Solid Q2 with operations performing as expected; guidance and key project timelines reiterated
TSX: CS | CAD 8.87 | Outperform | Price Target CAD 14.00
Sentiment: Neutral
Our view: We expect a neutral reaction from Capstone shares to Q2 results that were ahead of expectations (EBITDA +6% vs. RBCe/cons; EPS in line), unchanged guidance, and reiterated project timelines. Capstone indicated production is tracking to the lower end of consolidated guidance (190-220Kt vs. 196Kt cons.) while costs are tracking higher ($2.30-$2.50/lb vs. $2.50/lb cons.) primarily driven by relative weakness at Mantos Blancos, but we note this appears already baked into estimates. Bringing MVDP up to commercial production will be the key focus in Q3 as guided with management stating the ramp up is proceeding well, and they are focused on improving mill uptime while also maintaining throughput and recoveries at the designed levels. With the Santo Domingo feasibility study pre-released yesterday (details here), the next key potential catalysts beside a successful MVDP ramp up are the MVDP Optimized study expected in Q3 (previously messaged as $150M for ~20Ktpa of copper, ~10Koz of gold) and the MV-SD cobalt study by EOY.
Q2 EBITDA above estimates: Capstone reported adjusted EPS of $0.03, in line with our estimate of $0.02 and consensus of $0.03. Adjusted EBITDA of $123M was above our forecast of $116M and consensus of $115M, driven by a higher realized copper price ($4.53/lb vs. $4.42/lb RBCe) while sales volumes and costs were in line. Capstone generated -$15M in FCF in the quarter in line with our estimate of -$16M (excl. working capital).
Operating results in line: Copper production came in at 40.9Kt, marginally below our estimate of 41.8Kt and in line with consensus of 41.0Kt. Meanwhile, copper sales in the quarter were 39.7Kt, in line with both our estimates and consensus. Operating costs of $2.84 were at the high end of H1 guidance, but -1% lower q/q and in line with our estimate of $2.85/lb and consensus of $2.83/lb.
Liquidity update: Capstone ended Q2 with $138M of cash and equivalents, up from $132M at the end of Q1 and $824M of total debt, up from $817M at the end of Q1.