VSA Morning Miner, 05/11/20
Central Asia Metals (LON:CAML)
Central Asia Metals (LON:CAML) has advised that management are looking to reinstate the dividend with an interim payment during Q4 2020. Sasa production has now run at full capacity for the past three weeks following the successful implementation of both environmental and technical recovery programmes. Our cashflow analysis demonstrates that this is possible, primarily due to the low cost base of Kounrad where we expect unit costs to average US$0.49/lb and at Sasa where unit costs are expected to average US$0.53/lb in 2020.
The reinstatement has also been possible due to swift execution of the remedial programme at Sasa both from an engineering standpoint and an environmental one. The environmental clean up is in two phases; the first is well underway and covers the physical removal of extractable tailings from the length of the river (13km) of which 4km has now been completed. Secondly, in stream sediment traps are to be installed to collect finer tailings not already recovered. These will be installed in Q4 2020 and will be in place into 2021. Wardell Armstrong may provide further recommendations on the back of an ongoing study.
With the restart programme having performed in line with guidance, our forecasts remain unchanged for Sasa which are 30kt of lead and 24kt of zinc output in 2020. The specialist engineering group hired to assist CAML in identifying the cause of the tailings leak, now known to be water ingress along the composite liner interface through to the dam, is due to publish a full report in Q1 2021 with all their findings, however, CAML has so far followed the group’s recommendations in order to enable the safe restart of operations.
The reinstatement of the dividend will remove a factor of uncertainty weighing on the share price, in our view, enabling a rerate given the underperformance versus underlying commodities. CAML’s share price is 21.4% down YTD, while the copper price is up 10.4% and given the recent upgrade in production guidance is expected to contribute to around 50% of group EBITDA in 2020. This highlights a clear mispricing which we expect to narrow.
We reiterate our Buy recommendation and target price of 242p/sh.
VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com
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