Despite several mill maintenance shutdowns last year and difficulties with variability in ore hardness and fragmentation entering the SAG mill from the operation’s different open-pit locations, Copper Mountain Mining (CUM-T) posted gross profit of $38.2 million, up 137% year-on-year, from its 75% stake in the Copper Mountain mine in British Columbia. Mitsubishi Materials Corporation owns the remaining 25% stake in the mine, 20 km south of Princeton.
The Copper Mountain mine entered commercial production in the summer of 2011 and on a 100% basis generated revenues in 2012 of $229.5 million. Total production reached 57 million pounds of copper, 18,900 ounces of gold, and 354,000 ounces of silver. Total cash costs for the year worked out to US$2.32 per lb. copper sold net of precious metal credits and after all off-site charges. (Last year the average realized price for copper was US$3.61 per lb.)
Jim O’Rourke, Copper Mountain’s president and chief executive, says the company is testing additional explosives to better fragment the ore and is also evaluating the installation of a secondary crusher. The estimated cost of a secondary crush is in the $40-million range. A decision is expected by the end of April. If the purchase goes ahead, Copper Mountain’s management believes it could be commissioned by the end of the year.
Chris Chang of Laurentian Bank Securities believes Copper Mountain could fund its portion of the crusher’s cost from internal cash flow but believes the company will probably secure debt from its joint-venture partner. “This would keep the company’s balance sheet well insulated against prolonged operating hiccups and a meaningful decline in copper prices,” he writes in a Mar. 19 research note.
The mining analyst, who has a buy recommendation on the stock with a one-year target price of $4.75 per share, forecasts annual production of 68 million lbs. copper in 2013; 90 million lbs. in 2014; and 112 million lbs. in 2015.
At full production over the course of its current 17-year mine life, Chang estimates annual production on a 100% basis will average 100 million lbs. copper, 31,000 oz. gold and 264,000 oz. silver at an operating cash cost of roughly US$1.59 per lb., net of by-product credits.
John Hayes of BMO Capital Markets estimates the mine could produce about 75 million lbs. copper in 2013 at co-product cash costs of US$2.25 per lb. copper. Over the life of the mine he forecasts production attributable to Copper Mountain Mining will be about 1.0 billion lbs. copper and 306,000 oz. gold at average co-product total cash costs of US$2.50 per lb. Following the release of the company's financial results on Mar. 18 Hayes lowered his target price from $4.00 per share to $3.50.
Matthew Gibson of CIBC, who holds a 12-18 month target price of $5.50 per share, believes that given “the long-term benefit” of adding a secondary crusher it is “highly likely” that the board and Copper Mountain Mining’s joint-venture partner will approve the additional equipment.
Gibson also notes that exploration continues “in and around the site” and argues that while Copper Mountain Mining “is currently a single asset producer,” the mine “could be an easy tuck in for a mid-tier copper producer and has been the target in previous acquisition attempts.”
Apart from the possibility of a take-out, he says, “there is also the blue sky potential of increasing production or mine life by including additional resources currently being defined by deep and step-out drilling.”
At presstime in Toronto Copper Mountain was trading at $2.88 per share within a 52-week range of $2.43-4.88. The company has 98.6 million shares outstanding.
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