Capstone reports strong Q2 production, tougher Q3 ahead

Vancouver – Despite lower grades milled at its Minto mine, Capstone Mining (CS-T, CSFFF-O) managed to hold fast on copper production in the second quarter of 2009 even as it came off record copper production in the first quarter.

But Capstone warns of dipping output in the coming third quarter as it experiences more painful than expected water woes at its Minto mine near Carmacks in the Yukon and plans third quarter mining of lower grade ore at its Cozamin mine in Zacatecas state, Mexico.

Nonetheless Capstone maintains a 95-105 million lbs. copper production outlook for 2009.

Overall in the second quarter Capstone produced 23.1 million lbs. copper at a total cash cost of US97¢-per-lb. copper, beating its US$1.00 forecast by a few hairs. Combined with first quarter production, in the first six months of 2009 Capstone churned out 49.2 million lbs. copper at a cash cost of 93¢ per lb.

By-product production in the second quarter was 3.3 million lbs. zinc, 3.5 million lbs. lead and 455,566 oz. silver. Capstone estimated gold production, which is not assayed on site, at 7,564 oz.

Production was steady despite falling copper grades at Minto. In the first quarter Capstone milled 233,529 tonnes ore grading 3.39% copper, while in the second quarter it pushed through 267,254 tonnes ore grading 2.41% copper.

Heavier spring run-off is to blame for the dip in copper grade.

During the second quarter Capstone diverted spring run-off waters into its open-pit so as to avoid non-compliant water discharges, and in so doing, it flooded higher grade ore Capstone had only recently exposed as part of a Phase 3 South pushback. The diversion forced Capstone to rely on lower grade stockpiles instead.

Though the water diversion was an anticipated measure, Capstone reports that because this year spring run-off began early and snow-pack was heavy, the deluge of diverted water hit it harder than it had expected.

Thus Capstone warns in a 2009 outlook that due to the run-off water at Minto combined with plans to mine lower grade copper ore at the Cozamin mine, in the coming third quarter production will fall.

Yet Capstone sees a brighter fourth quarter on the horizon.

With resumed access to higher grade copper at Cozamin – gained by mining the lower grades in the third quarter – and at Minto, Capstone says production will ramp up again and allow it to meet its 2009 production target. Capstone has pegged its 2009 outlook at between 95 and 105 million lbs. copper in a 2008 annual report.

Capstone also says that to resolve run-off issues at Minto it is developing a water management plan which it will submit to regulators in July.

On news of second quarter production results Capstone’s share price had nudged up 5¢ and was trading at $2.95 as of presstime. Capstone has about 195.9 million shares outstanding.

Both president and chief operating officer Stephen Quin and CEO Darren Pylot were out of the office and unavailable for comment.