Central Asia Metals: VSA Capital
Low Point for Cash Flow Passed
Central Asia Metals (CAML LN) reported full year earnings with net revenue of US$197m down 12% YoY (-1% against VSA estimate) owing to lower commodity prices and modestly lower output albeit comfortably within guidance. EBITDA of US$97m was down 27% YoY marginally below our estimate as the lower top line combined with inflationary pressure. However, group COGS ex-D&A increased 8% YoY, far lower than in-country inflation. A flagged increase in taxation in Kazakhstan meant that net income was US$37.4m, up YoY due to an impairment charge in 2022. FCF of US$58m was down 36% YoY owing to lower EBITDA and peak capex at Sasa. Despite the reduction in FCF, the debt free status gave the board flexibility for a 9p/sh. above policy final dividend taking the full year total to 18p/sh., implying 10% yield.
Investment in Aberdeen Minerals
CAML also announced an initial investment of £3m into UK exploration company Aberdeen Minerals for 28.7%, and may invest a further £2m. This will enable 10,000m of follow-on drilling after the 2023 programme yielded a best result of 90m from 184m at 0.28% Ni, 0.18% Cu and 0.02% Co (CuEq 1.1%) including 4.5m at 0.7% Ni, 0.39% Cu and 0.06% Co from 258m. The project in northeast Scotland was formerly a Rio Tinto property. The company aims to complete an MRE and Scoping Study within two years. The global analogues, based on geophysics and the initial drilling, are large scale Ni-Cu deposits and exploration success could therefore have a material impact to CAML despite the modest initial investment.
Recommendation and Target Price
Although the share price has rallied 24% from the February low, the recent performance has been overly correlated to the zinc price in recent months, in our view. Copper accounted for 70% of EBITDA before corporate expenses in 2023 and 63% in 2022. Although FCF was down this year with the Sasa capital projects nearing completion, the company is past peak capex and we expect a 21% YoY increase in FCF to US$70m. Furthermore, the business development initiatives could yield material catalysts this year as well, which the stock has lacked.
We reiterate our Buy recommendation and increase our target price to 275p which implies 45% upside and 56% on a total return basis.
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Analyst - Oliver O'Donnell, CFA, Natural Resources
VSA Capital Limited is Authorised and Regulated by the Financial Conduct Authority and is a member of the London Stock Exchange and the Aquis Stock Exchange.
The Company is registered in England with company number 2405923 at Park House, 16-18 Finsbury Circus, London EC2M 7EB.
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