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Commodity Stock Investing: Buy this Canadian mining microcap as a contrarian speculation on increasing copper consumption

Posted December 20, 2007

A Today’s Financial News Research Report:
"Commodities prices have now moved into the no man’s land between expectations for continuing super-cycle demand and bearish fears that a turndown in US consumption will lead to a ripple effect of consumer default around the globe… But this crisis of confidence spells a contrarian opportunity…" — J. Christoph Amberger

by J. Christoph Amberger, TodaysFinancialNews.com

 

Today’s Financial News feed provides an independent and practical perspective on the U.S. and global investment markets.
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Baltimore (TFN): The world economy has experienced the single largest period of expansion in history. Not only has it been expanding faster and more dramatically than ever before in history. This economic transformation has triggered the most powerful creation of wealth the world has ever witnessed. Asia, and in particular China and India, are booming.

Demand for energy, resources, and commodities have triggered a super-cycle uptrend in prices. Copper prices have been increasing since late 2003, averaging $1.30/lb in 2004, $1.67/lb in 2005 and $3.05/lb in 2006.

But in the last couple of months, an increasing number of economists has been calling for a dramatic trend reversal. They like to seek the cause for this prospective decline in US public and private debt levels, as well as trade imbalances.

Despite the worldwide fall-out of the US subprime loan crisis and record commodity and energy prices, however, the U.S., European Union, Japan and China have been experiencing strong growth.

Commodities prices between fear and greed

Commodities prices have now moved into the no man’s land between expectations for continuing super-cycle demand and bearish fears that a turndown in US consumption will lead to a ripple effect of consumer default around the globe.

Chinese data may still show that imports of unwrought copper and semi-finished copper products, for example, rose by a strong 9.5% in November. In addition, scrap copper imports were at their second highest on record.

But as investors remain concerned about an aggressive tightening of monetary policy announced by the Chinese central bank and bearish rumor mongering about US consumption, copper prices remain depressed.

But this crisis of confidence spells a contrarian opportunity…

This Canadian mining stock is your best contrarian bet

Capstone Mining Corp. (Ticker: CS.TO) is a publicly traded Canadian mining company that 100% owns a copper-silver-zinc-lead mine located in southern Mexico.

The company has zero debt, money in the bank, and is increasing its output at a triple-digit rate, even as costs go down. In Q4 of 2006, it had a production rate of 1,000 tpd and was running at 103% of design capacity.

Mill throughput is estimated to jump to 2,200 tones per day by next year. And at the same time, economies of scale and changes in mining methods will bring production costs down — so much so that the cost of bringing copper from the mine to market will drop from a low $0.47 to an even lower $0.41by Q4 2007.

Commodity Stock Investing: Risk and Reward

Some people might consider this company, well… risky!

Heck, what can I say: It’s a Canadian micro-cap prospector with a Mexican mine, for crying out loud. That said, for the fiscal year that ended August 31, 2007, Capstone’s earnings before future income tax allowance were $25.2 million or $0.31 per share.

Earnings after future income tax allowance were $22.7 million or $0.28 per share, compared to a loss of $2.6 million or $0.04 loss per share in fiscal 2006.

Revenue for fiscal 2007 was $55.3 million. Capstone finished the year with working capital of $52.9 million including $36 million in cash and no bank debt — which compares favorably with working capital of $20.6 million and a cash balance of $20.6 million in the previous year.

We said it before and we’ll say it again

Last April, our associate Chris DeHaemer, editor of RedZone Profits, first recommended you take a position in Capstone Mining at below C$2.75, predicting an C$3.80 price target by Q4 2007.

Well, The stock hit a high of C$3.45 since then. But it has fallen back to below C$2.80. We recommend buying any dip on this stock. There are 81.77 million shares outstanding, so it’s a true micro-cap.
If copper continues to climb based on global growth and demand for electricity and pipes.

Capstone looks like an easy double — barring a global recession, I’m giving it a $3.80 price target by Q4 2007. 

Buy Capstone Mining Corp. (CS.TSX) under CDN$2.80.

 

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Posted by J. Christoph Amberger · Filed Under Gold and Resources 

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