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On Thursday, Goldman Sachs initiated coverage on Capstone Copper Corp (CS:CN) (OTC: CSFFF (OTC:CSFFF)) with a Neutral rating and a price target of Cdn$8.00. The research firm’s analyst cited a modest 2% upside potential from the current levels, acknowledging Capstone’s projected 22% growth in copper production from 2024 to 2030. The company operates in a business-friendly jurisdiction, which adds to its appeal.
However, Goldman Sachs also pointed out several challenges that Capstone faces. There are execution risks associated with a series of debottlenecking projects, as well as uncertainties around the funding for its major Santo Domingo project. The analyst noted that a significant decrease in cash costs is not anticipated until Santo Domingo is operational, which is expected to be beyond 2030. Consequently, this factor is not yet integrated into their base case assumptions.
Capstone currently sits at the higher end of the cash cost curve compared to other companies covered by Goldman Sachs. The firm believes that other stocks in the sector, which they have rated as Buy, such as Ero, FM, and GMEX, present more attractive valuations and a better risk-reward profile. Capstone is trading at 1x P/NAV, while the Buy-rated stocks are trading at an average of 0.7x.
Despite these concerns, in an environment of rising copper prices, Capstone’s stock is expected to benefit. The company has significant operational leverage, where a 10% increase in copper prices could enhance EBITDA by 26%, compared to 15% for other companies covered by Goldman Sachs. Additionally, Capstone has one of the largest exposures to copper production within the United States, estimated at 30% by 2025, which could advantageously position the company in the event of potential tariffs.
In other recent news, JPMorgan has initiated coverage on Capstone Copper with an Overweight rating and set a price target of Cdn$10.80. The firm highlighted Capstone Copper’s strong production forecast, with an expected output of approximately 250 kilotons of copper in 2025 at C1 costs of around $2.3 per pound. This cost is favorable compared to the current spot copper price of approximately $4.3 per pound. Capstone Copper’s operations span four assets located in the United States, Chile, and Mexico, which are noted for their long life and established mining jurisdictions. The company plans to expand its Mantoverde asset in Chile and develop the Santo Domingo project, potentially increasing copper production to about 335 kilotons by 2030. JPMorgan projects that EBITDA could double from 2025 to 2030, reaching $1.8 billion. The financial metrics for Capstone Copper appear attractive, with a valuation at 0.83 times P/NPV and an EV/EBITDA ratio of 4.3 times for fiscal year 2026. The analyst’s commentary suggests a 33% upside potential from the stock’s last closing price, driven by production expansion and low-cost operations.
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