Central Asia Metals: Strong Interim Results for H112

Central Asia Metals (CAML.L) has produced a strong set of interim results for H112. The main takeaways are that it brought Kounrad into production in 20 months, US$8m under budget at US39m, and it achieved copper cathode production of 1,728t to end June with 4,318t to date (from first production on 29 April to 26 September). Being so close to its original production guidance of 5,000t for FY12 already, CAML has raised its guidance to 5,750kt for 2012, a 15% increase. This translates to a potential 60% increase in EPS to 12c, which uses a US$3.44/Ib Cu price for FY12 (vs US$3.00/Ib previously). Our NPV10 rises slightly to £1.13 (vs £1.11 previously) at US$3.00/Ib from 2013. Near-term upside is geared to CAML taking sole ownership of Kounrad, probably now during H113, depending on Kazakh regulatory approvals, which would lift our NPV10 to £1.99/share.

Gross cash costs low at US$0.85/Ib, profit margin 75%
CAML operates at a vastly lower C1 cash cost of US$0.85/Ib compared to its larger peers (Kazakhmys’ C1 costs are US$3.60/Ib and Antofagasta’s US$1.60/Ib, excluding by-product credits). This is a clear indication of CAML’s operational efficiency derived from a simple cheap copper production method via re-treatment of Kounrad’s waste dumps.

Flexible flow rates and heating to minimise effects of winter
Entering into the fourth quarter also sees the onset of the Kazakh winter and the potential for leachate to freeze. However, similar heap-leaching operations in Mongolia operate year round and CAML has operated its pilot plant through winter periods with no such issues and intends to heat its solution to maintain production levels. Keeping leachate flowing will result in production being maintained.

Valuation: 60% increase to EPS, 2% to NPV10
A revised 5,750t of Cu cathode produced for 2012 equates to our raising our EPS guidance from 6.7c (based on our long-term Cu price of US$3.00/Ib and 5,000t copper cathode produced) to 12c (using the average realised copper price achieved to end June of US$3.44/Ib). Our NPV10 increases marginally from £1.11/share to £1.13/share (using a long-term 3.00/Ib Cu price from 2013 onwards).

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