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Central Asia Metals: A mine developer with laser-focus on cash generation

It emerged from the economic turmoil, lessons learned, with a laser-focus on one goal – being a cash generating copper producer. And by the end of the year it should be commissioning the Kounrad mine in Kazakhstan.
Central Asia Metals: A mine developer with laser-focus on cash generation

Central Asia Metals (LON:CAML) emerged from the economic turmoil, lessons learned, with a laser-focus on one goal – being a cash generating copper producer.

And by the end of the year it should be bearing down on this particular milestone as its 10,000 –tonne a year plant in Kounrad, Kazakhstan, is commissioned.

This has been a super-fast development. CAML came to market less than a year ago raising US$60 million to build a solvent-extraction electrowinning facility (SX-EW).

Yet chief executive Nick Clarke is quietly confident the operation will be on time and on budget when the switches are flicked in December.

“We took the view that we wanted to be close to a build-ready project with early stage cash flow,” he told Proactive Investors.

“It sounds boringly simple. But that’s what the market and institutional shareholders want to see - delivery.”

In total US$46.9 million has been set aside for the work, though around US$35 million of that still sitting in the bank at the start of last month.

However the burn rate will increase rapidly as the plant grows from the bleak and featureless southern steppes and the equipment is installed.

Pictures in the company’s latest presentation (carried on the website) reveal that the shell of the SX plant itself is being erected, the rail spur is already in place, as are the solution ponds and boiler-house foundations.

Located over 600 kilometres north of Kazakhstan’s largest city, Almaty, the Kounrad site is a vast waste dump with accumulations of rubble, rock and dust amassed from 70 years of open-pit copper mining. 

An aerial shot of this grey expanse reveals probably the closest approximation of the moon’s surface we have here on earth – save for the neatly tiered craters, which mark the sites of the old pits.

The two-stage SX-EW process being employed by CAML extracts and upgrades copper ions from a low grade leach solution that has been run through these dumps of waste material.

The end product is an incredibly pure copper cathode that is garnered from industrial baths full of the concentrated electrolyte.

It is a process used by some of the major Chilean miners to shave a few million quid off the costs of production.

CAML is one of the few companies to base its entire business model around what is an incredibly simple, and of course cheap means of liberating copper.

In fact the costs are right there at the bottom of the curve at around 40 cents per pound, which compares very favourably with a spot price of somewhere north of US$4.

Now this plant is not some shot in the dark. Clarke and his team have for the past three years been running a test facility that churns out 600 kilograms of copper of a day.

“We have done a lot of test work, putting in place a pilot plant in 2008 that has produced over 460 tonnes of cathode copper,” Clarke says.

 “Lots of processing plants are designed on testwork done in the lab. We have done this on a semi-commercial scale out in the field.” 

An operation focused on the copper sulphide dumps is under serious consideration. The first plant will process the metal oxide.

“We would expect in 6-9 months time to have enough information to take the decision to build a second 10,000 tonne plant,” Clarke says.

CAML owns 60 per cent of Kounrad, giving the Kazakhstan authorities a free carry on the remaining 40 per cent right the way through to production.

There is after that the opportunity to earn back the capital costs, which means the income split is likely to be 80-20 for the first couple of years at least.

We’ll come back to what this means for the economics of the project later.

First it is worth discussing the remainder of the company’s portfolio, which adds a frisson of excitement to what is essentially a production story.

Alag Bayan is a 40 square kilometre property situated  smack bang in the middle of Mongolia’s prolific copper-gold porphyry trend.

And it is around 100 kilometres from the world class OyuTolgoi deposit being developed by Ivanhoe Mines, Rio Tinto and the Mongolian government – so the neighbourhood is a good one.

CAML has drilled four holes for a total of 6,300 metres and in June embarked on an ambitious US$3 million programme.

“This is a classic exploration play, but we are sufficiently encouraged there is something down there,” says Clarke. 

“Whether it is economic or not I don’t know,” he adds, ever the realist.

Elsewhere in Mongolia there is the Handgait molybdenum project, which has a JORC resource of almost 42,000 tonnes, and the Ereen gold property, which has a non-too-shabby 750,000 ounces of the precious metal.

The latter is likely to be sold at some point in the very near future, Clarke reveals. 

“We’d rather monetise this and look at other things. It is being held for sale. There is the potential for it to be a 1 million ounce-plus (deposit).”

It is odd how the market has valued Central Asia Metals. The share price has fallen 21 pence, or more than fifth since it floated last September.

Yet the execution risks associated Kounrad are progressively evaporating. 

And with a following wind the company should be churning out copper and cash next year as it ramps up to that 10,000 tonnes a year.

Research from research boutique Edison underlines this size of the anomaly, or perhaps I should say opportunity. 

Taking a US$3 a pound copper price, as CAML did when compiling its feasibility study for Kounrad, then the project is worth £117 million, or 136 pence a share.

If you move this up towards the spot price – Edison took a copper price of US$4.34 a pound – then the NPV is an impressive 216 pence – or almost three times the company’s current value.

The point isn’t lost on Clarke, though he plays it down. “It is boring, but my task is to get Kounrad up and running. After that I’ll bang the drum.”


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