Profits and costs up for miner CAML

Central Asia Metals (CAML) operates on a fairly simple basis: find rocks containing metals (either underground or from waste dumps at an old mine), put them through a processing plant and sell them for hefty profits. This strategy has worked well for years and seen millions of pounds handed back to investors. 

The red hot commodities market this year has supercharged this profit engine: with copper, zinc and lead prices hitting multi-year or record highs in the first half, CAML looks on track to reach a record full-year cash profit of $132m (£95m), according broker Peel Hunt’s estimate. 

The first half did have some rough edges, with costs at the Sasa mine in North Macedonia driven up by the local currency strengthening. This hit CAML’s earnings alongside higher administrative expenses, with earnings per share coming in 19 per cent below RBC Capital Markets’ forecast, at 18c. Hedging contracts resulted in a $4.9m loss being recognised as well, hitting earnings. 

The Kounrad copper operation saw a 6 per cent drop in production in the first half, compared to 2020, but the higher price of the red metal saw a 69 per cent jump in cash profits on the asset level, to $46m. 

CAML chief executive Nigel Robinson said the current bull market likely had 6-12 months to run, given new copper supply was coming to market, although said the red metal remained the company's preferred commodity because its “fundamentals are so strong”. Robinson said CAML was still “prepared to pay good money for an asset” given the long-term forecast that copper will go back to supply deficit in the mid-2020s. 

Thanks to the higher metals prices, the miner was able to pay down debt earlier than expected while also handing shareholders an interim dividend of 8p, representing 40 per cent of free cash flow for the first half.  

CAML is also expanding the Sasa operation, building a new tailings system to store waste from the plant and a new entrance to the underground workings, called a decline, as it shifts to a different style of mining. 

Parts of this $19m project need new permits from the government, and Robinson said, which would be done by the end of October next year in time for construction to start on the new tailings facility and processing plant. 

CAML is a cheap producer so will be insulated even when copper comes down. Buy 

Last IC View: Buy, 252p, 30 Mar 2021