CAML pays investors to wait

In years past, CAML was less responsive to commodity price volatility. Shareholders could rely on the company’s super-low-cost, production-capped operation at Kounrad in Kazakhstan, which generated a bond-like income stream in good times and bad. But since the group’s acquisition of the Sasa zinc-lead project in Macedonia, earnings are more sensitive to price gyrations.

One reason for this has been the loans the company took on to fund the deal, of which $36m has now been repaid. When free cash flow is squeezed, interest payments either take precedence over dividends, or gearing rises.

Shareholders shouldn’t feel too concerned, though. For one thing, in December, the group refinanced its debt and consolidated its borrowings into one facility, which carries an interest rate of 4.75 per cent plus one-month US Libor, and will be paid back monthly on a straight-line basis over four years. Sweeps have also been removed from loan terms, giving management more discretion over the use of its cash flows and shareholder returns. On Peel Hunt’s numbers, the deal equates to a $9m drop in annual repayments.

The broker, whose forecasts are used in the table below, is basing its figures on a bullish average copper price forecast of $6,900 per tonne – $3.13 per pound – in 2019, although there’s reason for comfort even if base metal prices stay grounded. Sasa isn’t the lowest-cost producer of lead and zinc in the world, but alongside Kounrad, group-wide cash costs were 79¢ a pound on a copper-equivalent basis in the first half of 2018, and at the mid-point of the lowest quartile of the global copper cost curve.

In other words, CAML's low cost base makes it better insulated than the majority of its peers. It’s also a very well-run company, as demonstrated by the performance of Sasa under its ownership. The group has met 2018 guidance for 13,000-14,000 tonnes of copper, 21,000-23,000 tonnes of zinc, and 28,000-30,000 tonnes of lead. It's also reveiwing two potential base-metals projects.