VSA Morning Miner, 09/04/20
Central Asia Metals (AIM:CAM)
Central Asia Metals (AIM:CAML) has released strong results for Q1 2020 with higher production across copper, lead and zinc. Copper output of 3.2kt was up 8% YoY and 2% QoQ. Zinc production of 6.1kt was up 9% YoY and 8% QoQ while lead output of 7.6kt was up 5% YoY and 2% QoQ.
Despite restrictions being implemented in Kazakhstan and North Macedonia CAML remains as yet unaffected and aside from adhering to government guidance and additional precautions that the company has implemented to safeguard its employees, operations remain as normal. This is highlighted by today’s results.
Kounrad performance leaves CAML on track for our full year estimate of 13.4kt output and the significant increase YoY is largely due to a low Q1 2018 which was impacted by pronounced seasonal impacts.
At Sasa the rising output largely relates to benefits of changes to operating practice being realised due to the ongoing Life of Mine Review. The commissioning of a tertiary crusher during the quarter enabled increased plant throughput which was up 2% QoQ and 6% YoY to 210.7kt. This means that Sasa is now operating at a run rate of 845ktpa, the company having guided to full year throughput of 820-850kt. Zinc output benefitted from an increase in grades of 4% YoY and 3% QoQ to 3.37% Zn. This is at the top end of realised head grades for recent quarters; Q3 2019 also averaged 3.37% while Q2 2018 averaged 3.36%. Recoveries of 86.4% were in line with the recent stronger performance achieved in 2019. CAML is therefore on track for guidance of 23-25kt zinc and we maintain our estimate of 23.5kt for 2020F.
Lead grades and recoveries were broadly in line with recent periods and the increase in output was largely attributable to higher throughput. Again, CAML is well on track for guidance of 30-32kt of lead production in 2020F and we maintain our estimate of 30.8kt.
At Sasa, CAML is making ongoing improvements to operating practices and having decided to update the mining fleet equipment is beginning to arrive on site. This should further help to deliver ongoing strong performance in future quarters. The full results of the Life of Mine Review are due to be released in H2 2020 as previously indicated.
Despite the pullback in commodity prices we continue to expect CAML to generate free cash flow in 2020F sufficient to continue with the deleveraging programme and resumption of the dividend once the COVID-19 related uncertainty eases.
We reiterate our Buy recommendation and target price of 206p/sh.