cash flow estimates and target priceKeep in mind, I am not a qualified financial analyst and I am posting my opinion only, but now that I have been to the mine and seen the production from the Cozamin mine and the recovery operation at the mill, I am trying to plug in some form of cash flow estimate. I am going to pick some arbitrary resource grades, just to establish a framework. I was able to visit several stopes under ground that are currently in production and they are mining very high grade zones, and I know the first phase of the production run was processing lower grade stuff. So the first round of operating numbers will probably be lower than the overall average.
Lets go with a sample round grading 2.8% Cu, 1.08% Zn, 0.43% Pb, and 89.5 g/t Ag. That is based on the average grade of the measured resources from the resource estimate released earlier this year. I was informed that copper recovery should average in the high 80% range so we will plug in 88%, and 75% for lead and silver, while zinc is only expected to average about 56%. So we can expect the production value to be 2.46% Cu, 0.59% Zn, 0.32% Pb, and 67.13 g/t Ag. I have deliberately ignored the gold content since it is practically a trace element.
At current metals prices, the concentrate value produced will amount to US $243.46 per ton. We are producing at 1200 tpd, so that generates US $292K per day. The concentrates are purchased by Glencore International, and they likely pay based on about 90-95% of the contained metal value, so lets assume 92% and arrive at US $269K per day or about $300,000 CDN per day in revenues.
Now it gets fuzzy. How much do the mining and recovery costs add up to? Lets go with the estimates used in the scoping study presented by the company, assuming US $32.80 per ton, or about US $40K per day or about $45,000 CDN per day in expenses.
Therefore, if the assumptions are in the right ballpark, we can expect about a million dollars in net cash flow every four days. The mill is currently running 24 hours a day, and the mine has no problem to supply the ore to keep it running at capacity of 1200 tpd. Allowing for periodic downtime due to maintenance, lets go with 340 days per year of operation. That means we can expect net positive cash flow of $85 million CDN.
With only about 80 million shares currently outstanding, and a bit more than 6 million options and warrants, by this time next year I would guess about 85 million shares outstanding as cheap paper is exercised. So we are going to be in the ballpark of $1 per share in cash flow generated.
Keep in mind that the metals prices will fluctuate, the grades of the ore through the mill will fluctuate, the recovery percentage will fluctuate, and the cost base is subject to inflationary presure and will therefore likely increase above projections.
However, if we even come close the $1 per share metric, I think it is reasonable to expect a target price of $10 per share in CS over the next 15 months as the financial data is released and discounted into the share price. That rapid rise in market value should start very soon as the analysts begin to crank out numbers similar to mine and put the word out. Stocks usually trade on expectation of forward cash flow and with the first operating results due out before the end of this year, the numbers will become more reliable.
cheers!
COACH247
Personal disclosure: Capstone has sponsored an ad on my website, and I own 35,000 shares of the company.