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Central Asia Metals: Profitable, dividend paying and debt free

Published: 15:39 07 May 2015 BST

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Central Asia Metals (LON:CAML) is a rarity in the bombed-out natural resources sector.

It is profitable, debt-free and dividend paying. That the Kazakhstan copper producer achieved this as the price of the metal hit a five-year low is all the more remarkable.

Kounrad, its flagship asset, doesn’t fit the template for a traditional mining operation as its reserves are held in mineralised dumps from an open pit worked from 1936 to 2005.

Over the decades waste dumps of oxides and low-grade sulphides of copper were formed.

Central Asia Metals (CAML) uses a process called in situ leaching that relies on a 2,300km network of plastic pipes to run weak acid solution through this waste material that picks up copper as it percolates through the piles of waste material.

This solution then emerges into trenches, which lead to collector ponds that feed a solvent extraction electro-winning (SX-EW) plant.

There the copper is extracted using a very simple process that involves running electricity through this mineral-rich liquid mix.

While it sounds a bit of a kerfuffle, this is an incredibly easy, efficient and, crucially, cheap method of producing copper.

The cost before shipping and royalties is less than 40 cents a pound, while the all-in figure is 71 cents. This compares to a current copper spot price of US$2.88 per pound.

These ultra-low overheads explain how CAML was able to post underlying earnings (EBITDA) of US$47.3mln on revenues of US$76.6mln in 2104.

Kounrad is not so much a mine as a cash machine that helped support a dividend of 12.5p a share last year – equating to a yield of 7% at today’s price.

The company has pledged to pay out at least 20% of revenues every year (subject to it maintaining a certain level of cash cover). This policy means investors will benefit directly from any recovery in the rock bottom copper price.

The process of working out the bottlenecks and increasing processing capacity will raise Kounrad’s annual output from 11,136 tonnes last year currently to 15,000 by the end of 2016.

CAML has invested in additional boilers that heat the solution during the winter freeze, when temperatures regularly plummet to -20 degrees Celsius

In doing so it reduced the winter slowdown caused by the leaching solution freezing up.

The expansion of the plant, which will kick in later this year, will lead to the increase in annual production to 15,000 tonnes.

CAML reckons it will churn out around 13,000 tonnes of copper this year, before it hits full capacity the following year.

In all it has invested around US$14.5mln in these improvements, all of it funded from its own cash resources. At the end of the last financial year it was sitting on a cash pile of US$46.3mln.

The next big investment will be on the western dumps to provide the next 15 years of material. The project is likely to cost US$18-19mln to complete and will go live in 2017.

Other than the US$60mln it raised to fund the development of Kounrad, the group hasn’t tapped the equity market. 

Dividends, which started in 2012, have already repaid US$53mln since this initial show of faith by investors.

Outside Kazakhstan, it is assessing the potential of the Chañaral Bay copper project, having carried out a preliminary feasibility study on the Chilean tailings retreatment opportunity.

And chief executive Nick Clarke is assessing opportunities to expand the business via acquisitions.

“We do have an active business development section and its remit has been to look at opportunities,” he told Proactive Investors.

“We have said we will stay in copper and we will look at the traditional copper producing areas in Africa and South America. We are boring but safe. There is method in that statement. It means we are not going to suddenly buy something that means we are effectively betting the family silver on that new opportunity.” 

Specifically, Clarke won’t put the dividend at risk, taking on an opportunity that might require a lot of investment or carries significant debt.

Looking ahead, the company’s broker Peel Hunt is predicting revenues will grow to US$86mln this year, then to US$99mln in 2016, giving EBITDA of US$57.7mln and US$66.7mln respectively. Clarke admits that working in Kazakhstan has its challenges, although they are mainly cultural. And he points out the political risk is much lower in this former Soviet state than in many of the African states overrun by AIM-listed miners.

In fact, in the official lists, Kazakhstan is rated more stable than emerging nations such as Turkey and Mexico and one of the world’s largest mining economies, South Africa.

“The big companies have succeeded there and we have shown that smaller operators can also make a go of things,” Clarke said.

“But you need to take time to understand and engage.”


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