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BMB Munai: A significantly undervalued oil company

|Includes:KOG, SSN
BMB Munai (symbol: KAZ) is a small cap oil company which appears to be extremely undervalued.   I have been adding to my position in KAZ for several reasons.  KAZ looks great technically, the 50 day moving average recently crossed over the 200 day moving average which is a very bullish "golden cross formation" on the chart that can attract momentum traders and other investors.  The fundamentals look good too.  KAZ has a book value of about $4.08 per share and they recently announced a very significant increase in production at their Kariman well.  The Chairman owns about 12 million shares (he used to work at Chevron) and he hasn't sold any shares since 2007 back when KAZ traded for over $5 per share.

Some of the risks for KAZ include the fact that it operates out of Kazakhstan.  While that region is not viewed to be as stable as the US, this is a positive in many ways since Kazakhstan is so rich in oil.  Chevron has invested heavily in Kazakhstan and so have various Chinese interests.  Read more about the oil reserves in Kazakhstan here:
What pressured the stock to around 60 cents earlier this year is that notes came due but they appear to have resolved that issue in principle.  If that falls through, it could hurt the stock- read more on this issue here:
I expect the noteholders and KAZ to find a reasonable solution soon.  It appears that noteholders would receive nothing if they forced KAZ into bankruptcy.  The licenses held by KAZ would likely revert back to the Kazakhstan government plus the current management is needed to operate the company and maintain the existing relationship with the Kazakhstan government, without this noteholders have nothing.  I believe they will agree to a longer term extension or perhaps KAZ will be able to find financing elsewhere and pay off these noteholders.  They could agree to convert some notes into shares as well.  Long term, I view any of these options as a positive for the company and shareholders.
Here is the investor presentation from KAZ, and I have highlighted some key points below: 
P1 reserves for KAZ is about 23 million barrels of oil (about 82 million in P2 reserves). KAZ expects to start including gas reserves in P1 reserves in the next reserve report which should be out in Q1 of 2011.
KAZ management appears to have good relations with the Kazakhstan government.
If you compare the P1 reserves for KAZ to other small oil companies such as MHR, KOG it shows that KAZ appears to be extremely undervalued.  As we have seen recently, these small oil companies can move fast and hard once positive momentum turns for them.  SSN, KOG, MHR have seen huge runs from well under $1 to well over $5 in some cases.  If KAZ resolves the noteholders deal in a fair deal for both sides, I expect to see the stock jump substantially.  If oil and inflation rise in the next couple years, it would be very reasonable for KAZ shares to return to over $5 per share, as they were before the financial crisis.

The 52 week high for KAZ is currently about $1.22 per share, so it will not be surprising to see KAZ break out and make new 52 week highs in the near future.

Disclosure: I am long KAZ.

Additional disclosure: All information is from reliable sources but not guaranteed.
Stocks: KAZC, SSN, KOG