Capstone Mining down 6% as Credit Suisse keeps Outperform, gives it a Target Price of $5.25 t

Capstone Mining Corp.

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S&P TSX	12,870.01	1.68%
CS	4.26	5.45%

4.26

+0.22 (5.45%)

Nov 18 - Close

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Currency in CAD

1. Range 4.15 - 4.28
2. 52 week 2.05 - 4.50
3. Open 4.15
4. Vol / Avg. 1.42M/1.23M
5. Mkt cap 853.02M

Credit Suisse kept an Outperform rating on Capstone Mining Corp. (CS.TO) and raised its target price by 50 cents to $5.25

Event: Capstone reported Q3/10 adjusted EPS of $0.08, slightly below our estimate of $0.10, and the consensus estimate of $0.09. The miss was due to higher than expected operating costs in the quarter, and a higher depreciation charge.

Capstone expects to achieve at least the lower end of its 80-85 Mlb of copper production guidance for 2010. Given the significant improvements that have taken place since the quarter's end, we are forecasting 83 Mlb of production for the year. Although operating issues have now largely been resolved, costs in the quarter were $1.40/lb, above our $1.21/lb forecast, and as a result CS has raised its 2010 cost guidance to $1.20-$1.25/lb (previously $1.10-$1.20/lb).

Investment Case: With cash costs forecast to be less than $1.30/lb of copper going forward, strong copper prices, and declining forward sales, Capstone's operating cash flow is set to double in 2011 to an estimated $185 million. Adding to this exploration results that continue to add incremental value, a strong balance sheet, and a management team that we believe will deliver more value through M&A, we continue to view Capstone as an attractive investment opportunity in the small cap mining sector.

Valuation: Our EPS estimates for 2010/2011 are revised to $0.24/$0.74 from $0.33/$0.58. We have increased our target price on CS to C$5.25 from C$4.75, as we have slightly increased the EV/EBITDA multiple used in our valuation to reflect the trend of rising EV/EBITDA multiples for the sector, which troughed in of June 2010. Our target price is based on a 70/30 weighting of 1.0x our NAVPS and 5.0x FY11 EV/EBITDA (previously 4.0x). Our NAVPS is essentially unchanged at $5.03 ,although our 2010 EPS estimate has decreased, and 2011 estimate increased to reflect a deferral of sales from Minto inQ4/10 to Q1/11.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Read more: http://community.nasdaq.com/News/2010-11/capstone-mining-down-6-as-credit-suisse-keeps-outperform-gives-it-a-target-price-of-525.aspx?storyid=44410#ixzz15jCe1H2o