Rather than speculating on the price of gold, I reckon metal miner Central Asia Metals (LSE: CAML) is a UK share to buy. The stock had been recovering nicely from its coronavirus lows on the back of firming commodity prices.
But on Monday, the copper, zinc and lead producer informed the market of a “short-term” leakage of tailings into the local river from its Sasa underground zinc-lead mine site in North Macedonia.
Why CAML looks like a UK share to buy
The stock plunged by about 17% last Friday in anticipation of the announcement, as shares often do. And it’s been bouncing back a bit this week.
Today’s half-year results report provides a bit more information. Chief executive Nigel Robinson said in the report the likelihood of an extended shutdown of the processing plant is low.
So, this problem could be a short-term opportunity to buy the shares at a better price. Assuming the company manages to fix the problem soon. Meanwhile, the directors delayed declaring an interim dividend.
Back in the spring, the firm axed the full-year dividend because of the uncertainties caused by Covid-19. However, they’d planned to reinstate dividends now. It cited the “strengthening in metals pricing and continued, consistent operational performance” since the end of June.
However, before proceeding with dividends, the company wants further clarity on the likely cost and timing of rectifying the leak from the tailings dam.
Robinson said he’ll update the market about the issue “in the near term.” Meanwhile, the company has “temporarily” stopped production at the Sasa mine, although the leak was halted soon after it occurred.
To put things in perspective, operations at Sasa are important because last year they delivered around 38% of the company’s overall pre-tax profit. The rest came from the firm’s solvent extraction–electrowinning (SX-EW) copper recovery plant at the Kounrad mine site in central Kazakhstan. And Kounrad remains operational.
A strong cash performance
Together, operations in North Macedonia and Kazakhstan delivered what Robinson describes as a “strong” set of results in the first half of the year. The cash performance was good under “challenging” operational conditions because of Covid-19 and in a lower metal price environment.
Net debt fell by around 27% to about $59bn because of an increase in the cash balance of 35% to $44m and debt repayments of just over $19m.
Indeed, the finances seem to be moving in the right direction although revenue in the period declined by 16% year on year. And earnings per share from continuing operations plunged by 33%.
There’s plenty to look forward to. Post the period end, the company’s operations team completed its Sasa Life of Mine study. And its conclusions suggest changing the mining method from the current sub-level caving to cut-and-fill stopping will offer benefits. For example, it will enable maximum recovery of mineral resources and safer operating practices as well as longer-term improvements to tailings disposal.
With the share price near 154p, the price-to-book value is near one. Meanwhile, City analysts have pencilled in a robust earnings recovery in 2021. I think the stock looks attractive and could help me invest my way to a million.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.