CIBC Sector Outperform rating - Target $1.10
Before market hours on January 13, Capstone reported Q4/15 copper production of 26.0 k tonnes, 16% higher than the 22.4 k tonnes we expected and 18% higher than the 22.1 k tonnes reported last quarter. No cost data was provided. During the year, Minto operated above expectations and Cozamin and Pinto Valley overcame production challenges earlier in the year. Minto produced 4.4 K tonnes of copper versus our estimate of 3.3 K tonnes as a pocket of high-grade underground ore in excess of 3% copper was opportunistically mined and processed. At Pinto Valley, production of 16.7 K tonnes of copper was 14% above our estimate of 14.7 K tonnes as daily, monthly and quarterly throughput all set records at the asset. At Cozamin, higher grades of 1.75% offset slightly lower mining rates and mill throughput. Total 2015 copper production was 92,900 tonnes, which compares favorably to guidance of 90,000 tonnes (5%). Each asset outperformed 2015 copper guidance with Pinto Valley reporting 60,800 tonnes (vs. guidance of 59,000 tonnes), Cozamin reporting 15,700 tonnes (vs. guidance of 15,500 tonnes), and Minto reporting 16,400 tonnes (vs. guidance of 15,500 tonnes). Net C1 cash costs were unreported and guidance remains between US$1.95/lb. and US$2.05/lb. of payable copper. Additionally, during the quarter the company shut down the molybdenum circuit at Pinto Valley as a result of below break-even molybdenum prices. The company will release Q4/15 financial results on February 16 after market close. A conference call will be held the next day at 11:30 a.m. ET at 416-764-8688. Implications We reiterate our Sector Outperformer rating and 12- to 18-month price target of C$1.10. Capstone shares trade at a P/NAV of 0.23x versus the mid-cap average of 0.20x and the larger-cap copper producers at 0.45x.