Central Asia Metals’ (LON:CAML) copper tailings acreage in Chile may be worth at least 8p a share and underpin dividend hikes in future, according to house broker Peel Hunt.
Copper Bay is in the Chañaral Bay area of Chile and Central Asia has just increased its interest in the company developing the project to 75% following a pre-feasibility study.
The broker‘s assessment is based on the likelihood that the project goes ahead and is commercial by 2019.
In this scenario, the broker said: “We estimate that the Copper Bay would generate some US$20mln free cash flow a year (before financing payments) and, assuming that the developmental capex could be more than funded from internally generated cash flow, see material uplift to the potential dividend income.”
The broker has increased its price target to 260p from 250p previously and kept its 'buy' stance.
Chañaral accounts for the majority of this uplift, with the balance rolling forward of earnings estimates to include more of 2016.
A recent solvent leak at its core Kounrad operation in Kazakhstan will cut production at the site in 2015 by around 8% to 12,150 tonnes of copper, suggests the broker.
It means the results for 2015 are now likely to be similar to the year before, with revenues around £74mln but earnings will fall.
Further out the broker expects revenue, earnings and pre-tax profits to rise 25% in 2016.
“At our long-run copper price assumption of US$6,600/tonne, we generate annual [Copper Bay] project underlying profits [EBITDA] of US$29mln, adding 40% to our prior estimates from just the Kounrad asset” the broker said.
“This level of profitability, we estimate, could permit management to sustain a dividend payout of 25% of groupwide revenues. This works out to a near 13% dividend yield on the current share price.”