Central Asia Metals#: H1 2021 Operations Update
Operational Headwinds But on Track for a Record Year
Central Asia Metals (LON:CAML) announced Q2 2021 production figures with 3.3kt copper, up 16% QoQ and down 2% YoY, lead production of 6.8kt down 10% YoY and 3% QoQ and zinc production down 9% YoY and 3% QoQ. Rock conditions at Sasa have forced a temporary focus on areas of the mine which necessitate higher dilution leading to lower head grades and production; highlighting the decision to transition to lower dilution cut and fill mining. The company has indicated that output is likely to be towards the lower end of the guidance range. We have adjusted our Sasa production forecasts for this year to 29.6kt of lead and 23.1kt zinc although highlight that CAML has a track record of top operational performance spanning close to a decade. Indeed, despite this headwind at Sasa we expect 2021F to be a record year financially for CAML which will ultimately be the driver of a rerating of the share price, in our view.
Copper, lead and zinc are up 22%, 17% and 8% YTD exceeding our expectations. As a consequence of this performance we have upgraded our revenue forecast by 10% to US$214.6m, EBITDA for 2021F by 12% to US$132.9m. Our updated price outlook more than offsets reduced lead and zinc production. Furthermore, CAML’s low cost base means that is best placed to weather the rising tide of cost inflation which will undoubtedly begin to affect unit costs industrywide leading to underperformance for more operationally leveraged peers. This also bodes well for the dividend outlook and the stock continues to trade on a dividend yield of 6.1% based on our conservative target of 14.8p/sh. for 2021F highlighting the value potential.
Recommendation and Target Price
In our view, CAML is on track for record earnings performance in 2021F. However, the share price is broadly flat YTD and currently the market, in our view, is too focused on modest output changes rather than the overriding driver of rising commodity prices. CAML currently trades at a 9% discount to peers on an EV/EBITDA basis.
We reiterate our Buy recommendation and target price of 325p which implies 33% upside and 39% on a total return basis.
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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