Pacific Trader: Still believe in copper? Then Capstone is your play

The stock has nearly doubled over the past year as high-volume development projects near completion

The stock: There are two competing narratives around copper these days. One is that demand will soar over the long term as the global economy gets increasingly electrified to combat climate change. The other is the slowdown in the Chinese economy, which consumed more than half the world’s refined copper in 2021. Since early this year, the latter story has held sway, with copper prices falling 11 percent. But if you still side with the decarbonization supercycle camp, Capstone Copper (TSX:CS) presents a pretty compelling growth prospect.

The drivers: Vancouver-based Capstone has nearly doubled in value over the past year, notwithstanding the fall in copper’s price, on the strength of its swelling production pipeline. The company has four operating mines in Arizona, Mexico and Chile and expects to complete an expansion of its 70-percent owned Mantoverde project in Chile by the end of the year that, at full production, will increase its total output by 55 percent. That’s not counting its fully permitted Santo Domingo project, also in Chile, that can be started up as financing and copper prices allow. These last two projects are located close together, promising to bring down costs per tonne company-wide.

All this expansion costs money, of course, and Capstone posted a net loss of US$33.9 million or 5 cents a share in the second quarter on revenue of US$333.9 million. But the future promises higher production and lower unit costs that should push the company into the black—and then some, should copper prices rebound. CS stock closed Tuesday (Aug. 22) at $6.12 on the Toronto Stock Exchange.

Word on the street: Stifel Financial analyst Alex Terentiew pulled his 12-month price target back slightly to $8.10 this week but maintains a “buy” rating on CS. The consensus target among analysts covering the stock is $7.97.

Coming and going: Lucara Diamond (TSX:LUC) co-founder Eira Thomas is stepping down as president and CEO, to be replaced by William Lamb. Lamb previously served in the chief executive role from 2011 to 2018. Meanwhile, West Fraser Timber (TSX,NYSE:WFG) has announced CEO Ray Ferris will retire in December, to be succeeded by COO Sean McLaren. And David Johnson is leaving Westport Fuel Systems (TSX:WPRT) immediately, with Tony Guglielmin stepping in as interim CEO.