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

Good morning, ladies and gentlemen, and welcome to the Central Asia Metals plc Annual General Meeting and Investor Presentation. [Operator Instructions] I'd now like to hand over to the Chairman of Central Asian Metals, Mr. Nick Clarke.

Good morning. My name is Nick Clarke, and I would like to welcome you to this Annual General Meeting of Central Asia Metals plc, our 13th AGM since our listing on AIM in 2010. I would also like to welcome those watching online via the Investor Meet company platform. With us today are my colleagues on the Board, Nigel Robinson, our Chief Executive Officer; Gavin Ferrar, our Chief Financial Officer; Louise Wrathall, our Director of Corporate Development; Mike Armitage; Roger Davey; Mike Prentis; and David Swan, our non-executive directors are with me in the venue. Gillian Davidson, our other non-executive director, is with us via telephone today. Before we proceed, I would like to set out the running order for today's proceedings in line with the Notice of Meeting sent to shareholders in April. First will be the formal AGM at which we will handle the formalities required in connection with this. The voting of this will be by a poll to ensure all votes lodged in advance are taken into account and the results of the AGM will be announced to the market later today. Once this formal AGM has concluded, we will then move on to the presentation from management. Now turning to the formal business of the AGM. With necessary quorum being present, I now declare the Annual General Meeting open. The business of the meeting is set out in the Notice of Meeting contained in the circular to shareholders dated 20 April 2023 and distributed with the annual report and accounts. With your approval, I would like to take the Notice of Meeting as read. Is that agreed? Thank you. The notice is taken as read. I would now be happy to answer any questions in connection with the business of the Annual General Meeting as I intend to call a poll on all resolutions. I should be grateful if all questions in connection with the business of the Annual General Meeting be asked at this stage. There will be an opportunity to ask general questions during the investor presentation after the formal meeting is concluded. As there are no questions and in connection with the business of the AGM, I shall now turn to the formal business of the meeting, being the resolutions set out in the Notice of Meeting. In accordance with the company's articles of association and to enable all proxies lodged in advance to be taken into account, I now demand a poll be taken on all of the resolutions set out in the Notice of Meeting. There are 13 resolutions. Resolutions 1 to 10 are being taken as ordinary resolutions, which require a simple majority of the votes cast to be passed. And Resolutions 11 to 13 are being taken as special resolutions, which requires approval of at least 75% of votes cast to be passed. Before we proceed to the voting, I will give a brief summary of each of the resolutions being proposed. Resolution 1 is an ordinary resolution to receive and adopt the Directors' Report and Accounts for the period ended 31st of December 2022, distributed previously to shareholders and available on the company's website. Resolution 2 is an ordinary resolution to approve the Board's recommendation of the final dividend for the year-ended 31st of December 2022 of 10p per share be declared payable. In accordance with the company's articles of association, certain directors retired by rotation at this meeting and Resolutions 3 to 7 are ordinary resolutions to reappoint myself, Nick Clarke; Nigel Robinson; Gavin Ferrar; Gillian Davidson; and Louise Wrathall as directors. Resolution Numbers 8 and 9 are ordinary resolutions to reappoint the auditors and to authorize the directors to fix their remuneration in accordance with normal practice. Resolution 10 is an ordinary resolution to allot shares and grant rights to subscribe for or convert any security into shares. This is a renewal of the current standing authority as is usual in publicly quoted companies. Resolutions 11 and 12 are special resolutions to authorize the directors to exercise all powers of the company to allot equity securities for cash otherwise than pro rata to existing shareholders up to the levels set out in the notice. These levels are as recommended in the most recent guidelines published by the Preemption Group that represents the interest of shareholders in relation to such authorities. Resolution 13 is a special resolution to authorize the company to purchase its own shares and to apply limits to this authority. Again, this is a renewal of a standing authority in place in the company. All these resolutions are being proposed at this meeting. Now moving on to voting. I now declare the poll open. Will those shareholders, proxy holders and corporate representatives wishing to vote, please complete a poll card now and pass these to the company secretary. [Voting]

If any shareholder, proxy holder or corporate representative wishes to vote and does not already have a poll card to do so, please raise your hand and the company secretary will pass you a poll card for completion. I plan to close the poll shortly. If there are any other poll cards to be submitted, please pass those to the company secretary now. Thank you. There being no further poll cards to be submitted, the poll is now closed. Our company secretary and registrars will be counting the votes cast at this meeting. The results of the poll will be available later today and will be announced in the London Stock Exchange as soon as practical. This concludes the business of the AGM. I now declare the AGM meeting closed. I will now hand over to Nigel Robinson, our CEO, to give a presentation of the company. Nigel?

Thanks very much, Nick. Well, good morning, everybody, and welcome to everybody physically here in the room and also online. Just a quick presentation to remind people of the company's performance in 2022. Standard disclaimer, read at your leisure, so to speak. I'll just remind people where we operate. We have 2 operations. First one we started back in 2007 when we first acquired the licenses there is at Kounrad in Kazakhstan. This is an in-situ dump leach operation with an SX-EW, that stands for solvent extraction electro-winning processing facility. And that's in Central Kazakhstan, just north of Lake Balkhash and South of Astana and North of Almaty. It's been in production now for 11 years, and the life of operations got another 11 years to go out to 2034. In 2022, we had a record year. Production was 14,254 tonnes of cathode copper. And our guidance this year is in similar ranges, 13,000 to 14,000 tonnes of copper. On the back of the success of Kounrad, we then invested in acquiring an underground lead and zinc mine in North Macedonia, slightly smaller country in the Balkan region. That's, as I said, an underground mine, a very different operation from Kounrad. Production commenced there actually back in the 1960s, and we've now owned it since 2000 and late 2017. And the life of mine is out to 2039, so another 16 years of life remaining in that particular asset. 2022 production was 21,500 tonnes of zinc and 27,300 tonnes of lead. And our guidance this year, as you can see there on the slide, is 19,000 to 21,000 tonnes of zinc and 27,000 to 29,000 tonnes of lead. Just moving on to remind people about the performance for 2022. We had a good financial performance. We generated revenue of $232 million with an associated EBITDA, that's earnings before interest, tax and depreciation, of $131.6 million. And that represents a margin of about 57%. On the back of that, the free cash flow, which is an important number for the company because our dividend is based on that number, was just under $90 million. And on the back of that free cash flow for the year, we announced the final dividend of 10p, making 20p for the full year last year, which at the moment represents a yield of around about 10% on the current share price. We are now debt-free. We repaid all of our debt last August on the amount we generated to acquire the Sasa operation back in 2017. That was paid back over the 5 years of the life of that debt. So we are now completely debt-free. And we have cash in the bank at the year-end of just over $60 million. The number you see just at the bottom there, LTIFR, that stands for lost-time injury frequency rate. We had 2 incidents, unfortunately. Two is too many, but we're working to reduce that on site both at Sasa and that represented in terms of the numbers of million manhours that we worked over a ratio of 0.83. We have announced our Q1 operations update in early April, and that shows that we're on track for our guidance this year. We announced production for the first quarter of this year with just over 3,000 tonnes of copper at Kounrad, nearly 5,000 tonnes of zinc and 6,500 tonnes of lead, as you can see on the numbers there, which means we're on track for our full year guidance that I've just mentioned. Just moving on to a little bit more on the Kounrad operation. Many of you will have seen this slide several times, we've been operating there, as I said, for 11 years now. And you can see the Eastern Dumps and the Western Dumps. Most of the production now, about 85% of this year, we expect to come from the Western Dumps, which is where we've moved to and about 15% will come from the Eastern Dumps. And we estimate in total, there's about 112,000 tonnes of recoverable copper out to the end of life of mine at 2034. Cost. It's a very low-cost operation. We don't move any of the ore in situ. As I said before, we have an EBITDA margin there of 77% at Kounrad, so an extremely good margin. Our C1 cash cost, which we announced at the year-end, was $0.65 per pound. If you think in terms of copper, that's about $1,400 per tonne of copper, and copper is currently selling just over $8,000 per tonne. So you can see why it's a strong margin and why it's a low-cost operation, and there's a table there which highlights the relevant costs that go into that production of the copper reagents, power, et cetera, all of which are relatively small, a total cost base on site of just over $20 million. Like everybody else in the world, we're not immune to inflationary pressures. And last year, we experienced around about 15% inflation, if you can see the numbers from 2021 out to 2022 there. One thing we are doing which we're really proud of in Kazakhstan is building a solar power plant. This will contribute around about 16% to 18% of our electrical requirements of the SX-EW plant. And we'll reduce our greenhouse gas emissions in Kazakhstan by around about 10%. The capital cost of that plant, which is only a fairly small plant by international standards, is just under $5 million. And that will be completed this year and will be online this later this year to be providing electricity from a solar farm to the SX-EW plant, as I say. Moving on to Sasa quickly. A lovely picture there. You can see it's in a valley up at around about 1,000 meters above sea level. The Skarn hosted deposit in North Macedonia. It's an underground mine. It's one very different, as I said, from Kazakhstan. And we are changing the method of mining from what was a sublevel caving operation when we acquired it 5 years ago to now a paste fill mining approach in 2023. And that will start transitioning to that method of mining later this year, and I'll touch on the infrastructure projects that support that transition to paste fill mining. We have resources and reserves out to 2039 at Sasa. Again, on the costs, as you can see the cost table there. Total costs on site at Sasa around about $45 million. Again, inflation. And one of the big factors that affected our operation in the second half of last year was a huge increase in the electricity costs, which we generally experienced across the European mainland and internationally as well. They have actually abated quite significantly. In the first half of last year, we were paying $0.10 per kilowatt hour on a fixed rate contract. Costs at the moment are getting close to that number, around about $0.12 to $0.13 per kilowatt hours. So we expect to see in this current year some benefits from that, but it's certainly affected some of the costs that we experienced last year. And the margin at Sasa is slightly less than Kounrad at 52% EBITDA margin at Sasa. I mentioned the infrastructure projects with facilitators going over to paste fill mining. Respectively, 3 aspects to it. One is a new decline which we are building, and we expect to hole through from surface to the 990 level later this month. We've drilled around about 2 kilometers in total as we sit here today. And as I say, we expect to hole through later this month. We've got a new decline that goes all the way from the surface down to 990 level. We'll then continue further down, and the end of that new decline will be around 2024 when we'll have drilled 4 kilometers down into the ore body. It will improve the access into the ore body, improve ventilation and improve the optimization of accessing the ore body, as I say. The paste backfill plant, a key part of the operation moving forward. Construction is well underway. We start commissioning this month, dry commissioning. And then in the next 2 to 3 months will be wet commissioning the plant with the intention that it gets into operation later this year and start doing the first paste fill mining later this year. And the last part of the equation effectively is drive stack tailings. We'll be managing waste on site at Sasa through 3 aspects: the current tailings facility, which is a wet-dump facility; the paste backfill, so putting the tailings back on the ground; and then the dry stack tailings plant, which will start -- and we've already started on some of the earthworks late earlier this month and we'll be completing the construction of that plant later this year with the intention of using dry stack tailings from and commissioning it through Q1 2024. So those are the 2 operations, 2 very good operations, no debts on them, very cash generative. And this slide here just shows what the company is about in terms of what drives us in terms of our strategic objectives. I've already mentioned targeting low-cost operations. We have got high margins at both of those operations. I'll touch on capital allocation in a minute, how we use the cash we generate from the operations in terms of our capital allocation priorities. But also, we have a strong focus within the group on sustainability. We reported our -- or distributed, should I say, our fourth sustainability report earlier this year in April, something we're particularly proud of. I think for the size of the company, we do an extremely good job of managing all those aspects of sustainability. And we have 5 pillars to it: effectively delivering value through good governance, through stewardship, as we call it; maintaining health and safety on site, I've mentioned LTIFR 0.83, which is good by industry standards; focusing on our people, making sure we recruit the right people, we look after those people, we train them and develop them well; caring for the environments in both operations, making sure that we do the right thing by the environment and that we monitor everything we do closely; and unlocking value for our communities, investing money back into the local communities. Climate change progress. We've made good progress on this. We set ourselves a target a couple of years back now that on the 2020 base when we generated around about 100,000 tonnes of CO2, you can see the numbers there on the left-hand side of the waterfall chart, we targeted that by 2030, we'll reduce that by 50%. And last year, we reported just south of 60,000 tonnes of greenhouse gas emissions, which is a 40% reduction. Most of that was because we have a 100% renewable electricity contracts in North Macedonia. The solar farm will also contribute that at group level around about 6% reduction. And then we're looking at other opportunities around both sides to actually get to that 50% target by 2030. I mentioned the community is very important to us, important to most mining companies when you're operating in these areas where the community is very dependent on the mine and the generation of income from that mine, the employment from that mine. And we've, in both operations, set up an independent charitable foundation, which we contribute money into. We spend around about $0.5 million last year in 2022. And we've increased this year the contribution to 0.5% of our revenue at group level that will go back into those foundations for the relevant projects that we deem suitable for the communities. Capital allocation, I mentioned this before. Really 4 aspects assets to how we allocate our capital. One is dividends back to shareholders. The other one was paying off the debt. I mentioned before, we've now fully paid down our debt, so that's been removed. Investing back in the business, in the paste fill projects that we've talked about at Sasa, the solar farm. So putting money back into the projects themselves to develop those projects. And last but by no means least, probably the biggest challenge we face at the moment, growing the business from those current 2 profitable operations that we've got. But in terms of returning money back to shareholders, again, something as a company we're very proud of, we've now paid back nearly $300 million back to shareholders since 2012 when we first started the dividend policy. That's GBP 1.52 per share that it equates to. Our policy, just to remind everybody, is based on that free cash flow number. I mentioned that was $90 million for last year. And our policy is to return to shareholders 30% to 50% of that free cash flow number. And last year, the amount we returned in terms of that 20p represented 47% of that free cash flow number. Business development activities, putting money back into that. We look at activities all the time or opportunity, should I say, to actually grow the business, making sure that when we do invest in another opportunity, it will be accretive to our shareholders and it's the right thing for the company to do. A big challenge, as I say. There's lots of opportunities out there. We're getting the right ones in the right jurisdiction, in the right stage of development with the right metals and all the other factors that go into it is quite a challenge for the management team. We have a supportive shareholder base. There's just a few examples, some of the shareholders who supported us, institutional shareholders there. You can see J.O. Hambro, T. Rowe, BlackRock, T. Rowe, Fidelity, Polar Capital. I think that represents around about 45% on that list. And so we've got a pretty strong shareholder base -- institutional shareholder base, should I say, in the city covering us and actually are supporting us in what we do. Board of Directors. You can see there from that picture all the Board of Directors. We're not height-sensitive at all. The people do actually look like that. We're not any photo-shopping on the face, as you can see, from the panel here. But we'd probably not all as tall as we indicate on that particular picture. But there's the Board of Directors and the one in front of you here. Finally, just to finish off before I open it up to any questions, in terms of an outlook. We have got a sustainable business, 2 very good operations that generate good cash flows and are fully invested in apart from Sasa where we're investing more money to change the method of mining. We're producing metals essential for modern living safely and sustainably. We've got strong capital allocation priorities. I've mentioned the dividend already, 20p represents about a 10% yield at the moment. We are investing in both the businesses that we currently own, and we're looking to grow the business and looking for growth opportunities. And our outlook for this year, we're on track for our production. We are debt-free. And as I say, the biggest challenges, the 2 main challenges we've got this year, is growing the business and also completing the construction projects at Sasa, which are on track to deliver and be completed later this year and into next year for commissioning. And on that note, that completes the presentation for Central Asia Metals. I'll hand over to the floor for any questions or online for any questions all the way who's got list of questions from various investors online.

[ I'm Monica Rednam ], a shareholder. Could you give me an update as to whether there'd be any new opportunities in Kazakhstan? From the geological point of view, from the geopolitical risk point of view, is there any chance you might be nationalized because your main operations in Kazakhstan, it would actually destroy the company? I asked this of the Mongolian government representatives at Rio Tinto, and I didn't get that a reply that I was very happy with.

Okay. Let me answer the second part of the question first, if you don't mind. I don't think there's any chance of us being nationalized. There's lots of state-owned enterprises in Kazakhstan. And if anything, they're looking to try and privatize those through an IPO route, so we're actually getting lot of those huge organizations in Kazakhstan into private hands and listing them rather than nationalizing. So I don't think there's any chance of a little small company like CAML in Kazakhstan being privatized -- sorry, nationalized by the country. In terms of the prospect in Kazakhstan, its' a highly prospective country. We are looking at opportunities. I think where we are at the moment is looking for exploration opportunities, and we are looking at companies out there and investing in companies that specialize in exploring and looking for other coverage opportunities for ourselves. So we are having various discussions, some of them fairly advanced, some not as advanced as others, to actually expand, if you like, our operations in Kazakhstan. We're comfortable operating there. We feel we can operate well there and have done now since 2007, as I've mentioned before.

Right. As an add-on to that, when I flew into Almaty a few years ago, I was told it can reach minus 40 in the winter. Do the severe climatic conditions affect you too much on your cost base?

Very good question. You're right, it just gets extremely cold. It goes from plus 40 to minus 40 in Kazakhstan. On the operation, what we have is boilers that actually heat the solutions. So when we put the [indiscernible] solution, which is to do the leaching, we actually heat it. So when it gets on to the dumped, it actually is heated up and then it cools down obviously as it goes through the process. We do get freezing, but as long as we have the kinetic energy to keep the solution moving, we operate. And in fact, if you look at our production profile, we operate 365 days a year, every day of the year, even when it's down to minus 30 with windshield factors, sometimes minus 35, minus 40. So we continue to operate all the way through the year. So that's actually been factored into the design of how Kounrad operates.

All right. Related. I'm not an eco-warrior, but I am pleased to see your use of solar panels. Last time I crossed the Gobi Desert, I couldn't see it for solar panels. I had a word with Antofagasta recently. They've had to put a huge investment into desalinations because of the ongoing drought in Chile. Obviously, you've got a climatic risk situation here. You might be requested or encouraged to increase your solar panel production or your electricity production with the solar panels. Is this factored into the account predictions?

Sorry, into the account?

Well, it's been accounting, should we say, allowing for extra input for this sort of thing.

Well, we could certainly afford it. We've not factored it in a moment because the plant that I mentioned before, which is less than 5 megawatts, is very small by international standards. It's actually restricted because of regulations in country, how they distribute power, but so we can't actually build something without distributing into the national grid, and we don't really want to do that. We want to feed it directly to the plant. I can see that changing in the coming years. So we've future-proofed the current facility. So we could expand it maybe to a 10 megawatt site. And actually, I think we'd like to provide more power into the plant. It would never be 100%, I don't think, because you need a certain peak times of power to be able to operate the plants effectively. So I don't think we'll ever get that far, but we may indeed expand the solar farm. In terms of the water and climatic conditions, that's quite topical actually because there are reports that the Caspian Sea is reducing, I think, by about 20 centimeters every year. So there are some concerns about water in Kazakhstan. We take water from both Lake Balkhash and some underground sources close back to the mine. So we're comfortable with how much we extract and how we use that water. The government is comfortable with what we use. So I think we're okay at the moment. But I think it's a warning potentially for the future that there may be some water -- more stringent water regulations within Kazakhstan, I suspect.