Central Asia Metals PLC (LON: CAML)

Central Asia Metals plc is an FTSE AIM UK 50 Index listed United Kingdom-based copper producer. It has operations in Kounrad, Kazakhstan, and Macedonia. The Company operates in three segments. It also operates Shuak, which is a copper and gold exploration.

Recent trend of dividend payments

(Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates the consistent dividend payment done by CAML from FY15 to FY20. In H1FY21, CAML declared an interim dividend of 8 pence per share. It would be paid on 22 October 2021 and has an ex-dividend date of 30 September 2021.

Growth Prospects

• Strong Momentum in Metal Price: The company will benefit from the rising prices of the base metals, especially copper prices (up by almost 40%), in the last year. The demand for base metals continues to rise amid economic recovery, which will, in turn, boost the price and profitability of the company.
• Strong Performance by Mines: In FY20, Sasa mine produced 23,815 tonnes of zinc in concentrate and 29,742 tonnes of lead in concentrate at a C1 zinc equivalent cash cost of production of $0.50 per pound. On the other hand, Kounrad operations continued to perform well, delivering copper cathode output within the increased production guidance range of 13,855 tonnes. Kounrad’s 2020 C1 copper cash cost of production remained extremely low by global standards at $0.51 per pound
• Targeting Low Cost & High Margins: The Company continues to focus on increasing production volume while aiming to continue efficient operations to unlock maximum value and profitable operations.
• Prudent Capital Allocation: The company focus on predominantly four areas which include debt repayment, dividend, and acquisition opportunities. Since the implementation of the policy, the company has returned over $209.6 million in dividends. On acquiring Sasa in 2017, the company took on corporate debt totalling $187.0 million, out of which repaid $123.7 million by the end of FY20. The acquisition momentum slowed in H1FY20 amid covid-19; however, the company gathered momentum in H2FY20 and reviewed 20 new opportunities.

Key Risks 

• Operational Risk: Failure to identify long term storage capacity for tailings could result in an inability to process mined ore.
• Tax Risk: Increased scrutiny of taxation measures by the governments in the countries of operation may lead to higher taxation being imposed on the Group.
• Disruption in the Supply Chain: There could be further disruptions in the supply chain due to the spread of the delta variant of Covid-19, which could disrupt the operations of the Company and increase costs.
• Local Charges on Metals: Adverse movement in zinc and/or lead treatment charges could have an impact on Sasa’s profitability.
  

Now we will analyse some key fundamental and shareholders statistics of Central Asia Metals PLC. 

Financial and Operational Highlights (for the six months ended 30 June 2021 as of 15 September 2021)

(Source: LSE Website)

• Despite global volatility, the company posted resilient results with group gross revenue of USD 106.3 million against USD 75.4 million in H1FY20 and Group net revenue of USD 100.8 million against USD 70.8 million during the period.
• The EBITDA margin improved to 61% against 56% in H1FY20, driven by high commodity prices and cost control measures.
• The Group’s free cash flow improved by more than 100% at USD 48.9 million against USD 21.2 million in H1FY20. On the other hand, the company made a debt repayment of USD 19.9 million during the period.
• The copper & lead sales and production were down marginally. However, high metal prices supported the financials.
• The management stated that Sasa Cut and Fill Project is on track and on a budget for commissioning in Q4 2022.
• The company remains on course to achieve the upper end of 2021 Kounrad production guidance and lower end of Sasa production guidance.

Financial Ratios (FY20) 

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 15 September 2021 at 09:09 AM GMT, CAML’s shares were trading at GBX 237.50, up by 2.37% against the previous day closing price. Stock 52-week High and Low were GBX 298.00 and GBX 143.00, respectively.

On a daily chart, CAML's price is sustaining above the 20-days exponential moving average of GBX 237.23. Hence, there could be an uptick in the stock price in the near term.

In the last one year, CAML’s stock has delivered a decent positive return of ~60.32%. Also, it has outperformed the FTSE All-Share Precious Metals and Mining index with a return of about 4.09% and the FTSE AIM UK 50 index with a return of approximately 26.61%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook

CAML delivered a robust performance in H1FY21, with revenue rising 41% YoY. Underlying EBITDA margin improved to 61% YoY against 56% in H1FY20, and free cash flow from operations surged 131% YoY in H1 FY21. CAML has continuously reduced its debt, with net debt of USD 10.1 million against $36.2 million in December 2020. The Company also benefitted from the high metal prices as the revenue increased despite low sales and production volume. For FY21, The Company expects that FY21 zinc and lead production at Sasa could be towards the lower end of the guidance range, which is between 23,000 tonnes and 25,000 tonnes for zinc and between 30,000 tonnes and 32,000 tonnes for lead. On the other hand, in Kounrad, the company is on course to achieve full year 2021 copper ten guidance of between 12,500 tonnes and 13,500 tonnes. The company follows a smart investment strategy, and currently, it has more than 10 acquisition opportunities that could drive growth in the future.

Considering the Company’s financial performance, high metal prices, its continued investments plans, improved profitability margins, liquidity and leverage position, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Central Asia Metals Plc at the current price of GBX 237.50 (as on 15 September 2021 at 09:09 AM GMT), with lower-double digit upside potential based on 8.15x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

*All forecasted figures and Peer information have been taken from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from Refinitiv.

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