Central Asia Metals benefits from currency devaluation

Central Asia Metals, a copper producer with operations in Kazakhstan and Chile, reported an increase in pre-tax profit in the first half as it achieved cost savings due to the depreciation of Kazakhstan’s currency.

Despite the average copper price per tonne falling to $4,903 compared to $5,936 last year, the group announced a 49% increase in profit before tax to $15m compared to the previous period.

EBITDA of $17.4m compared to $16m last year and margins rose to 56% from 53% in 2015. This was 37% above what analysts at Canaccord Genuity expected at $12.7m.

Gross revenue rose marginally to $30.9m compared to last year’s revenue of $30.3m.

The firm attributed the rise in revenues to the depreciation of the Tenge as approximately 60% of the total cost base in Kazakhstan is Tenge denominated.

Cash costs were down 40% to $0.40 per pound and fully absorbed unit costs were down 48% to $0.97 per pound.

Executive chairman Nick Clarke said: "The devaluation of the local currency, the Kazakhstan Tenge, has been a key factor in our reduced C1 cash costs of production and we are proud to be one of the very lowest cost copper producers in the world.”

The currency devaluation also enabled the firm’s stage 2 expansion to be 25% below the original $19.5m budget. Completion is on track for the fourth quarter of this year with the leaching of the Western Dumps to comments in the second quarter of 2017.

Management has said that they are going to continue to focus on operational and capital cost discipline in the current challenging commodity price environment.

In terms of production the group is on track to achieve its guidance between 13,000 and 14,000 tonnes this year.

The group cash balance fell to $30.3m at 30 June 2016 with no debt compared to $42m at 31 December 2015. Analysts said this was in line with their expectations and expect to see a continued strong cash outlook for the second half of 2016.

The chairman also announced that the group has raised wages for Kazakhstan based employees by 25% from January 2016.

The company has maintained safe operations at Kounrad and no Lost Time Injuries ("LTI") were reported with the total LTI free man hours now exceeding one million.

According to the board, the Copper Bay definitive feasibility study ("DFS") is progressing well, and expects to report the findings of this work in the fourth quarter of this year.

The group’s dividend rose to 5.5p per ordinary share from 4.5p in 2015, which equates to 26% of gross revenue for the period. Once this dividend is paid, $82m will be returned through dividends and share buy backs, according to the board. Analysts expected the dividend to remain the same as the previous period.

“We think the increase in the interim dividend by 20% year on year is a good indication of management intending to maintain an over 8% yield off the current share price of 176per share” said Tim huff and Nick Hatch from Canaccord Genuity.

Analysts value the stock at 190p per share. The share price rose 1.52% to 178.55p at 0913 BST on Monday.