Central Asia Metals PLC – Reiterated Production Guidance Despite the Uncertainties

Central Asia Metals PLC (LON: CAML) is FTSE AIM UK 50 Index listed Company, which is engaged in mining and exploration primarily in North Macedonia and Kazakhstan.

Investment Rationale – Hold at GBX 213.20

• From a technical standpoint, 20-day SMA (193.80) is supporting the upside potential.
• In terms of trading multiples, EV/Sales, EV/EBITDA, Price/Earnings and Price/Cash Flow are lower as compared to the Basic Material industry.
• Over the past eight quarters, EBITDA margin has remained above 15.10%, while the industry median is merely 6.5%.
• As of 30 September 2020, CAML had cash in the bank of US$55.2 million and Sasa’s production returned to 100% capacity. Therefore, the Company paid an interim dividend of six pence per share.
• FY20 copper production guidance increased to between 13,500 tonnes and 14,000 tonnes.

Risk Assessment

• The outlook for FY20 is uncertain given the severity and longevity of the COVID-19 disruption since it has been posing an operational risk to mines, commercial risk pertinent to delays in project approval and logistics requirement.
• Moreover, the volatility in commodity prices can affect the Company’s financial performance.

Recent News

11 November 2020: The Company paid an interim dividend of 6 pence, which was deferred on 16 September 2020 due to the leakage from its Sasa tailings storage facility 4. The Sasa's production has been reliably returned to 100% capacity over the last month.

Q3 FY20 Operations Update for the quarter ended 30 September 2020 (as on 8 October 2020)

(Source: Company Website)

• The Company reported no injuries in Q3 FY20 at either of its operations.
• In terms of production, Kounrad delivered of 3,883 tonnes of copper production; and Sasa gave 5,764 tonnes of Zinc and 7,159 tonnes of Lead.
• The Company has increased the FY20 production guidance for copper, while the zinc and copper production guidance were maintained.
• As of 30 September 2020, the Company had US$55.2 million (inclusive of $10.0 million drawdown in overdraft facilities) of cash in the bank.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The FY20 production guidance for copper has increased to between 13,500 tonnes and 14,000 tonnes from between 12,500 tonnes and 13,500 tonnes. Moreover, the Sasa processing operations have resumed after tailings storage facility 4, and therefore, production guidance for zinc and lead remained intact. The Group’s ability to generate significant free cash flow, low production costs and long-life assets indicates a strong position in the short and long term. Further, it has a majority stake in the copper, molybdenum, and gold projects. Overall, the Company has encountered no material disruption over the production so far and holds strong upside potential in future growth. Stock 52 week High and Low were GBX 233.00 and GBX 100.20, respectively.

Considering the valuation methodology and growth catalysts, we have given a “Hold” recommendation on Central Asia Metals PLC at the current price of GBX 213.20 (as on 3 December 2020, before the market close at 8.15 AM GMT).

Atalaya Mining PLC – Annual guidance and production ranges being maintained.

Atalaya Mining PLC (LON: ATYM) is FTSE AIM 100 Index listed Mining & Development Company, which produces copper and silver by-product in southwest Spain. Also, the Company has an 80% stake in a brownfield copper project, Proyecto Touro in Spain.

On 14 January 2020, Atalaya Mining expects to release its Q4 FY20’s operational update.

Investment Rationale – Hold at GBX 215.10

• In terms of trading multiples, EV/EBITDA, Price/Earnings and Price/Cash Flow are lower as compared to the Basic Material industry.
• Over the past four years (H1 FY16 – H1 FY20), revenue and gross profit have surged at a CAGR of ~24.23% and ~12.99%, respectively.
• From a technical standpoint, 20-day SMA (196.00) is supporting the upside potential.
• Over the past four years (H1 FY16 to H1 FY20), net margin has remained above 20.30%, while the industry median is merely 2.7%.
• The cash flows from operating activities before changes in working capital changes increased to €21.3 million for Q3 FY20 from €11.8 million in Q3 FY19.
• The Company maintained the guidance of US$1.95/lb-US$2.05/lb and US$2.20/lb-US$2.30/lb for cash costs and AISC (All-In Sustaining Costs), respectively.

Risk Assessment

• The Company is exposed significant operational and financial risk associated with Covid-19 pandemic and macro-economic uncertainties.
• Moreover, the volatile copper prices can potentially impact the profitability.

Recent News

21 October 2020: The Company acquired 100% of the Masa Valverde polymetallic project located in Huelva, Spain. Atalaya Mining will make an aggregate €1.4 million cash payment in two instalments.

Q3 2020 Financial Results for the period ended 30 September 2020 (as on 19 November 2020)

   (Source: Company Website)

• In Q3 FY20, revenue increased to €65.8 million from €44.4 million in Q3 FY19, mainly due to higher concentrate sales volumes in the period following the completion of the plant expansion at Proyecto Rio Tinto, in addition to higher copper prices.
• The higher operating costs reflected the higher production volumes.
• The unfavourable FX rates slightly increased the cash costs in Q3 FY20 to US$1.94/lb.
• As of 30 September 2020, unrestricted cash balances amounted to €29.8 million.
• In terms of production increase year on year, the copper production surged 39.10%.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

Following the strong financial and operational performance in Q3 FY20, Atalaya Mining maintained the FY20 guidance for contained copper at 55,000 to 58,000 tonnes. Similarly, the cost guidance was remained intact for cash costs and AISC as US$1.95/lb-US$2.05/lb and US$2.20/lb-US$2.30/lb, respectively. Further, the Company affirmed that mining permits for Proyecto Riotinto are now fully validated. Moreover, the launching of the E-LIX System feasibility study and purchase agreement regarding the Masa Valverde polymetallic project shall yield new opportunities for the Company. Stock 52 week High and Low were GBX 225.98 and GBX 77.00, respectively.

According to the abovementioned factors and valuation methodology, we recommend a “Hold” stance on Atalaya Mining PLC at the current price of GBX 215.10 (as on 3 December 2020, before the market close at 8.25 AM GMT), while we look forward to reviewing the support from upcoming catalysts to reinvest. 

*All forecasted figures and Peer Information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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