TD report on Copper Mt.Event We have updated our estimates to reflect Copper Mountain's Q4/22 results and 2023 guidance.
Impact: SLIGHTLY NEGATIVE 2023 production expected to increase ~75% y/y — Production is guided to be in the range of 88-98Mlbs copper, which represents an approximately 75% increase in production from 52.9Mlbs in 2022. The company expects a step-change in production y/y after a very challenging 2022, where the Copper Mountain Mine (CMM) experienced a series of operational challenges that affected grades and throughput.
Recoveries, throughput, and grades should improve in 2023 based on investments made last year and planned mine sequencing, which will lower all-in-costs (AIC), which are expected to average between US$2.45/lb and US $2.95/lb. Although our previous production estimate fell between the production guidance range, the company's midpoint of C1 cash costs was higher than forecast due to lower guidance for both grades and recoveries. As a result, we now model production of 90.4Mlbs (previously 92.9Mlbs) at C1 cash costs of US$2.38/lb (previously US$2.06/lb), which has lowered our earnings estimates.
Return to positive FCF in 2023 — Despite now modelling higher C1 cash costs, AIC guidance for 2023 was broadly in line with our expectation as the company is forecasting reduced capital investments, including deferred stripping. The net impact should result in a further deleveraging of its balance sheet.
We model 2023 FCF of $41.2mm (~10% yield) at a US$3.75/lb copper price. At copper prices of US$4.00/lb, we calculate FCF increasing to $61.4mm (14% yield).
TD Investment Conclusion We are maintaining our $2.50 target price and BUY rating. Copper Mountain should benefit in 2023 from a material increase in production, lower costs, and positive FCF. In addition, the company is planning to make investments in exploration activities to define high-grade zones at depth, which could add to CMM's already substantial resource base, which can support an ~30-year mine life.