Central Asia Metals Share Discussion Threads

[bogdan branislov] 25/6/2018 14:37

Interesting, I have not seen a quality operation at this type of valuation relative to earnings and forward equity growth for some years, since about 2013 in fact - Dart Group at c70 pence per share at the time comes to mind. Why has the opportunity arisen? Always hard to say precisely, while Brexit not directly a factor for CAML, the UK retail investor remains jumpy in general in part due to Brexit. The rising US interest rates are a factor in the mind of some, but not a big one. The threat of a trade war between the US and China is the big current factor. An early recession, or at least earlier than would otherwise have been, on the back of a trade war would make re-election for Trump very difficult. His rash fiscal policy is designed to stimulate late cycle growth leading up to the next election, with the monetary tightening consequences coming after the vote, or so he hopes, maybe he does not see the consequences! Anyway, the outcome of a trade war on his re-election prospects is clear to all. A compromise will be struck. I am moving another £20k into CAML in the next few minutes, once the money is available from another sale, see level 2 if you have it, I don't use level 2. At this point in the cycle CAML is a very rare opportunity, I intend to make the most of it. There does seem to be a hardening of CAML posters here and on IC etc. The doubt filled occasional posters have now long gone due to the recent shake out, those still here have backbone, you need backbone to make money in stocks. Bogdan

[petenorrislos] 25/6/2018 12:45

Looking like another shocking day

[cshfool1] 25/6/2018 08:18

Hmm, anyway presumably the next useful data are the Q2(2018) production results on or around 4/5 July? I currently have CAML on a forward rolling PE of 5.86 and a forward yield of 9%, (courtesy REFS), bargain ratings that are hard to explain. I wonder if some of those institutions who took up the placing have been quietly unloading as double the current price (263p) would still be a snip.

[garycook] 25/6/2018 03:12

coxsmn,Read your post on HGM thread.Looking like plenty of upside here for CAML.

[bogdan branislov] 22/6/2018 12:44

Re CAML's forward PE. IC recently did a 'quality' stock screen, designed to show high quality stocks on various criteria, not necessarily cheap stocks although they screen out very high earnings ratios. Of the well over 50 stocks highlighted, CAML stood out a mile particularly with its official forward PE of about 7. Actually the screen was very linked to earnings growth, CAML is all about cash generation and balance sheet equity growth due to their high margins, so the screen still under estimated the value and equity growth within CAML. I also agree with the post below, the forward earnings estimates are very conservative, typical CAML, the forward PE should come out comfortably below 6. Bogdan

[mount teide] 21/6/2018 22:19

Over 95% of way through H1/2018 it is encouraging to note that Quoted Data's forecast for 2018 EBITDA of $138m and EPS of 51.8 cents/37.5p still continues to look conservative, as a result of Copper, Lead and Zinc 2018 pricing averaging 11.7%, 7.7% and 1.1% respectively above that assumed in Quoted Data's model.


Copper
Averaging $3.14/lb to date in H1/2018 - 42.1% above 2016 average, 11.7% above 2017 average and 20.3% above H1/2017 average.

Lead
Averaging $1.12/lb to date in H1/2018 - 31.7% above 2016 average, 6.6% above 2017 average and 10.8% above H1/2017 average.

Zinc
Averaging $1.50/lb to date in H1/2018 - 59.5% above 2016 average, 14.9% above 2017 average and 24.1% above H1/2017 average.

Data Source: Kitco

SASA mine acquisition - $403m price paid was based largely on the 2016 accounts - pricing of Zinc and Lead hit decade lows in 2016 of $0.66/lb and $0.73/lb respectively. Currently average H1/2018 pricing is 127% and 53% respectively above the 2016 lows.


Comparison of Quoted Data's model using their assumed metal pricing compared to actual metal pricing averaged to date in 2018:

Quoted Data forecast EBITDA increasing by 94.3% in 2018 to $138m(EBITDA margin of 66%) as the full year impact of the SASA mine production kicks in.

However, if H1/2018 average pricing is maintained through 2018, Quoted Data's model would generate circa $15.24m of additional revenue/profit - broken down as:

Copp +$9.56m - model assumes $2.81/lb - H1/2018 average price $3.14/lb
Lead +$5.20m - model assumes $1.04/lb - H1/2018 average price $1.12/lb
Zinc +$0.48m - model assumes $1.49/lb - H1/2018 average price $1.50/lb

In addition the QD model conservatively assumes 13,150 tonnes of Copper production in 2018. CAML management has forecast 13,000t to 14,000t for 2018. A 13,500t mid range performance would generate an additional $2.4m of EBITDA, while a top end 14,000t performance would see an additional $5.9m.

Consequently, at 2018 average metal pricing to date, QD's model with a 13,500t performance from Kounrad in 2018, would generate EBITDA of $155.6m, while a similar Kounrad performance to 2017 of circa 14,000 tonnes would result in EBITDA of $159.1m(up 141% compared to 2017 actual)

EBITDA of circa $159.1m would put EPS up from QD's 2018 forecast of 51.8c(37.5p) to circa 58.2c(43.75p) giving a forward PER of 5.94.

AIMHO/DYOR

Note: Quoted Data's 2018 production assumptions for SASA and Kounrad continue to fall within the latest full year guidance range issued by CAML.

[mount teide] 21/6/2018 21:10

warranty - thanks - Trump has got his eye on re-election.

He is looking for some modest trade concessions from China and Germany(dressed up as the EU), so that he can go back to his core vote and demonstrate concrete progress with his 'America First' policy.

If China and Germany give him that, he is likely to call off the dogs, since the last thing he will want is to go into a presidential election in 18 months time with the economy contracting and hemorrhaging jobs and property prices stagnating/falling.

Likewise, over the next few years in the run up to 2021, when China is due to celebrate achieving the first of its centennial goals: the delivery of middle-income status and a moderately prosperous society - for political purposes it is as sure as night follows day that the leadership will open the capital expenditure taps for public infrastructure projects in order to demonstrate to the World but more importantly its own people, that its rulers are doing a good job and delivering an economy that is driving up living standards for its people.

With regard to a possible economic downturn, it should not be forgotten that while the Dow has more than tripled to date post the 2008 economic crisis, for most of that period the industrial metal sector was in cyclical recession, and saw Copper, Lead and Zinc pricing bottom at $1.98, $0.73 and $0.66/lb respectively - yet incredibly even at the nadir in 2016, in that financial year CAML still generated Group EBITDA of $39.1 million, a margin of 56%.

Considering the industry background since of a further fall in mine grades, rapidly rising operating/employment costs at the South American mines, and most of the industry survivors in the early stage of rebuilding balance sheets - should the industry revisit those 2016 metal prices, it would likely decimate the industrial metals markets to such an extent that it would seriously impact/reduce future global growth - as a consequence, i believe this is very unlikely. The following chart provides some insight in support of this view: it compares the GSCI Commodity Index(20 major commodities) v S&P500 over nearly 50 years.




Finally, a glance at the business performance of CAML against it peers during the 8 years post IPO tells its own story about the robustness of CAML's business in a severe downturn - since 6 of those years were effectively the deepest and longest recession in the sector in living memory, which brought most of the industry heavyweights to their knees and wiped out many of the smaller operators and explorers.

Total Shareholder Returns - CAGR since 2010 CAML IPO - a period during which Copper, Zinc and Lead pricing dropped by 56%, 68% and 60% respectively to decade lows in 2016.

+24.9% - CAML

-0.9% - Antofagasta
-1.1% - Oz Minerals
-1.4% - FTSE 350 Mining
-4.6% - Atalaya
-7.0% - Kaz Minerals
-13.7% - Capstone
-21.0% - Weatherly

AIMHO/DYOR

[warranty] 21/6/2018 19:18

Interesting and informed posts yet again MT, much appreciated. I hold only two miners, CAML and CEY, both debt free and cash rich as well as low cost producers. I feel comfortable with both, though both are struggling currently. I'm looking for a point to add but with so much turbulence at the moment and if The Donald expands his trade war against China, who knows what might happen? These are worrying times and all the potential in the world won't stop an share price falling if the market generally does. Actually, after being stupid and getting nearly wiped out in 2008, I wouldn't have a problem with an opportunity to recover some losses if the market did fall badly!!

[mount teide] 21/6/2018 17:42

I remain an active buyer at these prices - thanks to the greedy HZM management helping me decide to free up a considerable sum of funds.

Their loss continues to be the gain of ARS, CAML, TXP and TRIN.

TXP is one to keep an eye on - $14m annual cash flow at an £18m market cap - with four high impact, low risk, low cost on-shore exploration wells commencing Jan 2019, each with the potential to exceed current daily production of close to 2,000bopd!

With the current 10 well production development programme exceeding expectation and financed entirely from cash flow and, an ultra high impact exploration programme of world class targets starting in Jan 2019 - the next 12 months should be a helluva interesting time to be a shareholder.



I hold 1.1% at an average of circa 9.5p.

[mount teide] 21/6/2018 17:38

Most zinc is used to galvanise other metals, such as iron, to prevent rusting.

Large quantities of zinc are also used in alloys such as brass, nickel silver and aluminium solder and, to produce die-castings, important in the automobile, electrical and hardware industries.

Most of the very high population fast developing world is located in geographical latitudes between the tropics where the average rainfall and humidity is very high by western standards - this is an environment that accelerates the rusting of metals.

Consequently, the rapid pace of public infrastructure development projects and, commercial and residential property development in these high population developing world Nations should continue to strongly underpin the demand for Zinc for its corrosion resistance properties for many decades to come, as most of these Nations are still very much in the infancy of their development.

[cflather2000] 21/6/2018 13:42

I think the future of battery technology is an interesting subject and important for CAML. Lithium batteries seem to be the way head for cars and high power batteries at the moment, however, as lithium prices rise more effort will be made in finding alternative battery technologies. Perhaps lead will have a role in the new technologies. Perhaps not. I suspect it will. Zinc and lead could both see increased or reduced demand over time depending on how the tech evolves.

[mount teide] 21/6/2018 10:51

shield - most lead is used in Lead-acid batteries. Despite the expected rapid rise EV production over the decade ahead, the global ICE market is expected to continuing growing until at least 2030, with latest forecasts suggesting it will still be at circa 75% of today's market size by the end of SASA's mine life in circa 2040.

[shieldbug] 21/6/2018 10:11

On this topic I wonder what the future of lead consumption will be. Metalpedia shows 80% of Lead is used in batteries. Not sure of the quality of this information.

If this is so then I wonder what the future of Lead batteries will be? I doubt electrification of vehicles will have any use for lead batteries. I note also that the large grid connected battery storage units are lithium.

No doubt demand for combustion engine vehicle batteries will continue in the medium term and possibly even grow in the short term but long term I have my doubts about lead.

I am a lot more confident about future demand for Zinc. 50% used for galvanising, 17% in brass and bronze alloys.

[cflather2000] 21/6/2018 09:42

To correct myself - some people talk about caml in terms of copper, not most. Copper is still important, but not the only consideration any more

[cflather2000] 21/6/2018 09:41

I've noticed that most people on this thread still talk about caml as a copper play. In reality, this is now a mixed metal producer. Lead and zinc price outlooks should be considered too. I know most know this, but some posts are about copper only.

[mount teide] 20/6/2018 17:54

Could be a costly move to take the view that this new recovery phase of the highly cyclical industrial metal market which began in Feb/March 2016 is only going to last circa 2 years rather than the average 5-9 years of the last three market cycles.

The clue to the likely duration of the recovery phase of ALL commodity market cycles is always found in the detail. Off the top of my head i could offer the following:

Supply Side Drivers:
* 75% reduction in capital investment during 2012-2017
* 95% reduction in exploration since 2012
* Market at/close to deficit and expected to be in significant deficit for much of the next five years.
* Mine grades down 46% since 2000 to just 0.53% as a result of initially targeting high grade reserves at the major global mines to create strong early cash flow.

Demand Side Drivers:
* Modernisation and Infrastructure Electrification of large population emerging nations still in its infancy and accelerating rapidly.
* Renewable power generation - still in its infancy - double digit growth expected from developed nations during the next decade.
* Electric vehicle market to experience exponential growth for decades
* ICE Car market to continue growing for at least a further decade.
* LME Stock inventory down 65% from 5 year high and close to decade lows.


Sector Fundamentals:
* Majors looking to prioritise rebuilding of balance sheets and dividend payments over production growth and exploration.
* Rapidly rising operating costs and inflation in many globally important mining Nations - some South American mining operators have recently agreed to staff demands of bonuses of up to $29,000 a person plus a 4% pay rise to avoid strike action!
* Recent research by Mining Intelligence shows that early stage copper projects have grades ONE-THIRD below operating mines and that average head grades have fallen 46% since 2000 from 0.98% to 0.53%.
* Next generation of copper mines will not only have less copper but sharply declining grades. Operating mines globally currently have an average grade of 0.53% while copper projects under development have an average grade of just 0.39%.

Jennifer Leinart, Mining Intelligence analyst, warns that copper prices will continue to rise over the medium term: "Miners are struggling with both lower grades and strongly increasing operating costs" This view has been strongly validated by a recent report by the Chilean Copper Mining Industry - grades at their major mines have fallen dramatically since 2010, resulting in a huge increase in operating cost.

The outlook is widely shared by other experts, including CRU copper sector analyst Hamish Sampson. According to him, unless new investments arise, existing mine production will drop from 20 million tonnes to below 12 million tonnes by 2034, leading to a supply shortfall of more than 15 million tonnes.

The situation looks even worse Sampson said when considering that over 200 copper mines currently in operations will reach the end of their productive life before 2035.

Only if every single copper project currently in development or being studied for feasibility is brought online before then, including most discoveries that have not yet reached the evaluation stage, the market could meet projected demand, Sampson said.

Many would suggest the chances of that happening are as likely as Dianne Abbott winning the Grand National riding side saddle on a Shetland Pony!


AIMHO/DYOR

[kenmitch] 20/6/2018 16:42

Strongly agree Mount Teide. Unless there is bad news leaking which seems unlikely, CAML at present price is a real bargain.

bogdan.

Enjoy reading your posts. fwiw... a Corbyn Government is irrelevant for shares like CAML. The shares and investors which could take a big hit would be those geared to the UK economy and the likes of Utilities on renationalisation fears. Nowadays UK market including many shares in FTSE100 move up and down with the big International markets and for them a Corbyn Government is neither here nor there. e.g irrelevant for mining shares like Rio, Glencore and stunning current bargain CAML. Trump and protectionism are perhaps a bigger threat than Corbyn and that's behind the recent mining sector falls, which are beginning to look overdone imo.

[garycook] 20/6/2018 13:14

First purchase here today.Good luck to all.

[mikett1] 20/6/2018 13:11

Unbelievable value and yield at this level. CAML wasn't expensive at 320p!

[mount teide] 19/6/2018 23:58

An Operations Update to the 30 June 2018 is due in the first week of July if past history is a reliable guide.

Average metal pricing to date in 2018 suggests a strong H1 performance if production comes in at/close to forecast.

[mount teide] 19/6/2018 23:32

Bogdan - 'We are talking AIM blue chip here are we not!'

History offers compelling evidence to support that view - CAML demonstrated it can still generate excellent capital and dividend growth during a 6 year sector recession that saw sector specialist Kaz lose 95% of its market valuation and Glenocre 85%.

As mentioned previously I believe high margin CAML is getting dragged down with much larger lower margin, leveraged plays like Kaz and Anto - looks unjustified to me - especially considering CAML's likely performance to date in 2018.

Incredible value imo at the current share price - I remain an active buyer, since I cannot find better value elsewhere in the market for funds raised from a recent large disposal (HZM).

[bogdan branislov] 19/6/2018 22:46

Warranty - I recall on the morning of the Brexit vote, my portfolio was worth a little less back then, under 7 figure, I noted that at one point in the morning I was about £150k down in total. I can't say it really bothered me, Brexit was always going to be messy and protracted but never economic armageddon, neither do I expect current events to be. When prices fall I tend to be encouraged by the concentration of value in my holdings, I always believe that I hold the best 3 to 5 stocks out there in terms of high upside potential with low downside risk, over 1,100% growth in 9 years and 6 weeks would suggest that is the case. My most anxious moment as an investor actually came a year ago. We were driving down for a holiday in Cornwall, travelling overnight to avoid the traffic. It was the night after the last general election, I listened to the results coming in live, the exit poles seemed nonsense, quickly I realised they were not, for a while it looked like we might a Labour/SNP coalition, now that had me worried. When a stock like CAML treads sideways like it has been up until the recent fall, larger buyers are loading up as mainly retail investors lose patience and sell out. A fall like this shakes out those weaker holders who would likely have gone anyway if we had carried on sideways for a few more months. Once the holding base is strengthened, i.e. full of investors who really understand the value of what they hold and are not going anywhere, then the price goes up, and up. This pull back could purge CAML of weaker or lower conviction holders more quickly than if we had continued with the sideways moving. Bogdan

[warranty] 19/6/2018 21:39

Hi Bogdan, it's never nice when stocks drop in price for no particular reason but although I don't have nearly as many shares as you do, I do feel your pain. I'm looking to add to my holding but feel the market has further to fall yet so I'm holding back. Who knows what the Trump spat with China will lead to and the Brexit differences are creating further potential problems. Any of these things can tip the market so I'm holding off adding at the moment. I'm essentially in it for the yield anyway so I'm in no hurry to buy if there's a chance it will go lower. Nobody can judge the bottom but I have a target price of 200p on CAML if Mr Market drags it back there.