Copper Mountain Mining Corporation

Company Overview: Copper Mountain Mining Corporation (ASX: C6C) undertakes exploration and development of the Copper Mountain mine project in British Columbia. In April 2018, C6C acquired Eva Copper (Cu) project in Queensland via the acquisition of Altona Mining Limited. It also undertakes the exploration of additional copper, copper-gold, or gold deposits at the Cameron Copper Project in Australia. In addition to ASX listing, C6C trades on the TSE (Toronto Stock Exchange) under the ticker symbol of CMMC.

C6C Details

Expanding Exploration Potential: Recently, C6C reported positive exploration results from the additional drilling of 10 holes at the New Ingerbelle copper (Cu)-gold open pit. The program discovered significant widths of high-grade mineralization at the pit and adjacent to the existing reserve pit. A considerable increase in the Mineral Reserves and Resources is estimated at the Copper Mountain Mine project. C6C intends to announce the revised estimate from the ongoing exploration and an improved mine life plan by mid-2022.

Launch of Price Protection Program: C6C commenced a zero-cost collar copper price protection program in January 2022 to ensure financial prudence and safeguard margins as it implements growth plans in FY22. It secured option contracts for ~39.6 million Cu pounds (~3.3 million pounds of copper (Cu) every month through 2022). The average ceiling price is set at ~US$4.91 per pound and the monthly floor price is set at ~US$4.00 per pound for the Cu options.

Key Takeaways of 9MFY21:

Growth in Earnings: 

• The revenue increased to ~CAD441.44 million during 9MFY21 (nine months ended 30 September 2021) versus ~CAD235.64 million during 9MFY20.
• The net income after tax base grew from ~CAD21.72 million in 9MFY20 to ~CAD116.60 million in 9MFY21.

Rise in Production Efficiency:

• The copper production grew to ~73.44 million pounds of copper equivalent in 9MFY21 versus ~54.49 million Cu pounds in 9MFY20.
• C6C incurred US$1.34 of C1 cash cost for each pound of copper produced during 9MFY21 versus US$1.58 in 9MFY20.

Improved Liquidity Position:

• The balance of cash and cash equivalents increased to ~CAD183.33 million as of 30 September 2021 versus ~CAD85.57 million as of 31 December 2020.

Revenue Growth Across Metals, Highlights; (Analysis by Kalkine Group)

Key Metrics: Gross Margin improved to ~30.6% in FY20 compared to ~8.7% in FY19. EBITDA margin rose from ~13.5% in FY19 versus ~33.1% in FY20. The cash cycle days reduced from ~58.4 Days in FY19 to ~50.5 Days in FY20. During FY20, current ratio improved to 1.19x versus 0.46x in FY19.

Improved Profit Margins and Liquidity Position; (Source: Analysis by Kalkine Group)

Other Key Updates:

• At the Eva copper project, C6C progressed on the basic engineering and project financing in Q3FY21.
• At the Cameron copper project, the company has started another round of drill testing and plans to conduct further exploration of new undrilled targets of mineralisation.
• Appointment of SVP: C6C appointed Patrick Redmond as the SVP (Senior Vice President) for Exploration effective from 1 November 2021.

Growth Drivers:

Key Risks:

• Volatility in Metal Prices: The company risks fluctuations in the prices of gold and copper due to various factors such as supply and demand of metals, inflationary expectations, adverse forex currency movements, macro-economic conditions.
• Forex Rate Changes: C6C operates the copper mountain project in Canada and Eva copper project in Australia. It faces the risk of adverse foreign exchange movements operating in two different countries and currencies.

Outlook:

• C6C has upgraded the production guidance for copper (Cu) from ~85-95 million Cu pounds stated previously to ~90-100 million pounds for FY21. It expects the total all-in costs per pound of copper produced (AIC) at the top end of the US$1.80 - US$2.00 per pound due to the risk of inflation in the fuel and steel costs.
• C6C plans to release the Q4FY21 and FY21 results and host a conference call at 7:30 AM (AEST) on 14 February 2022.
• The exploration will continue at the New Ingerbelle deposit to expand the Mineral Reserves & Resources estimation. C6C expects to complete the project economics and cost estimates at the Eva Copper Project (Australia) in Q4FY21 before taking the final construction decision.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of C6C gave a positive return of ~13.90% in the past month and a positive return of ~81.27% in the past year. The stock is currently trading above the 52-weeks’ average price level band of $2.300 - $5.420. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ average EV/Sales multiple, considering the upgraded copper production guidance for FY22, and expected increase in the plant mill capacity at the Copper Mountain project.  For this purpose of valuation, a few peers like BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), and 29Metals Ltd. (ASX: 29M) have been considered. Considering the current trading levels, rise in revenue, net operating cashflows, and surge in production in Q3FY21, and 9MFY21, improved copper production estimate for FY22, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $4.260, up by ~1.428%, as of 9 February 2022.

C6C Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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