Central Asia Metals plc (CAML) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Central Agent Metals plc Preliminary Results Investor Presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Louise Wrathall, Director of Corporate Relations; Gavin Ferrar, CFO; and Nigel Robinson, CEO. Good afternoon.

Hello.

Yes, good afternoon. Okay. Good afternoon, and welcome to Central Asia Metals plc's results for the year ending 31st December 2021, a record year for CAML. Just quickly through the disclaimer. Just a reminder, where we operate in the world. We operate in 2 countries at the moment, Kazakhstan in Central Asia region. That's where we started the business with an in-situ dump leach SX-EW processing facility, which we've developed over the years, now have been in production almost 10 years. In fact, 10-year anniversary is the 30th of April this year. And we've got a life of operations out to 2034, and our production for 2021 was just over 14,000 tonnes of pure cathode copper. On the back of the success at Kounrad in Kazakhstan, we then invested in an underground lead and zinc mine in late November 2017 in North Macedonia in the Balkans area, and that is, as I say, an underground lead and zinc mine, which produces around about this year's guidance, 20,000 to 22,000 tonnes of zinc and 27,000 to 29,000 tonnes of lead and other life of mine out in 2037. Just some highlights of our 2021 results. As I say, a record year for CAML. We generated revenue of $235 million with an EBITDA that's earnings before interest, tax, depreciation and amortization of $141.5 million, an EBITDA ratio of 60% and a record EBITDA for the group. That was primarily on the back of very strong commodity prices that we witnessed, so copper traded over $9,000 per tonne is what we've seen over the course of the year, and zinc with $3,000 per tonne, both of those up almost 40% to 50% on previous year prices that we received. So that translated into the very strong performance you see here. And that also feeds down to our free cash flow line of just south of $104 million for the year. And that number is important, because that's a number on which we base our payback to shareholders. So our dividend policy is to pay between 30% and 50% of that number back to shareholders. And on the basis of that, the Board agreed a 45% payout ratio, resulting in a full year dividend for 2021 of 20p. So that consists of 8p paid last year on the interim results and a final dividend now of 12p. So that's 20p, which on yesterday's share price is a dividend yield of close to 8%. On the balance sheet, we strengthened the balance sheet over the course of the year, paying down debt, $48 million of debt was paid down, leaving us with a balance of $33 million. That's $9 million of overdraft and about $24 million of the corporate facility. Offset against that, we have $59 million in cash in the bank, leaving us with a net cash position at the year-end of $22.7 million. Other highlights of the year. We had incredible production performance over guidance at Kounrad by 14,000 tonnes, as I just mentioned, slightly under guidance for zinc and lead at Sasa, which is slightly disappointed, but we encountered some difficult ground conditions there, and that is a justification for our transition to the cut-and-fill mining method, which we'll talk more about later on. And finally, but by no means least, a couple of other issues to address on the highlights. One is we're reporting today a 17% reduction in our group greenhouse gas emissions. That is because we signed a 100% renewable energy contract with our electricity supplier in North Macedonia. On a full year basis, that would be 35%. And slightly disappointing, I guess, is the 4 LTIs in 2021 that we experience and more about that in a minute. What's the purpose of CAML? Why do we exist? We are a mining company, but our purpose is to produce base metals, which is essential for modern living, profitably and in a safe and sustainable environment for all of our stakeholders. Not just the shareholders, but all the stakeholders. And we're in 3 key metals that are very significant for the development of the world over the next few years. Copper, as everybody knows, as we move further towards decarbonization and renewable energy. Zinc, these are popular products, they're galvanizing products. And then lead as well, which is a useful battery product for stationary storage batteries, et cetera. Just moving on from there. I may have stuck. So that's our purpose. And that purpose informs us all the way across the patch into our values that we have hold as managers and as employees in the group. Our immediate strategic objectives, which are to focus on sustainability and more of that in a minute, to target low-cost and high-margin operations and to ensure that the money that we make from those operations is used prudently in our capital allocation. And again, more of that later. And our long-term objective is to grow the business and it also informs how we measure our success. We have KPIs set against the management team and lots of the managers within the workforce and how we manage risk within the workforce as well. So that's our purpose, and those are our immediate strategic objectives, just enhancing on one of them, which is a focus on sustainability. We have 5 pillars to that, and we've determined this over the past few years in conversations with our stakeholders and having an external company auditors effectively to see what was important to our stakeholders. And those 5 pillars consist of delivering value through stewardship; maintaining health and safety on site and across the workforce; focusing on our people and their development; caring for the environment; and unlocking value for the community. So those are the 5 key pillars and that addresses about 6 of the UN-related sustainable development goals. On health and safety, I already mentioned the 4 LTIs. If you look at the chart on the right-hand side, you'll see, we had a poor year in 2018. And over the past 3 years, we have improved that. We've had 5 LTIs now over the past 3 years. 5 is still too many, and we will work on learning the lessons from those LTIs on site and trying to improve our performance, both at Kounrad and Sasa. Although I have to say at Kounrad, we have an exceptional performance there of 0 LTIs and we've now gone over 1,300 days since the last LTI at Kounrad. We have no issues at the moment on site with COVID-19, and over the past 2 years, I think the management team at both sites has managed the COVID-19 situation to maintain production and the delivery of our products into the marketplace. Caring for the environment it's something close to our heart. I'm very pleased this morning to announce some objective targets on environmental goals that we have. The first one is on climate change. On the right-hand side, you'll see I've already mentioned we had a 17% reduction. And the confidence we've got in what plans we've got in place has enabled us this morning to announce that we will target a 50% reduction from the 2020 base by 2030. So we've got another 8 years to achieve that 50% reduction. And a number of things will help us do that. One is the renewable energy in North Macedonia, the contract that we've signed and continuing that. The Board has approved a solar farm at Kounrad, that will contribute around about 7% at group level of reduction in greenhouse gas emissions. And the other aspects you can see there on the right of the chart are things that we're working towards now, and we feel confident enough that we will deliver on the full 50% by 2030. Likewise is water, an important resource for all mining companies, and we've announced a 75% reduction in the abstraction of surface water by 2026. And likewise, a 70% improvement in the way we manage our tailings, so that's managed in an environmentally responsible manner or more, should I say, in terms of dry stack tailings and backfill place by 2026 onwards. Both of those targets are associated with the work we're doing on cut-and-fill. And also, the initiatives we put in place to recycle more water through the process plant. And last, but by no means least, on the environment. Many of you may well know that we had an incident in September 2020 at a tailings facility at Sasa and we've worked hard to maintain our goodwill in the community and also, clean up the river from any pollution that we left there. And we've now completed that work after that incident, and I think the community are happy at the way the river now looks. And so we're pleased with that particular initiative. Just moving over again, communities, a good track record on that. We have 2 foundations, 1 at each area of operation, both at Sasa and Kounrad. We spent around about $0.5 million last year. There is money in the bank. These are separate legal entities that do charitable working and development work with the community, and money set aside every year from the revenue generated in the operations to help the community. And that's just showing where we spend the money. Last, but by no means the least on sustainability, strategic objective. Looking after our people in terms of training them, diversity targets, we are -- we have been having committees formed at both operations to see where we can improve the workplace to make it more attractive, to diversify the workforce, and we'll be working on that in the coming years to attract more females into the mining operation, where they are eligible to operate in certain roles. Training and development, we need to do a bit more on that. We've got a good track record on health and safety training, but I think we can do more on the soft and management skills and also, the equipment skills across the patch. And we're putting a focus on that to have a dedicated training team to improve training and standards, especially as we move to the new methods of mining at Sasa cut-and-fill, we need to make sure that we train the workforce properly. And we have about 99% of our employees that are from the actual country of operations. So a very low reliance on any kind of expat work. It's primarily a local workforce, something that we're very proud of and something that we'll continue to work on and focus on. And last, but by no means the least, governance. Working with suppliers to make sure that all the suppliers we deal with work to a certain standard and have a certain code of conduct that we're comfortable with and that we can be comfortable having a supply relationship with us. And we've developed an online governance and stewardship program in 2021, which will be rolling out in 2022. And on that, I'll hand over to Gavin to talk through some of the financial numbers in a little bit more detail.

Thanks, Nigel. We start with the market conditions for 2021 it was -- compared to 2020, a much more positive macro environment with the corner being turned on the COVID-19 pandemic in terms of stimulus packages and vaccine rollout programs there. Metal prices responded positively, not only to the growing demand as a result of that economic recovery, but also, a transition to the green economy. And we also, as a business, saw tailwinds from treatment charges where we saw a 15% decrease in treatment charges year-on-year. This is the cost of transforming our product, which is a fine particle concentrated to metal itself at the Sasa mine. And then currencies were a little bit of a mixed bag there. We sort of gained on the 10-year loss on the North Macedonian denar. But if you look at the chart on the right-hand side of that graph, you can see the overall trends in commodity prices through the year, increasing with the average price, as Nigel said, we're up to 50% greater than what we received in the prior period. That translates into a very strong income statement, with record revenue, record profits and record EBITDA all the way down the income statement, with large double-digit increases period-on-period there with the earnings per share going almost double year-on-year in that case. On the other side of the equation, cost of sales has gone up a little bit. There is some inflationary pressure embedded within there, but we also include those adverse FX movements. Plus also, royalties, which we paid to the government and our host countries and those are directly related to those increased commodity prices themselves. If you look at the left-hand side in the notes, both Kounrad and Sasa performed very well as well, with 50% increase in revenue with Kounrad, base of that copper price increase. And Sasa also recording a large increase in both revenue and EBITDA through the year and in spite of those headwinds we spoke about earlier. Through the development of the EBITDA from 2020 to 2021, it's very clearly driven by those improved commodity prices, with copper revenue, in particular, outstanding, and lead and zinc contributing as well, plus that $3.4 million benefit from those improved [indiscernible]. The little brown box to show where we've sort of experienced some pressures. The royalties, as I said, went up. Cost of sales, G&A and then the hedging losses, we put some hedges in place at the beginning of 2021. And the commodity prices have far outperformed our expectations, landing us with that $141.5 million EBITDA result at the end of the year. This is always a good slide to present. The Kounrad operation is always at the lower end of the cash cost curve for the industry and remains there, even though costs have gone up by $0.06 a pound year-on-year. A lot of that cost increase is down to salaries and electricity price increases, which is just general inflation, really. And then we did have a little bit of a blip in our reagent consumption in Q1, which has now been sorted out by the metallurgists, so we don't expect any more fallout from that, but driving a fantastic EBITDA margin of 80% at that operation. Sasa, again, increases in costs, but inflation there just driving a $0.03 contributing to that $0.13 increase. We did produce few units. We had some production problems, which have been sort of well publicized, and that drove a $0.05 increase in unit cost, offset by those lower treatment charges of $0.03, but $0.08 of that $0.13 cost is simply down to the way that we calculate this cost, which is basically converting lead into zinc, and the relative prices of lead and zinc, therefore, contribute to that sort of big difference in cost there. If you look at the third last line of the table, we can see the unit cost on a run of mine basis going from $39.2 per tonne to $44.1 a tonne. That's more reflective of the performance of the business. And as I said earlier, 1/4 of that increase is down to adverse currency movements. CapEx for the year, we came in just shy of our guidance, $14.7 million spend against guidance of $15 million to $17 million. This is a little higher than what we usually present to the market, primarily because of the cut-and-fill project, which we're undertaking at Sasa. The chart on the right-hand side breaks down the CapEx into sustaining for both Sasa and Kounrad, with the middle bar of that chart showing you the cut-and-fill project of $5.9 million. We did make some prepayments at both operations plus for the cut-and-fill project in order to try and mitigate against price increases that we anticipate coming through owing to inflation. And then if we want to break down the CapEx, the cut-and-fill project is effectively 3 elements to that. It's the central decline, which is a new access portal to the mine. There, we spent money on new equipment plus also capital development. The paste backfill plant, which is a fundamental part of the cut-and-fill project, that's going to basically form the paste that we pump back down into the voids underground. Again, a bunch of equipment plus some pipe work to actually transport that paste. And then lastly, the dry stack tailings, which is another surface tailings treatment -- sorry, tailings storage facility, which has so far cost us $1.5 million. And the sustaining CapEx, the usual items in there that you'd expect from underground development that is effectively boring new tunnel to access all and some new equipment. And then at Kounrad, replacement of the anodes in the electrowinning house, plus also some extra pipe work to irrigate the dam. Balance sheet, looking really strong. I think Nigel hit the key points there. We're now net cash. Debt, we've paid down. We actually paid an extra $10 million of debt throughout the year to get our corporate debt facility down to $23.4 million at year-end. We expect that to be fully repaid in August this year. And we still have some Macedonian overdraft facilities, which remain drawn. And cash balance at the end of the year, $59.2 million. So as I said, really good shape on the balance sheet there. Last but not least, on cash flow. Cash generated from operations of $136.6 million, a pretty stunning result there. And if we take off the tax and interest from that number, we get to the net cash flow from operations. And if we deduct the sustaining CapEx from that number, you'll end up with that $103.8 million in the box, which is the basis of the dividend calculation for our policy. Back to you, Nigel.

Okay. Thanks very much, Gavin. Just a quick canter through the operations. Kounrad, many of you will have seen this slide before, will know the photograph of the open pit at the Kounrad mine. Mine since the 1930s, and we process the waste that's on surface. So the dumps, the Eastern Dumps there and the Western Dumps. We estimate that there's about 126,000 tonnes of recoverable copper left in the operation. We have a life of mine, just to reiterate, out to 2034. Quick slide on the production profile. As you can see, we started production almost 10 years ago. As I said, 2012, we grew it to the point in 2016, where it was up around current levels and we've been operating at that level for the past 6 years, quite religiously almost, really. And it's optimized at that level in terms of managing solutions around the various dumps in the SX-EW plant itself. Slightly different metallurgy on the Eastern Dumps and the Western Dumps. We're now primarily operating in the Western Dumps. Last year was 15% reduction from the East and 85% reduction from the West. In future years, that percentage will increase to the West until we're fully operating out of the Western Dumps, and this is a traditional leach curve you can see for one of the western cells at the bottom there. Leach time can be anything up to 20 months on a Western Dumps to get 35% to 42% of the copper recovered. On the scale of it, really. I mean, it's huge areas that we're operating, with huge kilometers of installed drippers. So we've now installed over 7,000 kilometers of drippers on the dumps. We operate the area under leaching, should I say, any one point in 2021, it was around about 64 hectares, 37 in the West and 27 still in the Eastern Dumps. And you can see the grades. Very low grade, really, not significantly high grades at all. We did have a blip in 2021, thanks for turning on the solution of the leaching, should I say, dump. 2021 I think it surprised us a little bit how high the grades were and that's led to that slight increase in 2021 to 0.121. But still, not huge grades, but large volumes of solution, low grades, producing the amount of copper that we need in a pure form. And you can see there was a production for last year, 14,041 tonnes. So that's Kounrad. Moving on to Sasa. Now, owned it for 4.5 years. We acquired it in late November 2017 for just over $400 million. Since that time, we've almost paid off all the debt, and as Gavin said, we'll pay that off in August that we took on at the time of the acquisition. And it's generated for us $245 million of EBITDA to the end of 2021. It's got a life of mine out to 2037. And again, another slide just showing some of the statistics for the past 4 years of the ore mine. We've made marginal improvements from when we acquired it, taking it over the 800,000 mark. But we've kind of hit the point whereby we feel with these ground conditions we've encountered, we now need to stabilize at that before we move into cut and fill effectively over the next 2.5 years, and we transition to that. Our guidance for this year, in terms of ore mined, will be between 790,000 tonnes to 810,000 tonnes. And the zinc in concentrate 20,000 to 22,000 tonnes and lead, 27,000 to 29,000 tonnes. So strategic objective #3 was ensuring prudent capital allocation, which is really 4 aspects to it, anyways. And the cut-and-fill project is a key one of those. So when we acquired Sasa, we took some time out to understand the operation a little bit better and decide what we were going to do with it. If it needed improvements and we at the Board level agreed this move to cut-and-fill mining, which I think has been justified by some of the ground conditions we've experienced both last year and have continued to experience this year. Gavin has already mentioned, there are 3 components to it. I think the component we probably best understood when we went into this was the paste backfill and reticulation, and we are well-advanced on that particular part of the project. Likewise, a central decline. We're well-advanced on that. We've done 650 meters of development, both from the surface and from 990 level. So we started drilling underground initially, and we've started in August, I think, of last year to start drilling from the surface and no 2 tunnels, hopefully, will meet at some stage. And that's a central decline 3.8 kilometer in total over the next 3 years. And that will provide far more efficient access into the ore body, it'll allow us to use bigger machinery. In the future, we're doing a cost-benefit analysis and potentially going to electric machinery, which will use that 4.5 by 4.5 meter tunnel. So it gives us a lot more levers to pull in that sense, and it will improve the ventilation at lower levels in the mine. So it's a key part of the project as is the paste backfill. And the one element we didn't know as much about, maybe, a year ago that we do now is the dry stack tailings and how you manage that. Maybe the filtration plant, we were very well versed in, but certainly, the land form and the civil engineering and the management of water and indeed, where we were going to place those dry stack tailings wasn't exactly known a year ago. We've now identified the location. You can see it on the map there. It's the old TSF 1, TSF 2 that are being decommissioned. So we know where we're going to place it. We have a space for up to about 4 million tonnes of tailings there. The authorities have insisted that we do line that with the geosynthetic clay liner, but at least, we now have agreement with them as to exactly what they require and we can design to that manner. And that sadly incurred about a 3-month delay on it, but we have got clear direction and actually, a good working relationship now with the ministry and the working groups at the Ministry of Environment, which is all positive for the future as we introduce this technology and this way of managing tailings for the first time ever in North Macedonia. Just a couple of pictures showing you the paste backfill plan, the dry stack tailings. I think I've touched enough on that, but we are well-advanced on this. And the plan now is to complete the construction of the paste backfill plant by the end of Q1 2023, we'll then go into a commissioning phase in Q2 2023 before starting the transition to cut-and-fill mining during the year and the second half of 2023. In parallel to that, the dry stack tailings filtration plant and also, the land form will be constructed. So that's available in the second half of 2023. And we'll then have 3 methods of managing tailings, which will be either through backfill paste, dry stack tailings or the current TSF 4, which still has capacity at its current operating level for another 4 years of tailings. Dividends and debt repayments, I think myself and Gavin have probably banged that drum sufficiently hard during this presentation. But just to remind you, we have paid or we announced this morning a 12p final dividend, making 20p, which is 45% of free cash flow. It takes it to just $257 million we've paid back since December 2012 when we announced the dividend, obviously, 10 years ago. And we've almost paid off all the debt. And in fact, that will be paid off by August of this year. And the fourth leg of capital allocation, which is probably the hardest to actually give any specific details is delivering growth for the business. We recognize fully that we have 2 very good operations, generating very strong cash flows, paying the dividends to shareholders, but we do need some growth within our portfolio. Myself, Gavin and Louise, and other people in the company, we've taken on Greek geologists, for example, are looking at the opportunities that are out there for us to use a strong platform from which to grow the business. Ideally, copper is our preferred metal, but we also like zinc and lead, and we'll look beyond those 3 metals for other metals, which, as we say, are essential for modern living. So base metals or battery-type metals. We have a strong balance sheet to grow from, and we're very cognizant that we need to get to that next level, really, to improve our size and liquidity, and very important considerations, as is the increased political risk we see across the world at the moment. That's a factor we have to take into consideration and also, all the ESG considerations. We've committed this morning to net zero by 2050. Well, it doesn't take a rocket scientist to realize that at the current portfolio of assets we have, we won't have any operations beyond 2037, but clearly, we wish to grow the business, and so we'll be looking at that net zero aspects when we look at opportunities to grow the business. And we'll be looking across the patch from early-stage exploration through to production as we free the balance sheet of any debt. And therefore, increase our cost to take debt on. Last, but by no means least, outlook. A summary of all that. We have a strong business, strong EBITDA and free cash flow. We're paying good dividends. We have strengthened the balance sheet. We won't have any debt by August. And the outlook for this year, we believe we're in a pretty strong metal price environment certainly for this year in the shorter term. Longer term for copper, the fundamentals are very robust. There is clearly, as everybody on this call I'm sure knows, there's a lot of political uncertainty and macroeconomic uncertainty that we're operating in, but we can only control what we can control. We will pay down our debt by August 2020. We're looking at aspects of our climate change scenario to improve our sustainability reporting even further from the great growth work that Louise has already started in the group, probably 2 or 3 years ago. And we'll put out our third sustainability report in April of this year. And on that note, I'll hand back to the operator for any questions that may -- people may wish to ask have.

[Operator Instructions] I'd like to remind you the recording of the presentation, along with a copy of the slides and the published Q&A can be accessed via your Investor dashboard. Louise, if I may just come to you. We've received a number of questions both pre-submitted and throughout today's presentation, and thank you to all the investors that have submitted them. If I could just ask you to read out the question where appropriate to do so, and just direct it to a member of the team, that would be fantastic.

Sure. Will do. Okay. As the first question I have is, the company had declared its intention to expand at a time when other miners were finding it difficult to raise capital. How close is the Board to agreeing the purchase of a further metal asset? And if no deal is agreed, might the rise in metal prices mean that Central Asia has missed the timing sweet spot? I'll choose Gavin. Sorry, Nigel.

Thanks for that question. I think -- yes, of course, we have declared the intention to grow via acquisition. There's always a question mark over timing, but I think your point around sort of capital raisings and the like, what we find is actually quite difficult to engage in sensible conversations with people or with vendors when the prices are low, because the valuation gap is just too wide. And it's actually ironic [indiscernible] when easier to raise capital in periods of higher commodity prices. But with that aside, what we're always looking for is accretive transactions. And we also use a consensus long-term commodity price decks in evaluating these things. So a combination of the profitability and at those consensus decks, will really drive the decision of the Board whether or not to execute on the transactions rather than the timing of the cycle. What we're trying to do in that analysis is make sure that capital returns to shareholders are available through the cycle. So therefore, we are looking at assets that are probably lower cost than most we'd say.

Okay. The next question we've got is, has the unrest witnessed in the country had any impact? Or is it expected to have any impact on operations? Also, does the dreadful Ukrainian situation have any direct impact on the company, given the relative proximity of the countries, i.e., any transport routes that pass through or close to Ukraine? I'll choose Nigel this time.

Good question. I think it's 2 parts of this question. The first one is the unrest in Kazakhstan, first of all, and then the impact on the operations or clearly, most of the unrest is not close to where we operate. We operate in the center of the country near Lake Balkhash. I think it was pretty tense for a few days, I have to say and the staff were a bit nervous about it tall. And there were people on the streets and in line with what was going on in the country. The impact on the business is clear for us as a management team to understand and manage really because we have good contacts in Kazakhstan. And I think the government has been pretty clear on how they intend to address this through the President Tokayev. And the impact, ultimately, will be an increase in our cost base, I have to say, from a very low cost, as we've just seen. But we expect some of the taxes to increase. The 2 key ones that will affect us, and it's not official guidance here, this is our understanding from talking to people in the know in the country is that MET will increase from 5.7% to 7.4%, which might affect us about, on an annual basis, around about $2 million a year in terms of additional MET and the withholding tax. That's the tax you pay on money when you transfer it out of the country back to the holding company. That could increase from what's currently 0% for us because of grandfather rights and having operated there for some time up to 5%. Again, that could be an effect of, say, $1.5 million, $2 million. We're quantifying it now. It's not 100% clear exactly how it's going to work. But it's of that magnitude. And I think something certainly the profitability of Kounrad can manage. The only other aspect of it is the pay rise aspect. And we do pay good salaries to start off. We've already authorized a 10% increase at the beginning of the year before the unrest occurred. Clearly, we looked at that, we've had a benchmarking exercise done to typically make sure that we're still competitive with people like Kazakhmys, KAZ Minerals, [indiscernible], which is another big operator fairly close to where we operate. So we're dealing with that. I think staff are comfortable that we're dealing with that and understand our approach to it in terms of the local unrest in the country. The Ukraine aspect, that's just added further complication, I think, to be fair on Kazakhstan. I do think the President is handling it fairly diplomatically really, and trying to keep favor with all the various people that have invested into Kazakhstan over the years. That's both based in eastwards, westwards and I guess, you could say, north up to Russia. So very difficult for them to manage. Direct impact on the business. We have, in the past, shipped our copper cathode over land and it's gone for a very short period of time through Russian territory. And so what we've done in line with our offtake partner, Traxys, is that we've agreed temporarily, a new move, which goes through the Caspian and therefore doesn't go through Russia. So that's the immediate impact that has had. I mean, there is a far broader question there, I think, as to how it affects Kazakhstan. But they are an independent nation, and they're operating independently in that sense. And we're managing to operate quite successfully still there. It's just that small knock-on effect. I guess the last 2 things to say a political angle is, one, our hearts and minds go out to everybody that has been affected by the Ukraine issue with great sympathies. We have people in the head office here who work -- sorry, who are Ukrainian and they've been severely affected by it as you can imagine. So we are all considerate for those people. On the other side is that any sanctions that are imposed, we will support those whatever the U.K. government, U.S. government or EU government posed on Russia. We've looked at our supply base in terms of where we procure aspects from. We're not exposed to Russia in any great shape or form. There are some suppliers and we'll stop those suppliers immediately and find alternative suppliers. So there's no major material impact on the business in that sense.

Okay. The next question we've got from Richard is what do you see relevant commodity prices being this year, Nigel?

I'll really go by what the experts tell me to be honest with you. And if I look on the pack, we've got copper. I mean, copper, I think, it's holding up well. It is a volatile world and copper is such a great metal for the transition -- trying to make it to net zero. And so we've got from our analysts, copper holding up well of $8,000 per tonne, close to $8,500 per tonne. So I think copper is -- the copper price will remain fairly strong throughout most of this year before some of those fundamentals get redressed and you find a bit more supply coming into the market, because there are still supply disruptions. Chile has been badly affected over the course of the past 12 months or so. So I think those supply disruptions, together with a large increase in demand across the world, maybe, not driven by China so much, but the rest of the world with the transition in demand, I think it's something like 4% or 5% increase year-on-year. So that's feeding through to keeping copper prices high at the moment. Longer term or medium term, 2 to 3 years, I can see them coming slightly off that. But the long-term, fundamentals for copper are very good. Likewise on zinc, I think it's a similar story but it's driven by other factors in many ways. There's issues to do with smelting capacity. And obviously, they're very, very hungry for electricity and energy and with price of energy, which is as we all know, increased significantly has affect some of those operations and some have temporarily closed down, which affects the price of the refined metal that we receive and also, the availability of smelting capacity. We're well covered on our smelting capacity. Gavin and his team has done a great job to get us covered in contractual terms all the way out to March 2023. I think the knock-on effect is that the zinc price will probably stay reasonably high for the next 12 months before again some of the fundamentals reassert themselves and more supply comes into the market. And we see a reduction slightly in price. And the last one, I suppose, is lead. I'm probably less close to the lead market. But certainly, the impact on the automotive industry. I mean, lead acid batteries are used what? 88.5% of the use of lead is in the automotive industry with those kind of batteries. And we are seeing impacts on the automotive industries, with the semiconductor chip issues, et cetera, et cetera. And therefore, I think there's less secondary lead in the market, which is impacting the primary lead market and keeping the prices reasonably high at the moment.

Okay. Our next question is from Peter, who's congratulated us on our results and the dividends. And then he asks, can you update us on your intentions to consider a move to the main market, considering such a move would be an enabler of your key priority of delivering growth? Nigel?

We haven't talked about it. Thanks for the question, Peter. We haven't actually touched on it as a topic. Historically, we've talked about it and it's not several times and never actually pushed the button on it. I think really, our plan is to -- we intend to do the business development and find the next opportunity. And once we go down that path of acquiring something, that might be the time we're considering in more seriousness, really. We're not considering at the moment with Sasa and Kounrad.

Okay. Next question from John is that the CAML share price looks undervalued versus these financial results. Will management consider use of the increasing free cash flow from strong commodity prices towards pursuit of a share buyback program supplementary to dividend payments to take advantage? And that's one for Gavin.

Thanks for the question, John. I think it is a subject of sort of sporadic debate within our Board as to whether we do share buybacks or not and I appreciate that. I think as management also feel that we're slightly undervalued given these results, so thanks for picking that up. So we've actually probably have had some analysis done by third parties on sort of peer valuations, and various other things. And also, the value generated by share buybacks for companies of our size. And we've always come to the same conclusion that is not really worth doing. So therefore, the question then would probably be posed to the Board later this year as to what to do with that additional cash. I think we've covered a few of the options with it today in terms of growth, but also -- we've also had feedback saying that the dividend policy with 30% to 50% of that free cash flow gives us enough flexibility that the market is comfortable that we can allocate more to shareholders within that policy rather than going and changing that sort of capital allocation program onward.

Okay. We've got another question from John. Please confirm the 2021 period of having commodity price hedging in place is now closed out. And hence, for 2022 financial year onwards, CAML is now fully exposed to commodity spot prices. It's another one for Gavin.

John, thanks for the question. Yes, the hedge program rolled off at the end of December. Now, we're very pleased, actually, that we've generated far more cash than expected or that we could be budgeted for through this year. So consequently, there's no intention to hedge for 2022. The reason we put that hedge in place in the first place was effectively to protect the business against adverse commodity price movements, because we had, not only the debt to repay and the CapEx to fund, but also we want to keep paying dividends. So I think given where commodity prices have gone, where our cash position is now, there's no reason to hedge.

Okay. Our next question from John is regarding Kounrad. A layman's question he says, is the leaching a once-only process? Or with a suitable copper price, plus a decade of additional weathering is a second pass possible? For Nigel.

So listen, from one layman to another. If you talk to our experts on this, we had a really good leaching team on how -- it's the expert who said this. So he would say, quite categorically, that beyond 2034 and there's no reason why we can't extend the license, we will be a preferred partner to do that, we can continue leaching at Kounrad. Not at the same levels as we are at the moment. And in fact, the second pass, as you call it, we already do it. We would like what we call rinse and rest. So we'll leave ourself for quite some time, maybe up to 2, 3 years and go back to it and squeeze some more copper out of it. But as you saw on that leaching curve on one of the slides I showed, it does tail off on the Western Dumps. After 20 months, it tails off to say, between 35% and 42%. On the Eastern Dumps, where we've been leaching now for 10 years, it tails off at about 50% after about 8 to 9 months. Well, the reality is we're already doing that second pass to make sense. Some of those cells in those dumps have probably delivered 55% now. So it's marginal, but it's at minimal cost and that is something that we would look at in the future, but it would not be at the same kind of commercial level that we developed the leaching plants for the Western and Eastern Dumps as the core license period.

We've got a question from Michael. Are there any further acquisitions on the horizon? I think you've maybe covered that one off already or at least as much as we are able to say. I don't think there's anything you want to add, Gavin or I think we probably have covered that, hopefully, Michael. A question from John. No mention in the presentation made of the Ukraine war situation and Turkey very high inflation situation. Are these seen by management as significant risk to Kounrad copper offtake transportation and sales going forward? Noting that the Traxys offtake agreement was previously defined as expiring soon in Q4 2022. So is there a risk of nonrenewal of offtake agreement and consequential difficulty to transport or sell Kounrad copper going forward? I think we've covered the first part of that question. I don't know if Gavin can comment on the Traxys offtake agreement.

No, I think it's a reasonable question. I think what you've got to remember though is that the copper that we produce is LME grade A copper. So it's effectively a fungible instrument. So if somebody in Turkey for whatever reason, no one wants to buy it from Traxys, Traxys will find another buyer for this copper at any rate. And last resort, they put it into a LME warehouse. So it is a valuable commodity regardless of what the sales arrangements are.

And Richard is asking what the future prospects are for finding or taking on new businesses as commodities are looking to have a positive next few years? I think we may have covered that, I don't know if there's anything else we can add to Richard's question.

I mean it's a valid comment. Yes, commodity prices are very strong, and we've got to be confident when you assess the assets we're looking at, but when you look at long-term prices and strike a deal, because that's where we manage Sasa in terms of long-term prices. They are cyclical as we all know, even if we might be into a different cycle now with copper potentially.

Yes. We've got a question from Steve who is saying, given the company name includes Central Asia, he wants to ask if investing outside of the area is seen as a way of getting a higher rating and spreading investment risk? For Nigel.

Yes. I mean, I think it's always wise to spread it. We had this on the previous call, actually, whereby in the early days, we just sat in and saying, I think that's a great asset, but it is just one asset in one country, which not everybody likes Kazakhstan necessarily. So you do have to diversify your kind of geographical politicalness, and we'll look to do that as we look at the opportunities. But we do like and have successfully operated in Kazakhstan. So it doesn't put us off buying another asset in Kazakhstan, but overall, we aren't just confined to the Central Asia region. I know the name still says that, we had a debate about this a few years ago, whereby we decided because everybody knows us as CAML and Central, we're well-known. We didn't think the timing was right to change that name because we may then get a little bit lost in terms of who we were and what we're doing there. So it is something we're conscious of, but there's no plan to change that at the moment.

[ Mazin ] is asking, is there a common reason why no M&A opportunities closed over the last year and how the current M&A opportunity is looking like? I think we've probably answered the second part, but maybe, Gavin can comment on the first part of that question.

Yes, sure, thanks. As Louise said, I mean, we're constantly signing NDAs and looking at things, so there's always a pipeline of opportunities we are considering. As to your question, I think commonly, these things do fall over on either price and value or as I'll euphemistically call it artistic differences between management teams. So we have had lots of conversations in the past and haven't found common ground on either strategic objectives for value is the general thing. Is that going to change? Yes, I think we are seeing some buyers that are -- sorry, some vendors that are not -- I have reason to sell. I mean, you've seen a lot of assets being funded by private equity companies over the last 5, 6 years or so, those ones are coming to the end of their lives. So there may be some opportunities coming out of there. And we've seen a few of those transactions occurring, in fact, in the last couple of years. And then also, I think, as Nigel mentioned on his slide, scale is becoming increasingly important to get the attention of a broader fund manager base. It may be wise to sort of join up with somebody of a similar size. So there's always those sort of discussions that could be had at some point as well.

I think the last question I've got here is from Quentin, which is, does the expertise that CAML has gained as a result of its work at Sasa and Kounrad give it any advantage when assessing possible investment in other operations? Who wants that, Gavin?

Yes, it's a good question, Quentin. I think the short answer is, yes, it does, because we have, as Nigel alluded, a lot of leaching expertise. So if we were looking at any leaching assets, we think we've got an advantage there, because we can do diligence things quicker and also, uncover any sort of fatal flaws, should there be any. And then with Sasa, yes, we got in some new expertise, particularly in terms of underground mining and managing teams and various other things. But we've also importantly bolstered the technical team over the last 3 years or so. So we've got metallurgical managers. We've got geotechnical engineers. We've got resource geologists all joining the ranks here that help us in the assessment of any opportunity.

That's fantastic. Louise, thank you so much for running through the questions and Nigel, Gavin, thank you. You answered every single one we've had through. If there are any further questions that do come through from investors, the company will have the opportunity to review those and will publish responses where it's appropriate to do so on the Investor Meet Company platform. Nigel, before we redirect investors to provide you with their feedback, which I know it is particularly important to you and the company. Can I just ask you for a few closing comments, please?

Yes. I think it's on our slide there about the outlook really. I mean, the closing comments, these are fantastic results. We're delighted to announce them, a record year for us. On the back of strong commodity prices, record dividends being paid back, strong balance sheet. And I think the future for our company looks bright in terms of the training of people. Our sustainability push, I think, is holding us in good stead. The last question was as an important question in many ways, because we ask that ourselves and said, what gives an advantage in the marketplace? And I think the advantage really comes from how you deal with the people in your business, the sustainability aspects of the business and the profitability. And the track record we've created over the years to get to this point 10 years after first producing copper at Kounrad, we've built a very strong business and good platforms to grow from that. I think that's the key message really alongside all the high-level financial numbers and operational numbers.

That's fantastic. Louise, Gavin, Nigel, thank you again for updating investors today. [Operator Instructions] On behalf of the management team of Central Asia Metals plc, I'd like to thank you for attending today's session. That concludes today's meeting. Thank you, and good afternoon.