VSA Morning Miner, 11/11/20
Central Asia Metals (AIM:CAML)#
Central Asia Metals (AIM:CAML) has announced an interim dividend of 6p/sh. for H1 2020. This follows the news that Sasa had reliably resumed production at the full run rate whilst costs of the remedial work including the environmental clean up are firmly expected to be below the earlier guidance of US$1.5m. As we previously highlighted CAML’s low cost base has meant that despite the impact of weaker commodity prices on H1 2020 performance the company has continued to generate positive free cash flow whilst with metal prices up strongly from March 2020 lows the outlook has strengthened.
Indeed, we upgraded our earnings estimates after the Q3 operations update owing to an increase in copper output guidance to up to 14kt while despite the disruption at Sasa, guidance there was unchanged. We now anticipate 2020F EBITDA of US$83m. However, our dividend estimate for the full year of 6.5p/sh. in line with 2019 now appears conservative since we had assumed a payout at the bottom of the policy range of 30-50% of FCF. In 2017 and 2018 when CAML paid a respective full year dividend of 16.5p/sh. and 14.5p/sh. this implied a payout ratio of over 40% in each case and with a stronger metal price outlook we anticipate that this confidence will feed into upcoming decisions on dividends.
The case for commodities exposure has not, in our view, been dented by the latest vaccine announcements. The unprecedented increases in infrastructure spending in China and the rest of the world implemented as stimulus as response to the economic impact of lockdowns will take years to be borne out in terms of mined volumes and commodity demand and indicators such as Chinese copper imports which this month surpassed the 2019 total in just ten months is but an early indicator of the positive impact on demand. CAML remains a top pick, in our view, for exposure to this trend and today’s announcement restores certainty over a key pillar of the company’s investment case.
We reiterate our Buy recommendation and 242p/sh. target price.
Oliver O’Donnell, CFA, Head of Research & Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: [email protected]
Paul Renken, Senior Geologist | T: +44 (0)20 3005 5011 | E: [email protected]
VSA Capital Research | T: +44 (0)20 3005 5000 | E: [email protected]
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