Have a $12.00 target. GLTA
CAPSTONE COPPER CORP Santo Domingo Updated, Potential Synergies With MVDP
Our Take: Mixed
Capstone Copper provided an updated feasibility study for its Santo Domingo
project in Chile. The updated after-tax NPV8% of $1.70B is below our $1.98B
valuation which was based on prior technical work and CIBC price decks. In
our base case NAVPS estimate we use an NPV12% of $1.2B.
Other key highlights of the updated technical report include an after-tax IRR
of 24%, initial capex of $2.3B, a 19-year LOM and average annual copper
production of 106kt for the first seven years. Capstone used $4.10/lb copper
and $85/t 62% iron in the updated technical work which compares well with
our long-term price assumptions.
Although the updated valuation is a slight negative comparison to our model,
we view the updated technical work and upfront capex as much more
representative of today’s price environment. On that basis, we view the
update as mixed for the shares. That said, with an NPV/Capex ratio of 0.74x
and a capex intensity of $22,000/t of annual CuEq production, we expect this
project can be financed and sanctioned in the years ahead. We expect the
MVDP Optimized project will be first, likely in construction from mid-2025 to
mid-2026, after which Capstone may be ready to sanction Santo Domingo.
Of note, Santo Domingo is covered under a 15-year tax stability agreement
from the start of commercial production.
Base Case: Further to the above mentioned project highlights, the base case
scenario for Santo Domingo factors mineral reserves of 436Mt at 0.33% Cu,
26.5% Fe, and 0.05g/t Au and strip ratio of 2.3:1. Processing rates are at
72ktpd, before moderating to 65ktpd longer term, and assumed mineral
recoveries are 90% Cu, 59% Fe, and 65% Au. LOM payable metal is 1.2Mt
Cu, 68Mt Fe, and 370koz Au. Processing is planned as a standard
crush/grind/copper float/magnetite recovery/dewatering process. A
desalination plant is planned for process water under a contractor build and
operate arrangement.
Potential Financing: Capstone highlighted a financing scenario as $260M
from stream proceeds (Wheaton) and $1.2B in project finance. We expect
that a 30% project partner will be announced ahead of construction and that
proceeds (upfront or earn-in) could be around $400M, leaving a potential
funding cap of another $400M, approximately.
Synergies And Upside. Santo Domingo is 35km from Mantoverde and there
are potential synergies between the properties that can be realized in time.
Most notably this includes processing oxide material from Santo Domingo at
Mantoverde’s SXEW plant that can add about 10kt Cu to annual production
rates. As well, both assets have cobalt potential and concentrates from both
sites can be shipped via the port planned for Santo Domingo.