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11/7/08

Nice quarter from Capstone (CS.to)


This is the small-but-growing copper company that is in the process of merging with Sherwood Copper. CS.to returned a 3q08 EPS of $0.2o which looks very smart against its current $1.14 share price (P/E of 1.4X on a producing miner anyone?) But watch out folks, because it sold copper at an average of U$2.91/lb and Zn at $0.78/lb in the period and now....well...you know the score. Here's the link to the summary results PR.

Zinc isn't the big problem going forward, as copper makes up 80% of sales (so watch that chart I posted just minutes ago). Another thing to note is how CS.to will benefit from the weaker loonie in its US dollar driven revenues. Production growth continues to impress. The other benefit is the nice cash pile the company is sitting on.

Going forward, the copper cash cost of $1.29/lb means that the company is in very good position to ride out the lean times. But make no mistake; this is the last of the sexy quarters and the lean times are about to come, even to the good plays such as CS.to. Just to put your mind in the ballpark, if the company makes 20c/share from a margin to cash cost of $1.62, what does it make at a margin of $0.52? Yeah, two thirds less...you got it. So the question to ask yourself is would you be happy owning CS.to with an annual EPS of $0.30 or so and a P/E of 4X? Extremely ballpark and DYODD, but those are the kind of numbers you need to assume to get the current situation.

All in all Capstone looks like a good defensive position for your mining money, and one that will get immediate bounce from any upturn in commodity prices.