🕐20.05.14 - 10:54 Uhr

INVESTEC: CENTRAL ASIA METALS : LOW CAPITAL INTENSITY EXPANSION OUTLINED - BUY



Central Asia Metals (Price: 166p | Target: 243p | Rec: Buy) Today’s announcement on the completion of Central Asia Metals’ Kounrad transaction and expansion plan is very positive news.

The US$35m expansion capex is affordable and the company has stressed that this should not affect its dividend policy.

At US$7,000/t of annual copper capacity, the expansion’s capital intensity is well below the average, which we estimate at around US$16,000/t.

We lift our target price from 236p to 243p and reiterate our Buy recommendation. * Kounrad transaction completed and expansion plans outlined: Central Asia Metals has announced that the transaction to acquire the remaining 40% of the Kounrad subsoil use contract has now completed, meaning that the group now owns 100% of this asset.

Central Asia Metals now plans to expand annual copper cathode production from 10,000t to 15,000t at a capital cost of US$35m from 2016.

The expansion will be funded from cash flows and should not affect the company’s ability to pay dividends. * Our view: Today’s announcement is very positive news and is what the market has been waiting for.

While this news is not unexpected, the Kounrad transaction has rumbled on so its conclusion is comforting. * Valuation and recommendation: Taking today’s news into account, and based on an equal weighting of NPV, peer group earnings multiples and dividend yield metrics, our target price has increased from 236p to 243p.

We reiterate our Buy recommendation. * Risks: Central Asia Metals has proven to be a reliable producer so we believe operational risk is low.

While exposed to single commodity risk, low production costs mean it can withstand lower prices than its peers.
To access the full note please click here Analyst: Louise Collinge +44 (0)20 7597 5779
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