Post by
retiredcf on Aug 06, 2024 8:49am
TD 2
PRODUCTION AND EARNINGS AT A POSITIVE INFLECTION POINT
THE TD COWEN INSIGHT
CS reported Q2/24 production results that largely met our estimates, with slightly better earnings. 2024 guidance has been maintained and, not unsurprisingly, production is trending towards the lower end of the range, while costs will be closer to the top end. We expect production and earnings to start accelerating through Q3/24, reaching record levels by Q4/24 as it delivers on mine ramps.
Impact: NEUTRAL
2024 production trending towards the low end of the guidance range (already our base case) — Management reiterated its 2024 full-year guidance range of 190-220kt copper at cash costs of $2.30-$2.50/lb, while adding that production is trending towards the lower end, and cash costs towards the upper end. In our view, this was widely anticipated and in the consensus forecasts, given some challenges with the Mantos Blancos ramp and slight delays at Mantoverde. Our base-case estimate of 199kt Cu and $2.55/lb cash costs are largely unchanged.
Production and earnings inflection in H2/24 — Management noted on its call that it has completed the final installation and tie-in of the necessary infrastructure at Mantos Blancos to ramp up to design and expects to make-up for some lost ground in the second half of the year. Similarly, at Mantoverde, management highlighted that milling in July was operating at design for ~half of the month. A two-week shutdown is required in August as part of regular commissioning activities, after which management is confident that it can achieve commercial production by September. Consequently, Q3/24 should be better than Q2/24, but the real inflection in production should come by Q4/24, when both Mantoverde and Mantos Blancos are at or near design levels.
Growth projects — The company is planning to release a feasibility study for the Mantoverde optimization, which is expected to result in the net addition of ~20kt of copper at a capex of ~$150mm (~$7,500/t capital intensity). This optionality presents upside
to our formal estimates as we await further details on the study. We believe a sanction decision on this project could come in 2025. We have updated our estimates to reflect the Santo Domingo study, which came out on July 31. The net impact boosted our NAV-10% to $906mm ($1.18/share) from $558mm previously. Capstone is planning to use the technical report as a means to bring on a JV partner, with management looking to sell up to a 30% interest in the project.
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