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

Yes. Look, it's been an interesting journey at Sasa because it did present us with a few problems last year. And as you said, geological uncertainty was one of them. And as we're getting deeper into that ore body, it's getting more variable both in terms of geometry and grade. So one of the key areas we focused on in the last 6 to 12 months is really investing in understanding the geology, so that's more drilling. And it's also investing in our -- in training of our staff. So people are being trained up in more stringent grade control methodology in how to operate the software packages that are extremely useful and utilize those to inform the planners and therefore, what the miners do ultimately. So -- and that's not only in training. We've also got a new chief geologist on the ground. We've had a bit of oversight from head office on that front, too. So that's been pretty good. And we are being confronted with fewer geological surprises underground. I mean they're not totally gone away yet, but we're dealing with mother nature here, but things are improving on that front. In terms of the mining method and the efficiencies we've been trying to drive into there, one of the key metrics you can look at in today's announcement is the grades that we've achieved at Sasa for both lead and zinc, which are -- it doesn't look like a lot, but they are marginally up on what they were in the first half of last year. And that's a function of 2 things. It's a function of better planning and getting into the stopes in a more efficient manner and also much more efficient mining with less dilution because as the guys become more familiar with the new mining methods, and we've also employed a couple of drill and blast engineers. We've got another one coming as soon as the work gets approved. And that's helping the miners as well with better drill and blast design, less overbreak, less dilution, more efficient mining ultimately, which leads to higher head grades. So that's starting to come through as well. And on the cost side, you're starting to see it a little bit as well. So if you look at the costs we achieved at Sasa. Now remember, this is in an environment where we are seeing some inflation. We've got currency depreciation with the dollars going down really, which is -- works against us really. We've still managed to reduce the costs period-on-period here by $700,000. And I think if you take the currency out of that, it probably gets close to about $1 million that we save just in terms of mining. And that's really where a lot of the focus was of the studies we were doing. Processing costs have gone up because we -- as you say, we are using the paste stack and the dry-stack tailing, but that was to be expected. And then G&A costs have come down marginally as well as we've -- there's some payroll savings that we've made because we reduced the staff by about 100 people. There's a cost to that as well. So it's going to wait probably see the full effect of that saving coming through in 2027. But overall, I think in the environment that we've had with diesel costs going up, if you strip that out, you strip a couple of other things out, we've made a substantial saving costs on the mining side as well. So that's been a really great result. And our team out at Sasa, a lot of them have really embraced the challenge and try to change things. And there's a couple of sort of some of the detail there is advance rates in lateral development have gone from 2.1-meter average drilling length to about 2.8, we're targeting 3. So that's already a significant improvement. We've reduced inventory, and that's on the balance sheet by about $3 million that frees up some working capital for the business. geology and mine planning and grade control, we've talked about. So to answer your question, we're not stopping here, right? We've got to keep going with -- there's a lot more improvements to go. It was -- in a way, it was a fantastic study because it highlighted probably about 30 or 40 areas of potential improvement for us. It would have been far easier if there was just one if they just, oh, we'll change our explosives. But going through these systematically, methodically and setting structure around each of these targets is still underway. So we do expect to see a little more improvement. And then ultimately, yes, you want to stabilize at that 830,000 tonne run rate and then just churn through at a similar kind of metal production rate that we have today and just out to 2034. Now there is potential for that to change because we've recently had an extension to the license area approved by the government, and we are now working on getting the approvals in place for putting an exploration drive in and getting some drilling done at those deeper levels of the mine. So that will potentially add to the resource. And then ultimately, we're also looking at the satellite ore bodies to see if we can add that into the mining inventory, and that will take that mine beyond 2034. So we are looking to -- I think stabilize is a good word that you use there. That's probably still 6 to 12 months hence we've got more of these improvements in place.

So more momentum behind the thing, which is good to hear. Okay. We sort of talked for a while now about the existing operations that probably requires me to put you on the spot a little bit now and ask you about the things you're not really allowed to talk about, which is the deal with Cygnus. How long did it sort of take from sort of first awareness of Cygnus to sort of get to the stage of making the offer, I mean, particularly given the disappointment around Antler.

Well, actually, it kind of came out of the -- almost directly out of the disappointment around the Antler opportunity that we missed out on last year because one of the advisers we were using sort of had a look at the Antler prospect and thought, well, we've got something similar for you and showed it to us, and we thought that looks quite intrigued by it. There's a little bit more work to be done to get into production than there was in Arizona, but it's still a highly attractive proposition. I don't know if we wouldn't be talking about it if it wasn't. So that would have probably been -- I think they were aware of our PTSD there. So they gave us a monthly sort of calm down after that deal went away. So it would have been September when we were introduced to it. And then we met with the management team when they were over for LME Week in October last year. That was the first contact effectively we had and sort of floated the concept, had a very high-level discussion with their Chairman. And some of this is all about -- are these people you can actually transact with and work with, right? And there was a lot of that kind of sort of assessment going on both sides, I reckon. But they've been super as a management team all the way through since then. So I think we made the right call on that front. It took until, I think it was January this year when our first [ stipends ] took place. So we had a team out there along with a third-party technical adviser that really kicked off the hardcore due diligence that we did. And that took a couple of months and then papering up what we call the Cygnus Scheme Implementation Deed took another couple of months and then we announced it, I think it was 2nd of June. So these things do take long, which is why I was talking to some people earlier today, particularly in junior base metals, these opportunities don't come along often, and they do take a long time to execute. So since that July 2 date, we've been working feverishly to put together the scheme booklet, which is, as you said, restrict a little bit of what I can say, sort of confine ourself to what's in there, but it is 683 pages, so I feel I have a little bit of latitude. And a day later, we came out with the U.K. circular. And those documents are prospectus level disclosure designed to allow the Cygnus shareholders and the CAML shareholders to be fully informed when the votes coming up on that deal. So that's the end of the timetable. If all goes well from here on in, would mean ownership transfers on the 5th of October. So almost a year, I suppose, since we first met with the Cygnus management team.

Yes. And obviously, all of the discussions I've certainly had with investors and you had too is probably focused on the Chibougamau prospect itself. Obviously, Cygnus has got a few lithium assets also just sort of up the road in Canadian terms and then a stack of licenses down in Australia. Is the opportunity for you really just Chibougamau? Or can you see a place for some of the other licenses they've got as building out a longer-term project base for CAML?

Yes. Look, it's fair to say that our due diligence was almost entirely focused on the Chibougamau asset. It's copper gold. It's quite complex. There are 5 deposits there with a central processing plant, which could constitute a sixth deposit. I mean there's still mineralization there and working around getting comfortable with that resource, what the throughput through that facility could be, how much refurbishment we require, what the permitting risks were, all that sort of stuff that you do in DD. And that was the main focus. The lithium and gold prospects are there. We haven't looked at them in any great detail, but we feel we've got time post the deal close to assess these things and then make a decision on whether or not we will progress them ourselves, progress them in JV with someone else or something like that. There are several ways to approach these things. And there's -- if we feel there is intrinsic value in them and we can sort of do an assessment and figure it out, then we'll do that.

Yes. Okay. One of the other things that occurred to me, I'm sure to the team, looking at that plant to be refurbished, the initial studies that Cygnus guys have got would suggest that there's going to be some spare space in that mill. Is it far too early for you as part of the sort of broader deal thing to start saying, well, actually, you know what, we can have a chat with these guys or there's that deposit there that we could bring in to fill some of that space.

Yes. So look, I mean, if you look at the 2022 PEA, there's clearly an opportunity because I think that contemplates an ore sorter, which will mean that plant throughput will be about 680,000 tonnes. I can't remember the exact number now, but the nameplate capacity was 900,000 tonnes in the past, right? So as I said earlier, it's going to take a significant amount of refurbishment. And if we did refurbish it to a standard where there was 900,000 tonnes, then clearly, that would -- there would be an opportunity, right? And I think one of the things that the Cygnus team is trying to convey to its shareholders why this is a good deal is because with CAML's cash flow and balance sheet, it creates a lot of optionality around the transaction where you can look at things in a slightly different way because you've got the luxury of the cash flow underpinning anyway. You're not having to produce a study and then market off the back of that study to raise the capital to build a project that is configured in a certain way. So we will once we -- yes. And if we take ownership, we'll be looking at options and trying to figure out what the most efficient way of getting into production is and what the sweet spot for the throughput will be in that plant and where we get that material because as I said, there's 5 known areas. There's 18 kilometers of strike that have past producers on it. This is a region that's produced over 1 million tonnes of copper and 3.5 million ounces of gold. So it is -- that's one of the attractions is that you've got the near-term development project plus all of this exploration upside. So we can -- as one of our Board Directors says, you can play tunes on it and see which is the best way to approach it. So look, we're in the sort of position that we can -- we will be able to do that going forward. But I think the priority is really going to be continuing with the drilling program that Cygnus is currently undertaking, potentially bolstering the team with some people to accelerate the study work, and we'll be picking up the reins on that PEA that Cygnus is currently conducting. And then as part of that on the side, we'll be looking at various options.

Then obviously, that's, I think, an updated PEA -- would the idea be that you'd sort of try and do a PEA plus type study. So you take that almost straight into DFS or the more conventional, okay, here's the PEA. Right now, we refine various options in the PFS and then we decide which one of those we take forward into a bankable study.

The current sketch is as you described, let's do as much as we can in terms of the PEA and perhaps some sort of optionality studies on the side and then decide whether we can move straight to DFS. And if there is a possibility to do that, we will because one of the attractions here is that you've got that brownfield processing site and you've also got a brownfield tailing site, which should make the permitting time line a little bit sort of easier to navigate. There's still a lot of environmental work to do to produce an ESIA, which is a fundamental part of the thing, and that's probably going to be the kind of critical path sort of from a time perspective because technically, because they own the site, you could, in theory, just start refurbishing the mill tomorrow if you want it. But what you don't want to do is refurbish it to a point and they go, oh, actually, it would have been better if we did this or that thing.

Well, there's no point refurbishing and having it sitting empty for 1.5 years while you're getting the updated permits for the mines and the...

So there's a lot of different ways we can approach this. And I just think where we sit today, we just don't know what those are. But I think what I could say to your listeners is that, again, because we are slightly unique in that we've got a lot of cash flow coming through from Kounrad and Sasa, we have a lot of options about how we would approach the development of Chibougamau.

And obviously, certainly up until the point in which you pull the development trigger, given you have no debt, there's also plenty of discretionary cash flow even within the ability to maintain the dividend payout ratios and so forth. So hence, you've got the ability to slightly accelerate things by throwing a bit more cash at them.

That's absolutely possible. Yes. And I think that capital discipline that the dividend puts on us as a management team is, I think, really good in the background as well. So you're going to be quite careful. And in a way, we're going to be in a luxurious position as a company where if the deal goes through, we're going to be sitting at budget time October, November every year going, okay, right. Where are we going to get the best bang for our buck for exploration, for example? Are we going to put it into Kazakhstan? Or are we going to put it into Canada or into Aberdeen or -- so we've got -- yes, we're becoming a little bit more grown up as a mining company now where you've got to make these decisions, allocate capital properly, but always in the background, you're going like we've got a bunch of shareholders out there that we need to look after. And that shareholder base is going to be a bit different as well because we've got another 50% increase in our share count, I suppose, and that's going to be spread across Australia and Canada. So the TSX listing is something we haven't spoken about yet, and that's going to be a fundamental part of this transaction. And that's -- we can be able to market the project given its location to North American investors and so on and so forth. So it's going to be quite a complex sort of capital market structure to manage, but also a capital allocation structure to manage. But I think we're going to sort of stick to our knitting and go like this is a good discipline on management to say you've got to make returns for your shareholders while you're producing cash, but at the same time, you can deploy it and generate a lot of value for the shareholders as well into exploration and into development.

That's probably a good time to wrap it up. Thank you very much for coming in and all the best with the rest of the investor roadshow.

Yes, always a pleasure, Pete. And as you say, let's not wait so long this time.

Absolutely. Cheers, Gavin.

Thanks.