Copper Mountain Mining (CUM.TO) has released the production results for the third quarter of this year, and the company posted a nice production increase.
Let’s first pull up the numbers from the second quarter of this year. Copper Mountain spent C$54.3M on production and treatment & refining charges (excluding depreciation) to process 3.4 million tonnes of ore. Thanks to the new record throughput in Q3 (39,980 tonnes per day during 92 days), the total throughput increased by 8% to approximately 3.68 million tonnes.
If we would now increase the total operating cost by 8% as well (although we would hope CUM was able to reduce the growth rate of its operating expenses), we would end up at C$59M for the third quarter. Of course, keep in mind this result will be impacted by for instance the strip ratio and hauling tonnes of waste to reach new mineralized zones. Using an USD/CAD exchange rate of 1.30, the C$59M is equivalent to US$45.4M, so let’s round this up to US$46M for simplicity sake.
Copper Mountain also produced some by-products, and the revenues from the gold and silver will probably sharply reduce the company’s cash cost per pound of copper. Assuming a payability of 93% for the gold (7,600 ounces) and a gold price of $1300/oz, and a payability of 90% for the silver (69,300 ounces) and a silver price of $19/oz, the total value of the by-product credits in the third quarter was approximately US$11.5M. This reduces the total cash cost to $34.5M, or US$1.57/lbs, in line with the previous quarters.
This indicates Copper Mountain will very likely be free cash flow positive again, as we are estimating the total production-related operating cash flow to be C$14M, and after deducting some minimal capital expenditures, the company’s free cash flow should be sufficient to pay the interest on its debt (which is on average C$3M per quarter) and add more cash to the balance sheet.
Of course, the jury is still out until the company publishes its financial results but thanks to the low capital expenditures and low interest environment, CUM is able to service its debt and remains an excellent call option on the copper price. If the company can continue to hang in there until 2018 (when the copper grade is expected to increase by approximately 15% compared to Q3 2016), Copper Mountain has a good chance to refinance its debt but with a net debt of almost C$375M (as of at the end of June), Copper Mountain will need a much higher copper price to create value for its shareholders.
Go to Copper Mountain’s website
The author has a long position in Copper Mountain Mining. Please read the disclaimer
