Copper Mountain’s Q1 results surpass expectations

An impressive ramp up at the Copper Mountain mine in southern British Columbia and higher than anticipated first-quarter revenue suggest that shares of Copper Mountain Mining (CUM-T) represent an attractive risk-reward trade-off, mining analyst Chris Chang of Laurentian Bank Securities writes in a research note.

The mine—in which Copper Mountain holds a 75% stake and Japan’s Mitsubishi Materials Corp. 25%—booked adjusted earnings of $23.6 million or $0.24 per share fully diluted in the first quarter, well above Chang’s estimate of $17.5 million or $0.18 per share and the first call consensus estimate of $0.12 per share.

The open-pit operation produced 13.7 million pounds of copper in the three months ended Mar. 31 and completed four shipments of concentrate to Japan containing 15.7 million pounds of copper for smelting. Revenues, net of smelting charges and pricing adjustments, reached $71 million for gross profit of 27.3 million. Total cash cost of copper sold during the first quarter was US$1.83 per lb. copper after gold and silver by-product credits. (There are no comparative numbers as this is the first quarter of reporting for the mine.)

Copper Mountain’s president and chief executive Jim O’Rourke, said in a statement announcing the financial results, that management’s efforts will be concentrated on optimizing mill throughput, incrementally raising daily tonnage and working towards the design capacity of 35,000 tonnes per day.

In April, mill throughput averaged 34,670 tonnes per day with an availability rate of 91.6%—which resulted in production of 6.2 million pounds of copper, a 28% increase over the prior month’s production.

Impressed by the operation’s post-quarter ramp up progress, Chang of Laurentian Bank holds a buy rating on the stock with a price target of $6.25 per share. (At presstime Copper Mountain’s shares were trading at $3.93 within a 52-week range of $3.28-8.15 per share.)

In terms of valuation, Chang says the company is trading at a 64% discount to his 8% net present value of $10.15 per share.

Currently the company is “trading at a favourable 5.3 times and 3.8 times our 2012E EPS (earnings per share) and CFPS (cash flow per share) estimates, well below the First Call consensus mid-tier base metal producer peer-group average of 13.7 times and 7.8 times, respectively,” he concluded.

The mine has known resources of about 5 billion pounds of copper and Chang believes that at full production on a 100% basis, life-of-mine average annual contained production will reach 100 million pounds of copper, 30,000 ounces of gold, and 300,000 ounces of silver at an operating cash cost of roughly $1.00 per lb. (net of by-product credits) for the first twelve years of its 17-year mine life.

In the meantime, Chang forecasts copper production will reach 72.3 million pounds in 2012, 100.5 million pounds in 2013, and 102.9 million pounds in 2014.