Capstone polishes off another reliable year

VANCOUVER — Vancouver-based copper producer Capstone Mining (CR-T) continues to be one of the strong stories in mid-tier base metal production. The company released its annual results on March 13, which underline a strong balance sheet and an ongoing ability to meet, or in some cases exceed, cost and production expectations. The next step for Capstone is defining a sustainable growth pipeline — a challenge the company will continue to meet in 2013.

As an operator Capstone has proven notably reliable in meeting its guidance estimates. In 2012 the company cranked out 83 million lbs. of copper in concentrates at total cash costs of US$1.50 per lbs., which compares to a guidance of 80 million lbs. contained copper at between US$1.55 and $1.65 per lbs.

Despite a jump in production costs, which rose from US$1.45 per lbs. in 2011, Capstone managed to maintain stable net earnings at US$59.6 million or 16¢ per share. Higher production also helped the company cope with a lower-realized copper price that dropped roughly US24¢ to US$3.66 per lbs. The company’s adjusted net earnings totalled US$78 million — up from US$52.2 million in 2011 — with operating cash flows falling slightly to US$114 million. Working capital, however, jumped US$22.3 million to US$562.1 million, and includes US$500 million in cash and equivalents.

Capstone posted strong years at both its operating mines, with record mill throughput at the Cozamin polymetallic mine in Zacatecas, Mexico, as well as the Minto copper-gold mine in the Yukon.

Cozamin produced a record 46.9 million lbs. of copper in concentrates in 2012, with mill throughput clocking in at 3,205 tonnes per day. Results were also promising on the exploration side, with an in-fill drill program resulting in a large jump in indicated resources.

Capstone focused on a sizeable inferred resource at its Mala Noche Footwall Zone, and announced in early March that the deposit now totals 4.8 million measured-and-indicated tonnes grading 1.78% copper, 35 grams silver per tonne, and 0.26% zinc. Cozamin’s global resources rose to 12.9 million measured-and-indicated tonnes of 1.48% copper, 50 grams silver, and 1.18% zinc at US$35 net smelter royalty return cut-off grade.

Capstone’s vice-president of exploration, Brad Mercer, notes that both the Mala Noche Vein and Mala Noche Zone remain open and will be targeted by a 20,000 metre drill program this year that will cost the company US$4.5 million.

Production at Minto fell off slightly due access to lower grades as a result of a higher proportion of stockpile material feeding the mill. The mine produced 35.9 million lbs. of payable copper and achieved throughput rates of 3,665 tonnes per day during 2012. Capstone is working towards underground production at the site, with initial ore expected in the third quarter.

The company experienced additional exploration success at Minto due largely to resource upgrades at its Fireweed and Inferno North Extensions. Capstone completed a US$4.9 million, 29,500-metre program at the targets in 2012, which hold indicated resources totalling 2.2 million tonnes grading 2.14% copper, 1.01 grams gold, and 8.9 grams silver. Overall Fireweed and Inferno tacked on 101 million lbs. of measured-and-indicated copper, along with 86 million lbs. in the inferred category.

Capstone’s production guidance for 2013 demonstrates a similar jump in production offset by rising production costs. The company expects to produce roughly 85 million lbs. of copper in concentrates this year at costs ranging from US$1.65 to US$1.75 per lbs.

If there is one black mark on Capstone’s 2012 review, it is rising development costs at the company’s 70%-owned Santo Domingo copper-iron-gold joint venture located 800 km north of Santiago, Chile. The large-scale project was initially slated to cost US$1.2 billion, but during its annual report Capstone updated its capital estimate to between US$1.5 billion to US$1.8 billion. Santo Domingo is projected to produce 144 million pounds of copper, 4.1 million tonnes of iron concentrate and 15 thousand oz. of gold over an 18 year mine life.

Capstone has traded within a 52-week range of $2.03 and $3.17, and hit a first quarter high of $2.82 per share in early January. The company has 381 million shares outstanding and closed at $2.36 at the time of writing for a $900 million press-time market capitalization.