Central Asia Metals hit by weaker prices but raises payout ratio

In its search for growth, Central Asia Metals (CAML) has invested in an explorer of a largely untouched mining region: Scotland. The copper, zinc and lead miner will take a 28 per cent stake in private company Aberdeen Minerals for £3mn in cash. This is a departure from its existing assets in Kazakhstan and North Macedonia. 

Chief executive Nigel Robinson said that while a stake in nickel and cobalt hopeful Aberdeen wasn’t a transformational deal, he did see prospects for a battery metals mine in the UK improving. 

“The world is changing. With the geopolitical tensions around the world, you’re finding most governments are actively encouraging the search for these future-facing metals,” he said. 

Aberdeen previously raised cash at 7.5p a share last year, so this valuation hasn’t been plucked from nowhere, but this is serious money for a company looking for metals with weak prices in an untested area for industrial mining. 

From its existing business, CAML reported Ebitda of $96.5mn (£76mn) for 2023, down a quarter on the year before. Both sales and the cash profit margin came contracted because of the lower zinc and lead prices, and higher costs at both the Sasa mine and the Kounrad operation. Free cash flow was also down but the impact of this on shareholders was limited, as management upped the proportion paid in dividends from the usual maximum of 50 per cent to 69 per cent. Even with this move, the final dividend is down 10 per cent to 9p. 

The higher costs at Kounrad was due to more expensive electricity and wages, although its cash cost remains just $1,565 a tonne, on production of 13,816 tonnes, around level with 2022. Kounrad’s contribution to group profits was hit by a higher tax rate, driven by Kazakhstan’s efforts to balance its books: Russia’s invasion of Ukraine has knocked its neighbour and ally’s economy as well. 

At Sasa, costs climbed slightly but power came cheaper thanks to a new supply deal. Capital spending overall will drop by $2mn-$4mn this year, with a “light at the end of the tunnel” in terms of mine improvements across the two assets, Robinson said. 

The driver for 2024 earnings will largely be metals prices: copper has traded strongly at close to $9,000 a tonne this year but zinc and lead remain weak. CAML’s cash position and low costs mean it is insulated from prices remaining low, shown by the 2023 free cash flow level, and the yield remains high. Buy.

Last IC View: Buy, 204p, 13 Sep 2023