TD upgrades to buy - target 2.25It is about time - TD has been very negative in the past
Event
We have updated our estimates for Copper Mountain to reflect our higher copper price forecasts, along with details from the company's technical report to expand the Copper Mountain Mine (CMM) to 65,000tpd. As a result, we are raising our recommendation to BUY from Hold and increasing our target price to $2.25 from $1.45.
Impact: POSITIVE
We have increased our copper pricing assumptions on average by 7% over 2021-2025 — We believe that the copper market will face tight supply/demand balances over the next several years and higher prices are required to incentivize new supply in the medium term. With few "probable" projects in the development pipeline and a yawning supply gap opening up beyond 2025, we believe that a higher long-term price is required. We have increased our long-term price to US $3.15/lb from US$3.10/lb.
Our estimates now incorporate the CMM mill expansion to 65,000tpd
— As a reminder, on November 30, the company announced details on an expansion to 65,000tpd from the current target throughput of 45,000tpd. Total initial capital is US$148mm, which includes US$25mm in contingencies. Construction of the mill expansion is expected to be completed at the end of 2023 and commissioned at the beginning of 2024.
Given what we believe is an increasingly positive outlook for copper over the next several years, we expect the company to be in a much stronger financial position to deliver on the CMM expansion. That said, capital requirements during the initial three years of the expansion are relatively high; therefore, we assume that the company will need to re-profile its existing debt repayments to match its cash-flow profile or source other non-dilutive sources of capital. As a reminder, we calculate that CMMC's adjusted net debt is currently $328mm, which includes $156mm owed to its joint-venture partner Mitsubishi (25% interest in CMM).
TD Investment Conclusion In addition to raising our recommendation to BUY from Hold, we are lowering our risk rating to HIGH from Speculative.