Copper Mountain disappoints but remains optimistic

Copper Mountain Mining (CUM –T) missed its production guidance but the market seemed unfazed by the news.

Copper production for last year came in at 57 million lbs, which was slightly less than the 60 million lbs the company said it would produce when it issued guidance in September of last year. On top of the copper production, the mine produced 19,000 oz. of gold, and 354,000 oz. of silver.

Despite the disappointing results, Haywood Securities analyst Stefan Ioannou said there was reason to be optimistic about the operation going forward.

“Most key production metrics did improve relative to Q3, and we continue to look at 2013 as a break-out year for the company on the back of recognition as an established producer,” Ioannou wrote in a research note.

Copper Mountain has a 75% stake in the Copper Mountain mine, with Mitsubishi Materials holding the other 25%. The mine is located 20-km south of Princeton, BC, and went into production in the middle of 2011.

Over the course of last year Copper Mountain shipped 59 million lbs. of copper, 20,000 oz. of gold, and 402,000 oz. of silver to smelters in Japan, enough to generate $247 million in gross revenue.

The quarterly production results also missed CIBC’s estimates. For the quarter, Copper Mountain produced 14.2 million lbs. of copper, while CIBC was expecting 17.1 million lbs. of the red metal.

Lower-than-expected grades were the culprit for the miss as the head-grade averaged 0.31% copper over the quarter while 0.35% was expected.

“Reaching design throughput at the mill will be a key focus for investors in the next six months,” CIBC analyst Matthew Gibson wrote in his research note. “We believe that until throughput and recoveries stabilize and a longer-term production growth plan is established, investors will shy away given its current valuation at 0.7 times net asset value, in line with the group.”

Over the course of the year the mill averaged 82% operating time and milled 9.4 million tonnes at an average grade of 0.343 % copper.

Mining at the site focused on Pit 2 and Pit 3 last year, and averaged 170,000 tonnes per day. In all, 55 million tonnes of rock was mined, of which 12.5 million tonnes was classified as ore, while 42.5 million tonnes was waste. That equates to a strip that is considerably higher than the projected life of mine strip ratio of 2-to-1, but Copper Mountain expected to see higher strip ratios early on in the 17-year mine life.

For 2013, Copper Mountain expects to produce 80 million lbs of copper, 35,000 oz. of gold, and 315,000 oz. of silver at cash costs of US$1.25-1.30 per lb. of copper produced net of precious metal credits.

In all Copper Mountain has three pits, with combined proven and probable reserves of 232.8 million tonnes grading 0.36% copper, 0.09 grams gold and 1.25 grams silver.