Mr. John MacKenzie reports

CAPSTONE COPPER REPORTS THIRD QUARTER 2023 RESULTS

Capstone Copper Corp. has released its financial results for the nine months and quarter ended Sept. 30, 2023 (Q3 2023). Copper production in Q3 totalled 40,300 tonnes at C1 cash costs of $2.88 per payable pound of copper produced.

John MacKenzie, chief executive officer of Capstone, commented: "I am encouraged by the progress we made during the third quarter in executing on our plan to improve operational reliability and expand margins across our portfolio. As construction at our flagship Mantoverde development project (MVDP) approaches completion by year-end, we look forward to a transformational year in 2024. Our excitement follows many years of dedicated effort by our mine build team in Chile. MVDP will drive a significant reduction in our consolidated unit costs and provide a pathway to record operating cash flow generation for Capstone Copper."

Q3 2023 operational and financial highlights:

• Net loss of $42.3-million, or a loss of five cents per share, for Q3 2023 compared with net income of $37.5-million, or five cents per share for Q3 2022.
• Adjusted net loss attributable to shareholders of $15.8-million, or a loss of two cents per share, for Q3 2023. Q3 2023 adjusted net loss attributable to shareholders is lower than Q3 2022 adjusted net loss attributable to shareholders of $22.7-million due to higher copper prices.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $62.8-million for Q3 2023 compared with $35.2-million for Q3 2022. The increase in adjusted EBITDA is driven by a higher copper price of $3.75/pound (lb) compared with $3.18/lb (prior to unrealized provisional pricing adjustments), partially offset by lower copper sold (38,700 tonnes in Q3 2023 versus 44,200 tonnes in Q3 2022).
• Operating cash flow before changes in working capital of $59.3-million in Q3 2023 compared with $14.4-million in Q3 2022.
• Consolidated copper production for Q3 2023 of 40,300 tonnes at C1 cash costs of $2.88/lb. Copper production in the third quarter was impacted by an unplanned eight days of cumulative downtime at Pinto Valley related to the secondary crusher jack shaft replacement and counter shaft repairs, plus planned maintenance downtime at Mantos Blancos. Lower production levels and maintenance expenses were the key drivers related to higher consolidated cash costs in the quarter.
• The company reaffirms its H2 copper production guidance of 83,000 tonnes to 93,000 t. C1 cash costs are trending toward the upper end of the H2 guidance range of $2.55/lb to $2.75/lb due to additional unplanned maintenance expenditures noted in Q3.
• Mantoverde development project overall progress at 93 per cent and remains on schedule. Construction is progressing well on all key areas of the project. Total project spend since inception was $763-million at the end of September, 2023, compared with $706-million at June, 2023. The project is on target for construction completion by year-end 2023. As the project nears completion, the updated total project cost is estimated at $870-million, which is a 5-per-cent increase and includes approximately $20-million in project improvements.
• Total available liquidity of $424.5-million as at Sept. 30, 2023, composed of $129.5-million of cash and short-term investments, and $295-million of undrawn amounts on the corporate revolving credit facility.

Operational overview

Refer to Capstone's Q3 2023 MD&A (management's discussion and analysis), and financial statements for detailed operating results.

Consolidated production

Q3 2023 copper production of 40,300 tonnes was 12 per cent lower than Q3 2022, primarily as a result of expected lower oxide production at Mantoverde on lower ore grade related to the mining sequence as the company is transitioning to sulphide ore for MVDP. Moreover, Pinto Valley had lower mill throughput due to unplanned maintenance downtime related to secondary crusher jack shaft replacement and counter shaft repairs, resulting in approximately eight days of downtime.

Q3 2023 C1 cash costs of $2.88/lb were 4 per cent higher than $2.76/lb in Q3 2022, mainly impacted by 12 per cent lower production, partially offset by higher capitalized stripping at Mantoverde and higher gold byproduct credits at Pinto Valley.

Two thousand twenty-three YTD (year to date) copper production of 120,300 tonnes of copper is higher than the 113,300 tonnes in 2022 YTD, primarily as a result of a full quarter of production in Q1 2023 versus nine days of production in Q1 2022 at Mantos Blancos and Mantoverde.

Two thousand twenty-three YTD C1 cash costs of $2.96/lb were 10 per cent higher than $2.68/lb 2022 YTD, mainly on higher operational costs, partially offset by higher capitalized stripping and byproduct credits.

Cathode production is from copper oxide ore that requires sulphuric acid leaching, solvent extraction and electrowinning (SX-EW) to produce copper cathodes which are a finished copper product for the market. Sulphide production requires a mill that utilizes a grinding and flotation process to recover sulphide minerals in a copper concentrate salable as an intermediate product to smelters and refiners.

Pinto Valley mine

Copper production of 13,600 tonnes in Q3 2023 was 3 per cent lower than in Q3 2022, mainly on lower mill throughput during the quarter (Q3 2023 -- 47,426 tonnes per day (tpd) versus Q3 2022 -- 48,143 tpd), resulting from unplanned eight-day downtime related to the secondary crusher jack shaft replacement and counter shaft repairs. Grade was consistent quarter-over-quarter (Q3 2023 -- 0.34 per cent versus Q3 2022 -- 0.34 per cent). Recoveries were lower compared with the same period last year (Q3 2023 -- 87.4 per cent versus Q3 2022 -- 89.1 per cent).

Two thousand twenty-three YTD production was 6 per cent lower than 2022 YTD, mainly due to lower mill throughput (47,972 tpd in 2023 YTD versus 51,088 tpd in 2022 YTD) driven by heavy rainfall, including flooding, which resulted in plugged chutes and screens in Q1, conveyor belt replacement/structural support rebuild, and unplanned maintenance on the secondary crusher and associated conveyors, which caused the equivalent of 20 days of downtime during Q2 and Q3. Recoveries were higher than 2022 YTD (87.4 per cent 2023 YTD versus 86.3 per cent 2022 YTD). The mill feed grade was consistent with the same period last year (0.32 per cent in 2023 YTD versus 0.33 per cent in 2022 YTD).

Q3 2023 C1 cash costs of $2.83/lb were 9 per cent higher than Q3 2022 of $2.60/lb, primarily due to increases in operating costs driven by higher contractor spend and mechanical parts costs (32 cents/lb) and lower production (11 cents/lb), partially offset by higher gold byproduct credits, and lower treatment and refining costs (negative 21 cents/lb).

2023 YTD C1 cash costs of $2.96/lb were 11 per cent higher compared with the same period last year of $2.67/lb, primarily due to increased mining costs due to inflationary pressures on explosives, and higher spend on rental equipment, mining equipment tools and maintenance contractors (23 cents/lb), lower production (18 cents/lb), and lower capitalized stripping (five cents/lb), partially offset by higher gold and molybdenum byproduct credits, and lower treatment costs (negative 15 cents/lb). The cash costs are expected to trend down in Q4 as result of higher production.

Mantos Blancos mine

Q3 2023 production was 12,200 tonnes, composed of 9,100 tonnes from sulphide operations and 3,000 tonnes of cathode from oxide operations, 11 per cent lower than the 13,600 tonnes produced in Q3 2022. The lower production was driven primarily by lower dump throughput, grade and recoveries impacting cathode production. The mill throughput of 14,176 tpd in Q3 2023 was impacted by mill downtime caused by planned repair and maintenance of the concentrator plant that lasted six days (liners and major components change). Recoveries were lower in Q3 2023 compared with the same period last year (76.3 per cent in Q3 2023 versus 79.3 per cent in Q3 2022), mainly driven by ore characteristics in the upper areas of the mine. A plan to address the plant stability during the second half of 2023 is under way that includes improved maintenance and optimization of the concentrator and the tailings system.

Two thousand twenty-three YTD production of 37,900 tonnes, composed of 28,300 tonnes from sulphide operations and 9,600 tonnes of cathode from oxide operations, was higher than the same period last year due to full operation in Q1 2023 compared with a nine-day stub period in Q1 2022.

Combined Q3 2023 C1 cash costs were $2.82/lb ($2.85/lb sulphides and $2.75/lb cathodes) compared with combined C1 cash costs of $2.68/lb in Q3 2022, 5 per cent higher than the same period last year, mainly due to lower production (11 cents/lb), an increase in contracted services and labour cost, mainly driven by unfavourable foreign exchange rate and inflation impact (34 cents/lb), plant maintenance and spare parts spend (three cents/lb), partially offset by lower key consumable prices (negative 34 cents/lb) (realized acid prices averaged $141/tonne in Q3 2023 versus $273/tonne in Q3 2022, and diesel price averaged 76 cents/litre (L) in Q3 2023 versus 97 cents/L in Q3 2022).

Combined 2023 YTD C1 cash costs of $2.87/lb ($2.80/lb sulphides and $3.07/lb cathodes) were 3 per cent higher compared with $2.78/lb in 2022 YTD. For the last quarter of 2023, the company expects a reduction in combined C1 cash costs, as the production mix is expected to have a higher ratio of concentrates to cathodes and lower acid prices (average 2023 YTD $171/t and estimated remaining $164/t).

Mantoverde mine

Q3 2023 copper production of 8,600 tonnes was 26 per cent lower compared with 11,600 tonnes in Q3 2022. Heap operations grade was lower as a result of mine sequence (0.32 per cent in Q3 2023 versus 0.45 per cent in Q3 2022), and recoveries were lower (66.5 per cent in Q3 2023 versus 86.7 per cent in Q3 2022) due to lower solubility ratio of the processed mineral and lower grades, all of which was partially offset by higher heap throughput (2.7 million tonnes in Q3 2023 versus 2.5 million tonnes in Q3 2022). Throughput from dump operations was lower compared with the same period last year due to a temporary sulphuric acid supply shortfall in September, and grades were consistent with the same period last year.

Two thousand twenty-three YTD production of 25,400 tonnes was lower than the same period last year, despite full operation in Q1 2023 compared with a nine-day stub period in Q1 2022, due to lower heap grades as a result of mine sequence (0.31 per cent YTD 2023 versus 0.48 per cent YTD 2022), and lower recoveries due to lower solubility ratio of the processed mineral and lower grades. Production for the remainder of the year should be positively impacted by higher expected grades.

Q3 2023 C1 cash costs were $3.74/lb, 3 per cent lower than $3.87/lb in Q3 2022, due to lower sulphuric acid prices ($156/t in Q3 2023 versus $285/t in Q3 2022) and lower mine costs, mainly driven by lower diesel prices (76 cents/L in Q3 2023 versus $1.03/L in Q3 2022), partially offset by lower production.

Two thousand twenty-three YTD C1 cash costs were $3.89/lb, 7 per cent higher than $3.62/lb in 2022 YTD. For the last quarter of 2023, the company expects a reduction in C1 cash costs due to lower energy prices (average YTD 22 cents/kWh (kilowatt-hour) and estimated remaining 16 cents/kWh) and higher production.

Cozamin mine

Q3 2023 copper production of 5,900 tonnes was lower than the same period prior year, mainly on lower mill throughput (3,567 tpd in Q3 2023 versus 3,829 tpd in Q3 2022). Recoveries and grades were consistent quarter-over-quarter.

Two thousand twenty-three YTD production was 5 per cent lower than 2022 YTD, due to lower throughput as a result of change in mining method (cut-and-fill) (3,590 tpd in 2023 YTD versus 3,803 tpd in 2022 YTD). Recoveries and grades were consistent with the same period last year.

Q3 2023 C1 cash costs were 54 per cent higher than the same period last year, mainly due to inflationary price increases on the main consumables, unfavourable foreign exchange rate, start of paste plant operations, which resulted in an increase in labour, contractor and cement costs, changes in mining method and additional bolting requirements as part of strengthening ground support (61 cents/lb), and lower copper production (eight cents/lb), partially offset by stockpile buildup (negative seven cents/lb).

Two thousand twenty-three YTD C1 cash costs were 45 per cent higher than the same period last year, primarily due to the change in mining method, which resulted in an increase in contractor utilization and higher spend on bolting, and unfavourable foreign exchange rate (42 cents/lb). In addition, cash costs were impacted by lower production (six cents/lb) and lower zinc byproduct credits due to planned lower zinc production (three cents/lb).

Mantoverde development project

Construction of the MVDP located at the existing Mantoverde (oxide) operation continues to progress well. The MVDP is expected to enable the mine to process 231 million tonnes of copper sulphide reserves over a 20-year expected mine life, in addition to existing oxide reserves. The MVDP involves the addition of a sulphide concentrator (32,000 tonnes per day) and tailings storage facility, and the expansion of the existing desalination plant.

The MVDP is progressing under a lump-sum turnkey engineering, procurement and construction (EPC) contract with Ausenco Ltd., a multinational EPC management company with broad international experience in the design and construction of copper concentrator projects of this scale in the international market. The execution plan includes a Capstone Copper owner's team working with the contractors during the execution phase.

The MVDP is progressing well at approximately 93 per cent complete as at Sept. 30, 2023, and remains on target for construction completion by year-end, followed by an expected six-month ramp-up to nameplate production levels in 2024.

Key areas of work completed during Q3 2023 were:

• Stockpiled approximately five million tonnes of sulphide ore;
• Commenced commissioning of the primary crusher;
• Grinding area: Lubrication and cooling system installed. Laying completion of medium-voltage conductors to the ball/SAG mill. Rotation of SAG/ball mills performed;
• Flotation area: All cells installed and water test started;
• Filtering area: Filter installed, air blower and tank mounted;
• Tailings thickener: Rake glide test done, underflow control valves and metallurgical sampler assembly completed;
• Sand plant: Thickener rake assembly in progress;
• Tailings storage facilities: Mass excavation completed. Starting wall and cut-off trench nearing completion.

As of Sept. 30, 2023, the MVDP costs total $763-million to date. The company's total capital cost for the MVDP is estimated to be 5 per cent higher at approximately $870-million. The increase from the prior estimate of $825-million relates to the following main areas: (1) inflation ($20-million) -- impacting the fourth electric shovel, the diesel price on prestripping and the cost per unit on tailings infrastructure construction; (2) project improvements ($20-million) -- additional rotainers for added flexibility in concentrate transport and storage, water reservoir, and additional camp and warehouse space; and (3) ramp-up/commissioning costs ($5-million).

A virtual tour of the project can be viewed on-line.

Mantos Blancos

Mantos Blancos is currently focused on reliably achieving the installed capacity of 20,000 tonnes per day. The company is executing on a plan to address plant stability that includes improved maintenance and optimization of the concentrator and tailings system. During the third quarter, Capstone addressed several bottlenecks in the crushing and grinding area of the operation. Moving forward, certain components in the tailings dewatering area, such as new handling and pumping infrastructure, are expected to be delivered and installed in early 2024, after which the company expects Mantos Blancos to consistently deliver nameplate throughput rates.

The capital enhancements will enable future expansion opportunities as there will be installed capacity in certain parts of the process in excess of 20,000 tonnes per day. Once nameplate capacity is reached, Capstone will recommence evaluating the potential to increase throughput of the Mantos Blancos sulphide concentrator plant to at least 27,000 tonnes per day using existing process infrastructure and new technologies, while also evaluating options to extend the life of copper cathode production.

Chilean tax reform

In August, 2023, Chile passed the proposed mining royalty into law to be effective on Jan. 1, 2024, replacing the current specific tax on mining activity.

The mining royalty contains two components, an ad valorem component and a mine operating margin component. The ad valorem component is applicable to companies with annual sales of copper that are higher than the equivalent of 50,000 metric tonnes of fine copper (MTFC). If the company's adjusted mining operational taxable income (RIOMA, as it is referred to in Chile) is negative, the ad valorem component to be paid will be calculated by subtracting the negative amount of the RIOMA from the ad valorem component. The ad valorem component of the mining royalty will be deductible when determining first category income taxes, however, not for purposes of determining RIOMA. The ad valorem component is capped at 1 per cent of gross copper revenues and will be reported in the royalties line on the income statement.

The mine operating margin (MOM) component will vary depending on the sales volume of the company, along with whether more than 50 per cent of its annual production is copper. Mining companies which derive more than 50 per cent of their income from copper sales and exceed 50,000 MTFC will pay a tax rate that fluctuates between 8 per cent and 26 per cent, based on the associated table.

The MOM component will not be applicable in cases where the RIOMA is negative and is calculated based on total mine operating margin, which includes silver and gold byproducts. The mining royalty allows depreciation as a fully deductible operational expense in the calculation of RIOMA, however, unlike the first category deduction, it is on a non-accelerated basis.

The mining royalty includes a maximum limit to the total tax burden, consisting of: (1) the corporate income tax paid in the respective year; (2) the mining royalty (both ad valorem and MOM components); and (3) withholding taxes to which owners would be subject to upon distribution of dividends. The calculation of withholding taxes assumes a 100-per-cent distribution, and is calculated considering a tax burden of 35 per cent of net taxable income, that is, an additional 8 per cent to the first category rate of 27 per cent. The mining royalty establishes that when the sum of three component exceeds 46.5 per cent of RIOMA, then the mining royalty would be adjusted in such a way that it does not exceed the limit.

As a change in tax law is accounted for in the period of enactment, rather than from its effective date, the company recorded a deferred income tax charge of $31.5-million and a corresponding increase to deferred income tax liabilities. The impact to Capstone operating mines is less than expected due to pre-existing tax losses and accelerated deprecation rates. The mining royalty is not expected to have an impact on Santo Domingo, which has 15 years of tax stability postcommencement of commercial production as a result of Decree Law No. 600 (DL 600), during which time it will remain subject to the current specific tax on mining. Furthermore, given the company's growth projects in Chile, it does not expect to incur cash withholding taxes for several years, but the deduction is available when calculating the cap under the new mining royalty.

Mantoverde-Santo Domingo district integration plan

The company is focused on creating a world-class mining district in the Atacama region of Chile, targeting over 200,000 tonnes per year of low-cost copper production with the potential to also become one of the largest and lowest-cost battery-grade cobalt producers in the world outside of China and the DRC (Democratic Republic of the Congo). Capstone Copper has the opportunity to unlock operating cost synergies, while also enabling additional copper and cobalt production, infrastructure capital savings, and the potential for significant tax synergies.

Santo Domingo feasibility study update

Santo Domingo has completed the flowsheet optimization process previously announced and Ausenco is currently updating the feasibility study (FS) with contributions from third parties. Ausenco is optimizing the technical report to take into consideration recently produced metallurgical test work data and updated mine plan. The optimized technical report is now expected to be delivered in the first half of 2024, as the company is taking additional time to finalize key value drivers within the study and ensure it has selected the optimal project configuration.

MVDP optimized FS and phase 2

The company is currently analyzing the next expansion of the sulphide concentrator. Capstone has identified that the desalination plant capacity, and major components of the comminution and flotation circuits of the MVDP are capable of sustaining average annual throughput of approximately 45,000 tonnes per day with no major capital equipment upgrades. Capstone continues to work with Ausenco's engineering team to develop the MVDP optimized feasibility study, including evaluating the costs and timelines of debottlenecking the minor components of the plant to meet the potential increased throughput target. The feasibility study is expected in the first half of 2024.

Given the above, the Mantoverde phase 2 opportunity will evaluate the addition of an entire second processing line, possibly a duplication of the first line, to process some of the additional 77 per cent of resources not utilized by the MVDP optimized.

Mantoverde-Santo Domingo (MV-SD) cobalt study

A district cobalt plant for Mantoverde-Santo Domingo may allow for low-cost byproduct cobalt production while producing a byproduct of sulphuric acid, which can then be consumed internally to further significantly lower operating costs in the cathode leaching process at Mantoverde.

The cobalt recovery process consists of a concentration step, an oxidation step and a cobalt recovery step. The concentration step considers a conventional froth flotation circuit treating copper flotation tails to produce a cobaltiferous pyrite concentrate, which is expected to contain between 0.5 per cent and 1 per cent Co depending on the ore grade. The oxidation step entails adding the pyrite concentrate to the Mantoverde heap leach process, which will be converted to a bioleaching process to oxidize and break down the pyrite, thereby releasing the cobalt into solution. The cobalt is then recovered from the heap leach solutions via a continuous ion exchange process treating the SX raffinate. The approach has been successfully demonstrated at the bench scale and on-site piloting is expected to begin before the end of 2023. Pending successful piloting, engineering would commence for a small plant treating only Mantoverde pyrite concentrates to produce up to 1,500 tonnes per annum of contained cobalt. Timing of the studies will depend on the results of work.

At a combined MV-SD target of 4,500 tonnes to 6,000 tonnes of cobalt production per year, this would be one of the largest and lowest-cost cobalt producers in the world outside of China and the DRC.

PV district growth study

The company continues to review and evaluate the consolidation potential of the Pinto Valley district. Opportunities under evaluation include a potential mill expansion and increased leaching capacity, supported by optimized water, heap and dump leach, and tailings infrastructure. This could unlock significant ESG (environmental, social and governance) opportunities and may transform Capstone's approach to create value for all stakeholders in the Globe-Miami district. Constructive discussions with key district stakeholders advanced during the quarter. A district growth study at Pinto Valley is anticipated in the second half of 2024.

Management additions

Effective Oct. 17, 2023, Jaime Rivera Machado was appointed as general manager, Mantos Blancos. Mr. Machado has over 16 years of progressive experience at large mining operations in Chile, and previously held the position of general manager at BHP's Escondida mine, and Codelco's Ministro Hales and Andina mines.

Effective Aug. 14, 2023, Sergio Gaete joined the Chile team as project director, Mantos Blancos. Mr. Gaete has more than 25 years of experience in metallurgy, and copper, gold and molybdenum concentrator operations and projects. He previously held senior roles with Codelco at its Andina, El Salvador, Chuquicamata and Radomiro Tomic assets, and with Antofagasta Minerals at its Esperanza project.

Surety bond utilization

In May, 2023, Minto Metals Corp. announced that it had ceased all operations at the Minto mine located within the Selkirk First Nation's territory in the Yukon, and that the Yukon government had assumed care and control of the site.

In conjunction with Capstone's sale of the Minto mine in 2019, Minto posted a surety bond of $72-million to cover potential future reclamation liabilities. While this surety bond is outstanding, the company remains an indemnitor to the surety bond provider. As Minto defaulted on the surety bond, Capstone recognized a liability of approximately $54-million (U.S.) ($72-million) related to its obligations to the issuer of the surety bond.

While Capstone has not made any payments against the liability during the current quarter, $21.8-million has been reclassified to current other liabilities, reflecting the company's estimate of the amount to be paid within the next 12 months.

Corporate exploration update:

• Cozamin: Q3 2023 infill drilling at the Mala Noche main vein west target was on hold while the development of the lower elevation mine crosscut was completed. Infill drilling will recommence in early Q4 2023 to support an updated mineral resource estimate in 2024.
• Copper Cities, Arizona: On Jan. 20, 2022, Capstone Mining announced that it had entered into an 18-month access agreement with BHP Copper Inc. to conduct drill and metallurgical test work at BHP's Copper Cities project, located approximately 10 kilometres east of the Pinto Valley mine. An amendment to the agreement was completed in March, 2023, extending the term by another six months. A second amendment to the agreement now extends the term further to September, 2024. Drilling with two surface rigs twinning historical drill holes was completed in 2022, with metallurgical testing continuing in 2023. As explained in the PV district growth study section, district consolidation opportunities are being evaluated.
• Planalto, Brazil: Subsequent to Q3 2023, Capstone notified Lara Exploration Ltd. of the intent to relinquish the Planalto option agreement and fully exit the project.

Two thousand twenty-three outlook

The company reaffirms its H2 copper production guidance of 83,000 tonnes to 93,000 tonnes. C1 cash costs are trending toward the upper end of the H2 guidance range of $2.55/lb to $2.75/lb per payable pound of copper produced due to additional unplanned maintenance expenditures.

The company reaffirms its full-year capital expenditure guidance (including capitalized stripping) of $620-million with a reclassification of expenditures by operation as shown in the associated table.

Exploration guidance (brownfield and greenfield) of $10-million remains unchanged.

Financial overview

Please refer to Capstone's Q3 2023 MD&A and financial statements for detailed financial results.

Conference call and webcast details

Capstone will host a conference call and webcast on Friday, Nov. 3, 2023, at 8 a.m. PT/11 a.m. ET.

Dial-in numbers for the audio-only portion of the conference call are below. Due to an increase in call volume, please dial-in at least five minutes prior to the call to ensure placement into the conference line on time.

Toronto:  1-416-764-8650

Vancouver:  1-778-383-7413

North America toll-free:  888-664-6383

A replay of the conference call will be available until Nov. 10, 2023. Dial-in numbers for Toronto: 1-416-764-8677 and North American toll-free: 888-390-0541. The replay code is 579377 followed by the pound key. Following the replay, an audio file will be available on Capstone's website.

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