Beyond Capstone Copper’s Guidance Shock

Commodities | 10:00 AM

After meeting 2025 guidance, Capstone Copper has surprised with much weaker 2026 production, cost and capex guidance.

• Capstone Copper delivers disappointing 2026 guidance
• All key metrics significantly below consensus forecasts
• 2027-28 expectations unchanged
• Longer-term value in growth trajectory and copper prices

By Greg Peel

After achieving 2025 consolidated copper production guidance of 225kt, up 22% year on year, Capstone Copper Corp ((CSC)) has rather shocked the market with disappointing 2026 guidance.

2026 copper production volume guidance of 200-230kt is -12% below consensus, cash cost guidance of US$2.45-2.75/lb is 12% above consensus, and capex guidance of -US$720m is 21% above.

It’s a particularly disappointing outcome, Ord Minnett laments, given we are in a period of record high prices for the red metal.

The main impacts occurred at Pinto Valley (Arizona), Mantoverde and Mantos Blancos (both in Chile). Pinto Valley guidance reflects lower than expected grades, while Mantos Blancos is impacted by a one-year lower grade sequence.

At Mantoverde, stable production is offset by maintenance and worker strike impacts, and a 15-day shutdown ahead of an optimisation ramp-up expected for the December quarter.

Costs have been impacted by lower-than-expected volumes and some inflation impacts.

The combination of lower volumes and higher costs implies a weaker operational year in 2026, Morgans notes, with earnings likely to be revised lower across the market.

At the mid-point, production is broadly flat year on year, with costs moving higher, a reversal from prior expectations of 10% volume growth and -10% cost declines.

All is not Lost

Capstone isn't a free cash flow story, UBS notes, at least for several years yet, and higher capex requirements, including -US$270m sustaining capex, -US$225m expansionary capex, -US$225m capitalised stripping and -US$70m in exploration, see all-in costs closer to US$4.35/lb (versus copper spot of circa US$5.70/lb) before corporate costs, interest, etc, and before the Santo Domingo (Chile) project spending ramps up.

The weaker-than-expected production came from Mantos Blancos, where grades are expected to rebound from 0.7% in 2026 to 0.85% in 2027, Mantoverde optimisation, after factoring in the strikes and shutdown, and Pinto Valley, where the lower grades (0.29%) offset higher throughput.

While UBS remains positive on the growth prospects, production has been inconsistent of late and this broker wants to be nearer the low end of guidance.

2026 appears clearly positioned as a transitional year and Morgans doesn’t expect downgrades to flow materially into 2027/2028 forecasts.

At Pinto Valley the next two years reflect lower-grade access before reverting to stronger grades. Mantos Blancos is similar, but the grade profile is only expected to dip in 2026 before moving higher.

At Mantoverde, 2026 is impacted by the strike in January and tie-in effects in the September quarter ahead of higher sustained throughput from optimisation. The expected exit rate at the end of the 2026 of 45ktpd positions the asset for a material uplift in FY27, UBS notes.

Morgans’ medium-to-long-term production forecasts are largely unchanged and this broker still expects Capstone to grow production significantly over the next five years with a 14% compound annual growth rate, in addition to costs moving to below US$2.00lb over the same period.

Soaring Copper Price

Brokers have made material changes to 2026 forecasts for Capstone following the updated guidance. However, Morgans, for one, has simultaneously upgraded its copper price forecasts.

Despite the material downgrade to 2026 production and costs, this uplift in copper prices materially offsets the earnings impact. Stronger commodity pricing is cushioning what would otherwise have been a more significant earnings downgrade, Morgans notes.

The structural supply-side challenges for copper continue to be highlighted while the demand outlook continues to improve. Looking beyond copper’s current short-term global inventory build, spot continues to trade above UBS’ forecast, suggesting this broker’s once 20% above-consensus price forecast may have been caught up.

At the same time, BHP Group has put front and centre the earnings re-rate for copper producers, UBS points out.

Following the sharp share price sell-off on the day of the update, and with downwardly revised forecasts, Capstone is now trading on an implied copper price of US$4.05/lb in Macquarie’s net asset valuation (-29% below spot copper of US$5.70 lb) and below that of the only other mid-cap copper pure-play on the ASX; Sandfire Resources ((SFR)).

Capstone would need to see a circa -13% decline in grade profile over the entire life-of-mine to trade on the same implied price as Sandfire, or forego growth via Santo Domingo, Macquarie declares.

Ord Minnett suggests risks are heavily skewed to the upside if copper prices remain around current levels; at spot prices this broker’s Capstone valuation would rise to $18.70 a share.

Moelis is nonetheless more sanguine.

Moelis had previously moderated its investment view on Capstone given the re-rating of the stock and subsequent erosion of valuation support. Valuation alone does not always stack up as a share price driver, Moelis warns, and in resources this is especially true given the overt influence of commodity prices (which are hard to predict).

In hindsight, the outlook for 2026 presented a risk, Moelis believes, in particular given the industrial action early in the year which disrupted sulphide operations at Mantoverde, while Pinto Valley has fallen short of expectations and continues to be stuck in a feedback loop whereby it isn't “bad” enough to warrant intervention, yet a clear plan for a step-change has not yet materialised.

Capstone is seen providing ideal exposure for domestic small cap enthusiasts given its size and sophistication within the index. Now that production expectations have been rebased, Moelis expects the stock to return to trading as a proxy for the copper price.

This broker remains somewhat cautious on near term metal price weakness foreshadowed by the significant increase in copper inventory at the key trading warehouses (Comex, Shanghai, London) which have returned to 2004 levels.

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