Copper Mountain: reasons for optimism

Copper Mountain Mining  (CUM –T) missed its production guidance, but the market looks to have been unfazed by the news.

The Vancouver-based miner reported copper production for last year of 57 million lb., which was slightly less than the 60 million lb. it said it would produce in September of last year. On top of the copper production, the mine produced 19,000 oz. gold, and 354,000 oz. silver.

Despite the disappointing results, Haywood Securities analyst Stefan Ioannou believes there is 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 writes in a research note.

Copper Mountain has a 75% stake in the Copper Mountain mine, with Mitsubishi Materials holding the remainder. The mine is 20 km south of Princeton, B.C., and went into production in mid-2011.

Last year Copper Mountain shipped 59 million lb. copper, 20,000 oz. gold, and 402,000 oz. 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 lb. copper, while CIBC was expecting 17.1 million lb. 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, when 0.35% had been expected.

“Reaching design throughput at the mill will be a key focus for investors in the next six months,” CIBC analyst Matthew Gibson writes 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 year, the mill averaged an 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 lb. copper, 35,000 oz. gold and 315,000 oz. silver, at cash costs of US$1.25 to US$1.30 per lb. of copper produced, net of precious metal credits.

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

Since October of last year, Copper Mountain shares have been range-bound between $3.50 and $4.20 per share. At press time in Toronto, the company’s shares were trading for $3.90 and were largely unaffected by the production results.