On today’s Breakouts report, there are 72 stocks on the positive breakouts list (stocks with positive price momentum), and 24 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a copper stock that is a penny away from surfacing on the positive breakouts list – Copper Mountain Mining Corp. (CMMC-T). Year-to-date, the share price has more than doubled in value; however, analysts see much more upside for this stock. It has a unanimous buy recommendation from 10 analysts and an average one-year forecast return of 36 per cent.
A brief outline on Copper Mountain is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Vancouver-based Copper Mountain has two long life assets: Copper Mountain Mine located in British Columbia and the Eva Copper Project located in Australia. Currently, the company produces approximately 100 million pounds of copper equivalent annually from its 75 per cent owned Copper Mountain Mine located near Princeton.
Management sees several “low capital, high return organic growth project” opportunities ahead for the company. In Australia, the company is involved in exploration and development of lands at its Eva Copper Project and the Cameron Project. In. B.C., the company is developing the New Ingerbelle deposit, which is about one kilometer away from the Copper Mountain Mine.
Investment thesis
- Low geopolitical risks. Its operations are located in Canada and Australia.
- Long mine life. Its flagship open-pit Copper Mountain Mine in B.C. has a current mine life of approximately 21 years.
- Low cost producer. Management provided 2021 total all-in cost (AIC) guidance of between US$1.80 and US$2 per pound of copper.
- Strengthening price of copper. The company stated the realized copper price was US$4.33 in the second quarter of 2021, up from US$2.43 realized in the second quarter of 2020.
- Solid balance sheet. Net debt-to-trailing EBITDA ratio of 0.7 times.
- Reasonable valuation.
- Key potential near-term catalyst. Construction decision on the Eva Project in Queensland, Australia expected to be announced by year-end. Open-pit Eva is anticipated to produce an average of approximately 100 million pounds of copper equivalent annually with a mine life of 15 years. Management does not plan to tap equity markets to fund this potential project. Last quarter, management completed a $250-million bond financing.
- Potential catalyst. Success from its drilling programs in B.C. and Australia.
- Potential catalyst: Ramping up production from the third ball mill at its Copper Mountain Mine in the fourth quarter of this year, which will increase milling capacity to 45,000 tons per day up from 40,000. Longer-term, management plans to expand capacity to 65,000 tons per day (pending permitting)
- Potential catalyst: Exploration of a potential new mine project – the Cameron project, which is around 40 kilometres away from its Eva Project in Queensland, Australia.
- Longer-term objective: Tripling 2020 production within the next five years.
- Potential risks to consider: 1) Production currently from a single mine; 2) volatility in the price of copper; 3) softening in global economic growth (copper is commonly called Dr. Copper as it is considered a barometer of economic growth); and 4) permitting delays.
Quarterly earnings results
Before the market opened on July 26, the company reported solid second-quarter financial results.
Revenue was $142-million, ahead of the Street’s forecast of $130-million. Adjusted earnings before, interest, depreciation and amortization (EBITDA) was $74.4-million, well above the consensus estimate of $58.7-million. Adjusted earnings per share came in at 15 cents, just shy of the consensus estimate of 16 cents. The company produced 29.6-million pounds of copper equivalent, and the total all-in cost (AIC) per pound of copper was U.S. $2.06. All-in sustaining costs (AISC) per pound of copper produced was U.S. $1.83. The company exited the quarter with $144.5-million of cash on its balance sheet.
Management raised its 2021 production guidance to between 90 million and 100 million pounds of copper, up from its previous guidance of between 85 and 95 million pounds of copper. The share price rallied 5 per cent that day on decent volume with over 2.5-million shares traded. To put this in perspective, the three-month historical daily average trading volume is approximately 1.8-million shares.
Before the market opens on Nov. 1, the company will be releasing its third-quarter earnings results. The consensus revenue, EBITDA, and earnings per share estimates are $131-million, $82-million, and 15 cents, respectively. Management will be hosting an earnings call on Nov. 1 at 10:30 a.m. ET.
Dividend policy
The company does not pay its shareholders a dividend.
Analysts’ recommendations
This small-cap stock with a market capitalization of $788-million is actively covered by 10 analysts with a unanimous buy recommendation.
The firms providing recent research coverage on the company are: BMO Nesbitt Burns, CIBC World Markets, Cormark Securities, Industrial Alliance Securities, Haywood Securities, National Bank Financial, Paradigm Capital, Scotia Capital, Stifel Canada, and TD Securities.
Revised recommendations
Most recently, two analysts made the following revisions to their target prices.
In Early October, Scotia Capital’s Orest Wowkodaw reduced his target price to a Street-low $4 from $4.75.
In September, National Bank’s Shane Nagle trimmed his target price to $5 from $5.25.
Financial forecasts
The Street expects the company to report revenue of $569-million in 2021, $463-million in 2022, $456-million in 2023, but jump to just over $1-billion in 2024 after production from the Eva Project comes on-line. The consensus EBITDA estimates are $300-million in 2021, $204-million in 2022, $174-million in 2023, and $692-million in 2024. The consensus earnings per share estimates are 62 cents in 2021, 42 cents in 2022, 34 cents in 2023, and $1.29 in 2024.
Earnings forecast have been rising. To illustrate, four months ago, the Street was forecasting revenue of $545-million in 2021, and $459-million in 2022. The consensus EBITDA estimates were $267-million in 2021 and $175-million in 2022. The consensus earnings per share estimates were 63 cents in 2021 and 39 cents in 2022.
Valuation
Analysts commonly value the stock on a price-to-net asset value basis.
The stock can also be valued on an enterprise value-to-EBITDA basis. According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 5.5 times the consensus 2022 estimate.
The average 12-month target price is $5.10, implying the share price has nearly 36 per cent upside potential over the next year. Individual target prices are as follows: $4 (from Scotia’s Orest Wowkodaw), two at $4.75, two at $5, $5.25, three at $5.50, and $5.75 (from Stifel’s Ian Parkinson).
Insider transaction activity
Trading activity in the public market reported by insiders has been light.
Most recently, director Paula Rogers purchased 10,000 shares at a price per share of $3.15 on Sept. 13, initiating a position in this specific account.
Ms. Rogers also serves on several other boards including Great Bear Resources Ltd. (GBR-X), Argonaut Gold Inc. (AR-T), and Diversified Royalty Corp. (DIV-T).
On Aug. 18, vice-president of finance Brad Bolger sold 17,500 shares at a price per share of $3.17, reducing this particular account’s holdings to 2,500 shares.
Chart watch
Year-to-date, the share price is up 108 per cent, but the climb has not been in a straight line. The share price can be quite volatile.
As of May 10, the share price had rallied 181 per cent year-to-date to $5.08, marking its highest closing price in 2021. After that, the positive price momentum fizzled. The share price steadily declined, falling 44 per cent to close at $2.87 on Oct. 6. However, this downtrend (lower highs and lower lows) was broken last week.
Over the past six trading sessions, the share price has rebounded 31 per cent to $3.76. Consequently, the stock is fast approaching overbought territory and may be due for a pause. The relative strength index (RSI) is at 69. Generally, an RSI reading at or above 70 reflects an overbought condition.
In terms of key resistance and support levels, there is an initial ceiling of resistance around $4. After that, there is major overhead resistance around $5. Looking at the downside, the share price has initial technical support between $2.80 and $3, near its 50-day moving average (at $3.19).
Please note that this report is not an investment recommendation. The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
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