Central Asia Metals#: Q3 2021 Operational Update
On Track for Record Earnings
Central Asia Metals (LON:CAML) reported robust figures for copper and zinc production which remain on track for full year guidance and our estimates although cautioned on the lead production outlook. However, with copper prices above US$9,000/t, this is the real earnings driver for the stock and our estimates remain on track for all-time highs with 2021F EBITDA of US$135m which implies a one year forward EV/EBITDA multiple of 3.9x; making a compelling valuation, in our view. With the shares down 6% YTD the market appears entirely focussed on the operational performance entirely ignoring higher commodity prices, earnings and dividends.
Production Update
Copper output at Kounrad of 4.1kt was up 7% YoY and 24% QoQ with the company taking advantage of high prices achieving a record quarter for output which leaves CAML in a strong position to achieve the top end of full year guidance and our estimate of 13.5kt. At Sasa, zinc production of 5.7kt was flat YoY and up 3% QoQ while lead production of 6.3kt was down 3% YoY and up 2% QoQ. Despite a bounce in grades and output for both lead and zinc, the increase in lead now appears insufficient to offset the underperformance in the earlier part of the year. The company has guided to the lower end of the zinc range in line with our estimate of 23kt although lead is now likely to come in c5% below the lower end of the guidance range and we have revised our estimate down 4% to 28.4kt having previously been marginally below the guidance range. However, given the current weighting to copper this has marginal impact on estimates with 2021F revenue reduced 1% to US$219m.
Recommendation and Target Price
Our view is that the market is overlooking the earnings impact of high commodity prices which is more than offsetting any modest production impacts. This is underpinned by the fact that CAML recently increased its interim dividend and has confirmed the completion of the early elective repayment of US$10m in debt which will now mean the company is debt free earlier in 2022. We are confident therefore that CAML will generate record earnings in 2021F and we reiterate our Buy recommendation and target price of 325p which implies 44% upside and 46% total return.
Oliver O'Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com
This email is intended solely for the named recipient. It may contain privileged and/or confidential information. If you are not one of the intended recipients, please notify the sender immediately, and destroy this email: any disclosure, copying to any person or any action taken or omitted to be taken in reliance on this e-mail, is prohibited and may be unlawful. Any views expressed in this message are those of the individual sender, except where specifically stated to be the view of VSA Capital Limited, its subsidiaries or associates. Whilst all efforts are made to safeguard inbound and outbound emails, VSA Capital Limited and its subsidiaries or associates cannot guarantee that attachments are virus-free or compatible with your systems and do not accept any liability in respect of viruses or computer problems experienced.
VSA Capital Limited will use your personal information to administer your account in order to provide any products and services you have requested from us. Your personal information will be kept secure and will not be shared with any other party unless you provide consent to that effect.
VSA Capital Limited is Authorised and Regulated by the Financial Conduct Authority and is a member of the London Stock Exchange.
The Company is registered in England with company number 2405923 at New Liverpool House, 15-17 Eldon Street, London EC2M 7LD.