Capstone doubles Cozamin mine life with boosted reserves

Capstone Mining (TSX: CS; US-OTC: CSFFF) has increased reserves at its Cozamin polymetallic mine in Zacatecas, Mexico, by 89%, after drilling the project for the past year and a half. The company is still drilling the project — but cut-off data for its latest update in October 2018 — and doesn’t say when it will stop.

“Because it’s an underground mine it tends to take a couple years of drilling before you can update a reserve or a resource,” company president and CEO Darren Pylot says during a telephone interview with The Northern Miner. “It’s a lot more drilling intensive.”

The project now has 6.19 million probable tonnes grading 1.6% copper, 42.89 grams silver per tonne, 0.71% zinc and 0.14% lead for 99,000 tonnes copper, 8.54 million oz. silver, 44,000 tonnes zinc and 8,000 tonnes lead.

Inclusive of reserves, the project also has 17.28 million measured and indicated tonnes grading 1.5% copper, 45 grams silver, 1.25% zinc and 0.28% lead for 259,000 tonnes copper, 24.85 million oz. silver, 215,000 tonnes zinc and 48,000 tonnes lead. It also has 16.9 million inferred tonnes at 1.11% copper, 44 grams silver, 1.65% zinc and 0.29% lead for 188,000 tonnes copper, 23.9 million oz. silver, 279,000 tonnes zinc and 49,000 tonnes lead.

Capstone Mining’s Santo Domingo iron oxide-copper-gold project in Chile’s Atacama region, 130 km northeast of Copiapo in 2014. Credit: Capstone Mining.

The company tabled a resource for the project in March 2018 that increased its measured and indicated resources over 100%. Between March and December 2018, the company worked to convert those measured and indicated resources into reserves. As a result, it has doubled the mine’s life to eight years.

“We’ve got a very good shot at converting a lot of that inferred into further mine life,” Pylot says. “We feel confident that we’ve got 10-plus years of mine life now, and when we started the year, we had less than four.”

Cozamin is open to the west, up dip and along strike of the current deposit, where the company has hit wider intersections of higher-grade mineralization than what it has typically mined at the project.  Pylot says the “guts of the system seem to be higher up, not lower, as the company originally thought.” The deposit is open down dip, as well.

“We haven’t hit the limits of anything yet,” Pylot says.

Along with the reserve update, Capstone is implementing the results of a materials handling study done earlier this year that concluded congestion on the mine’s haulage ramp has limited processing rates.

The company will spend $5 million to connect two ramps underground to create one traffic loop. The company expects its new underground infrastructure will boost Cozamin’s processing rate 30% to 3,780 tonnes per day, and its annual production to between 40 and 45 million lb. copper, from the more than 36 million lb. copper it produced in 2017.

Capstone has already begun building the haulage loop, and aims to finish in 18 months or less.

“Hopefully we’re exiting 2019 with it essentially complete,” Pylot says.

Capstone is contemplating more changes at its Santo Domingo iron-oxide-copper-gold project in Chile, where it may sell a portion of its 70% ownership to bring in a partner that would help finance the project. It will also evaluate streaming options.

The view from the pit at Capstone Mining’s Pinto Valley copper-molybdenum mine in Arizona in 2014. Credit: Capstone Mining.

Capstone recently tabled an updated technical report on Santo Domingo estimating a US$1.03-billion, after-tax net present value at an 8% discount rate, and a 21.8% after-tax internal rate of return. The project would produce 259 million lb. copper per year during its first five years, and 134 million lb. copper per year over its nearly 18-year life. It would cost US$1.51 billion to build.

“It’s too big of a project for Capstone to build on its own,” Pylot says. “If we wanted to get going on it in 2020, we’d have to wait for copper to be higher for longer, and we think it’s better to put this project into production sooner rather than later, and take advantage of what we think will be a shortage in the copper market.”

Korea Resources Corp. — South Korea’s state-owned mining company — owns the other 30% of Santo Domingo. Pylot says that the Korean government is going through changes that will mandate that it sell all its investments outside of Korea.

“They would sell their 30%,” Pylot says. “We’d like to be right at that 50% ownership, plus or minus a couple percent … we can handle half of the financing with our existing operations at US$3 copper, and the proceeds we get from selling down our interest.”

The company aims to finish two preliminary economics assessments in 2019. The first would consider a separate cobalt project at Santo Domingo. The company previously had not factored Santo Domingo’s cobalt resource into the project’s economics.

Santo Domingo has 537 million measured and indicated tonnes grading 0.3% copper, 0.039 gram gold, 25.7% iron and minor cobalt.

“We’re going to do some more drilling to get better samples for us to do a pilot plant for iron and copper,” Pylot says. “Some of that drilling that we’d already be doing for the iron and copper we’ll be using for more metallurgical testing on the cobalt.”

The second study would assess the cost of expanding its Pinto Valley copper mine in Arizona and upgrading more of the project’s resources to reserves. Pinto Valley produced 39,000 tonnes copper in the first three quarters of 2018. It has 1.34 billion measured and indicated tonnes grading 0.3% copper and 0.005% molybdenum for 3.99 million tonnes copper and 74,000 tonnes molybdenum, including 429 million proven and probable tonnes grading 0.31% copper and 0.006% molybdenum for 1.33 million tonnes copper and 26,000 tonnes molybdenum.

Capstone Mining shares are trading at 49¢ with a 52-week range of 48¢ to $1.62. The company has a $195-million market capitalization.

In October 2018, the company put its Minto copper mine in Yukon on care and maintenance after Pembridge Resources (LON: PERE) failed to finance its acquisition of the project. Capstone is shopping the project to other companies.