Central Asia Metals: 100% Ownership, Pending Permits

100% ownership, pending permits
Central Asia Metals Plc, (CAML) has successfully purchased the remaining 40% of the Kounrad Copper Company from its Kazakh partner, SAT Group. The ownership transfer was completed under the revised framework agreement announced 27 June 2013, and facilitated by SAT Group’s chairman Mr Kenges Rakishev. Completion of this deal now depends on transferring the remaining 40% of the subsoil user licence from the SAT Group, which requires the Kazakh government to waiver its pre-emptive right to acquire. This will need to be executed before the long stop date of 31 March 2014. We believe this news de-risks our potential fully diluted £1.66/share valuation based on CAML’s 100% ownership of all revenues and profits, a long-term US$2.96/Ib Cu price and a10% discount rate.

Kazakhstan government waivers needed to complete
CAML operates two wholly owned subsidiaries in Kazakhstan. One is the Kounrad Copper Company (KCC), which operates the SX-EW plant and is the main revenue generating business, and the second is Sary Kazna, which holds the subsoil user licence (effectively the mining licence). CAML now owns 100% of KCC and is transferring the remaining 40% of the subsoil user licence from the SAT Group.

Mr Rakishev to be non-executive director
In line with CAML’s revised framework agreement, now that 100% ownership of the KCC has been achieved, Mr Rakishev will be appointed to CAML’s board as a nonexecutive director. This will follow completion of all necessary regulatory processes.

Valuation: Potential £1.66 per share (fully diluted)
Our per share valuation for CAML is £1.66, based on dump material being retreated to 2029 (the last year of operation under this scenario), a 10% discount rate, and Cu prices of US$3.21/Ib for 2013 and US$2.96/Ib long term. Our valuation assumes successful completion of the SAT deal in Q114, with CAML accounting for 100% of Kounrad’s profits from 1 January 2014. CAML does not report quarterly, but management estimates production to end Q313 at 7,800t, leaving 2,200t for Q413 to meet its full-year target of 10,000t of Cu cathode. Based on CAML’s operational performance since starting production in April 2012, we believe this target is achievable. Further upside to our valuation is geared to CAML increasing production to 20ktpa Cu cathode and we await its release of detailed technical studies to outline the cost of expansion. However, for illustrative purposes we consider a value of at least £3.05 is possible (see our 14 October Outlook note.

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