Central Asia Metals#: Q4 2020 Operations Update
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Production in Line with Forecasts
Central Asia Metals (LON:CAML) has reported Q4 2020 production with 3,365t of copper taking full year output to 13,855 in line with our forecast of 13.9kt and at the top end of guidance. Q4 lead output was 7,442t meaning 29,741t over the full year, up 2% YoY and in line with our forecast of 30kt while zinc output of 5,848t took full year output to 23,815t again in line with our forecast of 24kt and up 2% YoY despite the disruption at Sasa which CAML has overcome rapidly as we expected.
Further Upgrades to 2021F Outlook
Having upgraded our 2021F outlook late in 2020, the recent update means a further upgrade to our forecasts. CAML has locked in 30% of production on a one year deal taking advantage of bullish trader sentiment with a zero cost collar covering the range US$6,900-8,380/t (our forecast is US$7,425/t for 2021F) while the lead and zinc fix at US$2,022/t and US$2,804/t is 10% and 23% above the 2020 average. These fixed prices are above our full year forecasts and at price levels that zinc and lead have not traded at since 2018 aside from a brief rally in 2019.
This leads to forecast EBITDA of US$110m in 2021F, up 11% YoY which will generate total unlevered FCF of US$76m meaning that we expect deleveraging to continue and rising shareholder payouts as well as support the total capex of US$18-19m for the Sasa Cut and Fill project.
Recommendation and Target Price
CAML rallied strongly into the start of 2021, now up 118% from March lows although briefly as high as 145%, however, it continues to trade at a discount to the peer group of 8% and 6% based on 2020F and 2021F EV/EBITDA multiples. With further upgrades to the near term outlook we are upgrading our target price again and with this momentum, testing record highs is now becoming a distinct possibility.
We reiterate our Buy recommendation and increase our target price 9% to 310p which implies 25% upside and 29% total return.
Oliver O'Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
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