Canaccord research today target $4.00Metals and Mining -- Base Metals and Minerals
UPDATING ESTIMATES FOR 2010
GUIDANCE AND MINTO PHASE IV
PRE-FEASIBILITY STUDY;
REITERATING BUY RATING AND
INCREASING TARGET TO C$4.00
Event
We have updated our estimates to reflect the company’s 2010 production, operating, and capital cost guidance along with the results of the Minto Phase IV pre-feasibility study, which were both released in mid-December 2009.
Impact
Slightly negative. While our estimates have decreased, we have increased our target due to copper prices tracking above our forecast.
Action
Despite our lower estimates, we are reiterating our BUY rating and increasing our 12-month target price to C$4.00 (from C$3.90). Our revised C$4.00 target is based on a slightly higher 2010 EV/EBITDA multiple of 5.0x (from 4.5x), reflecting copper prices that are tracking well above our forecast. Our BUY rating is based on the company’s very
attractive relative valuation, strong balance sheet, and low risk profile.
Capstone also remains an attractive takeover target.
Valuation
Capstone is currently trading at a 2010E and 2011E EV/EBITDA (including marketable securities) of 3.6x and 2.8x and at a 0.5% premium to our revised 10% NPV of C$3.03 per share, well below the mid-tier producer peer group of 5.9x, 3.9x, and 12.2% premium. We note that Capstone remains the cheapest mid-tier producer in our coverage universe based on EV/EBITDA.