Capstone's Mexican Mine Doesn't Meet Expectations - Scotia

Jun. 3.09 | About: Capstone Mining (CSFFF)

Capstone Mining (OTCPK:CSFFF) recently unveiled new plans for its Cozamin underground mine in Mexico, but the underwhelming reserve updates have left Scotia Capital so unimpressed they've downgraded the company.

While total reserve tonnage at the mine exceeded Scotia analyst Alex Terentiew's expectations, copper, lead and silver grades all failed to meet model estimates.

"Overall, we would view the results as disappointing as the average reserve grade for all metals is below our expectations," he said. "Capstone's payable metal production is [also] below our estimate for copper for all years."

Scotia had predicted 370.2 million pounds of copper on a grade of 2.3%, but Cozamin reported only 296.3 million pounds at 1.7%, a 20% difference. The results for lead were even more disappointing for Mr. Terentiew, with the mining company only reporting 51.8 million pounds when he had pegged it at 84.8 million, an almost 40% difference.

Silver was down about 8%, reporting 15,500 ounces.

Cash costs for copper at Cozamin will average C$1 per pound through 2009, and jump to C$1.30 after 2012, he said.

However, Scotia is optimistic that Capstone's Minto mine in the Yukon Territory will post better reserve estimates later this month.

Mr. Terentiew has dropped Capstone to a Sector Perform from Sector Outperform and pegged the one-year target price at C$2.75 (estimated earnings per share of 39 cents) down from C$2.90 (41 cents).