Capstone unveils Minto expansion plan

A lot has changed since Vancouver-based Capstone Mining (CS-T) kick-started production at its Minto open-pit copper mine, 240 km north of Whitehorse, Yukon, in 2007.

At the time the mine had an eight-year life and a throughput rate of 1,600 tonnes per day. Over the past six years Capstone has discovered nine deposits and recently completed a prefeasibility study on Minto’s US$101-million sixth phase, which will extend mine life through 2022 and boost throughput to 3,750 tonnes per day.

Capstone spent the first quarter of 2012 wrapping up operations at its main pit, transitioning from lower-grade ore stockpiles and pre-stripping a second-phase pit encompassing the Area 2 and Area 118 deposits, which are providing fresh mill feed.

“Virtually all of Minto’s mining costs for the quarter were deferred, since activity was related to pre-stripping,” president and CEO Darren Pylot commented during Capstone’s quarterly conference call. “We only processed stockpiled ore from the main pit, and the low-grade sulphide stockpiles didn’t carry any deferred stripping costs.”

Capstone plans on using its mined-out main pit to deposit its slurried tailings, which will allow the company to move away from a dry-stack filter plant. Capstone received its updated quartz-mining licence in early April, but requires an amendment to its water-use licence for the main pit conversion.

“It is our expectation and according to plan that the water amendment will be received sometime before year-end,” Pylot said. “Once we can deposit the slurried tailings into the old main pit, we’ll look to move away from the dry stack.”

Capstone’s feasibility study merges its Minto South deposit with the Minto North, Minto East and Ridgeway zones. Combined proven and probable open-pit and underground reserves total 14.4 million tonnes grading 1.53% copper, 0.58 gram gold per tonne and 5.12 grams silver, for a contained 484 million lb. copper, 270,000 oz. gold and 2.4 million oz. silver.

According to the prefeasibility model, Minto South is a continuous zone encompassing the Area 2, Area 118, Copper Keel and Wildfire deposits. Capstone’s mine plan involves starting with the pre-stripped Area 2, and expanding open-pit operations to Area 118 before turning to the Minto North and Ridgeway deposits. Minto North is located 700 metres from the mined-out main pit, and Ridgeway is 300 metres south of the Minto South deposit.

Underground operations at Area 118, Area 2 and Minto East will hit production as Capstone finishes off additional decline to access its Copper Keel zone. Wildfire is not scheduled for underground production until 2018, and assuming no more reserves are identified, this would mark the end of Minto’s life.
Capstone’s economic study establishes US$101 million in life-of-mine capital costs, which translates to a US$188-million after-tax net present value with a 31% internal rate of return at an 8% discount rate. The underground development carries the bulk of the capital costs with a US$67-million price tag. Concentrate recoveries clock in at 91% copper, 70% gold and 78% silver.

Once upgrades are complete Minto is expected to average 40 million lb. copper production annually at average cash costs of $1.92 per lb. Capstone’s operating cost projections jumped to $52.69 per tonne milled — compared to $45.11 per tonne in earlier studies — while production increased from an original estimate of 38 million lb. copper per year.

“Minto has been very successful as the Yukon’s first operating hard-rock mine since the 1990s, bringing stable, long-term employment and royalty benefits,” Pylot commented. “In addition, exploration on the Minto property remains ongoing to further define and potentially expand the mineral resources, as well as explore new zones of mineralization.”

According to CIBC Metals and Minerals analyst Ian Parkinson, the revised capital expenditures came in slightly below expectations, and the cost inflations are symptomatic of rising price pressures across the industry. Parkinson lowered his 12- to 18-month price target from $6.50 per share to $6.20, maintaining a “sector outperform” rating and noting that the mine plan only focuses on 14 million tonnes of reserves, while Minto’s resources total 56 million tonnes.

“We believe the current mine plan is only the tip of the iceberg for Minto,” Parkinson writes in a June 18 research update. “Capstone has made nine discoveries in the past six years, and further exploration could unlock additional tonnage that should expand the mine life. The focus will be on more high-grade material. It looks like any major mill expansion is off the table, based on an internal scoping study completed by the company.”

Minto holds total measured and indicated resources of 48 million tonnes grading 1.09% copper, 0.39 gram gold and 3.73 grams silver containing 152 million lb. copper, 65,000 oz. gold and 788,000 oz. silver. Capstone’s recently uncovered Fireweed zones also seem to be tied to Minto East, with an updated model suggesting that Fireweed may be a structural offset of the underground resource.

Capstone had a steady first quarter, with operating cash flows totalling US$17.5 million and giving the company US$492 million cash-on-hand. Total payable copper production was 17.9 million lb. at average costs of $1.45 per lb. Capstone reaffirmed its 2012 copper-production guidance at 80 million lb. in early May.

As is the case with many base-metal producers, Capstone has seen its share price trend down over the past 12 weeks as copper prices decline on global economic concerns. Shares have dropped 32%, or $1.12 since early February, on 561,400 average share volumes to a $2.36 presstime close. News of the updated mine expansion at Minto did little to alleviate losses, as Capstone shares dropped 7%, or 17¢ following its press release on June 18. Capstone has 379 million shares outstanding with a presstime market capitalization of $906 million.