SMALL CAP SHARE IDEAS: Central Asia Metals offers a solid track record


Some of the shine has come of metals markets in recent months after President Trump’s rhetoric on tariffs began to translate into reality, but that doesn’t mean there isn’t still real value to be found.

A good example is Central Asia Metals, a long-standing producer of copper from waste dumps at Kounrad in Kazakhstan, which, because it doesn’t actually undertake any mining at the project, boasts some of the lowest mining costs around.

The company spends just $0.52 mining each pound of copper, which stacks up very nicely indeed against the current copper price of $2.66 per pound.

Central Asia Metals is a long-standing producer of copper from waste dumps

Central Asia Metals is a long-standing producer of copper from waste dumps

Central Asia Metals is a long-standing producer of copper from waste dumps

So even if margins do dip in times of copper price weakness, they don’t dip by much, and any shortfall in cash flow can be made up by increases in production.

In each of the years from 2012 to 2017 Central Asia Metals has managed to boost output from Kounrad, and although this year’s output looks like it will be broadly flat on 2017, the company has now added a second significant new project at Sasa in Macedonia, which is adding a completely new income stream.

Overall, Central Asia expects to produce between 13,000 and 14,000 tonnes of copper this year from Kounrad, as well as between 21,000 tonnes and 23,000 tonnes of zinc in concentrate and between 28,000 and 30,000 tonnes of lead in concentrate.

Like Kounrad, Sasa is low cost, and putting the two operations together broker VSA Capital expects Central Asia Metals to generate between $84million and $99million per year over the next three years.

And in contrast to the investor base of many small mining companies, shareholders in Central Asia actually stand a chance of seeing some of that cash.

The company’s established policy is to return between 30 per cent and 50 per cent of free cash to shareholders in the form of dividends, and it has been consistent in this for some years. The acquisition of Sasa has obviously changed that dynamic somewhat, but the principal is still the same.

It means that Central Asia shares yield around 7.5 per cent on current share price levels, which is not only useful income for investors, but also puts something of a floor on the share price if sentiment towards mining turns any darker than it already is.

Not that chairman Nick Clarke will ever be short of key backers.

His dividend policy has won him a great many friends in the London investment community because having raised around $60million when the company listed back in 2010, it took just a couple of years before initial investors had already received all their money back in cash payouts and then some.

It’s not blind luck though. When Clarke took on the Kounrad project he brought with him extensive experience of Kazakhstan and plenty of experience of the London capital markets too.

He knew how to deliver a project in a country where other peers, like Hambledon, had stumbled. Also, he knew how to manage the harsh winters, how to manage the people, and, most importantly, he knew how to deliver a profit.

That’s why the likes of JO Hambro, Fidelity, Black Rock, Majedie and AXA feature prominently on the share register.

With backing like this, and with the original backers effectively in for free, Clarke has been given a relatively free hand to strike opportune deals.

He took his time, but the Sasa project eventually took Central Asia Metals into the business of actual mining, and so far it’s proving pretty adept at it.

Broker Mirabaud called Central Asia’s most recent production numbers ‘very solid’, while VSA Capital talks of the ‘successful transition’ of Sasa into the enlarged group.

Additional support is provided by the $40.5million cash that was on the balance sheet when the last set of official figures were released at the end of June, while meaningful upside is provided by a substantial exploration portfolio at Shuak, also in Kazakhstan.

The only cloud on the horizon is the negative sentiment currently prevailing in the metals markets. But that’s already taken a significant bite out of Central Asia’s share price, which as dropped from highs of around 340p earlier in the year to the current price of around 215p.

VSA reckons that that looks like a very attractive ‘entry point.’ 



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