Investing in Bitcoin strikes me as a bit of a gamble because cryptocurrencies don’t do anything to create value while you are holding them. They don’t pay a dividend either. All Bitcoin seems to do is to move up and down according to the forces of speculation, and it’s impossible to predict with much accuracy which way the next move may be.
Solid-looking income (for starters)
But copper, zinc and lead producer Central Asia Metals (LSE: CAML) pays a nice dividend yield running close to 7.4%, and the share price also has the potential to shoot up in the future. I’d rather invest in the stock than in Bitcoin, and collect the dividend income while I’m waiting for progress with the share price.
But the stock has fallen around 45% since the beginning of 2018, and there’s a good reason for that. Today’s half-year results report reveals to us that 48% of the firm’s Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) came from the production of copper and 52% came from producing zinc and lead. And the price of all three of those commodities has essentially been falling over the period. Therefore, it’s natural for the company’s share price to follow them down in anticipation of lower earnings.
Yet CAML has been holding its own quite well in the face of falling commodity prices. Revenue and EBITDA did both fall by just over 12% in the first half of the year compared to the equivalent period the year before, and earnings per share from continuing operations dropped back 5.8%. But there was a strong showing from free cash flow, which rose almost 10%. Net debt dropped by around 9% to just over $100m after the firm made debt repayments of more than $19m in the period.
Indeed, the cash and production performance of the business has been strong, which enabled the directors to hold the interim dividend flat. The dividend cost 40% of free cash flow in the first half, suggesting that CAML has headroom to keep dividend payments going even though commodity prices have been weak.
Low production costs
One of the main reasons for the firm’s financial strength is the low cost of copper production it achieves. CAML doesn’t mine copper from the ground but instead recovers the metal from waste dumps that originated from the Kounrad open-pit copper mine in Kazakhstan. Meanwhile, the company’s lead and zinc operation consists of conventional underground mining at Sasa in North Macedonia.
There’s no doubt that to invest in CAML we need to take a view on where commodity prices may be heading. But the picture is far from clear. For example, gold, silver and platinum prices have been tearing up lately taking the share prices of firms focused on those commodities up too. And copper, for example, tends to fall when the macroeconomy starts to look weak.
But I’m not expecting a 2007/08 credit-crunch-style crash any time soon, so an investment in Central Asia Metals looks attractive to me right now.