Central Asia Metals is a UK-based mining company that operates in Kazakhstan and North Macedonia, specializing in the production of copper, zinc, and lead.
Central Asia Metals has two projects, one in Kazakhstan and one in North Macedonia. Let us begin with the first one. The Kounrad project in Kazakhstan is a copper recovery plant. What prompted its acquisition?
The project was acquired back in 2006 through a tender process run by the Kazakh government. Central Asia Metals won the tender, but initially, the company was more focused on early-stage exploration in Mongolia, including large gold and molybdenum targets. However, after the financial crisis, the company ran low on funds, leading to a complete management overhaul. Nigel Robinson joined as financial controller in 2009 during a difficult period of cash preservation and strategic reassessment.
Nick Clarke, who had a successful track record in Kazakhstan, was brought in as CEO. Together, they reviewed all assets and decided to focus on the Kounrad project due to its promising resource and test work. They raised capital and conducted pilot tests, eventually IPO-ing the company in 2010, which raised $60 million. This funded the Kounrad project, which was built on time and under budget, with first production in April 2012. This success established Central Asia Metals as a reliable junior mining company, known for capital discipline and shareholder returns.
What motivated your diversification strategy in 2017, when you acquired the Sasa mine in North Macedonia?
Single-asset companies are inherently risky due to reliance on one asset, commodity, and country. Diversifying risk was essential for us. Given Kounrad’s low-cost nature, we sought a second asset within the lower half of the cost curve. After a three-year search, we acquired Sasa, attracted by its long operating history, established technologies, and favorable mining environment. Sasa operated just outside the first quartile on the zinc cost curve, and therefore added to our already strong operating cash flow, which in turn allowed us to continue our existing capital allocation program.
This diversification strategy allows us to continue our dividend policy and explore further acquisitions in favorable jurisdictions, ensuring profitability through economic cycles. By focusing on assets in good jurisdictions and at the lower end of the cost curve, we aim to sustain profitability and shareholder value.
Do you have a specific expansion strategy in mind?
Our strategy is to produce base metals essential for modern living. We aim to acquire value-accretive base metals assets. If an operating asset with cash flow meets our criteria, we ensure it does not dilute our cost base and remains profitable, benefiting shareholders. We focus on base metals such as copper and zinc, markets we understand well and are optimistic about their fundamentals.
We are also interested in nickel, which is another base metal. For instance, our investment in Aberdeen Minerals, a copper-nickel explorer, aligns with our belief in the relevance of these metals to energy transition and mining's future. We avoid bulk commodities like iron ore and coal due to their larger infrastructure needs. Sticking to base metals allows us to leverage our market and technical expertise, ensuring sustainable operations and shareholder returns.
With hindsight about its lower profitability compared to Kounrad, would you have still acquired the Sasa project?
Absolutely, I would still buy Sasa. It generates good cash flow and, after recent studies, we now see it as a long-life asset extending until at least 2039. Investments in the last few years have underpinned this longevity, improved extraction efficiency, and reduced future requirements for an additional traditional tailings facility. Innovations like using dry stack tailings and returning 40% of tailings underground have modernized the mine without increasing its footprint.
Regarding margins, global inflation has impacted all mining companies, including ours. Despite higher costs, especially in payroll to support our workforce, we are still at the low end of the cost curve for both Kounrad and Sasa. This ensures we remain cash-generative through economic cycles, proving our resilience and profitability across various market conditions.
Moving back to Kounrad, until when do you expect production to continue?
The license for Kounrad expires in 2034. We believe we can extend it, but current recoverable copper estimates suggest production will gradually decline. We have produced copper at 13-14 thousand tons per annum recently, with around 100,000 tons remaining recoverable. As these heaps mature, recoveries diminish, so production will decrease by 2034. We will then decide if continued production is viable or consider selling the asset.
We are optimizing production by experimenting with different leaching techniques. Our rinse and rest cycles have yielded more copper than initially forecasted, demonstrating our ability to learn and adapt. Our talented workforce constantly innovates, ensuring we maximize output and efficiency up to 2034.
Could you tell us more about the copper recovery process at Kounrad?
It is important to note that we are not leaching tailings at Kounrad but processing material that previous operators could not treat due to its oxide mineralization. This material, deemed waste by the Soviet-era operators, is what we are exploiting. We have been searching for similar projects, but it is challenging. Kounrad has unique aspects that make it successful. We have evaluated other dumps in Kazakhstan and tailings operations globally, but their economics do not quite meet our criteria. Nonetheless, we will continue to look for opportunities, leveraging our expertise in exploiting these dumps. Recycling this material is not only profitable but also aligns with sustainability goals.
From an environmental perspective, not mining, crushing, or grinding significantly benefits our cost base and reduces our environmental impact. Reclaiming metals from these dumps prevents them from entering the environment slowly, thus avoiding acid mine drainage. The industry is increasingly moving towards this model, with new technologies emerging to extract metals from previously untreatable materials. Our technology, crucial for Kounrad, was not widely used until the 1970s, but it now produces about 20% of the world's copper. This method, along with new technological advancements, supports our sustainable approach to mining.
How important are retail investors for mining companies nowadays, and what is your strategy for engaging with them?
While our shareholder base is still dominated by institutions due to their capital weight, we actively engage with retail investors. We have platforms for retail investors to interact with the management team and ask questions directly. This engagement is crucial as even marginal trades by retail investors can impact our share price. We participate in small conferences and use online platforms for direct engagement, and we also field questions from retail investors through our info email address.
I do not see retail investors dominating anytime soon, but there has been progress in tax efficiency for retail investments in London-listed stocks. Increasing retail investor exposure and successful investments in mining companies can enhance awareness of the industry's importance. Our strategy is to educate and engage retail investors, ensuring they understand the value and role of our industry in achieving broader societal goals.
Nigel, the current CEO, is stepping down on 1 October, when you will take over. What are your objectives and strategies for Central Asia Metals?
As I step into the role, continuity and shareholder value will be key. Our primary challenge is growth. We have two cash-generating assets providing a strong platform, and our clean balance sheet positions us well. Acquiring a third cash-flowing asset is a crucial objective. We are also building a pipeline of earlier-stage projects, ensuring we have a steady growth trajectory in future years with at least three cash-flowing assets and a robust development pipeline.
Capital allocation remains a priority, balancing shareholder returns with the needs of all stakeholders. We will continue supporting local communities through our foundations, focusing on sustainable long-term projects. Health and safety will always be a core focus, ensuring safe production of metals. Balancing these objectives while driving growth, both organically and inorganically, will be key to our strategy. This holistic approach will ensure we maintain our momentum and continue delivering value to our shareholders and communities.
