Yesterday, Central Asia Metals (CAML) reported 1H2014 financial results. The company reported $33.7mn in revenue, up 58% yoy, largely due to consolidation of Kounrad ownership
C1 cash cost per ton fell by 5.3% YoY to 0.72/lb. The improved cash position is mainly attributable to tenge devaluation by 20% as well as increased productivity and tight cost control. The company noted that the benefits of the devaluation were suppressed by accelerating inflation in Kazakhstan. EBITDA amounted to $21.8mn compared to $12.8mn in the 1
H2013 with EBITDA margin improving by 5 percentage points to 65%. Net profit for the period, adjusted for one-off $33mn gain from Kounrad consolidation, was $14mn compared to a net loss of $5.1mn in the 1H2013. The balance sheet remained debt-free with $29mn of cash and cash equivalents along with $12.7mn in trade receivables which were paid off after the reporting date. The company reported that cash position as of 24 September stood at $41.6mn. The Board declared interim dividend of 5GBp per share or 25% of attributable revenue, implying annualized dividend yield of 6%.
|In $ 000||1H2014||1H2013||YoY%||% of HF FY2014E|
|Cash and cash equivalents||28,871||26,545||9%||52%|
|* Adjusted forex and revaluation gains|
The first stage of the expansion plan at Kounrad is underway and on track to be fully completed in the 2Q2015. The company reiterated its 2014 production target of 11,000 tons of copper cathode and announced its plan to produce 13,000 tons in 2015 and 15,000 tons in 2016. Also, prefeasibility study of the Copper Bay project in Chile is on schedule and is expected to be delivered in the 4Q2014. Despite lack of JORC-compliant resource estimates, management believes that ‘the copper is there’, but needs a thorough examination to define if the copper could be extracted in an economically and environmentally feasible way.
The management is actively looking for new opportunities in Kazakhstan, but so far has not identified a project worth looking at. The company currently has no plans to attract debt as the debt covenants will most likely reduce company’s financial and operational flexibility.
Our view. The top line is more or less in line with our estimates taking into that production is seasonally lower in the first half of the year, while the cash costs came in lower than expected due to longer than anticipated positive impact of tenge devaluation on the company’s operating cash costs. To reflect this, for 2014 we lower our cash cost growth rate to 0% and afterwards, we expect annual cost inflation rate to remain at 6%.
We raise our 12-month target price by 9% to 230GBp on weakening GBP against USD and lower cash cost growth estimate for the rest of the year. We reiterate our Buy recommendation as the stock offers one of the highest dividend yields (2014E: 5-6%) in the mining universe, a significant production growth potential with the commissioning of the expansion of Kounrad facility in the 2H2015.