Central Asia Metals Share Discussion Threads

[mount teide] 27/2/2018 17:25

Strong close into the finish, topped off with a UT of 70,800 at 323p, the highest price of the day.

[mount teide] 26/2/2018 10:10

Good to see the prospect of potential cost savings against budget for the SASA production along with further evidence of brokers and analysts increasingly waking up to the fact they have been well behind the curve forecasting base metal price rises during the past 2 years.


Peel Hunt note to Corporate Clients today

Central Asia Metals | Add | 345p TP | Zinc TC negotiations look to benefit miners

The annual Zinc treatment charge negotiations are ongoing at present (these are the fees that miners pay smelters to process zinc concentrate).

Last year CAML seemed to benefit from TCs well below the benchmark level of US$172/tonne concentrate. Nyrstar (the largest zinc smelter) has admitted that the average discount of US$40/t that it accepted through 2017 is unlikely to change in 2018.

This suggests to us that the negotiating power will lie with the miners again this year. Spot TCs bear this out, with January/February prices at the US$10-30/tonne range. Word from the negotiations suggests a benchmark contract range of US$140 - US$155/tonne or a 10-20% cut year over year.

Assuming CAML is able to keep its discount to benchmark into 2018 (its SASA mine generates a well regarded clean concentrate) then it looks like the outcome could be noticeably better than we presently estimate. At this stage any potential upgrade from lower than expected TC charges is small (1-2% EBITDA or US$1.5 - US$3m).

That said, better cash flows (and we also note copper prices have been higher than our 2018 average level ytd) will flow into faster debt repayment and all else equal slightly stronger dividends. In yield terms we see the shares offering a 6.5% yield on our 2018 and 2019 DPS estimates.

[mr.oz] 23/2/2018 14:58

Nothing new in the strategy there for a forward thinking, yet selective company
Cheers

[plasybryn] 23/2/2018 14:43

www.theafricareport.com/Southern-Africa/central-asia-metals-looks-to-enter-africa-in-search-of-copper-project.html

[mount teide] 22/2/2018 22:22

Following chart compares the GSCI Commodity Index(20 major commodities) v S&P500 over nearly 50 years. The hugely cyclical nature of the GSCI Commodity chart closely mirrors the Baltic Dry Index Shipping Chart over a similar period.

[mount teide] 21/2/2018 09:28

Rising base metal prices propel Glencore's pre-tax profits to $6.9bn in 2017 from a loss in 2016. Debt fell by a third as, like many major producers in the industry, it continues to focus like a laser on lowering borrowings and rewarding shareholders faith with large dividend payments.


Glencore rewards investors with £2bn in dividends after ‘strongest’ year




Mining group and commodity trader Glencore has hailed its “strongest” year on record and announced it would pay shareholders $2.9bn (£2.07bn) in dividends.

The company will pay out $0.20 a share in two equal payments in 2018.

It came as it reported that pre-tax profits in 2017 surged to $6.9bn from a loss of $549m the year before. Revenue jumped 25pc to $205bn on the back of higher prices for its key products, such as copper, coal, zinc and cobalt.

Glencore’s earnings before interest, tax, depreciation and amortisation – a figure closely watched by the City – jumped 44pc to $14.7bn.

It was helped by a strong performance in its “marketing” arm, which ships commodities around the globe. Earnings in this division hit $3bn, ahead of guidance, its best performance since 2008.

The miner’s debt pile fell by almost a third in 2017 to $10.67bn, the bottom end of its guidance, as it stuck religiously to a commitment to lower its borrowings. Net debt had stood as high as $37bn in 2014 after its merger with Xstrata, and threatened to collapse on top of it in 2015, when investors took fright at Glencore’s balance sheet and the share price plunged.

Ivan Glasenberg, the FTSE 100 giant’s billionaire chief executive and second largest shareholder, said that higher commodity prices and a tight control on costs had “enhanced mining margins”.

“We look to the future with confidence. We believe our unrivalled positioning in ‘Tier 1’ commodities and ‘Tier 1’ assets will continue to create compelling value for all stakeholders,” he said.

Glencore is one of the world’s biggest producers of copper and cobalt, both of which are expected to be in high demand for electric vehicle bodies and batteries.

[edjge2] 20/2/2018 08:30

Was 290p a small while ago warranty. Action encouraging this am.

[warranty] 19/2/2018 17:19

Spoke too soon edjge2!!

[edjge2] 19/2/2018 08:31

Caml restarted its trek up, divis good too.

[mount teide] 18/2/2018 11:18

One reason Zinc, Copper and other base metal prices tend to rise with interest rates is that this relationship tends to point to an environment of increased global economic activity/growth. Companies anticipate an increase in economic activity and so are more willing to borrow to finance expansion.

The increased appetite for borrowing leads to higher interest rates as there is more demand for borrowed funds. This same environment of increased global economic activity likewise tends to be one where there is an increase in demand for base metals.

While base metals and producer stocks have already been in an increasingly bullish trend since H2/2016, driven primarily by strong fundamentals and rising global economic growth, a modestly rising interest rate environment is likely to reinforce this trend.

In this environment, the metals market is likely to become increasingly interested in low cost producers that have already implemented new projects and have low future CAPEX requirements, and so are poised to throw off exceptional amounts of free cash flow in the coming years as metal prices grind higher.

The most attractive producers at this stage of the metals market cycle will be high dividend paying low cost mid/large caps - as they are likely to prove a magnet going forward for the huge flows of institutional money looking to reposition in an environment of higher inflation.

This general theme though still in the early stages is increasingly playing out across the natural resources landscape reinforcing higher inflation and increasing the appetite for investors to own natural resource equities, especially mining shares.

Rising interest rates are hitting the base metals sector at a time when many metals like zinc, copper and lead are already undersupplied and forecast to remain in deficit into the early years of the next decade.

Metal market fundamentals suggest the recent global equities correction has given investors a buying opportunity for a sector that is poised to be a leader in the months and years to come.


AIMHO/DYOR


Note: The 10 Year US Treasury peaked at 5.1% when the shipping/metals markets last peaked in 2007/8 and bottomed at 1.35% in H1/2016 along with the shipping/metals markets.

The 10 Year Treasury has since risen to circa 2.85% - the 25 year average is over 5% - and strongly broke out of a previously, incredibly resilient 30 year downtrend during Q3/2017.

[mount teide] 17/2/2018 11:32

“The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business.” - Warren Buffet

The pricing power of cyclical markets:

The commodity cycle saw the mining industry's pricing power tap turned fully off and locked shut at the market top in 2008-2010, and this is where it stayed until the 6-8 year waterfall drop off in industrial metal pricing hit the H1/2016 capitulation bottom - a level well below the C1 cash cost of much of the mining industry and massively below the cost of developing new production(estimated at nearly double the market bottom pricing for Copper and Zinc).

In H2/2016 - as a consequence of an estimated 75% drop off in production development during the previous half decade to preserve cash, the almost complete cessation of exploration, years of widespread industrial action at the major mines in Chile, Peru and South Africa together with a material drop off in ore grades/increase in operating costs at the principal global scale mines, the 'pricing power tap' was dusted off, given a squirt of WD40 and gently cranked open.

Since, with Chinese demand remaining strong while the synchronized nature of growth in the rest of the world gathered pace, the metals industry business cycle has fallen behind the growth in demand and, seen Zinc and Copper move into deficit and warehouse stocks at/close to decade lows, the cumulative effect of which has been to turn the 'pricing power tap' close to fully open.

Any objective assessment of the current market fundamentals (now supported by the consensus view of market analysts after 18 months of most forecasting further armageddon for the sector), would suggest that despite industrial metal pricing surging off the lows in 2016/17, as a result of an unprecedented set of circumstances(demand-supply deficit/decade low stock levels) this early in the new commodity cycle, the pricing power tap is likely to remain at/close to fully open for the rest of the decade before slowly getting shut-in during the following decade as the next commodity cycle market peak is approached perhaps in circa 2023-2026.

However, to this observer with the scars of three shipping/commodity cycle scars deeply etched on his back, a number of factors suggest this commodity cycle recovery/boom phase may have a longer life expectation and greater trough/peak price range than in previous cycles - why?

The last industrial metals/shipping recession phase was longer and deeper than any previous cycle in living memory.

After a decade of low investment following the financial crisis many high population Nations are now actively involved in implementing huge capital expenditure programs to rebuild their crumbling infrastructure - India, USA - while most of the fast growing African and the emerging Nation economies are carrying out and accelerating infrastructure and industrialisation development programmes similar to China in 2000-2008.

Global GDP forecasts have seen repeated uplifts by the IMF to nearly 4% for 2018 and 2019, together with the US announcing a record programme of tax cuts, greater even than the Reagan era which produced an enormous decade long economic boost.

The rapidly growing demand for industrial metals from the materially important global electric vehicle and renewable energy sectors over the decade ahead.

The last cyclical market peak pricing in 2007(Zinc and Lead) and 2010(Copper), after inflation adjustment is 54%(Zinc), 87%(lead) and 65%(Copper) above CURRENT pricing!

As a result of low barriers to entry(anyone can buy a ship or a mine), the shipping/commodity markets have historically charted a remarkably reliable 15-20 year boom and bust life cycle over the last 70 years - as a consequence, in an average human lifetime investors may get 2-3 small windows of opportunity to time an investment in the sector perfectly. Once every 3 or so shipping/commodity cycles, circumstances(industry and global economics fundamentals conspire) to produce a 'super' recovery/boom phase - with shipping, zinc, copper and the oil markets coming off near decade long falls of 98%, 66%, 56% and 76% respectively, I strongly suspect this latest cycle recovery phase may turn out to be such an event.

Ignore the enormous pricing power (up and down) of long term cyclical markets at your investment peril!

AIMHO/DYOR

[mount teide] 16/2/2018 21:44

AD - many thanks - the Zinc 2016 commodity cycle low price was a typo(as you correctly pointed out i duplicated the lead cycle low price in error) - it should have read $1,454/t - $0.66/lb - will edit post accordingly.

[arf dysg] 16/2/2018 21:29

MT (1404)

Same comment as on the ARS board - I notice the same prices for lead and zinc 2016 commodity cycle lows.

[mount teide] 16/2/2018 16:40

Plenty of demand for stock this afternoon - despite being up 18% from the placing price in a week, it was possible to get an instant sell quote for any volume up to 60k shares within 1p of the bid price.

[mount teide] 16/2/2018 12:00

Zinc forecast to peak at $4,300/t($1.95/lb) in 2019 - American Metal Market - 14 Feb

Subscription website so just a few snippets:


'The global zinc market is riding a wave of solid demand and historically low stock levels, leading to a cyclical uptick that will peak at $4,300 per tonne in 2019, according to Jonathan Leng of Wood Mackenzie.

Speaking at the International Zinc Association meeting, Leng noted that a mine production and consumption gap that has appeared over the past few years is expected to grow through 2022.

In total, 2.3 million tonnes of lost production occurred in 2016 and 2017 after miners decided to close and reduce production. These cutbacks disrupted trade flows in the concentrate market, with miners reducing exports to China and instead sending material to smelters in Europe, Japan and South Korea.

Exchange stocks tumbled to a total of six days of global consumption in January 2018 from 14 days in January 2017. This led Leng to predict increased tightness in the refined market, which will provide fundamental support for higher prices.

"We expect stocks to be drawn down even further in the first half of next year and we expect this to bring the zinc price to a cyclical peak of $4,300 per tonne," Leng said.

This year a series of mine openings will increase supply, but the long-term deficits still exist. For now, the market is expected to be roughly balanced as global zinc consumption increases 2.2% from 2018-22.

But the investment appetite for the zinc market remains muted, Leng said, adding that large, multi-decade mines take a considerable amount of capital and that isn't available right now.

"The big problem is that banks are not willing to finance big mining projects," Leng said. '

[mount teide] 16/2/2018 11:10

Copper, iron ore price jump sparks rally in mining stocks - Mining.com



'Mining and metals investors were piling into the sector's big names on Wednesday as gold jumped, base metals prices surged and iron ore continued to rally on optimism about global demand for raw materials.........

.....Obituaries were being written for Anglo American two years ago before the 100-year old company went on radical restructuring drive. Since then the world's fourth largest diversified miner has surged 500%'

Top listed copper producer Freeport-McMoRan jumped 7.4% and with Vale was among the NYSE's top 10 most actively traded stocks on Tuesday. The Phoenix-based company announced last week that it's reinstating a cash dividend for shareholders suspended in December 2015.'


So well managed is CAML that during an 8 year recession in which Copper sector titans Freeport and Glencore were delivering share-price decimation, dividend suspension and dilution to their shareholders, the CAML management were busy increasing their industry leading dividend to circa 6% and paying back to shareholders in dividends and share buybacks more than £100m - £40m MORE than the £60m the company raised at the 2010 IPO.

[mount teide] 15/2/2018 13:23

You could write a book about the shady sub-plots of CAML being nearly 18% up from the 275p placing for 6% of the company barely a week ago.

FCA should be all over the huge spike in trading volume in the run up to the placing announcement like a rash - don't hold your breath!

[mount teide] 15/2/2018 13:08

Interesting to note that CKN(Shipping), CAML(Copper/Lead/Zinc) and ARS(Copper/Lead/Zinc), following last weeks sharp general market 10%+ correction are already either making new all-time highs or are back close to all-time highs.

[mount teide] 15/2/2018 10:46

Follow the smart money!

Private capital favours investing in copper over gold for first time - Mining.com -Feb 2018

'Gold projects are no longer the favourite destination of private capital raised for investment in the mining sector as optimism about electric vehicle demand steer funds into battery metals.

Private-equity deals in the mining industry bounced back in 2017 according to a new report by UK law firm Berwin Leighton Paisner with investment in the sector jumping by more than 30% to $2.3 billion.

Copper overtook gold as the most attractive commodity in 2017, with $1.6 billion in deals representing just shy of 70% of all money flowing into the sector. Battery metals such as lithium, cobalt (which is mined as a byproduct of copper and nickel), vanadium and graphite attracted $175 million from private equity investors according to the report quoted by Bloomberg:

"With the continued recovery in the sector, 2018 is expected to see an ongoing deployment of capital by the mining private equity funds," Alexander Keepin wrote in the report. "Battery metals, copper and gold are expected to continue to be the most popular commodities."

[mount teide] 15/2/2018 09:33

He is still under the cold shower tearing up £50 notes - its proving a better 'investment' than shorting CAML.

[mount teide] 15/2/2018 09:29

Industrial Metal Pricing post the H1/2016 Commodity Cycle recession low compared to pricing at the peak of the recovery/boom phase of the last commodity cycle 2000-2010:

Copper
$4,363/t - $1.98/lb - 2016 Commodity Cycle Low

$4,871/t - $2.21/lb - 2016 Average Price
$6,193/t - $2.81/lb - 2017 Average Price
$6,193/t - $2.81/lb - QD CAML Model Forecast for 2018
$7,008/t - $3.18/lb - H1/2018 Average price (+13.2% above QD model)
$7,140/t - $3.24/lb - Current Price (15.1% above QD model)

$9,962/t - $4.50/lb - Peak price of last commodity cycle(2010)


Lead
$1,586/t - $0.72/lb - 2016 Commodity Cycle low

$1,873/t - $0.85/lb - 2016 Average Price
$2,292/t - $1.04/lb - QD CAML Model Forecast for 2018
$2,325/t - $1.05/lb - 2017 Average Price
$2,556/t - $1.16/lb - H1/2018 Average price (+11.5% above QD model)
$2,556/t - $1.16/lb - Current Price(+11.5% above QD Model)

$3,898/t - $1.81/lb - Peak Price of last commodity cycle(2007)


Zinc
$1,454/t - $0.66/lb - 2016 Commodity Cycle Low

$2,093/t - $0.95/lb - 2016 Average Price
$2,909/t - $1.32/lb - 2017 Average Price
$3,283/t - $1.49/lb - QD CAML Model Forecast for 2018
$3,438/t - $1.56/lb - H1/2018 Average price (+4.7% above QD Model)
$3,592/t - $1.63/lb - Current Price (+9% above QD Model)

$4,518/t - $2.05/lb - Peak price of last commodity cycle(2007)

[edjge2] 15/2/2018 08:59

boot under it to 320 not bad from 290 odd, with dollar weakness maybe to low 80s boom time for metals. Gold having a go at 1360.