Join our community of smart investors

Central Asia Metals expands into Macedonia

Limited growth potential in Kazakhstan has pushed the miner to purchase a zinc-lead mine in Macedonia
September 26, 2017

For several years, Central Asia Metals (CAML) has had a growth problem. Not, it should be noted, in terms of shareholder distributions; as half-year results note, more than $105m (£78m) has been paid out through buybacks and steadily-rising dividends since its 2012 IPO. Instead, the issue has been the miner’s highly profitable operations at Kounrad in Kazakhstan. Essentially finite in scale, they had rendered the stock something of a high-yielding bond proxy for the copper price.

IC TIP: Buy at 232p

All is now transformed. Last week, the company announced a reverse takeover of Lynx Resources, operator of the Sasa underground zinc-lead mine in Macedonia, in a $402.5m deal. After several years on the hunt for a second asset, Central Asia described the transaction as “compelling”, and “both earnings and cash flow per share accretive in the first full year” of ownership. Sasa’s ore body has proved consistent, while current reserves guarantee production until at least 2032. And like Kounrad, Sasa is a cheap mine to run: expected cash costs of 39¢ per pound of zinc and 29¢ per pound of lead in 2017 put the project in the bottom third in the global cost curve of both metals.

These low cash costs, and the generally favourable outlook for global zinc and lead demand, were the key attractions for executive chairman Nick Clarke, who said sellers Orion and Fusion Capital were keen to exit their profitable two-year ownership to close their funds.

Investors should expect the deal to go ahead. A five-year, $120m senior debt facility has been agreed with existing Lynx creditor Traxys, at an interest rate of 4.75 per cent plus Libor, while an accelerated book build has already received commitments for $153.5m-worth of new shares, priced at 230p. Encouragingly, Orion has also agreed to acquire a $50m equity stake, pointing to the private equity group’s continuing faith in the SASA asset and Central Asia management.

The Aim-traded company is still left with a branding conundrum, now that the majority of earnings will now emanate from Europe. “Perhaps we should change the name to ‘Camel’,” suggested Mr Clarke, referring to the company’s stock code. “That’s what everyone calls us anyway.”

Prior to news of the deal, analysts were expecting full-year pre-tax profit of $44m and adjusted EPS of 31¢.

CENTRAL ASIA METALS (CAML)  
ORD PRICE:232pMARKET VALUE:£259m
TOUCH:231-233p12-MONTH HIGH:263pLOW: 179p
DIVIDEND YIELD:7.1%PE RATIO:11
NET ASSET VALUE:113¢*NET CASH:$41.7m †
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (p)
201629.815.09.575.5
201737.320.413.56.5
% change+25+36+41+18
Ex-div:05 Oct   
Payment:27 Oct   
£1=$1.35. † Figures prior to £137m placing in Sept. *Includes intangible assets of $41.8m, or 37¢ a share.