Haywood Securities analyst says Capstone Mining is an undervalued junior base-metals mining stock.
Vancouver-headquartered base-metals mining stock Capstone Mining Corp.’s (TSX—CS) results missed third-quarter 2019 analysts’ estimates.
However, encouraged by cost reductions as well as the progress at its operations, Toronto-based Haywood Securities analyst Pierre Vaillancourt says Capstone is undervalued relative to peers.
Capstone explores and develops mineral properties in the US, Mexico and Canada, and has development projects in Chile and Canada. Capstone’s main focus is copper, but the company also produces zinc, lead, molybdenum, silver and gold.
Mr. Vaillancourt claims there are positive developments at its Cozamin mine in Mexico along with upgrades at Pinto Valley in Arizona. So he upgrades Capstone to “buy” from “hold” with a target price of $0.80 per share from $0.70.
Copper prices, sales, cash flow down
Capstone’s cash flow dropped significantly during the third quarter. The company reported cash flow per share (CFPS) of US$0.02, compared to Haywood estimates of US$0.06. In the second quarter, CFPS was US$0.05. Cash fell quarter-over-quarter by 10 per cent to US$41.4 million.
There were lower realized copper prices and a 31 per cent reduction in sales. However, the analyst notes total production was up four per cent quarter-over-quarter, and management maintains its 2019 guidance.
Revenue was down 27 per cent quarter-over-quarter to US$83 million, which resulted in a 51 per cent drop in cash flow to US$9.5 million. Revenues were impacted by the aforementioned 31 per cent lower copper sales to 14,200 tonnes namely due to a 10,000-tonne buildup of concentrate inventory at Pinto Valley in Arizona state.
Capstone has a plan to install new secondary and tertiary crushers at its Pinto Valley operation for $15 million starting in January. Payback is said to occur in under a year. The benefits of the crusher upgrades are higher throughput, higher online time, a consistent on-spec crushed product feeding the ball mills and lower power costs.
High-grade copper and silver drill results
There were also positive developments at Cozamin in Mexico. Capstone announced high-grade copper and silver drill results over 100 holes as well as an extension to continue the successful program into 2020. Capstone now has six drill rigs and expects to deliver results from 10 holes per month. Step-out drill results included 5.53 per cent copper over 20 metres, which will contribute to an updated resource in second-half 2020.
“The addition of the Portree claimblock located in the middle of the mine will make a significant contribution and will help to simplify the mine plan as the operation will no longer need to mine around it. Development of the one-way ramp remains on track for the end of 2020, the completion of the expansion is expected to increase annual production to 50-to-55 million pounds of copper and 1.5 million ounces of silver starting in 2021, from 33 million pounds currently,” Mr. Vaillancourt concludes.
This is an edited version of an article that was originally published for subscribers in the December 20, 2019, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.
Investor’s Digest of Canada, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846