Central Asia Metals#: Valuation Upgrade


Copper Testing Multi Year Highs


Central Asia Metals (LON:CAML) is our top pick for exposure to copper and following the recent operational and financial normalisation the shares have jumped, up 16% since our last note. Our copper price forecast assumptions implied that during Q4 2020 the price, at that point up 47% from March lows would pause. This has not come to pass, now up 60% to eight year highs of US$7,688/t, indicating a higher starting point in 2021F and we have upgraded our forecasts accordingly.


Upgraded Assumptions


The changes to our assumptions are primarily between 2021-2025F indicating up to US$126m of EBITDA with a 7% and 11% increase in revenue and EBITDA to US$174m and US$96m in 2021F. Over this period we expect between 54-60% of our adjusted EBITDA figure to be derived from copper production with Kounrad set to be the cornerstone of FCF generation for at least the next decade. On top of that will be FCF from Sasa where the mining method transition is the next major focus for the company as previously announced. CAML has been our preferred copper exposure for some time but it is worth highlighting its best in class cost position (US$0.49/lb in 2020F) which results in a majority of earnings being driven by copper output.


Recommendation and Target Price


CAML despite the recent rally, now up 44% since September and 89% from March lows, continues to trade at a discount to the peer group of 10% and 6% based on 2020F and 2021F EV/EBITDA multiples. The reinstatement of the dividend has been a key factor in the recent performance but commodity price performance over the coming years is set to extend this trend. Kaz Minerals (KAZ LN)’s current take private bid indicates that the already limited pool of London listed copper producers is set to shrink further which may result in a premium rating being attached to CAML in part due to the lack of opportunities available to investors.

We reiterate our Buy recommendation and increase our target price 14% to 285p which implies 33% upside and 37% total return.


Oliver O’Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: [email protected]


VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com


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