Full Year Copper and Zinc Production Beat Estimates
Central Asia Metals (LON:CAML) announced strong full year production numbers beating our estimates on full year copper and zinc production while lead production was in line with our estimates. Q4 2019 copper production of 3.1kt was down 7% YoY and 22% QoQ following a strong Q3 2019 resulting in full year output of 13.8kt, down 2% YoY with Kounrad now in its new operational phase. Zinc output of 5.7kt was down 2% YoY and 8% QoQ as zinc grades were modestly lower at 3.23% versus a full year average of 3.29% offsetting increased throughput. However, given a strong 9mo19 performance full year zinc output of 22.98kt was up 2% YoY and 2% ahead of our estimate at the top of the guidance range. Q4 2019 lead output of 7.48kt was up 1% YoY and 2% QoQ owing to stronger grades and recoveries resulting in full year output of 29.2kt which was in line with our forecast.
Sasa Mine Life Review Provides New Catalyst
The announcement of the results of the Sasa “Life of Mine Review” provides CAML with a new series of catalysts independent of commodity price performance that we believe will unlock value in the asset over the coming years. The initial impact in 2020F will be an increase in throughput to 850ktpa through the year, up from 818kt in 2019 driving a 1% and 5% YoY increase in zinc and lead output to 23.6kt and 30.8kt respectively. Subsequently a change in mining method to cut and fill will drive higher metal output as more selective mining reduces dilution, enhances recovered grades and ultimately operating margins. We also note the reduced requirement for tailings storage which will also reduce CAML’s social and environmental impact at Sasa over the LoM.
Recommendation and Target Price
Trading in line with peers on a 2019F EV/EBITDA multiple of 5.3x we continue to believe that the consistent operational performance, low cost base and leading dividend yield of 6% indicate that CAML justifies a premium rating. With additional value due to be realised at Sasa following the LoM review we believe that there are now new catalysts to drive a rerating.
We reiterate our Buy recommendation and target price to 292p which implies 27% upside and 33% on a total return basis.