Capstone Mining: Copper Producer With A Great Growth Profile

Summary

• Capstone Mining's Cozamin and Pinto Valley mines should elevate its annual production by 50%, to 220 million lb copper, over the next two years.
• Santo Domingo has the potential to add over 130 million lb copper in 2024.
• Capstone may become an important cobalt producer with an annual production rate of 10.4 million lb.
• At the current copper prices, the EBITDA should exceed $300 million this year and $400 million next year.
• Capstone looks like a good long-term buy at the current market capitalization slightly above $900 million.

Capstone Mining (OTCPK:CSFFF) is no rookie in the copper mining industry. The company was established back in 1987. In 2004, Capstone acquired the Cozamin project, and in 2011, it partnered with Korea Resources Corporation (KORES) to acquire the world-class Santo Domingo project. In 2013, Capstone acquired the Pinto Valley mine. Right now, Capstone Mining enters a growth phase that should see its copper production volumes increase by more than 150% by 2024.

Capstone today

Today, Capstone operates two mines, Cozamin in Mexico and Pinto Valley in Arizona. It is also nearing the construction of the Santo Domingo mine. The company has a strong shareholder structure, with 60% of outstanding shares held by institutional investors. The biggest ones are GRM Investments (23%) and KORES (10%). The 2020 production guidance promised production of 140-155 million lb copper, at a C1 cash cost of $1.85-2/lb. By the end of Q3, Capstone produced 112.5 million lb copper, at a cash cost of $1.91/lb. It means that the guidance was most probably met, but this will be confirmed only later, probably in the middle of February, when the Q4 financial results should be released.

Source: Capstone Mining

In Q3, Capstone recorded revenues of $130.5 million, by selling 39.8 million lb copper at an average realized price of $3.13/lb. Approximately $6 million were generated by silver by-products. The adjusted EBITDA equaled $51.6 million and operating cash flow equaled $27.7 million. The adjusted net income equaled $9.5 million. Capstone ended the quarter with cash of $56.9 million and debt of $219.9 million. These numbers maybe don't look too impressive, but this should start changing in the near future.

Capstone tomorrow

Capstone is following an aggressive growth path. It plans to increase the production at Cozamin and Pinto Valley, and what is more important, to build the 70%-owned Santo Domingo

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in CSFFF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.