ACG Metals Limited (LON:ACG) was the topic of conversation when DirectorsTalk interviewed Gervais Williams, Co-Fund Manager of Premier Miton UK Multi Cap Income Fund.
DirectorsTalk asked: ACG Metals has achieved first copper concentrate production at Gediktepe, and it’s now ramping up towards full production. How significant is this milestone for the company and its investment potential?
Gervais noted: The key about this company is it’s just finishing its period of investment and that’s been major investment capex and now we’re into the cash payback.
When it gets the cash payback, it starts to generate surplus cash, but depending on the price of copper and, indeed, gold. It actually has some gold in the surface overlay and within the ore body itself. So, it’s been in production of gold over the last six or nine months, which again has been quite convenient given the gold price has gone up so much.
So, the key issue, yes, it’s invested and it hasn’t drawn down much in debt. When you look at its debt, it does have significant debt, but it’s nothing like as significant as it could have been if they didn’t have the gold and if they hadn’t got into production. Now, with the copper price being high, and they can have a certain amount of zinc too, we think the cash flow will be particularly attractive in the future.
What we’ve seen is many of these mining stocks, where the commodity price has gone up quite a bit, have generated much more significant cash flow than people expected. Clearly last year it was about some of the miners. What we’ve got is companies like this, which have already started to appreciate. Their share price has already come up a long way, but actually where the opportunity for cash going forward could be really quite substantial.
We’ve got 12 holdings in various mining stocks in the materials sector. This alongside Tungsten West, maybe the new tungsten mine in Devon, and Pan African in South Africa are actually, we believe, a nice part way of diversifying income and income growth.
If things get more unsettled, if export bans come in, if various mines can’t come into production because the cost of equity is a lot higher, then we think these kinds of companies which are generating surplus cash will do particularly well.
