Central Asia Metals shows Strong 2024 Results with 47% Margins & High Shareholder Returns

• Central Asia Metals reported strong 2024 financial results with $214 million in revenue, nearly $102 million EBITDA (47% margin), and $68 million cash at year-end.
• The company paid a generous 18p full-year dividend (63% of free cash flow), significantly above their 30-50% policy, partly to compensate shareholders for lack of M&A transactions.
• Despite actively pursuing M&A (with 13 NDAs and 6 site visits last year), the company has been selective, seeking base metals assets that would generate at least $50 million EBITDA.
• Central Asia Metals is focusing on improving operational efficiencies, including successful paste backfill implementation at Sasa and approaching completion of a dry stack tailings plant.
• The company sees Kazakhstan as an attractive mining jurisdiction despite perceived risks, noting many Western companies are investing there, and believes their established presence provides strategic advantages.

Central Asia Metals, an AIM-listed base metals producer with operations in Kazakhstan and North Macedonia, recently presented its 2024 full-year results. In an interview with CEO Gavin Ferrar, the company's financial performance, operational achievements, growth strategy, and capital allocation priorities were thoroughly discussed. This summary explores key insights from the conversation, highlighting Central Asia Metals' current position and future outlook.

Strong Financial Performance

Central Asia Metals delivered impressive financial results for 2024, demonstrating the company's operational efficiency and robust business model. The company reported $214 million in revenue and nearly $102 million in EBITDA, resulting in a notable 47% EBITDA margin. Ferrar emphasized the strength of this performance: "47% for a mining company is super respectable we think." The company ended the year with approximately $68 million in cash, having generated just under $66 million in free cash flow throughout the year.

This strong financial position enabled Central Asia to pay a final dividend of 9 pence per share, bringing the full-year dividend to 18 pence. This dividend represents approximately 63% of free cash flow, significantly exceeding the company's stated policy of 30-50%. Ferrar explained this generous distribution: 

"Our policy is 30 to 50% so paying 63% kind of compensates for the fact that we haven't transacted and given them a growth option within the business."

M&A Strategy & Capital Allocation

A significant portion of the discussion focused on Central Asia's M&A strategy. The company has been actively seeking acquisition opportunities, particularly since the end of the pandemic. Despite reviewing numerous potential targets (13 NDAs and 6 site visits last year) and making several offers, Central Asia Metals has not yet completed a transaction.

Ferrar outlined the company's criteria for acquisitions: 

"The things that we are looking for are base metals. We look for something that's really going to move the dial for us... In order to make a real difference and impact the value of the business significantly, we look for something that is either producing $50 million plus of EBITDA or in future will produce that similar level of EBITDA."

The CEO acknowledged some perception that the company might be too cautious but defended their disciplined approach. Central Asia Metals' strong balance sheet provides significant flexibility for future acquisitions, with Ferrar noting they can "borrow quite a lot of money" based on their current operating cash flow, potentially enabling transactions without shareholder dilution unless the target size warrants it.

Operational Updates: Sasa Mine

The interview provided valuable insights into Central Asia's operational developments, particularly at the Sasa mine in North Macedonia. The company has made significant progress with its paste backfill plant, which successfully operated for the full year in 2024. Ferrar explained: 

"For 2024, it was the first year that we've actually run that paste backfill plant for the whole year, and it achieved exactly what we wanted it to do."

The plant placed 240,000 tons of tailings back underground out of 700,000 tons produced, representing approximately one-third of the total - in line with the company's life-of-mine target of 30-40%. This achievement is particularly notable considering it includes the first three months of commissioning.

Additionally, Central Asia Metals is completing the construction and commissioning of a dry stack tailings plant, expected to be operational by the end of the month. This facility will handle another 30-40% of tailings. The implementation of these two systems means the company won't need to build another wet tailings facility, as the current one should be sufficient for the remaining life of mine unless significant resource expansion occurs.

Interview with Chief Executive Officer, Gavin Ferrar

Kounrad Operations & Extended Mine Life

The Kounrad operation in Kazakhstan continues to outperform expectations, particularly regarding the leaching of copper from the Eastern dumps. According to the original plan from 2012, these dumps should have ceased production several years ago, but they contributed approximately 27% of the company's copper in the previous year.

Ferrar detailed several initiatives that have extended production, including rinse and recycle techniques and slope battering. While 2024 represented the last "fresh ore" leached from the Eastern dumps, the company will continue recycling through previously leached material. The higher copper price has lowered the economic cutoff grade, making this approach viable.

The CEO also explained an interesting synergy between the Eastern and Western dumps: 

"Because of the mineralogical differences between the East and the West... we basically use the PLS [pregnant leach solution] coming off of the Eastern dumps to dilute the iron in the Western dumps." 

This process improves the efficiency of the electrowinning plant where copper is plated. The Kounrad operation maintains impressive margins with reported costs of 80 cents per pound against a copper price around $5. Ferrar indicated they are considering studying production potential beyond the current license expiration in 2034, given the continued outperformance.

Jurisdictional Strategy & Risk Management

A recurring theme in the discussion was Central Asia Metals' approach to jurisdictional risk. With operations in Kazakhstan and North Macedonia - territories that some investors might consider challenging - the company has developed significant expertise in these regions.

Ferrar strongly defended Kazakhstan as an investment destination: 

"Kazakhstan has always been a good jurisdiction. Yes, the perception might not be there, but you don't have to scratch very hard - it's an investment-grade country. You've got a lot of Western capital going in there, particularly in the oil and gas industry." 

He cited major mining companies that have invested in the country, including Rio Tinto, FMG, First Quantum, Anglo American, and Teck Resources.

While acknowledging that diversification would be beneficial, Ferrar emphasized that Central Asia's established presence in Kazakhstan provides strategic advantages, including operational experience and the ability to navigate permitting processes. This local expertise potentially gives them access to opportunities that companies without a Kazakh presence might miss.

Operational Efficiency & Cost Control

Central Asia Metals places strong emphasis on operational efficiency and cost control across both operations. Ferrar described numerous initiatives to optimize performance, from installing temperature gauges in solution circuits at Kounrad to improving cathode lifespans through innovative maintenance.

At Sasa, the company is focusing on "stabilizing that asset" in 2025 after completing major transition projects. Future opportunities include potentially using larger underground trucks (the new central decline can accommodate 50-ton trucks versus the current 20-ton fleet) and increasing water recycling from its current 75% target.

The company has also implemented a solar power plant at Kounrad that produces electricity at approximately 1 cent per kilowatt-hour versus the 6 cents grid cost in Kazakhstan, creating significant savings even when accounting for depreciation.

Ferrar summarized their operational philosophy: 

"The whole culture is really around, we can control what we control. One of the key things we can control as a business is our costs. We're price takers as commodity producers... what we can do as a business, and what the board expects us to do frankly, is to run this thing so that we can be profitable through the cycle."

ESG & Community Engagement

Despite some diminishing focus on ESG among fund managers, Central Asia Metals maintains a strong commitment to responsible operations. In Kazakhstan, the company has gone beyond regulatory requirements, particularly in community engagement.

Rather than simply contributing to government-controlled social funds as required by their license, Central Asia Metals operates its own foundation and makes targeted investments. The Company has donated approximately $500,000 to the Kounrad Foundation, with funds used to assist in a number of projects, including a center for disabled children, a facility for victims of domestic violence, and most recently, a refurbished youth center, providing music, dance, and computer facilities to the local community.

Ferrar explained how this approach delivers strategic advantages: 

"We've got a great track record of interacting with our communities that we're operating in. Should we go out and apply for a new license, I think that gives us a big advantage because we can then prove to the government that we're responsible citizens."

He also noted that ESG considerations remain important for their institutional shareholders and particularly for debt financing: 

"When we try to raise debt to minimize dilution to our shareholders when we're trying to affect transactions... it is a very important aspect of their due diligence on us."

In conclusion, Central Asia Metals presents a compelling investment case based on strong operational performance, disciplined capital allocation, and strategic growth initiatives. While the company continues to seek transformative M&A opportunities, it maintains focus on maximizing returns from existing assets and rewarding shareholders through generous dividends.

The Investment Thesis for Central Asia Metals

• Strong Financial Performance: Demonstrated by $214 million revenue, $102 million EBITDA (47% margin), and $68 million in cash with minimal debt, showcasing operational efficiency.
• Sector-Leading Shareholder Returns: 63% of free cash flow returned to shareholders via dividends (18p per share), significantly exceeding stated 30-50% policy.
• Cost Leadership Position: Kounnrad operations at $0.80/lb copper production cost against ~$5/lb copper price indicates robust margin protection even in downturns.
• Operational Excellence: Successful implementation of paste backfill and dry stack tailings at Sasa demonstrates technical competence and environmental responsibility.
• Life Extension Potential: Eastern dumps at Kounrad continuing to produce (27% of copper) despite being scheduled to end production years ago; Western dumps outperforming recovery expectations.
• Strategic M&A Optionality: $68 million cash balance with proven ability to borrow provides acquisition firepower without dilution; disciplined approach to targeting value-accretive opportunities.
• Jurisdictional Expertise: Established presence in Kazakhstan and North Macedonia provides competitive advantage for regional growth opportunities, leveraging local knowledge and networks.
• ESG Leadership: Strategic community investments and environmental initiatives position company favorably for permitting, financing, and stakeholder relations.

Macro Thematic Analysis

The global transition to clean energy and electrification continues to drive long-term demand for base metals, particularly copper. As a key component in renewable energy systems, electric vehicles, and grid infrastructure, copper faces a projected supply deficit against rising demand. Central Asia Metals is strategically positioned to benefit from this macro trend with its low-cost copper production at Conrad and zinc-lead operations at Sasa.

While near-term metals prices have shown volatility, structural trends point to sustained strength. The combination of underinvestment in new mining projects, declining ore grades at existing operations, and accelerating demand from decarbonization efforts creates favorable conditions for disciplined producers. Companies like Central Asia Metals, with established operations, strong balance sheets, and cost leadership, stand to generate significant cash flow in this environment.

This underscores Central Asia Metals' focus on maintaining operational efficiency regardless of market conditions, positioning them to both weather downturns and capitalize on price strength.

The company's pursuit of strategic M&A further enhances its potential to leverage the favorable long-term metals outlook, making it an attractive vehicle for investors seeking exposure to the energy transition theme.