Central Asia Metals have now released their interim results for the year ending 2019.
Revenues declined by $12.5M, depreciation and amortisation was down $1.9M but other cost of sales saw a modest increase to give a gross profit $9.9M down on last time. Admin expenses fell by $1.4M, share based payments reduced by $2.5M and forex losses declined by $2.9M to give an operating profit $3M lower. Finance costs fell slightly and tax charges were down $1.4M so that after the $664K improvement in the discontinued operation was taken into account, the profit for the period was $27.5M, a decline of $1M year on year.
When compared to the end point of last year, total assets decreased by $49.2M, driven by a $17.3M decline in mineral rights, a $9.6M fall in plant and equipment, an £11.7M decrease in cash, a $4.9M decline in mining licences and permits and a $4.5M fall in trade receivables, partially offset by a $4M increase in construction in progress. Total liabilities also declined during the period as a $5.1M growth in silver streaming commitments was more than offset by a $39.4M decline in bank loans and a $12M decrease in deferred consideration. The end result was a net tangible asset level of $272.1M, a growth of $6.5M over the past six months.
Before movements in working capital, cash profits declined by $9.7M to $56.6M. There was a slight cash outflow but this was less than last time and after interest payments fell by $943K and tax payments were down $2.8M the net cash from operations was $40M, a decline of $878K year on year. The group spent $4.4M on property, plant and equipment along with $6.5M of deferred consideration to give a free cash flow of $29.2M. Of this, $19.2M was used to pay back loans and $18.2M was spent on dividends which meant that there was a cash outflow of $8.6M and a cash level of $26.1M at the period-end.
The first half has been very positive operationally, with all mines on track to meet guidance but revenue was 19% lower due to significantly lower commodity prices with the zinc price down 18% to $2,676 per tonne and the lead price 22% lower at $1,930 per tonne. The income from the Sasa mine was also affected by higher treatment charges in the period which reflected the change in market conditions for zinc concentrates. The copper price held up slightly better, down 7% to $6,191 per tonne. There may continue to be short term weakness in commodity prices given current global uncertainties.
The pre-tax profit at Kounrad was $26M, a growth of $83K year on year. There was a 153 tonne reduction in copper production to 6,594 tonnes but more copper was sold and less taken into stock with 6,125 tonnes sold compared to 5,972 tonnes. This was due to a logistical issue last year meaning more copper was held in inventory. Overall costs at the mine decreased somewhat due to a fall in the value of the local currency but offsetting this was additional costs incurred for increased reagents and coal consumption due to a colder than usual Q1, along with a 6% salary rise.
The pre-tax profit at Sasa was $19M, a decline of $3.6M when compared to the first half of last year. During the period, total mined ore was up 9,319 tonnes. The average head grades were 3.28% for zinc and 3.76% for lead, both down slightly on last time. Recoveries were 86.7% for zinc and 94.4% for lead, both somewhat higher. For zinc, the stirred media detritor mill that was installed in Q2 last year has been modified and is now delivering broadly consistent recovery results and in addition, a lead re-grind mill has been included in the circuit which has aided the rejection of zinc from the lead circuit. The payable production of zinc was 9,652 tonnes and for lead it was 13,639 compared to 9,256 tonnes and 13,701 tonnes last year.
During the period construction of Tailings Storage Facility 4 continued, with the construction of the dam materially completed. After the period-end, lining of the facility was completed and commissioning is expected in Q4. In February they performed a review of the current Sasa tailngs storage facility and concluded that there are no high risk areas, and that the dam is unlikely to fail due to liquefaction, a common cause of tailings dam failure.
A number of new changes are being implemented at Sasa underground including remote control loader units that will be commissioned in Q4, explosive cartridge loaders have been introduced, telescopic jumbo feeds have been introduced, underground drainage has been reviewed and additional pumps ordered, and optimised side loading has been introduced.
In terms of metallurgy, the purchase of a new tertiary crusher at a cost of $600K has been approved which will generate a finer grained product from the crushing circuit, allowing for increased throughput capacity. In addition, the metallurgical lab has been modernised, enabling opportunities within the processing plant to be better evaluated. Throughout this year and last, the group have employed new processing operators and engineers in order to fulfil operational objectives with the aim of further improving metallurgical recoveries.
In April an agreement with the previous owners of CMK for receipt of $5.5M was finalised relating to the $5.9M withholding tax liability in Macedonia that relates to the activities of CMK prior to group ownership, hence the reduction in payables.
Going forward the group is on course to achieve 2019 production guidance of 12,500 to 13,500 tonnes of copper; 22,000 to 24,000 tonnes of zinc; and 28,000 to 30,000 tonnes of lead.
At the current share price the shares are trading on a PE ratio of 14.2 which falls to 11.6 on the full year forecast. After the interim dividend was held the same, the shares are yielding 7.8% which falls to 6.4% on the full year forecast. Net debt at the period-end stood at $100.4M compared to $110.3M at the prior year-end.
On the 8th October the group released a trading update covering Q3 where they stated that production was on track to meet full year guidance in all products. They produced 4,039 tonnes of copper, 6,186 tonnes of zinc and 7,362 tonnes of lead.
Overall then this has been a mixed period for the group. Profits were down, as was the operating cash flow. There was an OK amount of free cash being generated, which just about covers the dividends if no deferred consideration is paid. The net tangible asset level improved. Operationally this was a good period, with increased amounts of each metal being sold but the problem has been the reduction in commodity prices and some increased costs at Sasa, blamed on the weather. The forward PE of 11.6 and yield of 6.4% look OK but this realty is dependent on future metals prices which look a bit precarious. Could be a decent buy but who knows?!
On the 9th January the group released an update covering Q4 and the year as a whole. Copper production exceeded guidance at 13,771 tonnes. Zinc and lead production were at the top end of the guidance range at 23,369 and 29,201 tonnes respectively. The 2020 guidance is 12,500 to 13,500 tonnes of copper, 23,000 to 25,000 tonnes of zinc and 30,000 to 32,000 tonnes of lead.
The year was productive at Sasa with the installation of a new tertiary crusher, which will facilitate increased throughput and has allowed the board to increase guidance for 2020. It is the intention to transition to cut and fill mining in the next few years and this will result in another year of technical studies while they finalise their plans.
The analysis this year indicated that the ageing underground fleet at Sasa is becoming less cost effective to run. A decision was made to undergo a phased process of replacing the current underground mobile plant with a new optimised fleet. The initial component of this process will indicate the purchase of six new units in 2020, and three additional units in 2021, 2022 and 2023. During the year the mine began building a wireless underground network which will allow for increased monitoring and communication of machines and in Q1 2020 they will introduce the use of data analytics in order to better monitor utilisation.
Pre-feasibility studies have been undertaken and on this basis the board have decided in principle to transition to cut and fill stoping at Svinja Reka. This is a more flexible mining method better suited to the geometry of the three Svinja Reka orebodies. Recent geological studies at Sasa have indicated that stresses will increase with depth and additional pillars of ore would need to be left in-situ if the mine continues its current method. The group should complete the engineering studies in the second half of 2020.
The capex required to construct a paste plant should be spread over two years from 2021 onwards and is expected to be more than offset by the savings in not constructing further downstream tailings facilities over the life of the mine. They do not expect to incur any material capex for the transition during 2020. Given the fleet replacement programme underway, they expect 2020 capex to be between $12M and $14M.