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. [Operator Instructions] I'd now like to hand over to Non-Executive Chairman, Nick Clarke. Good morning.

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 14th AGM since our listing on AIM in 2010. I would also like to welcome those watching online via Investor Meet Company platform. With us today are my colleagues on the Board: Nigel Robinson, our Chief Executive Officer; Gavin Farrar, our Chief Financial Officer; Louise Wrathall, our Director of Corporate Development; Mike Armitage, Roger Davey, Gillian Davidson, Mike Prentis and David Swan, our Non-Executive Directors, are all with me in this venue. 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 Annual General Meeting in which we will handle the formalities required in connection with this. The voting at this will be via 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. The 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 18 April 2024 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? [Voting]

Thank you. The notice is taken as read. I should now be happy to answer any questions in connection with the business of the AGM as I intend to call a poll on all resolutions. I should be grateful if all the questions in connection with the business of the AGM be asked at this stage. There will be an opportunity to our general questions during the investor presentation as the formal meeting is concluded. No questions on the AGM. Thank you very much. Unless there are any further questions or queries, I'll proceed to the resolutions. 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 article 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 10 resolutions. Resolutions 1 to 7 are being taken as ordinary resolutions, which require a simple majority of the votes cast to be passed. And resolutions 8 to 10 are being taken as special resolutions, which require approval of at least 75% of the votes to be passed. Before we proceed with the voting, I will give a brief summary of each of the resolutions being proposed. Resolution 1, an ordinary resolution to receive and adopt the directors' report and accounts for the period ended 31st of December 2023 distributed previously to the shareholders and available on the company's website. Resolution 2 is an ordinary resolution to approve the Board's recommendation that a final dividend for the year ended 31st of December 2023 of 9p per share be declared payable. In accordance with the company's articles of associations, certain directors retire by rotation at this meeting. And resolutions 3 and 4 are ordinary resolutions to reappoint Mike Prentis and David Swan as directors. Resolutions #5 and 6 are ordinary resolutions to reappoint the auditors and to authorize the directors to fix their remuneration in accordance with normal practice. Resolution 7 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 8 and 9 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 Pre-Emption Group that represents the interest of shareholders in relation to such authorities. Resolution 10 is a special resolution to authorize the company to purchase its own shares and to apply limits to this authority. Again, this, a renewable of a standing authority already in place in the company. All these resolutions are being proposed at this meeting. Now moving on to the voting, I now declare the poll open. Would those shareholders, proxy holders and corporate representatives wishing to vote please complete a poll card now and pass these to the company secretary? 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. Thank you. I plan to close the polls shortly. If there are any other poll cards to be submitted, please pass these 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 votes cast at this meeting. The results of the poll will be available later today and will be announced to the London Stock Exchange as soon as practical. That concludes the business of the AGM. I now declare the AGM closed. I will now hand over to Nigel Robinson, our CEO, to give a presentation on the company. Thank you.

Thanks very much, Nick. Good morning, ladies and gentlemen, and welcome to the AGM and the presentation. Standard strapline, maintaining a solid platform for growth, that's what we believe we're delivering at the moment. Standard disclaimer, as you can see there on the screen, read that at your leisure. First of all, I've only got about 15 slides. But just starting off, just to remind everybody where we operate from, two countries primarily, Kounrad, where we -- sorry, Kazakhstan, where we own Kounrad 100%, which is an in-situ dump leaching facility with an SX-EW processing facility also. That's now been in production for over 12 years. And the life of the operation is out to August 2034, so another 10 years of life at Kounrad, which has been a very successful and profitable operation for us. On the back of the success at Kounrad, in late 2017, we purchased the Sasa, a more traditional underground lead and zinc mine in the northeast of North Macedonia. And production commenced well into the '60s. And we, as I say, bought in late 2017 and have been operating that now for almost 7 years in November of this year. The life of mine out there at the moment is out to 2039, so further 15 years on that operation. Just some highlights. We announced our results on 25th of March 2024. Many of you will have seen these numbers. But just to reiterate them, last year, we generated revenue over $200 million, $207.4 million. And on the back of that, we made what's known as EBITDA, that's earnings before interest, tax, depreciation and amortization, of $96.5 million. That's a 47% margin on that revenue. The free cash flow, an important number for us, we generated from that, which determines the dividends we pay back to our shareholders, was $57.5 million. And we invested last year in the business at both Kounrad and Sasa, primarily at Sasa, a capital number of $27.8 million. The group is now debt-free, having paid off all the debt that we took onboard to acquire Sasa in late 2017. We have cash in the bank of $57.2 million. Remember these numbers are to the end of December 2023. And the dividend that we announced for the full year in total for last year was 18p, which is $40 million. The final dividend, which will be paid next week, was 9p for 2023, making 18p in total compared to 20p in 2022. And since the inception of our dividend policy way back in 2012, we've now paid back 170p per share or $339 million back to our shareholders, a number that we're particularly proud of as a Board. Just a few operational highlights. As I said before, we did invest quite a lot of money back into Kounrad and Sasa to develop those operations. We came in line with our operational guidance. So just to remind you on those numbers, copper production came in at 13,816 tonnes from Kounrad. At Sasa, we produced 20,338 tonnes of zinc and 27,794 tonnes of lead, all of which then goes to the smelter for onward production. So we met our production guidance. We're online for meeting production guidance in 2024, I can state. And we also had a very safe year of production. We had one incident, which is one too many, of course. But we beat our target last year, which was 1.3 of what we call LTIFR, that's lost time incident frequency rate. That's the number of incidents you have per million man-hours worked. And it came in at 0.4 on that one per the number of million man-hours we worked over the course of the year. Lots of achievements over the course of the year. We progressed quite significantly our capital projects at Sasa, spending $14 million on those, completing the paste plant, the paste fill backfill plant, should I say, spending $2.4 million on that, commencing the construction, which will complete this year, the dry stack tailings plant and also continuing the new Central Decline, which we started a couple of years back. And that will again complete this year. We spent $2.8 million on that. We updated our MRE with an increase of almost 1 million tonnes from some drilling that we did and reevaluation of the geology in the area. And we completed the Kounrad Solar Power Plant, more of which I'll come on to in a minute, with a total expenditure there of $3.1 million. Our investment case, hopefully, many of you on the call and in the room here will understand what our investment case is, which is being responsible, productive operations. I think we've made good efforts on our sustainability and ESG credentials, as you can see from some of the numbers there. We are a profitable business, as I've just explained, with the financial highlights from last year. I believe as the Board were very accountable in terms of delivering local employment for the people, which is around about 99%, 100% at Kounrad and slightly less at Sasa, where we have some expats for the change in mining methodology that we're going through. And dependability, certainly in terms of everything we do, I think what we say we do, we've normally delivered on. And certainly, in our dividend policy, we've been very good dividend payers since 2012, as has already been mentioned. So just moving on to the various operations, now a few slides on each of the operations. Kounrad copper operation, as many of you know, that's an in-situ dump leach. We don't move any of the material. We literally leach it in situ and put it through an SX-EW plant. And that's an aerial shot of the site, which is a huge site with an open pit, as you can see there. We've more or less exhausted the Eastern Dumps, where we started back in 2012. And most of the copper now, around about 75% to 80% of the copper production, is now from the Western Dumps, as you can see there on the diagram. Just a bit on the finances of Kounrad, a highly profitable operation. You can see the EBITDA margin there of 71%. And the table on the right-hand side just gives a summary of the costs of operating that business. What we get down to, which is we call a C1 cash cost, which includes all the reagents, the power, the payroll, the materials and then the cost of actually getting the copper to the end consumer through the markets. Total there, we've got about 10% with inflation last year from $20.5 million in 2022 to last year's number of around about $22.6 million. Most of that inflationary increase was through payroll, a bit on the reagents and a small amount on power, which is generally low cost in Kazakhstan. Final slide on Kounrad. One thing we're proud of is that in terms of our enhancing ESG credentials, we built a solar power project in Kounrad. We started it in late 2022 and we completed it in November and commissioned it last year, coming in well under our budget of $3.1 million for what's effectively a 4.77-megawatt solar power plant. It's quite small by international standards. And it will generate around about 16% to 18% of the electrical requirements for the SX-EW plant at Kounrad. Just moving on to Sasa quickly. Sasa, a more traditional mine, as I said, underground mine. Historically, that's always been mined through sublevel caving operation, but we did make a commitment a couple of years back to transition this to a cut-and-fill method of mining and long-haul stoping with high-density paste fill. I think that decision is most certainly the right decision from 2 years ago, both in terms of how we manage the waste processes and also in terms of the way the ore body is changing as we go further underground at this Sasa mine. We have reserves and resources out to 2039. Again, similar to Kounrad, looking at the costs. They're not quite as profitable. There are a lot more moving parts. It's a lot more complicated operation. But you can see there a small increase in cost year-to-year and the absolute cost for 2023 of on-site mining costs moving up from around about $45 million per annum to $47.2 million, so something like about 6% and 7% cost inflation there over the course of the year, so fairly well controlled costs there. And then the other side of it, which is different very much to Kounrad, is that we need to use local smelters in the European area for actually processing the concentrate into a metal at the end of the day. And that went up last year around about $2 million from $19.5 million to $21.4 million, giving a total C1 cash cost of $68.6 million for 2023. Margin, as you can see there, 39% for Sasa in terms of EBITDA margins. And as I said before, we did spend quite a lot of time and a lot of money on developing Sasa to transition from this sublevel caving methodology to a cut-and-fill mining and a long-haul stope, effectively three aspects of that project. And we significantly advanced it during the year, and we intend to complete all these projects this year. The backfill plant, that's now completed and commissioned. And the actual reticulation, which is basically the plumbing which takes the material down into the underground voids, which is effectively placing the waste, instead of into the tailings dam, into the underground voids that will be created by the mining themselves, so a very effective and environmentally friendly way of managing the waste. Both aspects of the project there are completed and are now moving into operational phase this year. The dry stack tailings plant, which is another method of how we'll manage the waste in the future, that is ongoing. We intend to commission and complete that in Q3, Q4 of this year. But a lot of work was done last year in terms of the earthworks, completing the -- sorry, starting the construction in terms of the concrete pouring and insertion of steels, clearing the landform, which is where you place the actual paste and the cake on to the land and clearing the vegetation for that. And that's going to be completed, as I say, this year. And the last part was the Central Decline, which we started a couple of years back and again will be completed this year, which will provide more productive methods of accessing the ore body lower down, improve ventilation and, thereby, increasing our productivity on-site to the Central Decline. So that's the two operations, Kounrad and Sasa. Just a little bit on sustainability, which we've put a lot of effort into over the past 2 or 3 years to improve our credentials in the marketplace. Three areas that I've highlighted here, the environment, I've already mentioned the solar farm that we developed and commissioned last year. We have developed a corporate biodiversity strategy, which we're on with at the moment. And we've completed, which is part of our improvement to the environment at Sasa I've already mentioned, the backfill plant and the actual methodology of managing waste at Sasa, which is improving the environmental footprint. We finalized a water management strategy, how we extract water from the local area and how we can reduce that by recycling. We've calculated also, as we move in and improve in our reporting, our Scope 3 emissions. We're already reporting Scope 1 and Scope 2 emissions as is required by the market. Health and safety. Not a lot to really add on that, but we did have a very good year with only one incident through the course of the year. And the box there highlights what our target was and what we actually achieved for 2023, which is a 0.4 LTIFR, which is a very good number. And the last but certainly by no means least on the ESG credentials, looking after the local communities both in Macedonia and in Kazakhstan, put a lot of effort into that. We set aside 0.5% of our revenue for these purposes. And we've got a foundation, basically, a legal entity, which is a charitable trust to actually look after those communities and develop plans for the future for the longevity of the community there. Business development. This is probably one of our biggest challenges. We've got some very good assets that generate good cash flows and well-managed, well-run, safely run, highly productive assets. And what we now need to do to grow the business is to develop the business by acquiring other assets. We made some advances during the course of the year, which I'll touch on in a minute. The strategy effectively is to use the balance sheet for earlier-stage exploration and also to look in the marketplace for opportunities that will be more transformational, a bit like another Sasa acquisition that we did 6 years ago, of that level of investment into the business using debt and potentially equity. And we've put a lot of effort into that. And the table on the right-hand side shows you some of the activities, 37 opportunities appraised, 17 NDAs signed, 7 site visits and 4 projects looked at with external consultants, which means we've gone further down the path of commitment. We haven't as yet landed on anything, but we are fairly active in that area to actually add to the very attractive two assets that we've currently got. Jurisdiction-wise, we're look at the European time zones. Obviously, all of Europe, that includes some African countries and also Kazakhstan. We're comfortable operating in Kazakhstan as we have been doing now for almost 15 years since we acquired the asset in 2007. And the other aspect of business development, which is now important, is sustainability. We've made, as I said before, good inroads into our ESG credentials. We wouldn't want to go backwards in any kind of acquisition opportunity on that particular aspect of our business. We did make announcements regarding developing more exploration pipeline with CAML X in Kazakhstan and Aberdeen Minerals. And you can see on the slide there, the details of money that will be spent this year on further enhancing those exploration opportunities. And so that really concludes my presentation. Just an outlook for this year. We are on track. We're now into the month of May, obviously. So as a management team, we know where we are in production for this year. We believe we're on track for our production guidance of this year, which, just to remind everybody, is 13,000 to 14,000 tonnes of copper from Kounrad; 19,000 to 21,000 tonnes of zinc in concentrate at Sasa; and 27,000 to 29,000 tonnes of lead in concentrate also at Sasa. We have already announced our Q1 production numbers. And you can just see those there, which substantiate what I just said about being on track for our guidance for the year. We will continue the capital investments at Sasa with very little capital investment at Kounrad required this year. And those projects will be concluded this year and go fully operational in terms of the transition to cut-and-fill and long-hole stoping mining. We'll continue to assess actively new business opportunities. As I've mentioned before, we put a lot of activity into that both last year and we'll continue with that. And then in terms of exploration, we'll increase the exploration work both in CAML X in Aberdeen and also at Sasa, where we've got 6,600 meters of exploratory drilling planned at Sasa for the year. And we'll continue on improving our ESG credentials with the solar power project and reducing our carbon emissions. And on that note, that concludes the formal presentation. And so I'll open it to the floor for any questions from the audience or online.

We'll take questions from the room first. Are there any questions?

Thank you for your presentation. I just wonder if there's any time scale before we know the results of this Aberdeen drilling. I mean, do you think there will be another announcement on how we'd like to put more money into it?

I think we've invested the money, or we've got a final condition before we fully invest the money. And then we'll go through an exploration program that we've agreed with the management team over this year and the next year. So as and when we do that exploration, we'll come out with announcements at the time. So we've really got a timeline that takes it out, I'm looking at Louise here, for the next 2 years effectively as a company. And if anything, exciting comes, we'll announce it to the market obviously. But we'll carry on, we'll work with the Aberdeen team to actually develop that asset. Do you want to add anything to that?

Just to say that the $5 million, if we were to invest the full amount, would be for 2 years, as Nigel said. But I think hopefully, we should start to get some interest in drilling results sooner, a lot sooner than that.

Yes. And when we do, we'll announce them accordingly.

Any other questions in the room? If there aren't, then I'll maybe turn to Louise, there are some online questions, if I hand that to you.

Yes, sure. We've got some questions through the system. So the first one is from David. He's asking, what are the key focus areas in your upcoming sustainability report?

The key focus areas in the upcoming, the one...

We have just published it, yes, a few weeks ago.

I suppose the key areas that we look at is community development. That's important, too, is how we develop our local economic development plans at Sasa. And we're also developing that in Kounrad. Health and safety, maintaining our targets. On the environment, we've set some fairly quantitative targets, I would argue, in terms of reducing our carbon emissions by 2030 by 50%. I think we're well on track for that. I think the numbers we report are at about 41% at the moment. So we'll be looking at other opportunities to meet that target in the next 5 to 6 years. I think also the water management, I briefly mentioned in my presentation, that's important as we've got a target that by 2026, we'll reduce the amount of water we abstract from the local rivers by 75%. So I think there's a few key numbers in the environmental areas. I mentioned community and health and safety. Then obviously, governance is ongoing in terms of how we manage our suppliers and the governance of the business. And people management is very important to us, how we train and develop the staff, certainly, at Sasa, where we're going through a transition period. And there's obviously a learning curve for all of the staff there, so we've got quite a lot of emphasis to develop the staff there as best we can in terms of the new technologies and new methods and slowly but surely getting to almost 99%, 100% local employment, which is something that we pride ourselves in, in terms of those. So I think those are the key focuses. I mean, as anybody who's read the sustainability report now, it's a good report. For the size of the company, I think we punch above our weight, I would say. And we've got five pillars. And it covers those five pillars effectively as our targets as a management team to deliver on.

The next question is from Mike, who's asking with the completion of the major capital investment program at Sasa, how do you plan to allocate capital going forward?

This is always a good question. I'm looking across at Gavin as the CFO. But I mean, honestly, our focus has always been on getting the balance right on capital allocation. I think we've done that right historically. I hope we'll continue to do so. I mean, it will be attractive for us that we would then fully invest, other than ongoing sustaining CapEx, which is the magnitude of maybe $10 million to $12 million a year, and certainly far less than we've had in the last 2 years, that, that additional capital will either build up the cash balances. And we'll look at, when we get to certain cash balances, whether we give more back in dividends or hopefully, what we'd like to do as a Board, as I mentioned already, is put the effort into business development and acquire additional assets to grow the business. That's our main focus really. But clearly, we don't intend to run with too higher cash balances without thinking about how we use that money sensibly.

Our next question is from Andrew, who says despite strong operational performance, CAML shares underperformed. What factors do you believe have contributed to this?