Capstone Mining Announces Share Buyback

Capstone Mining (CSFFF.PK) just announced a share buyback, let's take a quick look at the numbers.

Capstone mining had 382 million shares outstanding on September 30. Cash was at $510 million, assets were at $1.5 billion and equity was at $1.4 billion.

Market capitalization was considerably lower than equity: $874 million. So it is a very good idea of management to announce a share buyback on 27 December 2012.

In this share buyback program, Capstone Mining can buy approximately 10% of all outstanding shares or 34,014,871 shares ($80 million over a time period of 1 year). Capstone Mining has a lot of cash as compared to its equity. So I believe the company will buy back shares with its cash position. After the buyback, this will leave the cash position of the company at approximately $500 million considering its net earnings are at $15 million per quarter.

So basically nothing significant will happen to the cash position over the next year. The buyback will reduce the amount of shares by as much as 34 million shares. The earnings per share will increase 10% as a result of the buyback and that means that the P/E ratio will drop 10%, making the valuations more interesting for investors to accumulate Capstone Mining's shares.

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