Capstone Copper balances higher value, costs in updated Santo Domingo study

Capstone Copper (TSX: CS; ASX: CSC) increased the net present value of its fully-permitted Santo Domingo copper-iron-gold project in Chile by nearly a third while capital costs rose by more than half, according a new feasibility study. 

The project’s after-tax net present value at an 8% discount rate is US$1.7 billion versus US$1.3 billion in a 2020 study, while initial construction would cost US$2.3 billion compared with US$1.5 billion, the company said on Thursday.

The internal rate of return improved to 24.1% from 21.8%, and the payback period for the capital was estimated at three years compared with 2.8 years in the 2020 study. 

Over the project’s 19-year mine life, annual production is expected to average 68,000 tonnes of copper and 3.6 million tonnes of iron concentrate, at a cash cost of US33¢ per lb. of payable copper, placing it in the least expensive quarter of similar projects, the company said in a release. Previously, the mine life was one year shorter with lower annual copper production at 62,000 tonnes.

“The 2024 feasibility study significantly enhances the mine’s economics backed by low capital intensity and first-quartile costs,” CEO John MacKenzie said in the release.

“A construction decision and the integration of Santo Domingo represents the next phase of our transformational growth as we become a leading long-life and low-cost producer of critical metals essential for the world’s decarbonization efforts.”

Higher early output

During the first seven years, production at Santo Domingo is expected to average 106,000 tonnes of copper and 3.7 million tonnes of iron concentrate at even lower cash costs of US28¢ per lb. compared with US61¢ per lb. before.

The initial capital cost of US$2.3 billion is expected to drive a capital intensity of approximately US$21,900 per tonne of annual copper-equivalent production over the life of mine, Capstone said. 

The updated study for the Santo Domingo project marks a major step towards the creation of a world-class district in the Atacama region of Chile, Capstone said. The proposed mine, which will comprise two open pits, is located 35 km northeast of the company’s 70%-owned Mantoverde mine.

In late 2022, the company announced an integration plan for the two mines, from which it is targeting over 200,000 tonnes of annual low-cost copper production, amounting to US$80 million to US$100 million of savings per year.

Mantoverde

This year, the Mantoverde mine is expected ramp up its production from approximately 35,000 tonnes annually to a run rate of 120,000 tonnes of copper a year by including the processing of sulphide material. Recently, the expanded Mantoverde project produced its first saleable copper concentrate.

“Having recently completed construction at our Mantoverde development project, we have an experienced mine-build team which today is rare in our industry,” said Cashel Meagher, president and chief operating officer.

“We plan to further augment these base case numbers with additional opportunities including unlocking cobalt production in the district, processing Santo Domingo’s oxides at Mantoverde, and continuing to explore the district to improve our understanding of the longer-term potential.”

Shares in Capstone Copper fell nearly 5% on Thursday in Toronto to $8.83 apiece as wider markets plunged, valuing the company at $6.3 billion. They’ve traded in a 52-week range of $4.40 to $11.51.