking to Turkish Treasury US$-denominated Eurobond rate, we have taken risk free rate at 6%. With 6% equity risk premium, 1.0x Beta and a 7% cost of debt, we calculated a WACC of 13.2%. We did not pencil in any terminal growth rate for the company. 4

5 Figure 1: DCF Summary of Mining Business US$mn 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Revenues EBIT EBITDA Tax Capex FCF WACC 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% PV of FCF Sum of PV of FCF 470 PV of TV 231 Net Cash 31 Participation 6 Equity Value (US$mn), Source: mining IS Investment business 737 Figure 2: DCF Assumptions of Energy Business US$mn Net Sales Expenses -excl Depr EBITDA EBITDA Margin 0% 0% 0% 89% 89% 88% 88% 87% 86% 86% Depreciation EBIT Tax Capex FCF PV of FCF Sum of PV of FCF -11 PV of TV 30 Equity Value (US$mn) 19 International Peer Comparison At its current Mcap of TL674mn, Park Elektrik trades at 4.6x 2012E EV/EBITDA versus peers median of 5.0x, i.e 9% discount and 5.7x 2012E P/E comparing favorably with the peers average of 11.7x Figure 3: International Peer Comparison Bloomberg Estimates Company EV/EBITDA P/E 2012E 2013E 2014E 2012E 2013E 2014E PARK ELEKTRIK UR * * * * * * AMERIGO RESOURCE n.a n.a n.a ANTOFAGASTA PLC FIRST QUANTUM INMET MINING CRP RIO TINTO PLC FREEPORT-MCMORAN SOUTHERN COPPER ANVIL MINING LTD n.a n.a TASEKO MINES QUADRA FNX MININ n.a n.a COPPER MOUNTAIN Median -All Companies Median -Turkey Median -Other Countries Turkey's discount premium -9% -28% -29% -51% -50% -52% 5

6 Valuation Summary Assigning equal weights to DCF and international peers comparison analysis we calculate a fair value of US$694mn for Park Elektrik. Figure 4: Valuation Summary Blended Value DCF 50% 378 Peer Multiple Comparison 50% 316 Total Equity Value (US$mn) 694 Sensitivity Analysis In order to show the responsiveness of the model to copper prices and WACC we carried out a sensitivy analysis, in which we assumed copper prices between US$4,000-10,000 per ton and WACC to range between %. This yielded a fair equity value range of US$355mn US$1,062mn for Park Elektrik, implying just 5% downside at the lower end and 184% upside at the higher end. Note that the market values the company between US$4,000-5,000per ton copper price. Figure 5: Sensitivity Analysis Copper Prices WACC 4,000 5,000 6,000 7,000 8,000 9,000 10, % % % % % % %

7 The Company Overview Park Holding is the major shareholder of Park Elektrik with 61% stake. Park Elektrik was founded in March, 1994 in order to conduct activities in textile sector and offered 29% of its shares to public in October, Following the twin crisis in 2000 and 2001, that made life even harder for the textile sector, Park Elektrik decided to expand its operations to new fields such as energy and mining by Currently the company is operational in mining and elecetricity generation sectors, with a copper mine, an asphaltite mine for the nearing power plant and a HEPP, that will become operational in Copper production started in The company obtained the operation license of copper mine in Siirt at the cost of TL9.4mn and completed its investments to start copper production in Annual copper production capacity of the mine in Siirt was 750K tons until October, 2011 and the company increased production capacity to 1.2mn tons with a 3.5mn investment. Further rise in the capacity is planned for 2013 to 1.8mn tons with and additional investment of 4mn. Park Elektrik merged with Ceytas Madencilik on May 22, 2009, one of the listed sister company, in order to eliminate the duplicating departments, increase managerial efficiency and lastly to create synergies between two companies. With this acquisition Park Elektrik became operational in asphaltite mining, too. Recently the company hired an independent consulting company, Micromine, for resource measurement. Accordingly, total reserves of Madenkoy copper mine was measured as 39.8mn tons, 31.2mn tons of which was measured resources. Average tenor of Madenkoy copper mine is determined as 2.4% while current tenor of the zone is lower at 2% level. Figure 6: Micromine Resource Figures based on JORC Resource Catagory Tonnes Cu (%) Measured ,26% Indicated ,79% Total Measured & Indicated ,34% Inferred ,38% Total Resources ,40% Source: Company Presentation Park Elektrik extracts and processes 1.2mn tons of ore per year with an estimated 39.8mn tons of resources. The company sells all of the copper in concentrate form to China which corresponds to 10% of the ore extracted, in other words 120K tons of concentrated copper, while concentrate copper sold contains 20% to 24% pure copper. Figure 7: Annual Ore Extraction Capacity Total Reserves Annual Ore Extraction Capacity Annual Copper Concentrate Capacity Annual Copper Content Source: Company Presentation tons of ore tons of ore tons of copper concentrate of copper content 7

8 Figure 8: Ciner Group, Main Line of Businesses Ciner Group Energy & Mining Group Media Group Commerce, Industry & Services Group Major Companies - Park Elektrik - Park Termik - Park Teknik -Eti Soda - Silopi Elektrik - Park Enerji Ekipmanları Major Companies & Brands - Ciner Yayın Holding - Haberturk Newspaper - Haberturk TV, Radio - Haberturk Web Site -Bloomberg HT, FHM, Marie Claire, Newsweek Major Companies Park Marine Park Aviation Lares Park Hotels Park Insurance Park Foreign Trade Denmar Logistics Source: Company Activity Figure 9: Shareholder Structure Others; 32,00% Turgay Ciner; 6,76% Park Holding; 61,23% Source: Company Activity Figure 10: Copper Price & Park Electric Performance ,5 3 2,5 2 1,5 1 0,5 0 Copper Price Share Price Source: Bloomberg, IS Investment 8

9 On going Operations i) Madenkoy Copper Zone Park Elektrik carries out its mining operations at two different segments. The company acquired the operation licence of Madenkoy copper mine from Eti, a state owned entity engaged in mining business, in 2000 for an amount of TL9.4mn. However mining operations at Madenkoy commenced in late 2006 and approximately 3mn tons of ore was extracted so far. Total reserves of Madenkoy was determined as 39.8mn tons, 31.2mn tons of ore which was set to be measured. Park Elektrik has a concentration facility and produces and sells copper in concentrated form. Recently Park Elektrik initiated a trial production to produce cathode copper that includes 99% copper content. The company exports all of its concentrated copper and recently started cathode production to China. According to the data released by General Directorate of Mining Affairs, total copper exports of Turkey stands at US$245mn. Park Elektrik increased its concentration capacity in Madenkoy to 1.2mn tons/year from 750K tons/ year in October 2011 with 3.5mn investment. Furthermore, the company plans capacity expansion to 1.8mn tons/year in 2013 with an estimated capex of around 4mn. We expect Park Elektrik to produce 86K dmt of concentrated copper in 2012, increasing to 129K dmt in 2013 due to the additional capacity. Revenues from copper mining constituted almost 90% of the company s consolidated top-line in 9M11. Figure 11: Madenkoy Copper Sales Projections Copper Production (dmt) Madenköy Copper Mine CUR 75% 72% 72% 75% 75% Copper Extraction 562, ,000 1,296,000 1,350,000 1,350,000 Concentrated Copper Ratio 10% 10% 10% 10% 10% Concentrated Copper (dmt) 66,250 86, , , ,000 Concentrated Copper Prices US$/ton 1,400 1,450 1,450 1,450 1,450 Revenues from Copper (US$) Revenues from Copper (TL) Estimates ii) Silopi Asphaltite Zone Asphaltite is a derivative of coal with a thermal value of 5,500-5,800 kcal/kg. Park Elektrik has the operating rights of Silopi asphaltite mine until Estimated asphaltite resource in Silopi hovers around 35mn tons based on Turkish Coal Enterprice (TKI) reports. Park Elektrik commenced production in the mine in the second quarter of The mine provides asphaltite to Silopi Elektrik Uretim, a group company involved in electricty production with a capacity of 135MW. Annual production in Silopi is around 400K - 450K tons/year which is subject to increase to 1.3mn tons/year in tandem with the projected capacity increase at Silopi Elektrik Uretim from 135MW to 405MW in Park Elektrik has a profit margin of 15% on asphaltite sales to Silopi Elektrik and the contract between the two parties will be valid as long as Silopi Elektrik runs operations. Silop, asphaltite mine is at the initial stage of mining maning that activities will be open pit for couple of years of production followed by underground minig to be done by the method of Cut and Fill Block Caving Figure 12: Silopi Asphaltite Sales Projections Asphaltite Production (dmt) Silopi Asphaltite Mine Production (tons) 400, , , ,000 1,000,000 Price/ton (TL) Revenue from Asphaltite (TL) Revenue from Asphaltite (US$) Estimates 9

10 Upcoming Projects iii) Diyarbakır HEPP Other than mining business Park Elektrik will also tap into the energy sector. The company plans to build 50.5MW run of river type of HEPP in Diyarbakır with a capital expenditure of US$60mn for which the production licence will be valid for 49 years. Construction of the HEPP started in 2011 and is estimated to be completed by Figure 13: Madenkoy Copper Sales Projections Park Elektrik HEPP Installed Capacity (MW) 50,5 50,5 50,5 50,5 50,5 CUR 0% 0% 0% 32% 32% Working Hr of The Plant Generation (kwh) Opex-Hydro 0,008 0,009 0,009 0,010 0,011 TEDAS Price (TLkr/kWh) 21,77 22,13 22,88 22,71 22,71 DUY (TLkr/kWh) 15,66 15,92 16,46 16,34 16,34 TEDAS Price (cent/kwh) 13,03 12,20 12,93 13,00 13,10 DUY (cent/kwh) 9,37 8,77 9,30 9,35 9,42 US$mn Net Sales 0 0,0 0,0 13,2 13,3 Expenses -excl Depr. 0 0,0 0,0 1,4 1,5 EBITDA 0 0,0 0,0 11,8 11,8 EBITDA Margin 0% 0% 0% 89% 89% Estimates iv) Ceyhan Natural Gas Power Plant Although not included in our model, Park Elektrik has another energy project in Ceyhan, Adana. The company applied to Energy Market Regulatory Authority for a licence to establish a 423MW NGPP. Installed capacity of the plant is planned to be 423MW and production licence will be valid for 49 years. Estimated investment amount is 250mn. v) Aluminium business The company has exploration and operating licences in Gaziantep Islahiye for aluminium. Feasibility studies for the licenced lands continue therefore we did not include potential aluminium exploration to our model. 10

11 Copper Processing Chart Figure 14: Processing Chart Mine ORE (1.2mn tonsper year) Mill Concentrate (120K tons per year) Cu Smelter Arsenical By Products Hydrometallurgical Copper Extraction ProcessMine Cu Refinery Copper Cathode Copper Cathode 11

12 Financial Analysis Revenue and EBITDA Park Elektrik reported TL138mn turnover in 9M11 financials, of which TL123mn of copper sales are diverted to export markets, i.e China, and remaining TL15mn asphaltite sales are done to the Silopi Elektrik. While asphaltite sales constituted c.10% of total sales in the 9M11, with the contribution of additional capacity in 2014, share of asphaltite sales in total sales is projected to increase to 15% by Figure 15: Total Sales Revenues (TLmn) Figure 16: Cost Breakdown Machine ry; 7% Others (Maint., Raw Mat.); 19% Labor; 27% M11 Deprecia tion; 10% Energy; 17% Replace ment; 20% Copper Asphaltite Revenues are expected to post a CAGR of 8% and EBITDA to rise a at a CAGR of 9% in TL terms over the next ten years. The company is projected to generate TL245mn total turnover in 2012E, up by 42% on annual basis due to the growth in copper production from 86K tons in 2011 to 130K tons in 2012E. The revenues are expected to climb even further to TL351mn in 2013 owing to the hike in production due to 0.6mn tons of new capacity raising annual copper production to 1.8mn tons. We envisage revenues to increase to TL173mn in 2011, up by 205% YoY. Figure 17: Revenues and EBITDA (TLmn) E 2012E 2013E 2014E 2015E Revenues EBITDA 12

13 EBITDA margin is forecasted to improve to 57% in 2013 which is attributable to the better operational profitability of Park Elektrik due to capacity expansion at Madenköy copper mine. EBITDA is estimated to reach at TL200mn in 2013 from TL135mn in Figure 18: EBITDA and EBITDA Margin E 2012E 2013E 2014E 2015E 70% 60% 50% 40% 30% 20% 10% 0% EBITDA EBITDA margin Capital Expenditures We expect a total capex of TL49mn in 2012 and increasing to TL63mn in 2013, of which TL35mn coming from the HEPP. Total capex for the HEPP in Diyarbakir stands at US$60 and the project is expected to start in 2013 until Capex increases in 2015 projections as the company plans to increase its asphaltite capacity. Figure 19: Capex (TLmn) E 2012E 2013E 2014E 2015E 13

14 Financial Income The company has a long US$ denominated F-x position of TL58mn and enjoys the appreciation of US$ against TL currency. Moreover Park Elektrik has a net cash position of TL57mn as of end of 3Q11, which further increases to TL255mn when TL198mn receivable from the parent company is taken into account. The company applies 8-10% interest rate in TL terms for these recivables. Figure 20: Financial Income (TLmn) E 2012E 2013E 2014E 2015E ROE We expect Park to record TL109mn net income in 2011 comparing very favorably with TL37mn of 2010, thanks to higher copper prices and sales volumes on the operational side and FX related gains steming from the appreciation of US$ against TL below the operating lines. Note that copper production halted for three months in 2010 due to strike. Figure 21: ROE (%) E 2012E 2013E 2014E 14

15 Global Copper Sector Outlook Being a raw material, copper has a wide range of use in different sectors due to its conductivity such as construction, automotive, airlines, electronics, energy at even in agriculture. During the first eleven months of 2011 world consumption grew by 2.7% compared to the same period last year. However in the October-November period world consumption grew by 12% due to 38% increase in China s usage. China s net imports in October-November period rose by 59% YoY. Contrary to this, usage weakened by 4% in Japan and remained unchanged in EU and United States. Excluding these four major countries, world consumption increased by 3.8% YoY, thanks to higher usage from Russia an India. World copper production on the other hand grew by 3.2% in 11M11 compared to the same period of Primary production increased by 2% and secondary produciton (scrap) rose by 9% YoY. While production increase in Australia reached 16%, 15% in China and 38% in Congo, it declined by 15% in Japan, 7% in US, 15% in Canada and 4.5% in Chile. Average CUR for the first eleven months of 2011 was unchanged compared to 2010 at around 79%. According to latest data released by ICSG (International Copper Study Group) global copper usage projections indicate a deficit of about 250K tons for 2012 as supply growth will continue to remain behind demand growth. However copper production and demand are expected to equilize in 2013 leading to a more balanced market. Asia and Europe are projected to constitute around 73% of the total copper sales in World refined copper production in 2012 is envisaged to increase by 3.4% to 20.1mn tons in 2012 from 19.5mn tons in On the other hand, world refined usage is projected to increase by 1.5% in 2011 and 3.6% in 2012 with the expected recovery in China which is the biggest importer for copper in the world. Recall that Park Elektrik also sells 100% of its concentrated copper production to China. Chinese concentrated copper imports are expected to rise by 9% on annual basis from 531K tons in 2011 to 580K tons in 2012 due to the increasing demand from copper foundries. Since the demand is projected to remain strong in 2012 and onwards Park Elektrik will not have difficulty to sell all of its concentrated copper to China, in our view. ICSG expects world apparent refined usage in 2012 to grow by 3.6% YoY to 20.4 Mt. For 2012, world usage is expected to grow by 3.6% mainly supported by the growth of China as the rest of the world is expected to grow by 2%. However there is always a risk for several factors such as a sharp slowdown in Chinese economy, EU sovereign debt issues, political disturbances in Middle East and North Africa and market price volatility. Figure 22: Global Copper Market Forecasts for 2012 Regions (1000t) Mine Production Refined Produciton Refined Usage Africa N. Africa Latin Africa Asean Asia ex Asean/CIS Asia - CIS EU Europe Others Oceania Total Adjustment for Primary Feed Shortage* -110 Allowance for Disruptions ** World %change 0,5% 0,8% 9,4% 4,2% 2,3% 3,4% 7,1% 1,5% 3,6% Refined Production - Usage Balance *Difference betw een the projected copper availability in concentrates and the projected use in primary refined production ** Allow ance for supply disruptions based on average ICGS forecast deviations for pre-recession years Source: ICSG (International Copper Study Group) 15

16 This report has been prepared by İş Yatırım Menkul Değerler A.Ş. (İş Investment) solely for the information of clients of İş Investment. Opinions and estimates contained in this material are not under the scope of investment advisory services. Investment advisory services are given according to the investment advisory contract, signed between the intermediary institutions, portfolio management companies, investment banks and the clients. Opinions and recommendations contained in this report reflect the personal views of the analysts who supplied them. The investments discussed or recommended in this report may involve significant risk, may be illiquid and may not be suitable for all investors. Investors must make their decisions based on their specific investment objectives and financial positions and with the assistance of independent advisors, as they believe necessary. The information presented in this report has been obtained from public institutions, such as Istanbul Stock Exchange (ISE), Capital Market Board of Turkey (CMB), Republic of Turkey, Prime Ministry State Institute of Statistics (SIS), Central Bank of the Republic of Turkey (CBT); various media institutions, and other sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed. All information in these pages remains the property of İş Investment and as such may not be disseminated, copied, altered or changed in any way, nor may this information be printed for distribution purposes or forwarded as electronic attachments without the prior written permission of İş Investment. ( This research report can also be accessed by subscribers of Capital IQ, a division of Standard & Poor's. 16