Central Asia Metals Share Discussion Threads

[mount teide] 24/9/2017 15:53

Interesting article on the metal sector - thanks to maverick on the ARS board.


What selloff? Metals rally ‘just started’ as fund goes long



'Forget the selloff. This metals rally’s got legs. Even with aluminium near a five-year high, there’s scope for more gains to $2,500 a metric tonne, according to Commodities World Capital, a new hedge fund that says it’s returned more than 10% in the past year.

Zinc will likely surge to $3,500 a ton in six months, chief investment officer Luke Sadrian said in an interview. Aluminum and zinc traded at $2,114 and $3,015 on Friday.

“If many people think the base metals are getting overdone, our thought process is the base metals rally has just started,” said London-based Sadrian, who’s previously managed money at Brevan Howard and Moore Capital Management. “The favourite trade now is being long aluminium and long Zinc. Having said that, we also favour copper at points in time.”

Metals resumed a selloff on Thursday as the dollar climbed after Fed Chair Janet Yellen said the US economy is robust enough to withstand higher interest rates and a reduction in the Fed’s balance sheet, while China’s credit rating was cut by S&P Global Ratings for the first time since 1999. Contracts extended declines Friday on a report that North Korea could be considering the testing of a hydrogen bomb in the Pacific Ocean.

Prices soared to the highest in three years early this month as officials in China doubled down on efforts to rein in production and clean up the environment before a key political meeting in October. More shutdowns are planned this winter to curb pollution, while demand in the country is holding up, spurring banks such as Citigroup Inc to boost price forecasts.

“I think we’ll have a pretty sustained bull market in base metals for the next 12 to 24 months” because there hasn’t been any capital expenditure in the sector for the past few years, Sadrian said Wednesday. “Inventories are getting drawn down, demand is healthy.”

The London Metal Exchange Index of six metals is up 18% this year as resilient global demand combines with constrained supply to push up prices. Aluminum is the standout performer, rising 25% and touching the highest level since 2012. Zinc is up 17% and near a 10-year high, while copper has added 15% and reached its best level since 2014.

Copper has dropped from a high of $6,970/tonne this month and was at $6,377 on Friday. Barclays Plc has warned output shortfalls are “over-hyped” and Goldman Sachs Group Inc has said the metal’s been about 10% above fair value.

Sadrian, who’s tracked commodities since 1991, is looking to go long copper as he targets a surge to $7,500 by the end of the first quarter. “Copper at $6,500 is probably the time to buy,” he said. “I think if you had missed buying on the way up, I would probably buy now.” '


Zinc - has been in deficit since 2016 - check out the 1 and 5 year warehouse stock level charts at the bottom of the page in the link below - reminiscent of an Austrian ski jump slope!

[crazycoops] 23/9/2017 18:40

carcosa, I'm not sure I agree with your interpretation that the divi will be reduced. It seems to me that CAML is being positioned as a solid dividend share which is also maybe, a prelude to a main market listing. I hold and am looking forward to reading updated broker forecasts, hopefully next week.

[waterloo01] 23/9/2017 18:25

MT, thanks for your insights so far. I'm slightly less sanguine than CAML are about the risks they are taking on with this mine. With a long history often comes old problems, on which we have no indemnity! and surprised the main man is quoted as saying that it's only care and maintenance as the risk warnings suggest there is a fair amount of infrastructure needed (tailings, river diversion etc)

Orion however are everywhere! Have a death hold (IMO) over WTI and a 20% holder of ATYM in the AIM space, so heavily into copper amongst other metals, although they sold a bunch of off-takes last year. Interesting how almost all the big mining finance companies seem to be run out of Switzerland.

Although don't know what they paid, with the price being paid by CAML would suggest they are getting a very healthy return and not surprised that they have structured the deal including the $50m share stake.

Like some of the projected numbers, but undecided about the level of risk this actually involves.

[mount teide] 23/9/2017 16:41

Still researching but have come across very little about the two private equity owners of Lynx Resources other than:


CAML will acquire Lynx Resources Ltd from US Orion Mining Finance and Swiss PE firm Fusion Capital AG.

Lynx Resources was set up to purchase the SASA mine in 2015 for an undisclosed sum from Solway Investment Group - Orion's contribution to the deal according to their website was by way of a $201,468,437 Equity, loan, stream and off-take transaction.


The proposed Lynx Resources deal includes:

$50-million raised by issuing shares in CAML to Orion Mining Finance, one of the world’s leading mining-focused private equity businesses.

Orion Mine Finance founder and CIO Oskar Lewnowski said: "We feel strongly that the combined entity will be well-placed to benefit from strong fundamentals in the copper and zinc markets. We look forward to becoming a long-term, supportive shareholder in CAML."



New CAML major shareholder Orion Mine Finance CIO Oskar Lewnowski was interviewed by MINING SEE Publication and Bloomberg(previous to that), shortly after the purchase of the SASA mine by Lynx - it contains some interesting background information on Orion Mining Finance, the SASA mine, and industry comments from Lewnowski a contrarian investor, who appears to be a shrewd investment judge of the sector with prescient timing:

'Orion, named for the mythical Greek hunter, was founded by Lewnowski in 2013 as a spinoff of Red Kite Group. Until now, the company has focused on mines financing, acquisitions and providing merchant services. Orion is a co-investor in Anglo American Plc’s copper mines in northern Chile, and in November agreed to buy a zinc and lead mine in Macedonia.

Orion Mine Finance Group is starting a hedge fund at a time when most investors are fleeing commodities. Orion’s expansion is unusual because this year(2015) has seen some of the biggest, most well-known traders shut down their flagship commodity funds during the worst year for raw material prices since the global financial crisis of 2008. The Bloomberg Commodity Index, which tracks the performance of 22 natural resources, has plunged two-thirds from its peak to the lowest level since 1999.

“For a long time, metals were driven by financial flows, be it mining-orientated banks, commodity hedge funds, CTAs and even retail equity investors,” Lewnowski said in an interview in London. “With those guys out, we are back to fundamentals. And that’s an environment in which we can do well.”

“There are three factors driving commodities: momentum-driven financial flows, physical fundamentals and macro events,” Lewnowski said. “A number of funds including ourselves are equally adept in interpreting macro events. We have an understanding of momentum because we trade. We understand fundamentals because we are in the physical business.”

The London Metal Exchange index of six industrial metals has lost 25% this year(2015), heading for the worst year since 2008. Nickel, down 40 percent this year, is the second-worst performer in the Bloomberg Commodity Index.

“The turnaround is going to come in 2018,” Lewnowski said. “The peak price cycle was in 2011 and these cycles tend to last seven years. Nickel might actually be interesting next year. A lot of people hate it. Seventy percent of mined production is losing money. That’s a situation that cannot last.”

Orion Mine Finance Group reported it has purchased the SASA lead-zinc mine in Macedonia from Solway Investment Group for an undisclosed sum.

The transaction represents Orion’s first investment in Macedonia and its first partnership with Fusion. Oskar Lewnowski said: “The SASA acquisition is a solid example of our commitment to investing in jurisdictions with a long mining history, and in resilient mines. Solway successfully brought SASA back into production in 2006. We are capitalizing on this opportunity to take the mine to the next level. We look forward to working with the Fusion management team to leverage SASA’s long mine-life, high-grade resource and competitive cash-cost position.” '




Since the SASA mine is Lynx Resource Ltd's only asset - it will be interesting to see whether the investment partnership set up between Orion Mining Finance and Fusion Capital to buy SASA in November 2015, continues post a deal with CAML proceeding.

[extrader] 23/9/2017 14:19

Hi all,

We've heard CAML's reasons for buying, which on the face of it make sense.

What are LYNX owners' reasons for selling ? and are they plausible ?

ATB

[mount teide] 23/9/2017 11:55

Was out all day until late yesterday, so still getting up to speed on the CAML news - much to take in!

Following initial reservations and some preliminary research on the SASA mine and Macedonia, i'm beginning to warm to the investment prospects of the proposed deal;


Exec Chairman Nick Clark's comments in a Telegraph interview are interesting, as i rate Nick highly as a tough and very astute businessman:



'Nick Clarke, executive chairman, said CAML had been searching for a new mine to buy for at least three years, and had run the rule over “around 150 projects” before settling on Lynx.

“We were looking to acquire something with low operating costs, which will enable us to have a good cash flow margin so we can maintain our dividends,” he said.

“This is the perfect next step. There is no major capital expenditure required other than sustaining capex. It has a workforce in place. It’s a mature mine, a safe mine… it has all criteria we’ve been looking for.”



Likewise, initial research on Lynx Resources has somewhat tempered the instinctive concerns i had on first reading the RNS News - it seems an impressive well managed company and, the SASA mine one of the most important and profitable businesses in Macedonia; while the mining sector is of 'crucial' importance to the economy according to the Macedonia PM.

Lynx News:

'June 10 2016 marked SASA Mine’s 10th anniversary since the restart of operations in 2006, and 50th anniversary since the original opening. The mine, which produces 770 thousand tons of lead and zinc ore a year, is one of the largest zinc/lead mines in Europe, and one of the most profitable companies in Macedonia.

“In the last 10 years, SASA has established itself as one of the largest lead and zinc mines in Europe, and one of the largest net exporters to EU countries from Macedonia. All of these successes would not have been possible without multiple investments and collective efforts of all SASA employees”, SASA management said at the celebration, which was attended by Macedonia’s Prime Minister and other national officials, media and stakeholders.

“Mining is crucial for the Macedonian economy and for the growth of the GDP,” stated Macedonian Prime Minister Emil Dimitriev, who attended the celebration of SASA’s 10th anniversary in Makedonska Kamenica.

“With the new investments, SASA has maintained more than 700 employees, and secured a life of at least a further 15 years for the mine. The potential of the mine for growth and development of the whole country is huge,” said the Prime Minister.'

At first sight CAML do however look to be paying a full-ish price for SASA based on the 2016 Lynx Accounts - but, it would be prudent to take into consideration the fact that the average price of Zinc and Lead has lifted by some 40%+ and 20%+ respectively in 2017 compared to the average sales prices achieved in 2016 during which a 7 year low was hit (source London Metals Market); and that there appears to be encouraging market fundamentals for Zinc, lead and copper over the medium term. Circa 400,000 oz of silver is produced annually (worth $7m at current prices) from the SASA mine, which bizarrely barely got a mention in CAML's market statements.

Much more research to do over the weekend but, not as apprehensive as i was on first reading the RTO News and heartened that a demanding, hard taskmaster like Nick Clarke ran his slide rule over 150 mining companies before selecting Lynx as a suitable fit for CAML.



'The Directors believe that the Enlarged Group should have combined recoverable copper equivalent mineral resources of 499,000 tonnes and be able to produce in the order of 34,800 tonnes (based upon commodity prices) of copper equivalent metal annually, representing an increase in metal equivalent production of 148% to 2016 Kounrad production.'

AIMHO/DYOR

[nfs] 23/9/2017 11:41

PE ratios are calculated on post tax earnings not pre tax. So the PE ratio estimated above is incorrect

[ntv] 23/9/2017 10:44

had three share issues in a week in my portfolio
caml and pca by far the biggest compared with their current mkt caps
smaller placing in sixh
not been a good week with big fall spsy which caught me out as well
smaller PI's like myself get mullered when things like this happen like placings because we don't get the chance to buy in at placing price
in the case with pca then there is an open offer but 1 for 20
with caml just got to hope the price drops to near 230 at some point to get in at placing price
certainly a company changing deal one way or another.

[carcosa] 23/9/2017 10:43

The Company's dividend policy is currently to return a minimum of 20 per cent. of the attributable revenues generated from the Kounrad Project to shareholders subject to maintaining three times cash cover.

In respect of periods commencing on 1 January 2018, the Company's dividend policy is intended to be to return to Shareholders a target range of between 30 per cent. and 50 per cent. of free cash flow (defined as net cash generated from operating activities less capital expenditure). The dividends will only be paid provided there is sufficient cash remaining in the Group to meet the ongoing contractual debt repayments and that banking covenants are not breached.

Or in plain English.... lower dividends should be expected.

[mr.oz] 23/9/2017 10:39

I'm also liking the deal a lot

The management team and ethics have always pleased me, the life cycle of the main business was a niggle however.

This deal gives the team a great opportunity to expand their talents and build a bigger business with a more diverse and stronger future IMV

[lord gnome] 23/9/2017 10:26

Interesting numbers basem1 and they are likely to be as valid as anyone else's calculations. I'm beginning to like this deal and I think the market will as well. Roll on Monday morning when the truth will be revealed.

[basem1] 22/9/2017 20:54

Right let's say 24% of gross revenue as it is now. Combined revenue $140m divi by 24% = $33.6m div by 1.35 = £24.8m div by £403m = 6.15% yield. Lots of variables but a realistic figure. The share price could rise by 50% and the yield would still be slightly over 4%.

[basem1] 22/9/2017 20:45

My figures are off with the dividend it's 6.8p per share which doesn't sound right. Back to the calculator.

[basem1] 22/9/2017 20:42

Dividend going forward ? Very approximate. 20% of £54m profits = £11m £11m / by 161,220,000 shares = 6.8% They pay slightly more than 20% of profits and my profit estimates look conservative. The share price needs to rise to keep pace with this dividend. ??

[waterloo01] 22/9/2017 19:16

Well a better result than I feared. Will be interested to see updates over the next few weeks. Hopefully be in a better place to decide if I like the move or not. Good to see copper recover and bounce off $2.90.

FT weekend press I suspect.

[arf dysg] 22/9/2017 18:39

oohrogerpalmer (1002) "Why don't us underlings get a chance to buy at 230p"

ooh, oohrogerpalmer, from about mid May to Mid August it was 220p, so we retail investors had a fair chance.

[rampair] 22/9/2017 17:51

It’s the run up to the main market that will push the shares imho. A lot of anticipation plus the thought of all those dividend funds buying in.
I think it’s a pretty good outcome for shareholders- expected less to be honest - but
as I’m a great contrarian indicator....do the opposite!

A lot of money been spent here - a few RNS waiting in the wings once these are tradeable- assuming that the respective regulatory bodies in each company agree.
Obviously shareholders have to agree to this, but see no reason to not be on board.

It certainly doesn’t fit with Taupe frenzy’s view of impending doom.

Notice how there is never a “negative̶1; Bulletin board set up, it would be fun to pop in and post cheery comments to annoy!

Still, Enjoy your weekend all, maybe a nice run up to a 5% yield share on the main market.
R.

[keisersoze] 22/9/2017 17:21

ooh - I think you'll get the chance to buy at 230p fairly shortly.

zho - according to my app the mkt cap is £274m plus £137m raised today = £411m

When SXX moved to the main market it did wonders for the share price.

[zho] 22/9/2017 16:04

Nick Clarke, executive chairman, said "the company, which has a market capitalisation of $284m, may consider a move to London’s main market in the near future."

[hpcg] 22/9/2017 15:44

danieldruff2 - exactly my thoughts. Very little discount, and a much more diverse shareholder base. There really hasn't been much traded over 230, and even with the dividend it is only those who have bought at the two high points which are at least temporarily out of the money. It certainly underpins the current level.

[oohrogerpalmer] 22/9/2017 15:38

Why don't us underlings get a chance to buy at 230p, surely they can put a few shares aside to offer us!!!

[lord gnome] 22/9/2017 15:31

Not sure whether I'm pleased or not with that price. I wouldn't be surprised if CAML gets sold down to around 230 on Monday as people sell forward to take profits on their placing shares.

[danieldruff2] 22/9/2017 15:31

A decent result especially with Kenges flogging off a load of shares at the same time. This must be one of the largest fund raises on AIM this year.

Of most interest will be to see who supported the placing, some holdings RNS to come in no doubt. If there are some big names, a move to the main market could be next.

[basem1] 22/9/2017 15:29

That'll do me. Not forced to even test this price. Look at the placing FUTR did.