VSA Capital Market Movers – Central Asia Metals

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Central Asia Metals#: H1 2020 Interim Results


Robust H1 2020 Earnings


Central Asia Metals (LON:CAML) reported robust interim results in the context of the H1 2020 backdrop; solid production and the company’s fundamentally low cost base meant that CAML remained profitable despite the sharp pullback in commodity prices during the period which led to a 17% YoY decline in revenue to US$70.8m. Consequently, EBITDA was down 25% YoY to US$42.5m despite a decline in unit costs of 6% YoY at Kounrad and 9% YoY at Sasa to US$0.48/lb and US$0.43/lb respectively which cushioned the impact of the weaker the top line. With no significant one offs in the period, EPS of US$0.10/sh. was 33% lower YoY.


Sasa Value Potential Overshadowed


The completion of the life of mine study at Sasa has confirmed the benefit of changing to cut and fill mining which will enable a 6% increase in plant throughput to 900ktpa by 2025 until 2038. This more selective and efficient method ultimately leads to an increase in our Sasa DCF valuation to US$341m. However, this positive update was overshadowed by the tailings leak and although operations have restarted at this stage, with updates pending, we assume a 3% reduction in 2020 throughput which our analysis shows is likely to be more than offset by the recovery in commodity prices. However, we highlight CAML’s corporate governance procedures and policies which will likely have substantially mitigated the impact on the community, environment and company. We also highlight that the proposed mining method changes substantially the type and scale of above surface tailings storage thereby reducing the risk of a repeat.


Recommendation and Target Price


Our investment case for CAML is in large part underpinned by the management team and we believe that the response to the leak will ensure that all appropriate remedial steps have been taken enabling a fast and efficient normalisation of operations with a minimal impact on the environment. CAML remains a well-run operator of low-cost mines with strong FCF generation potential; a strong macro backdrop and resolution of the tailing’s uncertainty will enable a recovery and rerating, in our view.

We reiterate our Buy recommendation and target price of 219p which implies 36% upside.




Oliver O’Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: [email protected]


VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com


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