Copper Mountain contemplates secondary crusher

Despite several mill maintenance shutdowns last year and variable ore hardness and fragmentation entering the semi-autogenous grinding mill from different open-pit locations, Copper Mountain Mining (CUM-T) posted a gross profit of $38.2 million — up 137% year-on-year — from its 75% stake in the Copper Mountain mine in B.C. Mitsubishi Materials Corp. owns the remaining 25% stake in the mine, which is located 20 km south of Princeton.

The Copper Mountain mine entered commercial production in mid-2011, generating $229.5 million in revenues in 2012 on a 100% basis. Total production reached 57 million lb. copper, 18,900 oz. gold and 354,000 oz. silver. Total cash costs for the year worked out to US$2.32 per lb. copper sold, net of precious metal credits and after off-site charges. (Last year the mine’s average realized price for copper was US$3.61 per lb.)

Jim O’Rourke, Copper Mountain’s president and CEO, says the company is testing explosives that would better fragment the ore, and contemplating a secondary crusher, which would cost an estimated $40 million. A decision is expected by the end of April. If the crusher purchase goes ahead, Copper Mountain’s management expects it will be commissioned by year-end.

Chris Chang of Laurentian Bank Securities believes Copper Mountain can fund its portion of the crusher’s cost from internal cash flow, but anticipates the company will instead secure debt from its joint-venture partner. “This would keep the company’s balance sheet well insulated against prolonged operational hiccups and a meaningful decline in copper prices,” he writes in a March 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 lb. copper in 2013, 90 million lb. in 2014 and 112 million lb. in 2015.

At full production over its 17-year mine life, Chang estimates that annual production on a 100% basis will average 100 million lb. copper, 31,000 oz. gold and 264,000 oz. silver, at an operating cash cost of US$1.59 per lb., net of by-product credits.

John Hayes of BMO Capital Markets says the mine could produce 75 million lb. copper in 2013, at co-product cash costs of US$2.25 per lb. copper. He forecasts that production attributable to Copper Mountain Mining will be 1 billion lb. copper and 306,000 oz. gold over the mine’s life, at average co-product total cash costs of US$2.50 per lb. After the company’s financial results were released on March 18, Hayes lowered his target price from $4 per share to $3.50.

CIBC analyst Matthew Gibson, who holds a 12- to 18-month target price of $5.50 per share, believes that given the “long-term benefits” 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 notes that exploration continues “in and around the site,” and argues that while Copper Mountain Mining is a single-asset producer, the mine “could be an easy tuck-in for a mid-tier copper producer, and has been a target in previous acquisition attempts.

Apart from the possibile takeout, he says that “there is blue-sky potential of increasing production or mine life by including additional resources being defined by deep and step-out drilling.”

At press time in Toronto, Copper Mountain was trading at $2.88 per share within a 52-week range of $2.43 to $4.88. The company has 98.6 million shares outstanding.