Maya Sasson is a writer for tipranks.com
May 2019 was a difficult month for the basic-materials segment of the market. The threat of a trade war with China and high costs of raw materials took a serious toll. However, a rate-cut signal from the Fed and rate cuts from other central banks renewed investors’ faith in the sector in June.
This turnaround, as well as BMO Capital’s coverage initiation of three Canadian mining stocks on July 5, has investors taking notice. Let’s examine these three stocks to see if there really is an opportunity to strike gold.
Taseko Mines Ltd. (TKO)
The first stock on the list boasts considerable long-term growth potential. Taseko is the majority owner and operator of the Gibraltar Mine, Canada’s second largest open-pit copper-molybdenum mine. The company, headquartered in Vancouver, has other advanced-stage products including the Aley niobium, Harmony gold and New Prosperity copper-gold projects.
The company just got the go-ahead from Canada’s Supreme Court to start geotechnical work at its New Prosperity mine. Taseko’s Florence Copper project is also performing well, with its test facility exceeding original expectations and their leach solution reaching commercial-grade in only six months, as opposed to a year.
BMO Capital analyst Jackie Przybylowski says, “Taseko continues to pursue growth beyond its flagship Gibraltar mine, and after several false starts, Taseko finally might have success with the Florence in situ copper leach project.” She initiated coverage with a Buy rating and average price target of $1.
For the quarter ending March 31, the company reported adjusted EBITDA of $10-million as well as earnings of $16-million from mining operations before depletion and amortization. While the results represented a net loss of $8-million, copper production for the quarter managed to surpass expectations despite harsher-than-usual winter weather conditions and harder ore in the Granite Pit pushback.
CEO and president Russell Hallbauer expects growth to continue into 2019. He said, “With a grade profile similar to 2018, copper and molybdenum production are expected to increase through 2019, and our previously stated guidance remains unchanged at 130 million pounds, plus or minus 5 per cent."
On June 28, Don DeMarco, a National Bank analyst, reiterated his Buy rating on the stock as well as his $1.25 price target. “Despite the loss reported for the quarter ending March 31, we believe Taseko stock is poised to recover,” Mr. DeMarco stated.
With 2 buy ratings vs. 1 hold over the last three months, the consensus among analysts is that Taseko is a Moderate Buy. The stock has a $1.17 average price target, boasting upside potential of 72 per cent.
Copper Mountain Mining Corporation (CMMC)
Copper Mountain is able to produce approximately 90 million pounds of copper equivalent per year at their flagship mine in southern British Columbia. While Copper Mountain has a smaller market cap of $147-million, the 86-per-cent increase in its share price over the last three years demands attention.
BMO initiated a Buy rating on this stock for its achievable and low-risk long-term growth plan. The firm expects to see this growth come from Copper Mountain’s Australian Eva exploration project, expansion of its flagship mine and the integration of new production at the New Ingerbelle pit.
“Copper Mountain has a levered balance sheet, and leverage could grow further as it executes its expansion plans,” says Ms. Przybylowski. She initiated coverage of the stock with a Buy rating and a $1.30 price target, implying a 63-per-cent upside.
The company announced that revenue for Q1 2019 was $87-million, up 11 per cent from Q1 2018. Copper Mountain’s cash flow from operations in Q1 2019 increased from $2-million to $24-million over the same time period.
President and CEO Gil Clausen stated that copper production and costs met the expectations that were conveyed in their annual guidance. “Further,” he added, “our C1 cash costs and all-in sustaining costs were markedly lower year-over-year. This solid operating base, along with our new life-of-mine plan integrating the New Ingerbelle Pit, provides a strong foundation for us to grow our business in Canada and Australia.”
Copper Mountain has a Moderate Buy analyst consensus and an average price target of $1.53. The price target suggests analysts believe share prices could increase as much as 91 per cent over the next 12 months.
Capstone Mining Corporation (CS)
Capstone is a metal mining company based in Canada. It operates mines in the U.S., Mexico and Canada, primarily focused on copper.
BMO Capital is more cautious about this stock. They believe the company needs to develop a clearer identity and long-term growth plan. There are also concerns regarding Q2 production, as management is expecting to see a decrease in grades at Pinto Valley.
Ms. Przybylowski says, “The company’s relatively high-cost assets and its major development project identify the company squarely as a leveraged-growth investment. However, it’s not clear to us (or, in our view, to the market) that Capstone will pursue growth.” She did however note, “Capstone’s most important asset, Pinto Valley, appears to be ready to turn a corner after operational issues in 2018.” She initiated coverage with a Hold rating and $0.65 price target.
The mining company had a strong first quarter, reporting that copper production reached 41 million pounds, up 20 per cent from Q1 2018. Capstone was able to improve operating results for the fourth consecutive quarter. Adjusted EBITDA was up 39 per cent to $42-million over the same time period. This growth was most likely driven by increased revenue as well as lower operation and administration costs at Capstone’s Pinto Valley mine.
Darren Pylot, the company’s president and CEO stated, “We finished 2018 strong, and we started 2019 even stronger. Our operations continue to run in a steady state from which we can further optimize with the long-term goal of decreasing costs and increasing production at both of our mines,” he added.
The Street has a slightly more optimistic view of the stock. Capstone has a Moderate Buy analyst consensus and an average price target of $1.10, suggesting 100-per-cent upside potential.