Copper prices are surging upward again as new data showed the Chinese manufacturing sector improved for the third month in a row and the US narrowly avoided falling off the fiscal cliff. Shares in junior copper producer Central Asia Metals (CAML) wasted no time in reacting to the news by rising 13 per cent in intraday trading, yet the company's strong share price performance leads us to downgrade the shares to a hold.
Indeed, since Central Asia declared an impressive 7p maiden dividend in early December, its shares have climbed to 142p from 95p. We first recommended the shares in June at 80p when they traded at less than three times earnings forecasts for 2013; now, the shares trade at 8.3 times Canaccord Genuity's diluted EPS forecast for 2013 - significantly higher than peers such as Rambler Metals and Mining (RMM) on a forward PE ratio of 3.1 and Canada's Copper Mountain Mining on 5.7.
And while copper is expected to perform well in early 2013 on the back of further positive economic data out of China and the US, the copper market is likely to be in surplus later in the year with many banks forecasting lower prices further out.
Central Asia's stalled deal to acquire the remaining 40 per cent of its Kounrad project is also looming in the background. The acquisition is taking much longer than originally anticipated and we are concerned that the current terms are too favourable. That said, a completed deal could provide a big boost to the company's share price and earnings potential if completed in first half of 2013.
