Base Metals

Capstone Mining’s 2014 production results missed their mark. However, analysts remain positive on the company, and still see plenty of room for the company’s share price to go up.

On Tuesday, Capstone Mining (TSX:CS) released its 2014 production results, and the numbers missed their mark. However, analysts remain positive on the company and appear to see plenty of room for Capstone’s share price to go up.

For 2014, Capstone reported 103,300 tonnes of copper production in concentrate and cathode from its three operating mines: Pinto Valley in Arizona, Cozamin in Mexico and Minto in Canada’s Yukon. That fell just short of its guidance of 104,800 tonnes, and Capstone’s share price dropped 17 percent on Tuesday to close at $1.60.

“All three of our operating mines were within the range of their production guidance for 2014, and exited the year running at, or very close to plan,” said Capstone president and CEO Darren Pylot in a statement. “Our primary focus continues to be on reducing costs and increasing mill reliability at our Pinto Valley operation and a review of maintenance operating systems is continuing.”

Taking a look at the reasons behind that performance, Stefan Ioannou, analyst at Haywood Securities, stated that “a myriad of modest tonnage and/or grade nuances at all three operations” were to blame for the shortfall.

He noted that higher copper head grades were offset by lower throughput at Pinto Valley (despite lower average Q4 grades), while delayed access to higher-grade areas at Cozamin meant lower-than-expected grades, offsetting good throughput and recoveries. Lower-than-anticipated head grades also affected production at Minto.

Meanwhile, Tom Meyer, an analyst at CIBC World Markets, noted that Q4 production at Pinto Valley was 7 percent below CIBC estimates due to lower-than-anticipated grades and throughput.

“No explanation was provided in the press release for the throughput issue, which creates a degree of uncertainty for the 2015 outlook,” he said.

That said, Ioannou still has a positive outlook for the miner. Like Pylot, he is optimistic that ongoing cost reduction and improved maintenance operating system initiatives at Pinto Valley will “bear fruit” in 2015.

He also noted that in addition to its three operating mines, Capstone holds two development projects, which should also be considered. A feasibility study completed for the Santo Domingo copper-iron project in Chile last year suggests an 18-year open-pit mine with average LOM annual production of 128 million pounds of copper, 4.2 million tonnes of iron ore concentrate and 16,000 ounces of gold.

“In light of recent market weakness, we believe the Company’s current share price provides a compelling ‘bottom fishing’ investment opportunity given Capstone is is arguably one of the ‘safer’ established base metal producers in our coverage universe,” Ioannou said.

The analyst did caution that Capstone’s flagship Pinto Valley mine is low grade, meaning its production profile could “[stand] to garner market scrutiny on the back of copper price weakness / volatility.” However, overall, he’s given Capstone a “buy” rating and a target price of $3.50 — over double the company’s Tuesday closing price

For his part, Meyer has given the company a “sector outperformer” rating with a 12- to 18-month price target of C$4.

Capstone expects to release its operating and capital guidance for 2015 next week. Its 2014 financial results will be released February 17 after market close.


Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article. 


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