Capstone Copper Corp.
Updated Santo Domingo study details compelling project economics
TSX: CS | CAD 9.28 | Outperform | Price Target CAD 14.00
Sentiment: Positive
Our view: We expect positive reception to the updated Santo Domingo study which illustrated strong project economics of a large- scale, low-cost operation that can be built for a reasonable capital cost ($2.3B capex; ~$22,000/t of production), in line with recent management commentary. The planned operation is slated to produce ~68Kt of copper, ~22Koz of gold, and ~3.6Mt of iron ore on average for 19 years (~114Kt CuEq at RBC long-term prices of $4.00/lb Cu; $2,000/oz Au; $100/t Fe) at ~$0.33/lb cash costs (detail on mine plan specifics below and comparison to the PEA and RBCe in Exhibit 1).
Santo Domingo (17/22% of our NAV at RBCe deck/spot; 18% of consensus NAV) is a key part of the Capstone story, and we view the study as a de-risking event with potential for NAV estimate accretion as the NPV8% of $1.7B on consensus long-term prices compares favourably to current Santo Domingo consensus NAV of $1.1B. The next focus will be on securing project financing commitments, potential minority stake sale, and regional exploration to continue to define the district-scale opportunity.
Updated feasibility study summary: The updated Santo Domingo feasibility study proposes a larger-scale Cu-Fe-Au mining operation vs. the 2020 PEA with improved economics. The study is based on a 72ktpd throughput operation producing ~68Kt of copper, ~22Koz of gold, and ~3.6Mt of iron ore on average over a 19-year mine life underpinned by an expanded reserve base for an initial capital cost of $2.3B. Project economics are supported by initial higher grades (~0.5% Cu vs. ~0.3% Cu LOM) driving stronger production in the first seven years of operation averaging ~106Kt of copper, ~35Koz of gold, and ~3.7Mt of iron ore paired with first quartile cash costs (~$0.33/lb of Cu) over the life of mine. The mine plan detailed in the study comprises two open pits with a lower strip ratio vs. PEA, a copper-iron concentrator, desalinated water pipeline, concentrate pipeline, and a greenfield port with sufficient capacity for both Santo Domingo and Mantoverde. At consensus long-term prices via Capstone ($4.10/lb Cu; $1,800/oz; $110/t Fe), the project generates an after-tax NPV of $1.7B, IRR of 24.1%, and payback over 3 years.
Pulling together the district-scale opportunity: The updated study identified several opportunities for future synergies between Santo Domingo and Mantoverde, including processing of oxide mineralization from Santo Domingo using Mantoverde's excess SxEw capacity (~10Ktpa), unlocking cobalt production at both Santo Domingo and Mantoverde through a new ion exchange plant (further engineering study in H2), and benefit to Mantoverde from the dedicated port infrastructure (~$10M in transportation cost synergies per year).
Capstone also announced the acquisition of the Sierra Norte land package for $40M, hosting a historical resource of 100Mt at 0.45% Cu (~$0.04/lb Cu) which could provide potential future sulphide feed source for Santo Domingo (~20km NW of Santo Domingo, see Exhibit 2)