Copper producer Central Asia Metals (CAML:AIM) has finally made a commitment to advance a metals prospect in Chile, six months later than originally expected. The highly cash-generative business will pay $3 million to increase its stake to 75% in Copper Bay, the owner of the Chanaral Bay project which twice tried and failed to float on the UK stock market.
It is understood that Copper Bay's IPO failed on both occasions due to disagreement on valuation. Its first attempt in 2012 targeted a £30 million price tag, of which £10 million was expected to be newly-raised cash. In 2013 Copper Bay tried again, seeking £2.5 million of new money and eyeing a £8.5 million market cap upon listing.
Central Asia Metals has now spent approximately £3.9 million buying three quarters of the business which is chaired by Harry Dobson, formerly associated with Kirkland Lake Gold but perhaps best known as the man who made £30 million from an investment in Manchester United football club.
There is good reason why Central Asia Metals wants to exploit Chanaral. It is an expert in recovering metal contained in waste material from old mining operations, which is the central premise at Kounrad, the company's flagship asset in Kazakhstan. Kounrad produces copper cathode at low costs and high profit margins.
Copper-rich waste material from two of Chile's biggest copper mines was dumped into a river and created a 4.5 kilometre by 3 kilometre beach at Chanaral Bay. This has become a big environmental issue and so needs cleaning up.
Chile faces huge environmental problems because of mining and so the country is taking great steps to stop further destruction. Only yesterday there were reports that Chile may revoke a mining permit held by Canadian mining company Teck over alleged environmental breaches.
Copper Bay will cost $88 million to build and has a nine year mine life for 8,600 tonnes per year production. 'In our view, the project is likely to be marginal at current copper prices ($2.60/lb), but we expect to see improvement in economics on the definitive feasibility study,' says stockbroker Numis. 'Overall, this is a reasonable result, with lower production but lower capex than we expected; given success at Kounrad we believe CAML can make this work.'