Central Asia Metals : 2020 Full Year Results

RNS Number : 8826T Central Asia Metals PLC 30 March 2021

30 March 2021

CENTRAL ASIA METALS PLC

('CAML' or the 'Company')

2020 Full Year Results

Central Asia Metals plc (AIM: CAML) today announces its full year results for the 12 months ended 31 December 2020.

Financial highlights

• · 2020 final dividend of 8 pence per share (2019: Nil)

  • o 2020 full year dividend of 14 pence per share (2019: 6.5 pence per share)

  • o Represents 57% of 2020 free cash flow 1 ('FCF')

  • o Payable on 25 May 2021 to shareholders registered on 30 April 2021

• · Group gross revenue[1] of $170.3 million (2019: $180.8 million)

  • o Group net revenue of $160.1 million (2019: $171.7 million)

• · Group EBITDA1 of $95.7 million (2019: $108.6 million)

• · EBITDA margin1 of 56% (2019: 60%)

• · Group profit before tax of $59.8 million (2019: $67.8 million)

• · Sasa C1 zinc equivalent cash cost of $0.50 per pound (2019: $0.47 per pound)

• · Kounrad C1 copper cash cost of $0.51 per pound (2019: $0.52 per pound)

• · EPS from continuing operations of 24.78 cents (2019: 29.36 cents)

• · Group FCF of $58.9 million (2019: $69.8 million)

• · Group net debt1 as at 31 December 2020 of $36.2 million (2019: $80.2 million)

  • o Cash in the bank as at 31 December 2020 of $47.9 million 2 (2019: $32.6 million)

  • o 2020 gross debt repayments of $38.4 million (2019: $38.4 million)

Operational highlights

• · Zero lost time injuries at either Sasa or Kounrad during 2020 (2019: one)

• · Zinc in concentrate production of 23,815 tonnes (2019: 23,369 tonnes)

• · Lead in concentrate production of 29,742 tonnes (2019: 29,201 tonnes)

• · Copper production of 13,855 tonnes (2019: 13,771 tonnes)

2021 outlook

• · Sasa production guidance

  • o Zinc in concentrate, between 23,000 and 25,000 tonnes

  • o Lead in concentrate, between 30,000 and 32,000 tonnes

• · Kounrad copper production guidance, between 12,500 and 13,500 tonnes

• 1 See Financial Review section for definition of non-IFRS alternative performance measures

• 2 The cash balance figure disclosed includes restricted cash balance

Nigel Robinson, Chief Executive Officer, commented:

"I am pleased to report a strong set of operational and financial results for the 2020 financial year, despite some challenges. Group EBITDA of $95.7 million at a margin of 56% was a commendable result given the weak commodity prices endured in particular during H1 2020 due to the COVID-19 pandemic.

"Costs at both operations were well controlled and, in particular, our capital expenditure was almost 30% below our initial guidance due to savings and deferrals made during the year with a view to conserving cash. We met all of our contractual debt repayment obligations and ended the year with a robust balance sheet and $36.2 million of net debt.

"Following this strong performance, we are delighted to propose an eight pence per share final dividend, equating to a full year dividend of 14 pence per share. Once the final dividend is paid, the Company will have returned $209.6 million to its shareholders in the last nine years. The full year dividend represents 57% of our 2020 FCF and is therefore above our stated policy of 30% to 50% of FCF. This demonstrates a strong end to 2020 for us and a positive start to 2021, particularly in terms of commodity prices.

"While the tailings storage facility 4 ('TSF4') leakage at Sasa was a notable negative for us, we dealt with this incident swiftly, appropriately and transparently. By the end of 2020, we had removed from the river an estimated 95% of the tailings that had spilled and our procedures to remove the remaining 5%, as well as focus on biodiversity and regeneration, are well advanced. We have also committed to develop a 'Youth Park' along the banks of the river during 2021, which will see us build walking trails, plant trees and flowerbeds, as well as construct fountains, a pagoda and a children's play area as a fitting community project following this incident.

"We have continued our focus on other sustainability aspects, and we are on track to publish our second Sustainability Report in Q2 2021, our first to the Global Reporting Initiative ('GRI') standards (Core option).

"We move into 2021 in a strong position with significantly improved commodity prices, producing the base metals which are essential for modern living, profitably and in a safe and sustainable environment for all our stakeholders."

Analyst conference call and webcast

A live conference call and webcast hosted by Nigel Robinson (Chief Executive Officer) and Gavin Ferrar (Chief Financial Officer)will take place at 09:30 (BST) on Tuesday 30 March 2021. The conference call can be accessed by dialling [phone] and quoting the confirmation code '8750617', and the webcast can be accessed using the link:https://brrmedia.news/l37jm. The presentation will be available on the Company's website and there will be a replay of the call available following the presentation athttps://www.centralasiametals.com.

For further information contact:

Central Asia Metals Nigel Robinson, CEO Gavin Ferrar, CFOTel: [phone]

Louise Wrathall , Director Relations

[e-mail]

Peel Hunt (Nominated Advisor Joint Broker)

and Tel: [phone]

Ross Allister David McKeown

BMO Capital Markets (Joint Broker)

Tel: [phone]

Thomas Rider

Pascal Lussier Duquette

Blytheweigh (PR Advisors)

Tel: [phone]

Tim Blythe

Megan Ray Rachael Brooks

Note to editors:

Central Asia Metals, an AIM-listed UK company based in London, owns 100% of the Kounrad SX-EW copper project in central Kazakhstan and 100% of the Sasa zinc-lead mine in North Macedonia.

For further information, please visitwww.centralasiametals.com and follow CAML on Twitter at @CamlMetals and on LinkedIn at Central Asia Metals Plc

Chairman's statement

I am pleased that we ended the year in a strong position. COVID-19 remains a very real risk for us all, but we believe we navigated these challenges as best as we could during 2020 and this, coupled with much improved H2 2020 metals prices, meant we ended the period with commendable financial results and a strong balance sheet.

2020

Despite the challenges of 2020, not least the weak H1 2020 commodity prices, we reported strong production from our operations, which led to CAML EBITDA of $95.7 million and free cash flow of $58.9 million. This has, in turn, meant we continued to deleverage, and we ended the year with gross debt of $80.4 million, some $28.4 million lower than 2019.

LOOKING BACK OVER A SUCCESSFUL DECADE AS AN AIM-LISTED COMPANY

We reached two significant milestones in 2020. In April, we produced our 100,000 th tonne of copper cathode from Kounrad. This achievement was made possible due to the long-term dedication of General Director, Pavel Semenchenko, and his team, as well as Technical Director, Howard Nicholson, who took overall responsibility for the project's construction on time and below budget and who remains responsible for the technical aspects of Kounrad. We are proud that this copper has been produced from what was waste material, and at costs that are amongst the lowest in the world.

September 2020 marked 10 years as an AIM-listed company for CAML and we have enjoyed a very successful decade. We have grown our business from an exploration and development company with a suite of assets in central Asia at the time of listing, to a focused mining company, producing base metals which are essential for modern living, profitably and in a safe and sustainable environment for all our stakeholders.

We now employ over 1,000 people in Kazakhstan and North Macedonia and in 2020 produced some 13,855 tonnes of copper, 23,815 tonnes of zinc and 29,742 tonnes of lead with an annual gross revenue of $170.3 million from our two projects. Our local suppliers are important to us, and many others in the local communities also depend on our operations for their livelihoods. We have a strong health and safety ethos and our operations have leading safety statistics. We are most proud to have now set up charitable foundations in both countries with clear mandates to support sustainable and long-term development around both of our operations. In the nine years since we commenced copper production at Kounrad, we will soon have returned to our supportive shareholders almost $210 million in dividends. We believe that our alignment with our shareholders as well as other stakeholders in this regard sets us apart from many of our peers.

SUSTAINABILITY

We have continued to devote much of our time and energy to advancing our ESG and sustainability efforts during 2020. In Q2 2020, we published our first Sustainability Report, detailing our efforts and achievements in this key area, and this was very well received.

We advanced our approach in 2020, as we retained independent consultants, ERM, to undertake a stakeholder engagement exercise to revisit our material topics as previously defined by our desk-based assessment in 2019.

We were reassured to conclude that we had been focusing on the areas that are most important to our internal and external stakeholders and, crucially, we believe this additional analysis has given us the depth of understanding to align our next Sustainability report, which will be published in Q2 2021, to the Global Reporting Initiative's ('GRI') Core Standards.

Our September 2020 tailings storage facility 4 ('TSF4') leakage was a big disappointment for us and we have since made operational, monitoring and personnel changes at Sasa to try to ensure that this never happens again. I was, however, impressed with how the team dealt with this issue. We have been transparent and open with all of our stakeholders and we appointed the best consultants in their fields to help us with the tailings dam and the associated river remediation programme. Our CEO, Nigel Robinson, spent the majority of Q4 2020 in North Macedonia and held many meetings with local and national government officials in conjunction with the Sasa team to ensure our relationships in North Macedonia remain as strong now as they were before the incident.

GOVERNANCE

Non-Executive Directors Nigel Hurst-Brown and Robert Cathery have informed me that they plan to leave the CAML Board during 2021. I am delighted that Mike Prentis has agreed to join the CAML Board as an Independent Non-Executive Director, effective from 31 March 2021. Formerly a fund manager with BlackRock, Mike brings to the Board over 35 years of investment and capital markets experience and will be a great addition to the Group. Mike will join the Audit, Sustainability and Nomination Committees.

Since the escalation of the COVID-19 pandemic in March 2020, we have held weekly CAML Board gatherings as we felt that it was important to provide hands-on guidance and support to the Executive Directors and senior management team in what has arguably been the most unusual period in recent history. I believe that we have navigated this virus (and the unfortunate TSF4 incident) as well as possible and we look forward to a brighter 2021 with various vaccine programmes now being implemented.

ACKNOWLEDGEMENTS

I would like to thank the Board of Directors, our senior management team and all of our employees for their dedication to our business during 2020, in what was a particularly challenging year globally. Your efforts do not go unnoticed, and we very muchappreciate your hard work.

CEO's statement

We ended 2020 in a strong position, having overcome a number of difficulties during the year, in particular the impact of the COVID-19 pandemic. With zero LTIs at both of our operations, we met our increased production guidance at Kounrad and, at Sasa, we achieved our zinc guidance and came within 1% of our lead guidance, despite the TSF4 related shut-downs.

2020 OVERVIEW

Sasa produced 23,815 tonnes of zinc in concentrate and 29,742 tonnes of lead in concentrate at a C1 zinc equivalent cash cost of production of $0.50 per pound. While these costs are above previous years, this is largely due to increased treatment charges globally as on-site costs remained low.

Our Kounrad operations continued to perform well, delivering copper cathode output within the increased production guidance range of 13,855 tonnes. Kounrad's 2020 C1 copper cash cost of production remained extremely low by global standards at $0.51 per pound.

Despite the challenges of COVID-19 and weak H1 2020 metal prices, demand for copper, zinc and lead improved materially in H2 2020 and that, combined with our robust production, led to us reporting gross revenue of $170.3 million. 2020 EBITDA was $95.7 million, with an EBITDA margin of 56%.

We have continued to deleverage during 2020, having repaid a further $38.4 million of corporate debt, ending the year in a net debt position of $36.2 million, with cash in the bank of $47.9 million (including restricted cash). We view this as significant progress given that CAML had debt of almost $200 million on acquiring Sasa in November 2017.

The Group generated 2020 free cash flow of $58.9 million, enabling us to recommend an eight pence per share final dividend. This equates to a full-year dividend of 14 pence per share, which represents 57% of 2020 free cash flow.

SUSTAINABILITY

This strong operational and financial performance underpins our business and we place significant emphasis on ensuring that we are sustainable for all stakeholders. To demonstrate our efforts and achievements in this area, we will soon be publishing our second Sustainability Report, our first to GRI standards, which will provide qualitative and quantitative data to support material sustainability topic areas for us and our external stakeholders.

We remain focused on safety and are pleased to report an excellent year with zero LTIs at either of our operations during 2020. We therefore report a 2020 LTIFR of 0.00, a marked improvement on the LTIFR of 0.42 that we reported in 2019. By the end of 2020, there had been 959 days since the last LTI at Kounrad and 702 days since the last LTI at Sasa. Effective safety training and supervision for our employees will always be a priority and are crucial to maintaining this positive trend into 2021.

We were disappointed to report a leakage at our TSF4 in September 2020. However, under the guidance of global tailings experts, Knight Piésold, we were able to swiftly repair the facility and make some engineering, operational and monitoring improvements for the future stability of the dam. Most importantly, we managed to maintain our strong government and local community relationships through our transparent and open approach to this issue, as well as our efforts in remediating the river.

It is estimated that, by 31 December 2020, in excess of 95% of the tailings deposited during the leakage had been removed from the river. Efforts to remove the remaining tailings will continue into 2021, with the necessary sediment traps already in place and collecting material. Biodiversity efforts can now accelerate in 2021, with revegetation and tree planting activities to be undertaken along the riverbanks, as well as the long-term monitoring of algae and macro-invertebrate regeneration.

During 2020, we spent $0.5 million at Sasa and Kounrad, supporting the local communities and our host countries nationally as we played our part in helping to mitigate the negative health impacts of the COVID-19 pandemic. 60% of our community support budget was spent on COVID-19 related expenditure. In Kazakhstan, our Kounrad Foundation charity purchased a polymerase chain reaction ('PCR') machine for Balkhash Central Hospital to ensure timely virus testing for the local population. In North Macedonia, Sasa donated $166,000 to provide support for hospitals (approximately 50% of funds), as well as providing help for the most vulnerable in the local community and contributing to the Government's Ministry of Health COVID-19 fund.

Supporting our local communities in general is a vital aspect of what we do in the areas close to the operations and, as a result, we enjoy good relations with our neighbours, and we believe we have brought some real, positive change. We established the Kounrad Foundation for charitable donations in 2018 and have recently completed the formation of a similar Sasa Foundation.

SASA

At Sasa, in addition to our efforts in broadly achieving our production goals despite TSF4 related production stoppages, we also completed our Life of Mine studies, the findings of which were announced with our interim results in September 2020. The Board recommends the transition of Sasa's Svinja Reka orebody from the current sub-level caving method to cut and fill stoping as this will not only result in maximum recovery of mineral resources but will also enable safer operating practices as well as longer-term improvements to tailings disposal. Implementation of the Cut and Fill Project has commenced, and a dedicated Capital Projects Team formed to ensure the delivery of this project.

KOUNRAD

During the year at Kounrad, leaching operations performed well, as did the SX-EW processing facilities which achieved availability of over 99%. We continued to develop more of the Western Dumps for future leaching operations, while focusing on maximising copper extraction in the Eastern Dumps. Capital expenditure remained very low at $1.3 million, comprising some replacement anodes, plus increasing our footprint of leaching infrastructure and collector trenches around the Western Dumps.

MARKET PERFORMANCE

During 2020, the CAML share price closed on 31 December 2020 at £2.40, which represents a 9% increase on the 31 December 2019 closing price of £2.20. However, since the COVID-19 related share price low of £1.14 in March 2020, CAML shares appreciated by over 100% to the end of the year.

OUTLOOK

The outlook for 2021 is positive, and we look forward to the year ahead producing the base metals essential for modern living, for all stakeholders, in a safe and sustainable manner.

While we remain in the midst of the COVID-19 pandemic, we have gained confidence over the last 12 months in the measures we have put in place to try to manage, as best we can, infection rates on our sites. We no longer currently fear the forced shutdown or force majeures that we believed possible last year, and the 2021 roll-out of vaccine programmes around the world should soon result in a marked improvement in the health of the global population. Despite the COVID-19 impact, the Group did not access any financial support throughout the pandemic from the UK Government.

We start 2021 in a strong base metal price environment, with improving treatment charges and increased demand for the metals we produce. Our production guidance for Sasa is 825,000 to 850,000 tonnes of ore, which should lead to between 23,000 and 25,000 tonnes of zinc in concentrate and between 30,000 and 32,000 tonnes of lead in concentrate. At Kounrad, we expect to produce between 12,500 and 13,500 tonnes of copper.

Our focus at Sasa during 2021 and 2022 will be implementing the Cut and Fill Project. We now expect 2021 capital expenditure of $22-23 million, higher than previously guided in the H1 2020 results announcement. This adjustment is due to an additional $2-3 million in sustaining capital expenditure deferred from 2020 as well as a decision taken to bring forward from 2022 $4-5 million of project capital expenditure due to the current strong commodity prices. We are progressing well and look forward to implementing this project which will see us extract the maximum resources in a safe, sustainable and efficient manner.

Operations review

Sasa

While 2020 has been dominated with the challenges of COVID-19 and the TSF4 issue, the mine has delivered strong production, good cost control and has commenced implementation of the Cut and Fill Project.

ZINC AND LEAD PRODUCTION AND SALES

2020 mined and processed ore was 826,421 tonnes and 820,215 tonnes respectively. The average head grades were 3.37% zinc and 3.85% lead. The average metallurgical recoveries were 86.1% for zinc and 94.3% for lead.

Sasa produces a zinc concentrate and a separate lead concentrate. In 2020, Sasa produced 47,583 tonnes of zinc concentrate at an average grade of 50.0% and 41,289 tonnes of lead concentrate at an average grade of 72.0%.

Units	2020	2019	2018
Ore mined	t	826,421	817,714	803,101
Plant feed	t	820,215	820,491	804,749
Zinc grade	%	3.37	3.29	3.31
Zinc recovery	%	86.1	86.5	84.6
Lead grade	%	3.85	3.77	3.90
Lead recovery	%	94.3	94.5	93.6
Zinc concentrate	t (dry)	47,583	47,104	46,128
- Grade	%	50.0	49.6	48.9
- Contained zinc	t	23,815	23,369	22,532
Lead concentrate	t (dry)	41,289	40,366	40,317
- Grade	%	72.0	72.3	72.9
- Contained lead	t	29,742	29,201	29,388

Sasa typically receives from smelters approximately 84% of the value of its zinc in concentrate and approximately 95% of the value of its lead in concentrate. Accordingly, 2020 payable production was 20,008 tonnes of zinc and 28,254 tonnes of lead.

Payable base metal in concentrate sales from Sasa were 19,930 tonnes of zinc and 28,218 tonnes of lead. During 2020 Sasa sold 341,633 ounces of payable silver to Osisko Gold Royalties in accordance with its streaming agreement.

MINING

A total of 826,421 tonnes of ore were mined using the sub-level caving method during the year from the 990m and 910m working areas, representing record underground production. The ore from the underground operations is trucked to surface via the XIVb ramp (30%) and hoisted via the Golema Reka shaft (70%).

Total ore development during the year totalled 3,047 metres at an average combined grade of 7.22% zinc and lead. Waste development for the year totalled 1,869 metres for 56,977 tonnes of waste, providing internal ramp access and crosscuts to the mining areas below the 910m level. A total of 198 metres of vertical development was completed during the year, providing internal passes and ventilation raises.

Six new underground machines were purchased during the year (three loaders, two boomer drill rigs and one truck) following a review of the equipment and optimisation initiatives. During the year, a total of six boomers were equipped with telescopic drifters enabling mechanised 'in-cycle' support, eliminating the need for hand-held jack leg machines.

Remote loading and charging systems were introduced during the year, utilising a line of site remote control system on two of the ST7 loaders and the introduction of the Can Blast explosive loading system for charging production holes.

Underground communications were installed during the year and included:

• · NewTrax equipment monitoring system, which enables more efficient analysis of utilisation and availability

• · Battery backup in the event of power loss

• · Bluetooth receivers

• · CCTV cameras with recording capability were installed at key locations

• · The IT team also commenced installation of a fibre network underground as well as 5GHz 802.11ac Wi-Fi access points throughout

PROCESSING

Despite periods of reduced personnel due to COVID-19, the Sasa processing facility processed a total of 820,215 tonnes of ore during the year with an availability of 96.3% (2019: 94.7%).

Commissioning of the tertiary crusher was completed in January 2020 and, since then, the crusher has operated well, producing a finer product size that will enable the grinding circuit to reach a capacity of 850,000 tonnes per year going forward.

The metallurgy team also reinstated a regrind mill for the lead circuit and this, coupled with minor changes in control philosophy has also aided recoveries.

Sasa's metallurgical laboratory has now been operating successfully for one year and has provided valuable support in optimising lead and zinc recoveries.

EXPLORATION

During 2020, CAML undertook diamond drilling at both Svinja Reka, the location of current Sasa mining operations, and Kozja Reka, which was mined between 1966 and 1989, and from where 3.2 million tonnes of ore at a combined zinc and lead grade of 10.5% was extracted. A total of 4,268 metres were drilled at Svinja Reka, with the aim of verifying previous exploration programmes and converting a portion of the Inferred Mineral Resources into the Indicated category.

Following the completion of the Svinja Reka infill drilling programme between the 830 and 750 levels and interpretation of the results, a Mineral Resource Estimate was completed at the end of June 2020 and a total of 710,367 tonnes of Inferred Resources were converted to Indicated Resources.

A total of 2,528 metres were drilled at Kozja Reka to explore the potential mineralisation below the 830 level. The drilling programme will continue in 2021, and, while mineralisation has been intersected, it is not expected that the findings of this initial programme will as yet form part of a Mineral Resource Estimate as additional work would be required.

There were no exploration activities at Golema Reka during 2020.

2021 PRODUCTION GUIDANCE

The 2021 production guidance for Sasa is for a mining rate of between 825,000 and 850,000 tonnes, resulting in metal output of between 23,000 and 25,000 tonnes of zinc and between 30,000 and 32,000 tonnes of lead in concentrate.

CUT AND FILL PROJECT

Overview

During the year, CAML completed its technical and financial analysis and the Board agreed to transition the Svinja Reka operations at Sasa from the current sub-level caving mining method to cut and fill stoping.

The cut and fill mining method involves filling mined voids with a backfill paste material containing tailings to provide support, rather than allowing the roof to cave as is the case with the current sub-level caving method. In order to achieve this, a backfill plant will be constructed, along with associated reticulation pipework to transport this material underground. This is then distributed underground to fill stopes.

Given that a major component of the backfill material will be tailings generated from the Sasa processing plant, it is estimated that in excess of 40% of Svinja Reka's life of mine tailings will be stored underground. Approximately 30% of tailings will be stored in the current TSF4, and CAML is advancing studies with a view to dry-stacking the remainder and therefore eliminating