CAPSTONE CIBC RATING CHANGE AND TARGET PRICE INCREASE!!!WOW!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! From the report Potential Re-rating And Near-term Catalysts Lead To CS Upgrade
We upgrade Capstone Mining (CS) from Neutral to Outperformer and increase our price
target to C$1.30/share (from C$0.60) due to a higher 2020-22E Cu price forecasts, plus an
increase to our P/E (10.0x from 8.0x) and EV/EBITDA (5.0x from 4.0x) target multiples used
in our price target calculation. The higher multiples reflect an increased risk appetite for
mining stocks and CS’ potential production upside from Pinto Valley (PV) mill modernization
and higher head-grade, plus the debottlenecking of the Cozamin mine. We believe consistent
operating execution at PV (i.e., incremental debottlenecking initiatives) and the release of
Cozamin technical report in Q3/20 (expected to double the deposit mine life after a 66%
increase in M&I resource in June 11, 2020) could re-rate CS shares. We acknowledge the
risks of CS’ high operating and financial leverage to Cu price under a COVID-19 second
wave; however, we believe we capture these in our 0.6x P/NAV target multiple assumption
(vs. a peer average of 1.0x). CS shares are trading at a ~35% and ~41% discount to its
small/mid-cap copper peers average ~6.4x 2021 EV/EBITDA and ~0.7x P/NAV, respectively.