Central Asia Metals#: Q4 2018 Operations Update
2018 Production Ahead of Estimates
Central Asia Metals (CAML LN) beat our full year production estimates across copper, lead and zinc owing to continued strong operational performance. Copper production of 3.36kt in Q4 2018, up 8% YoY meant full year production of 14kt, in line with 2017 production, at the top end of full year guidance and 2% ahead of our forecast. Sasa zinc production of 5.8kt in Q4 2018 was up 8% YoY resulting in 2018 output of 22.53kt, up 4% YoY and ahead of our forecast by 1%. Lead production of 7.40kt was flat YoY meaning 29.39kt through 2018 although down 2% YoY was 2% ahead of our forecasts.
Guidance for 2019 Implies Continued Robust Output
CAML has provided 2019 guidance broadly in line with our existing forecasts. At Kounrad guidance of 12.5-13.5kt for 2019 is 0.5kt lower than 2018 and 2% lower than our prior estimate of 13.75kt. This is due to the higher contribution from the Western dumps in 2019 (c70%). At Sasa guidance for zinc and lead output is unchanged from 2018 at 22-24kt and 28-30kt respectively. We anticipate 2019 production of 28.6kt lead and 22.2kt of zinc.
Rising Free Cash Flow Generation
Despite a reduction in 2018 forecasts reflecting weaker commodity prices in H2 2018 we have reduced our revenue, EBITDA and net income estimates by 3%, 5% and 8% to US$198m, US$122m and US$50m respectively. Net income continues to reflect a one-off legacy tax charge meaning our 2018F dividend estimate is reduced to 13.85p/sh. However, lower capital spending and a continued low cost base imply a 33%increase in FCF to US$88m in 2019F.
Recommendation and Target Price
Trading on a dividend yield of 6% highlights the ongoing value opportunity and we expect the shares to outperform as FCF generation continues to increase in 2019 and 2020.
We reiterate our Buy recommendation and target price of 309p which implies 33% upside and 40% on a total return basis.