CS - Scotia Rates Sector Outperform 1yr target $1.20
Event
CS reported Q4/15 financial results we view as slightly ahead of our estimates. Production and sales volumes had been previously released.
Implications
Operating cost improvement at Pinto Valley continues. PV's Q4/15 C1 cash cost of $1.76/lb was 6% lower than our estimate and a 19% QOQ improvement. Operating costs improved 24% QOQ on per tonne milled basis to $8.64/t highlighting the benefit of the increased mill throughput. Operational reliability and stability remain of focus. Q4/15 adjusted EBITDA, EPS, and CFPS all exceeded our estimates. As at December 31, 2015 CS remained in compliance with all of its debt covenants. The key Senior Secured Net Debt to TTM EBITDA covenant exited at 2.6:1, below the 3.0:1 threshold. TTM EBITDA/Interest at 7.31:1 well covered the 2.5:1 covenant. Year-end cash position stood at $101.6M and net debt position at $247.9M after having drawn $20M from the Senior Secured revolver, in line with our expectations. $91.1M of available credit remained under the revolver for in-place liquidity of $193M - sufficient to see a $2.00/lb copper price environment through into H2/17.
Recommendation
We rate CS SO with a C$1.20/sh target price based on a 50/50 mix of 5.0x our average 2016/17E EV/EBITDA (suggests a C$1.50 target) and 0.8x P/NAV8% mine site assets (suggests a C$1.13 target).