CENTRAL ASIA METALS' Kounrad copper plant, Kazahkstan.

CENTRAL ASIA METALS' Kounrad copper plant, Kazahkstan.

Manufacturing Type Returns in the Mining Index

Issue 50, July 2013

“We’re always willing to discuss our plant,” says Central Asia Metals’ chief executive Nick Clarke. Having listed in 2010, raising $60m, the company has paid $14.3m in dividends and bought back $2m of stock. Processing waste dumps on the vast terraces of Kounrad, a disused Kazakh copper mine, it is an anomaly in the mining index.

Clarke describes overruns and delays as “a feature of the business we’re in.” The $47m Kounrad plant however was delivered $8m under budget and is operating ahead of capacity. Targets of 5,000 tonnes in its first 8 months were lifted and then beaten by 30 per cent. The plant produced 10,000 tonnes in its first 13 months, equal to nameplate capacity, despite temperatures below minus 30 degrees and an extraction process that depends on continual solvent flow.

“All we can do is focus on what we can control,” says finance director Nigel Robinson, “which is our production rate and the cost that we come in at. Those are the levers that we can pull and that’s what we’re paid to manage.”

All-in costs below $2,200 per tonne put the company at the bottom of the cost curve. BHP Billiton for example produces copper at $5,000 per tonne. In Kazakhstan, FTSE-listed Kazakhmys is marginal at current levels. “I’d rather see copper at $8,000 per tonne than $6,000,” Robinson says, “but we’d still be making money.”

Last week the company said that it would issue 20 per cent of its equity for the 40 per cent of Kounrad held by its Kazakh partner, bringing tycoon Kenges Rakishev onto its board. The 20 for 40 swap looks highly accretive. Based on current prices, annual guidance of 10,000 tonnes and the group’s policy of paying out 20 per cent of its revenue, its market cap of £93m ($142m) carries a 9.7 per cent forward yield.

Robinson says that the dividend policy encourages “financial discipline” by making management “beholden” to investors. Clarke, who worked in tin mines in Cornwall and gold mines in Ghana before heading Oriel Resources, sold for $1.5bn in 2008, has an equally grounded approach to running a public company. Kounrad is rigged with video cameras, through which he advised on construction when in London.

“Sometimes pumps don’t work or valves stick,” he explains. “We seem to be lucky, or we planned well. Observers can make that distinction.”

“Those are the levers that we can pull and that’s what we’re paid to manage.”
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