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Capstone Mining Corp Near Yr Highs as Credit Suisse keeps Outperform rating, lifts Target Price

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Credit Suisse has kept an Outperform rating and raised its target price on Capstone Mining Corp. (CS.TO) by 25 cents. CS is up nearly 3% today and has hit a day high $4.61, which is just shy of an existing year high $4.64

Event: CS released a new mineral resource estimate for the Esso deposit at its Kutcho copper/zinc project in B.C. The new resource shows an improvement in tonnage and grade for all metals (copper, zinc, gold and silver), with tonnage doubling as inferred resources were upgraded to indicated, and grades for zinc and silver increasing by about 50%, with copper grades up by 15%.

High grades at Esso have a big impact on the total resource. We estimate the net impact to Kutcho's total M&I resource (using the 2009 resource estimate for the Main deposit, and the new estimate for the Esso deposit) is that contained copper is up by 11%, zinc up by 25%, and silver and gold are up by 23% and 18%, respectively.

The new resource exceeds our expectations. With some great exploration results from Kutcho over the past couple of months, we had been expecting resources at the project to improve, although the new resource exceeds our expectationson grade, and is roughly in-line with regards to tonnage.

While the Esso deposit represents approximately 16% of Kutcho's total Measured & Indicated resources, the impact on the project's economics can be significant, as higher grades are brought forward in the production plans. Capstone expects the Kutcho pre-feasibility study to be completed in January, 2011.

Over a 13 year mine life, Kutcho could produce 38 Mlb of copper and 47 Mlb of zinc annually. The higher grades have caused us to bump our production estimates for the project from 36 Mlb of copper and 42 Mlb of zinc, and have lowered our estimated cash costs to $0.80/lb of copper, from $0.92/lb.

Valuation: Our NAVPS estimate has increased by 2% to $4.98, and we are increasing our target price to C$5.50, from C$5.25 previously. Our target price continues to be based on a 70/30 weighting of 1.0x our NAVPS and 5.0x FY11.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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