Stock Brief - Central Asia Metals (LON:CAML)

23rd Feb '22 by Keelan Cooper

11 comments 2415 reads

Central Asia Metals (CAML) is a low-cost, diversified base metals producer, with mining operations in Kazakhstan and North Macedonia. The company produced over 14,000 tonnes of copper in 2021, in addition to over 22,000 and 27,000 tonnes of zinc and lead, respectively.

Producing these quantities of base metals in one of the strongest pricing environments has seen CAML’s profitability soar, with EBITDA reaching $64.4 million in H1 2021 vs. $42.5 million in H1 2020. The company’s free cash flow generation has been used to steadily pay down debt, improve the productivity of mining operations in North Macedonia and distribute generous returns to shareholders, in the form of a 6.2% dividend yield.

However, the company’s share price continues to languish and has actually fallen over the past year despite the improving financial performance. It seems that a lack of growth catalysts may be holding back the company, but with such compelling quality and value characteristics, are the shares being overlooked by the market?

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Profile

What are the company's principal business activities, how does it generate its revenues?

Central Asia Metals is a London-listed copper, zinc and lead producer with operations in Kazakhstan and North Macedonia. The company’s Kounrad copper mine in Kazakhstan and Sasa zinc and lead mine in North Macedonia are both highly profitable assets, with operating costs in the lowest quartile of the industry.

CAML commenced mining operations at the Kounrad mine in central Kazakhstan in April 2012 and acquired 100% ownership in May 2014. The mine typically produces in the range of 12,500 to 13,500 tonnes of copper annually and most of the copper cathode is sold to end-users in nearby Turkey.

The solvent extraction-electrowinning (SX-EW) copper recovery plant at Kounrad recovers copper from waste dumps that originated from the Kounrad open-pit copper mining operations, carried out between 1936 and 2005. Over this extended period of time, oxides and low-grade sulphides of copper have formed a significant tonnage deposited at the mine site.

Over 110,000 tonnes of copper have been produced by CAML (as of 31st December 2020). An estimated 14 year mine life remains, given overall JORC resources of 600,000 tonnes of contained copper and 140,000 tonnes of remaining recoverable copper.

Central Asia Metals acquired 100% of the Sasa mine in north eastern North…

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Will Marsh

23rd Feb '22

I've held for a long time and only had the div really for my pains. The share seems well run and reasonably priced on fundamentals. However, performance has been lacklustre for me

sevenccc

Understandably? This is effectively an annuity with variance linked to the price of copper, primarily, and zinc. There is no intention to invest further capex at Kounrad other than for maintaining output levels. The resource as you say is the dumps from the old Kaz Minerals workings so no new exploration. Offtake goes through Traxys and they look after their employees and engage with the local community so wouldn't expect them to suffer from in country unrest, unless it gets really out of hand - too remote.

Sasa was about increasing efficiency at the site (and safer working) without increasing management overheads too much. There has been some further exploration with positive results but I suspect this is more about Life of Mine than any major increase in annual tonnage.

Like and trust the management. They seem genuine about acquisition strategy and are smart enough not to overpay. Note they walked away from minor interests in Chile (Copper Bay) and another 'test' in Kazakhstan after spending the required amount. I wonder if the latter was undertaken to generate goodwill in country. Perhaps they have their eye on something else there? Or perhaps they should be looking to compete with Jubilee in sourcing tailings opportunities in Africa?

Lord Gnome

I have held these for a few years now, adding substantially when the price went down below 170p in 2020. My hold is primarily for income, but the share price / capital performance has been woeful. Management are doing a good job, but it needs that next deal in order to show where growth is coming from.

I hold Jubilee as well, so like you sevencc, I think that they could usefully look for other tailings deals. They are there to be done as Jubilee has shown. At present, given the world outlook for commodities, I doubt that there are any real bargains to be had from producing assets. I think that the management are savvy enough not to overpay, so that might be why no deal has been forthcoming.

willhampson

Thanks for the review. I've held Central Asia Metals (LON:CAML) a number of times over the last few years and currently hold. I'm not convinced that management will find a fairly valued producing asset in the current market (but would be delighted to be proven wrong), and believe that they should instead commit to an aggressive share buyback at anything sub 250p.

Bouden54

I don't think they necessarily need to grow - I'm perfectly happy for them to continue to generate their huge cashflows from existing assets and return most of this to shareholders. This will ensure a very healthy return if copper prices stay where they are. Of course, if an attractive asset becomes available then they should look to buy, but not just growth for the sake of it.

BattleOfBrit

I've held it on and off for several years. I think it's a superb company, but the performance has been disappointing and I've now moved most of my 'copper money' over to Atalaya Mining (LON:ATYM), which doesn't suffer from the geopolitical issues, has an extensive pipeline of new projects and a nice dividend. I'd consider growing myCentral Asia Metals (LON:CAML) holding if they purchased another asset in a third country and perhaps had a development pipeline.

Harry Hindsight

Takeaway is key commodities, esp metals at historically low levels. When you think about it not really rocket science over the long term and as expounded by Mr Shing. Thanks for putting mining into the discussion.

Have Phoenix Copper (LON:PXC) $PXC Phoenix Copper in the ol 'safe' US of A - but they are still building the rocket.

Silver Moon

24th Feb '22

Thank you Keelan for this splendid insight. Myself, not being a trader, I’ve added to Central Asia Metals (LON:CAML) several times since my initial 2017 investment, most optimistically at 317 pence in April 2018, around the time Canaccord held over 10 percent of the company. Since that date political de-stabilisations may have influenced some financial institutions to leave the scene thus sending the SP down. The tailings dam burst in 2020 was certainly a good time to buy which I did, but insufficiently to correct my currently underwater position, however, the increment in dividends paid to me ensured my investment to be worthwhile. Central Asia Metals (LON:CAML) has proved to be a better wager than some small cap non-dividend-paying miners and prospectors which I also hold.

28th Feb '22

Well something is happening today, down 14% and in auction. Disappointing but will have to see what it is.

Bigtim

I would venture that the geopolitical piece above infers the answer. Kazakhtan is very much within the Russian orbit and companies operating there are likely to see some read across and sell off in light of recent events.

Hi, that's clearly correct but it's interesting that such a reaction occurred today (last week would have made much more sense). The geopolitical risk vis a vis Kaz softened over the weekend as they confirmed that they would not be sending troops to Ukraine to support Russia. They also confirmed they would not recognize the new states created by Russia. The biggest risk to Central Asia Metals (LON:CAML) operationally was that Kaz would get involved on the Russian side and then in turn be exposed to sanctions; that now appears much less likely.

Stock Brief - Central Asia Metals (LON:CAML)

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Keelan Cooper

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