Central Asia Metals Regulatory News (CAML)

14 September 2015

Ticker: CAML (AIM)

Central Asia Metals plc ("the Group", "the Company" or "CAML")

Interim Results for the Six Months Ended 30 June 2015 

Central Asia Metals plc (AIM: CAML), a copper producing company focused on base metals in Central Asia is pleased to announce its unaudited interim results for the six months ended 30 June 2015 ("H1 2015" or the "Period").

The Company is also pleased to declare an interim dividend of 4.5 pence per ordinary share (H1 2014: 5 pence) which equates to 25% of the gross revenue for the period. CAML raised $60 million at its IPO in September 2010 and this latest dividend will bring the total cash returned to shareholders, in dividends and share buy backs, to approximately $61 million, representing over 100% of the funds raised. 

Operational highlights

• H1 2015 copper production of 5,444 tonnes, an increase of 7% vs. H1 2014 (5,094 tonnes)

• H1 2015 copper sales of 5,120 tonnes, an increase of 9% vs. H1 2014 (4,698 tonnes)

• Kounrad Solvent Extraction-Electro Winning (SX-EW) plant expansion commissioned on time and under budget

• Completion of all detailed construction designs for Stage 2 Expansion to access the Western dumps

Financial highlights 

• EBITDA of $16.0 million (H1 2014: $21.8 million) with EBITDA margin of 53%

• 2015 interim dividend of 4.5 pence per ordinary share to be paid on 30 October 2015

• H1 2015 Group gross revenue of $30.3 million (H1 2014: $33.7 million)

• Average copper price received of $5,936 per tonne (H1 2014: $7,049 per tonne)

• Continued focus on maintaining low costs of production:

- C1 cash costs of production of $0.74 per lb (H1 2014: $0.72 per lb)

- Fully absorbed unit costs of $1.87 per lb (H1 2014: $1.62 per lb) including non-cash costs for depreciation and amortisation of $0.54 per lb (H1 2014: $0.48 per lb)

• Group cash balance of $35.8 million as at 30 June 2015 (31 December 2014: $46.3 million)

Business Development

• Additional $3.0 million investment in Copper Bay Limited ("Copper Bay") in June 2015 increasing shareholding to 75%

• Copper Bay Definitive Feasibility Study ("DFS") commenced

• Management continues to look for additional growth opportunities

Outlook

• 2015 production guidance of 12,000 tonnes of copper

• Construction permits and licences for Stage 2 Expansion expected by the end of 2015

• Stage 2 Expansion to access the Western dumps on track for production in 2017

• Continued focus on operational and capital cost discipline in current challenging commodity price environment

• Impact of recent devaluation of Kazakhstan Tenge ("KZT") on operational cost base under review

Nick Clarke, Chief Executive Officer, commented:

"I am pleased to report that our business has remained profitable in the first half of 2015, despite a 16% decrease in the copper price since the beginning of the year. We delivered a solid operational performance, and despite a temporary production disruption in late June, we have increased our production by 7% from the corresponding period. In addition, we delivered the Stage 1 Expansion of the plant on time and under budget and we are working towards the Stage 2 Expansion.

Our continued focus on cost control has maintained Kounrad's position in the lowest quartile of the industry cash cost curve. The continued low cost of our operations together with our strong balance sheet enables us to continue market leading dividend payments in a challenging commodity environment.

CAML's increased investment in Copper Bay demonstrated our confidence in the project and we look forward to providing further updates as the DFS progresses. Furthermore, we continue to look for additional opportunities to grow the business and deliver value to our shareholders.

Finally, with the dividend announced today, total cash returned to shareholders now exceeds the funds raised at IPO five years ago, an achievement of which we are extremely proud." 

For further information please visit www.centralasiametals.com. (The content of the CAML website should not be considered to form part of or be incorporated into this announcement)

Enquiries:

Analyst presentation conference call

An analyst presentation on the Company's interim results hosted by management will take place at 09:30 (BST) on Monday 14 September 2015 at the offices of Bell Pottinger and will be accompanied by a live conference call.

The accompanying presentation slides will be available on the Company's website. The conference call can be accessed by dialling 020 3059 8125 (from the UK) or + 44 20 3059 8125 (from all other locations) and quoting the confirmation code 'Central Asia Metals Interim Results'. A replay of the call will be available following the presentation at http://www.centralasiametals.com.

Chief Executive Officer Review

The CAML Board is sufficiently confident in its business plan to declare an interim dividend for the period of 4.5 pence per ordinary share. This represents 25% of the gross revenue for the period, in line with the Company's dividend policy. Almost five years since our initial listing on AIM in September 2010, we have now returned to shareholders in dividends and share buy-backs over 100% of the $60 million raised. This represents 32% of the attributable revenue generated since the commencement of operations in 2012. 

As previously announced to the market, during the period we produced 5,444 tonnes of cathode copper (H1 2014: 5,094 tonnes) representing a 7% increase. The incident we reported on 29 June 2015 has impacted our 2015 production, but nonetheless we will see an increase on 2014 production. The Kounrad SX-EW plant has now been in operation for 38 months at an average utilisation rate of 98% and has produced over 33,600 tonnes of copper to 30 June 2015, and this incident is the first such interruption to operations.

We remain on track with our expansion plans for Kounrad, and in the period completed the Stage 1 Expansion of the SX-EW plant on time and under budget. We are also working towards the Stage 2 Expansion which will see us install additional infrastructure to enable the extraction of copper from the Western dumps.

In addition, we announced in June that we had increased our shareholding in Copper Bay to 75%, following an additional investment of $3.0 million. These funds will be used for the DFS which is currently underway. Further to our investment in Copper Bay, we continue to look for additional growth opportunities for the business to create value for our shareholders.

Operating Review

Kazakhstan (Kounrad)

Operations

During the first six months of 2015, operational performance remained strong with copper production of 5,444 tonnes, representing a 7% increase on the corresponding period of 2014. This increase is largely due to the expanded boiler-house capacity at the plant resulting in higher solution volume treatment rates during the winter months.

As previously announced, an incident occurred on site on 26 June 2015 which resulted in approximately a third of the organic inventory being lost to the dumps within a very short time frame. On inspection, it was identified that the weir plate system had failed in the recently commissioned SX mixer settler, allowing some of the organic inventory to escape from the circuit via the raffinate system and on to the dumps.

The failure was quickly rectified but the loss of organic inventory and the subsequent lead times to replace it resulted in the revision of the 2015 full year production target from 13,000 tonnes to 12,000 tonnes of copper.

The plant has now been in operation for 38 months at an average utilisation rate of 98%, and this incident is the first such interruption to production. The Company will strive throughout H2 2015 to meet the revised production target. As at 31 August 2015, all of the organic inventory had been replenished and the plant was gradually being ramped up to design capacity levels.

The technical quality of the cathode copper production remains high and continues to meet the requirements of our main customers.  

Kounrad Expansion 

Stage 1 Expansion - SX-EW Plant

Less than a year after the start of the Stage 1 Expansion programme, the extended SX-EW facility was commissioned ahead of schedule in May 2015. The programme included construction works and equipment installation, all undertaken by Company personnel. The extra mixer-settler tank has increased the plant's solution treatment capacity by 33% to 1,200 cubic metres per hour, and the additional 24 electro-winning cells have increased the plant's daily plating capability by 42% to 50 tonnes of copper. The infrastructure upgrade also included the installation of an additional 10MW transformer substation.

The Stage 1 Expansion and additional 5.6MW boiler capacity installed towards the end of 2014 have increased the plant's name-plate annual capacity from 10,000 to 15,000 tonnes of cathode copper at a cost of approximately $13.0 million, against a budget of $15.5 million.

Stage 2 Expansion - Western Dumps

The application to the relevant authorities for the required permits to allow copper extraction from the Western dumps are in progress and approvals are expected to be received by the end of 2015. The Stage 2 Expansion remains on track for production in 2017.

Corporate & Social Responsibility ("CSR")

After over three years of production at Kounrad with an exemplary health and safety record, we experienced our first major accident on site shortly after the period end. The accident resulted in injuries to two employees, both of whom have received the appropriate medical treatment and are being given all of the necessary support to ensure a swift recovery. Detailed internal and external investigations have been undertaken to ensure that the risk of a similar accident is minimised. 

A key focus during the period for the environmental team has been the hydrogeological drilling and monitoring programme at Kounrad. The Company has spent approximately $0.5 million on a programme of drilling and the installation of geological as well as technical and monitoring boreholes in the vicinity of the Western and Eastern dumps. The Company maintains best-practice environmental monitoring standards. 

The Company continues to actively engage with the local community and during the period contributed over $0.1 million to social programmes and committed a further $0.2 million with a special emphasis on health and education.

Operations outside of Kazakhstan

Copper Bay Project - Chile 

On 30 June 2015, CAML exercised its right to invest a further $3.0 million to increase its shareholding in Copper Bay from 50% to 75% following the completion of the pre-feasibility study.

The DFS has now commenced and a project manager has been appointed. The DFS will work towards providing more accuracy and confidence regarding all aspects of the project. CAML management will continue to monitor the future economic viability of constructing the project based on the outputs of the DFS and the copper market environment.

Mongolia 

The Group continues to hold for sale the assets it owns in Mongolia. 

Financial Review

The copper price came under increasing pressure during the first six months of 2015 due to continued concerns over the slowdown in the growth of the Chinese economy and an increasing supply of copper into the market. These concerns appear to have increased during Q3 2015 and as at late August 2015, copper prices had declined close to $5,000 per tonne.

Against this background, the Group continued to focus efforts on maintaining its low cash costs of production and delivering the Stage 1 Expansion on time and under budget.

Income Statement

Group profit after tax from continuing operations was $6.0 million for the six month period ended 30 June 2015 (H1 2014: $47.2 million). The comparative period results (H1 2014) were impacted by a one-off gain of $33.0 million arising from the completion of the Kounrad Transaction in May 2014. Earnings per share from continuing operations were 5.37 cents (H1 2014: 52.06 cents, 15.31 cents excluding the one-off gain).

Revenue

A total of 4,938 (H1 2014: 4,562) tonnes of copper cathode were sold as part of the Company's off-take arrangements at Kounrad and a further 182 (H1 2014: 136) tonnes were sold locally. As mentioned above, the Group revenue was impacted by the decline in copper prices and an average selling price of $5,936 (H1 2014: $7,049) per tonne was achieved. This generated reported gross revenues for the Group of $30.3 million (H1 2014: $33.7 million). 

Cost of sales 

Cost of sales for the period were $12.9 million (H1 2014: $10.8 million). This increase generally reflects the higher levels of production inclusive of higher depreciation and amortisation charges. The C1 cash costs were $0.74 per lb (H1 2014: $0.72 per lb). Fully absorbed unit costs for the period were $1.87 per lb (H1 2014: $1.62 per lb). This included non-cash costs for depreciation and amortisation of $0.54 per lb (H1 2014: $0.48 per lb).

Total depreciation and amortisation charges recognised within cost of sales for the period were $6.0 million (H1 2014: $4.9 million). This included an additional depreciation and amortisation charge of $3.6 million during H1 2015 (H1 2014: $2.9 million) as a result of the uplift to the asset values following the completion of the Kounrad Transaction in May 2014.

The fully absorbed unit costs include a one-off charge of $0.7 million, which equates to $0.06 per lb, arising from the write-off of organic inventory following the incident on 26 June 2015.

Administrative expenses

During H1 2015, the Group employed an average of 49 staff (H1 2014: 45) at Kounrad to oversee the technical and commercial management of the operations in Kazakhstan, together with head office staff in London of 9 (H1 2014: 7). Administrative expenses for the period were $6.1 million (H1 2014: $4.5 million) reflecting the growing activities of the Group. 

During the period, the Group incurred $0.3 million on business development activities in Kazakhstan and elsewhere as Management continue to look for additional growth opportunities for the business. 

During the period, the Group recognised a share based payment charge of $1.1 million (H1 2014: $0.8 million) in relation to the Company's Share Option Schemes. The Group also incurred withholding tax of $0.4 million (H1 2014: nil) on dividend payments made between subsidiaries in the Group.

Balance Sheet 

During H1 2015, there were additions to property, plant and equipment of $6.6 million (H1 2014: $2.9 million). The majority of this expenditure was incurred on the construction work at Kounrad for the Stage 1 Expansion which was commissioned in May 2015.

As at 30 June 2015, non-current trade and other receivables were $7.1 million (31 December 2014: $6.4 million). This outstanding balance represents the amount currently owed to the Group by the Kazakhstan Government for VAT. The Group is in the process of appealing to the Kazakhstan authorities and the outcome may not be known until early 2016. A portion of the outstanding VAT balance is being recovered through the offset of VAT liabilities on local sales of copper cathode.

As at 30 June 2015, current trade and other receivables were $7.1 million (31 December 2014: $3.2 million). The increase is a result of $4.5 million owed for the sale of copper for June deliveries which were received in early August 2015. The Group had $35.8 million of cash as at 30 June 2015 (31 December 2014: $46.3 million) including restricted cash of $0.6 million (31 December 2014: $0.1 million) and no debt.  

As at 30 June 2015, current trade and other payables were $3.6 million (31 December 2014: $4.3 million).

On 13 May 2015, the Company completed a Court approved capital reduction scheme, which resulted in $67.1 million being transferred from the share premium account to distributable reserves. A condition of the capital reduction scheme was to set aside an amount into a restricted bank account, which would cover certain creditors as of the effective date of the capital reduction. The balance of the restricted bank account in relation to the capital reduction scheme as at 30 June 2015 was $0.4 million. 

Foreign Exchange

The Group operates overseas and is exposed to foreign currency movements. During August 2015, the KZT devalued by almost 37% overnight, as highlighted in note 15, when the government transitioned to a free-floating exchange rate, allowing the market to determine the rate.

Given that the Group's operations in Kazakhstan generate their income in US dollars through the export of copper, the immediate impact from a purely financial standpoint is positive as approximately 60% of the cost base in Kazakhstan is denominated in KZT.

The Board will continue to monitor events in the country and respond accordingly. The Group does not keep large amounts of cash in KZT and as at 30 June 2015, held the US dollar equivalent of $0.2 million.

Copper Bay investment

On 30 June 2015, CAML subscribed for 135,621,610 newly allotted ordinary shares in Copper Bay for a cash consideration of $3.0 million, which increased CAML's shareholding from 50% to 75%.

Following this additional investment, management has reconsidered the accounting treatment of the initial $3.2 million investment in 2013 and has fully consolidated the Copper Bay Group as at 30 June 2015 at historical cost. This has resulted in a reduction in Group retained earnings at 30 June 2015 of $1.2 million. An intangible asset of $3.2 million recognised in 2013 equal to the cash consideration paid for the initial 50% shareholding has been reduced by $1.6 million. The resulting value of the intangible exploration and evaluation assets currently held in the Copper Bay Group as at 30 June 2015 was $1.6 million (see note 8).

Dividend

The CAML Board has declared an interim dividend for the period of 4.5 pence per ordinary share in accordance with its dividend policy announced in December 2012. The interim dividend equates to approximately 25% of the gross revenue for the period and will be payable on 30 October 2015 to shareholders registered on 9 October 2015. 

CONDENSED INTERIM INCOME STATEMENT (unaudited)

for the six months period ended 30 June 2015

Six months ended

CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (unaudited)

for the six months period ended 30 June 2015 

Total comprehensive income/(expense) attributable to equity shareholders arises from: 

CONDENSED INTERIM BALANCE SHEET

as at 30 June 2015

CONDENSED INTERIM STATEMENT OF CHANGES OF EQUITY (unaudited)

for the six months period ended 30 June 2015

\* The results of the Copper Bay Group have been consolidated within the CAML Group from 30 June 2015. This has resulted in a reduction to group retained earnings at 30 June 2015 of $1.2 million. 

CONDENSED INTERIM STATEMENT OF CASH FLOWS (unaudited)

for the six months period ended 30 June 2015

Six months ended

Cash and cash equivalents at 30 June 2015 includes cash at bank on hand included in assets held for sale of $15,000 (30 June 2014: $55,000).

NOTES TO THE INTERIM FINANCIAL INFORMATION

For the six months period ended 30 June 2015

1. General information

Central Asia Metals plc ("CAML" or the "Company") and its subsidiaries (the "Group") are a mining organisation with operations primarily in Kazakhstan and a parent holding company based in the United Kingdom.

The Group's principal business activity is the production of copper cathode at its Kounrad operations in Kazakhstan. The Group also owns two exploration projects in Mongolia which are held for sale and owns a 75% shareholding in the Copper Bay tailings project in Chile.

CAML is a public limited company, which is listed on the AIM market of the London Stock Exchange and incorporated and domiciled in the UK. The address of its registered office is Masters House, 107 Hammersmith Road, London, W14 0QH. The Company's registered number is 5559627.

The condensed consolidated interim financial information incorporate the results of Central Asia Metals plc and its subsidiary undertakings as at 30 June 2015 and was approved by the Directors for issue on 14 September 2015. This condensed interim financial information does not constitute accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2014 were approved by the Board of Directors on 27 March 2015 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified.

The condensed consolidated interim financial information has not been unaudited.

2. Basis of preparation

The condensed interim financial information for the six months ended 30 June 2015 has been prepared in accordance with IAS 34, 'Interim financial reporting'. The condensed interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2014, which have been prepared in accordance with IFRS.

3. Accounting policies

The accounting policies, methods of computation and presentation used in the preparation of the interim financial information are the same as those used in the Group's audited financial statements for the year ended 31 December 2014.

After review of the Group's operations, financial position and forecasts, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the unaudited interim financial information. 

Investment in Copper Bay Limited

The results of Copper Bay Limited and its subsidiaries have been fully consolidated from 30 June 2015, being the date of the additional investment of $3 million to increase CAML's shareholding from 50% to 75% (note 8). 

4. Estimates

The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing this condensed interim financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2014. 

5. Segmental information 

The Board is the Group's chief operating decision-maker. Management have determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. The Board considers the business from a geographic perspective.

As at 30 June 2015, the Group had two business segments consisting of an SX-EW copper plant at Kounrad in Kazakhstan and the Copper Bay project in Chile. The Copper Bay project has been reported as a segment for the first time for the period ended 30 June 2015 following the additional 25% investment made by CAML on 30 June 2015. The Group operations are controlled from a head office in London, UK but this does not represent a separate business segment.

The Board assesses the performance of the Kounrad project based on a number of key operational and financial measures which relate to copper production output, revenues from the sales of copper and the overall costs of producing the copper.

All capital related expenditure at the Kounrad and Copper Bay projects are closely monitored and controlled.

The segmental results for the six months period ended 30 June 2015 do not include the results of the Copper Bay project which will be consolidated from 30 June 2015 following the increase in CAML's shareholding from 50% to 75%. 

Group segmental assets and liabilities for the six months ended 30 June 2015 are as follows:

6. Earnings per share

Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to owners of the Company by the weighted average number of Ordinary Shares in issue during the year excluding Ordinary Shares purchased by the Company and held as treasury shares.

(a) Basic

The diluted earnings/(loss) per share is calculated by adjusting the weighted average number of Ordinary Shares outstanding after assuming the conversion of all outstanding granted share options and exercise of outstanding security warrants.

(b) Diluted

7. Property, plant and equipment

The change in estimate in relation to the asset retirement obligation of $778,000 is as a result of adjusting the provision recognised at the net present value of future expected costs using an inflation rate of 4.3% (H1 2014: 6.6%) and discount rate of 8.07% (H1 2014: 8.65%) representing the risk free rate (pre-tax) for Kazakhstan.

8. Intangible assets

Copper Bay investment

On 30 June 2015, CAML subscribed for 135,621,610 newly allotted ordinary shares in Copper Bay Limited for cash consideration of $3.0 million, which increased CAML's shareholding from 50% to 75%.

Following this additional investment, management has reconsidered the accounting treatment of the initial $3.2 million investment in 2013 and have fully consolidated the Copper Bay Group as at 30 June 2015 at historical cost. An intangible asset of $3.2 million recognised in 2013 equal to the cash consideration paid for the initial 50% shareholding has been reduced by $1.6 million. The resulting value of the intangible exploration and evaluation assets currently held in the Copper Bay Group as at 30 June 2015 was $1.6 million.

9. Trade and other receivables

As at 30 June 2015, current trade and other receivables were $7.1 million (31 December 2014: $3.2 million). The increase is a result of $4.5 million owed for the sale of copper for June deliveries. These funds were received in early August 2015.

The carrying value of all the above receivables is a reasonable approximation of fair value.

10. Share capital and premium

On 13 May 2015, the Company completed a Court approved capital reduction scheme, which resulted in $67.1 million being transferred from the share premium account to distributable reserves. A condition of the capital reduction scheme was to set aside an amount into a restricted bank account, which would cover certain creditors as of the effective date of the capital reduction (13 May 2015). The balance of the restricted bank account in relation to the capital reduction scheme as at 30 June 2015 was $0.4 million. 

11. Cash generated from operations

  Six months ended

12. Commitments

At 30 June 2015 the amounts contracted for but not provided for in the financial information amounted to $1.9 million for the Group (31 December 2014: $3.6 million).

13. Dividend per share

An interim dividend of 4.5 pence per ordinary share (2014: 5 pence per share) was declared by the CAML Board on 11 September 2015.  

14. Related party transactions

During the six month period ending 30 June 2015, the Group had no transactions with related parties with the exception of the Company's subsidiaries.

Mr Kenges Rakishev ("KR") became a major shareholder of CAML on 23 May 2014 following completion of the Kounrad Transaction. He was appointed to the CAML Board on 9 December 2013 following the completion of the first part of the transaction. Consequently, KR is considered a related party in any dealings he has with the Group.

KR owns 28.67% and is a Director of JSC Kazkommertsbank ("KKB"). The Group uses the facilities of KKB within Kazakhstan for its normal day-to-day banking and has insurance agreements with a subsidiary of KKB. 

As part of the obligations on KR for completing the Kounrad Transaction, he signed a relationship agreement with CAML setting out the terms of the relationship between KR and the Group.

15. Events after the reporting period

KKB and KR

On 7 August 2015, KKB announced that KR had reached a preliminary agreement with the Alnair private equity group to combine their respective shareholdings in KKB, subject to satisfaction of regulatory and other customary conditions. As a result of the proposed transaction, KR would acquire legal ownership over the parent entity of JSC Alnair Capital Holding, which currently holds a 28.08% stake in KKB's issued and outstanding share capital.

In connection with the proposed transaction, KR would become the General Partner of the Alnair private equity group and, as such, would effectively acquire control over voting and other rights of Alnair's shareholding in KKB.

Upon completion, this transaction will effectively give KR full control over the voting and other rights of a combined 56.75% stake in KKB's issued and outstanding share capital, made up of shares in KKB held by KR directly and indirectly, through Alnair.

Kazakhstan Tenge currency devaluation

During August 2015, the Kazakhstan government transitioned to a free floating exchange rate of the KZT allowing the market to set the price.

As a result, on 21 August the exchange rate of the KZT depreciated to 255 KZT for 1 US dollar, approximately 37% compared to the rate used for 30 June 2015 accounting purposes of 186.

Whilst no adjustment to the accounts has been made to reflect this devaluation, it is worth noting that it will impact the results and net asset position in future reporting periods. For example, a 30% devaluation impact on the net assets of $73.5 million denominated in KZT as at 30 June 2015 is a reduction of $22.0 million.