Central Asia Metals#: Tag Line

Dividend Reinstated

Central Asia Metals (LON:CAML) following a successful ramp up at Sasa, progress in the environmental clean up and confirmation of the remedial costs in line with the previously guided US$1.5m the company has declared an interim dividend of 6p/sh. This will be paid on 11 December 2020 with a record date of 20 November 2020.

Upgraded Assumptions

We had previously assumed that a full year dividend of 6.5p/sh. would be paid in 2020 based on a conservative assumption at the lower end of the 30-50% payout ratio based on levered FCF. We recently upgraded our forecasts to reflect higher 2020 copper output and a stronger commodity price outlook resulting in EBITDA of US$83m, up 3%, and levered FCF of US$49m. Given the recent announcement we have upgraded our dividend assumption to 10p/sh. for the full year implying a payout ratio of 45% broadly in line with that of 2017 and 2018.

Recommendation and Target Price

The underlying fundamentals for CAML’s commodity exposure remain strong and copper, zinc and lead prices are up 45%, 34% and 14% from March lows respectively while the copper price has this morning broken key resistance of US$7,000/t in intra-day trading. Despite the recent welcome vaccine announcements, the quantum of funding and lag times associated with infrastructure spending stimulus mean that the outlook for base metal demand remains substantially strengthened, indeed, the genuine recovery of economies is likely to provide further momentum to the demand outlook for base metals. Having reinstated its dividend CAML has restored a key pillar of its investment case which we expect to drive a rerating. The company provides attractive exposure to this long term trend at an undemanding valuation; a 9% discount to peers on a 2020F EV/EBITDA multiple of 5.6x and dividend yield of 5.4%.

We reiterate our Buy recommendation and increase our target price 3% to 250p which implies 35% upside and 40% total return.

Oliver O’Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: [email protected]

VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com

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