Capstone sells 25% of Chile projects to Orion for $360M

[Ben Graham]

Canada’s Capstone Copper (TSX:CS) (ASX:CSC) has struck a deal worth up to $360 million with Orion Resource Partners, granting the private equity firm a 25% stake in the Santo Domingo and Sierra Norte copper projects in Chile.

The transaction reduces Capstone’s upfront capital requirements at Santo Domingo and strengthens its ability to fund development and exploration across the Mantoverde–Santo Domingo district in Chile’s Atacama region.

Orion will pay $225 million following a positive FID, contribute an additional $75 million within six months, and provide up to $60 million in milestone-based contingent payments. It will also invest $10 million in new Capstone shares at a 5% premium, supporting near-term exploration at both projects.

Capstone chief executive officer Cashel Meagher called Santo Domingo the company’s “next pillar of transformational growth”, highlighting its low projected cash costs and proximity to Mantoverde, just 35 km away. He said the same team that built Mantoverde will oversee construction and ramp-up at Santo Domingo.

Orion chief investment officer Istvan Zollei expressed confidence in Capstone’s ability to deliver a high-quality copper asset aligned with the global energy transition.

The deal cuts Capstone’s equity requirement for Santo Domingo to about $400 million, assuming project financing and pro rata contributions. Capstone also retains a buy-back right, allowing it to regain full ownership after commercial production, with terms ensuring Orion earns a set return.

Once the transaction closes, Orion’s ownership in Capstone will edge up from 11.9% to 12%

Discount valuation flagged

Jefferies analysts said the deal appears discounted, pointing to potential reasons such as jurisdictional risk, project complexity, and the buy-back clause. They compared the valuation unfavourably to Hudbay Minerals’ $600 million sale of a 30% stake in its fully permitted Copper World project in Arizona to Mitsubishi, which achieved a higher price-to-net-asset-value (P/NAV) multiple.

Jefferies values Santo Domingo’s NAV at $1.6 billion after accounting for the existing stream with Wheaton Precious Metals. This pegs Orion’s 25% stake at $408 million. 

The initial $225 million cash payment reflects a 0.6x P/NAV multiple, rising to 0.7x if contingent payments are included, the analysts said.

The deal was announced late Monday. Capstone shares rose 3.43% on Tuesday in Australia, closing at A$14.50. The Toronto Stock Exchange was closed for Canadian Thanksgiving. Capstone has a market capitalization of C$9.7 billion ($6.9 billion).