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Central Asia Metals (CAML LN)# Central Asia Metals (CAML LN) has announced strong production results for 2018 in line with company guidance and marginally ahead of our estimates across copper, lead and zinc. Copper production of 3.4kt in Q4 2018 resulted in full year 2018 production of 14kt which was flat YoY, despite the impact of severe weather in Q1 2018, and the company was able to make up the shortfall through the balance of the year. Having forecast 13.8kt copper output was 2% ahead of our forecasts while average LME copper prices of US$6,544/t were in line. Guidance for 2019 of 12.5-13.5kt copper output is marginally lower than our estimate of 13.8kt although remains in line with historical production levels. At Sasa zinc production of 22.5kt was up 4% YoY with Q4 2018 production of 5.8kt up 8% YoY. Full year production was broadly in line with our estimate of 22.3kt as a combination of consistently stronger grades through the year along with rising recoveries to 85% in Q4 2018. The latter followed the commissioning of the new SMD mill earlier in the year. Lead production of 29.4kt was 2% lower YoY, however, it was 2% ahead of our estimate of 28.8kt and comfortably within the guidance range of 28-30kt. The lower YoY output was largely driven by a modest decline in lead grades from 3.98% to 3.90% and a 1pp decline in recoveries to 93.6%. This, therefore represents a strong first full year of operations at Sasa, in our view, and with zinc and lead guidance maintained at Sasa of between 22-24kt and 28-30kt respectively for 2019 CAML is set to maintain the established stable operational track record at Sasa. Updated production guidance remains in line with our estimates for 2019 onwards. The tailings storage facility at Sasa is now largely complete which will provide storage at Sasa for a further seven years meaning that near term capital requirements at Sasa are largely confined to sustaining capex. Additionally, CAML commenced a life of mine study and resource infill drilling programme. The updated JORC resource is expected to be completed during Q1 2019. Our current model is based only on the existing JORC resources for Svinja Reka and Golema Reka; announced drilling results demonstrate extensions of mineralisation at depth for both ore bodies while at Svinja Reka grades below the 830m level are stronger than the inferred resource which stands at 2.7mnt at 3.2% lead and 2.1% zinc. Exploration at Sasa continues to provide material upside potential versus our mine life estimates while infill drilling will likely provide greater confidence in the near term mine plan. CAML has continued to make progress in identifying growth opportunities screening 22 projects in the period with three site visits. However, exploration results from Shuak have been deemed not to warrant further development by the company and we highlight that having successfully integrated Sasa, CAML has transformed to a larger multi asset operator since it acquired the assets in 2016. Having beaten our production estimates in copper, zinc and lead CAML has again demonstrated its ability to consistently deliver strong operational performance. Although broader market volatility has meant the share performance has been rangebound over the past quarter we believe that the shares remain attractive trading on a 7% yield for 2018 based on our estimates. A core asset base able to deliver consistent strong free cash flow provides a robust platform to grow the business and we believe the shares offer an attractive entry point. We reiterate our Buy recommendation and 309p target price.
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