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Balance sheet and yield key to Central Asia's market success

Central Asia Metals has wowed markets with a strong share price supported by good operational margins and a healthy dividend regime. But can it continue?
Balance sheet and yield key to Central Asia's market success
Copper production at Kounrad

Shares in Central Asia Metals (LON:CAML) have risen by more than 50% since the bear market in mining began in earnest back in the middle part of 2011.

For a copper producer in Kazakhstan, that hardly seems credible, especially given that over the same period of time copper dropped from well over US$3.00 per pound to around US$2.00.

The squeeze on margins across the sector has been considerable, but Central Asia has a key advantage: it’s not actually a miner.

The company has been built around the Kounrad waste dumps in eastern Kazakhstan, scene of a major copper mining operation that last from 1936 to 2005.

Mining may have finished, but that doesn’t mean there isn’t still the potential for a buck or two to be made from the Kounrad ore deposits, as Central Asia has merrily been demonstrating for the past five or six years.

The company listed back in 2010, raising US$60mln for the construction of a solvent extraction-electro-winning plant at Kounrad, through which it planned to process the most copper-rich of the waste left over from the previous 70 years of mining.

This is a plan that has worked admirably well.

Kounrad was brought on stream in good time and good order and has been producing ahead of nameplate capacity ever since.

For 2015 the company hit a new record of 12,071 tonnes of copper production, produced at a cash cost of between US$0.65 and US$0.70 per pound of copper, allowing for plenty of margin even on the weaker prevailing copper price.

For 2016 the overall number is currently expected to come in at between 13,000 and 14,000 tonnes – another record – produced at roughly similar costs.

So, even if the copper price continues at its current depressed levels income and earnings at Central Asia is likely to rise.

Indeed, unsurprisingly it’s been a favourite with mining analysts over the past few years and remains the subject of frequent positive commentary.

Central Asia Metals “remains a favoured copper play” wrote Numis towards the end of 2015, while in the early part of 2016 SP Angel spoke of “a good performance” and argued that the shares looked “good value on current multiples with cash generation and no debt also helping an already healthy balance sheet.”

In a bear market, that’s a good position to be in, but even so, for any other company talk of expansion at a time like this might seem overambitious.

With Central Asia it’s different.

As chief executive Nick Clarke likes to reiterate, the company’s initial investors have already got their money back. A combination of a generous dividend policy set at 20% of revenues and a share buyback programme has meant that those who put up the original money for Central Asia are now sitting on a handsome profit.

For this company there is goodwill, where for others there would be none.

And with that in mind, plans are well advanced for a major expansion of the operations at Kounrad.

Historically, this expansion has been the subject of bureaucratic delays, but the requisite permits finally came through at the end of 2015 and around US$20 mln will be deployed on the ground throughout the course of 2016.

First production from the expanded capacity remains on track for 2017. 

So here’s a company that has cash in the bank, no debt, that has consistently rewarded shareholders in the past and continues to offer a chunky yield, that’s sitting on good margin on a long-life property and has plenty of growth going forward.

Is it any wonder that in percentage terms it’s outperformed blue-chips, mid-caps and junior peers alike?


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