Capstone Copper Ltd (ASX: CSC) has been one of the key beneficiaries of a run on the copper price recently, but Macquarie analysts believe there's still value to be had in buying the company's shares.
The copper market received a shock late last month when New York Stock Exchange-listed Freeport-McMoRan Inc (NYSE: FCX) announced that mining at its Grasberg Block Cave Mine (GBC) in Indonesia had been placed on hold following a fatal mudslide earlier in the month.
And not only had mining been halted, production from the mine was expected to be halted indefinitely, punching a hole in the US company's expected production figures.
Aussie stock prices heading north
Copper-focused companies such as Capstone have been rerated upwards on the news, and the company's shares are up 9.9% since the Freeport-McMoran announcement. They've also more than doubled over the past six months.
The company has also had good news flow, announcing this week that it would sell a quarter stake in its Santo Domingo and Sierra Norte projects in Chile to private equity firm Orion Resource Partners for up to US$360 million.
The investment is subject to Capstone making a final investment decision to go ahead with the development of the Santo Domingo project, which is just 35km from Capstone's existing Mantoverde mine.
Deal adds value
Macquarie analysts said in a note to clients released after the announcement of the deal that they believed it was fairly priced, and the funding pathway for the mine was now significantly derisked.
The benefit of bringing in a minority partner to a development project is that they can contribute to the US$2.3 billion total capital costs. We calculate that Capstone' 75% share of capex is approximately US$1.74 billion and could be funded by US$0.36 billion sale proceeds for 25% selldown of Santo Domingo, US$0.26 billion gold stream, US$0.31 billion existing cash, leaving a remaining gap of US$0.81b which could be funded with a project finance facility.
The Macquarie note said they expected the company to make a decision to go ahead with the project in the second half of calendar year 2026, "with project financing one of the key milestones to complete prior to decision''.
Based on the project valuation calculated as a result of the Santo Domingo deal, Macquarie's price target for Capstone shares has been increased by 8% to $14.80, 8% higher than the current share price of $13.70.
Macquarie has an outperform rating on the company, which currently does not pay dividends.
