Mr. John MacKenzie reports

CAPSTONE COPPER REPORTS FOURTH QUARTER 2023 RESULTS

Capstone Copper Corp. has released financial results for the three months and year ended Dec. 31, 2023 (Q4 2023). Copper production in Q4 totalled 44,103 tonnes at C1 cash costs of $2.67 per payable pound of copper produced.

John MacKenzie, chief executive officer of Capstone, commented: "Last year set us up for transformational growth in 2024. We completed construction at our flagship Mantoverde development project (MVDP) in Chile, advanced key studies to support our future growth and our operations delivered their strongest quarter to finish off the year. In the first half of 2024, we will be focused on the ramp-up of MVDP and maintaining consistently strong production across our portfolio. In the second half of 2024, we will be focused on generating record copper production and cash flow."

Q4 2023 operational and financial highlights:

• Achieved production guidance for the year ended Dec. 31, 2023, with consolidated copper production of 164,353 tonnes. Consolidated copper production for Q4 2023 was 44,103 tonnes at C1 cash costs of $2.67/lb, which consisted of 15,933 tonnes at Pinto Valley, 11,587 tonnes at Mantos Blancos, 10,019 tonnes at Mantoverde and 6,564 tonnes at Cozamin.
• Net loss of $19.5-million, or (two cents) per share for Q4 2023 compared with net loss of $28.4-million, or (three cents) per share for Q4 2022.
• Adjusted net income attributable to shareholders of $10.8-million, or two cents per share for Q4 2023. Q4 2023 adjusted net income attributable to shareholders is lower than Q4 2022 adjusted net income attributable to shareholders of $60.4-million due to lower copper volumes sold.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $88.3-million for Q4 2023 compared with $81.3-million for Q4 2022. The increase in adjusted EBITDA is driven by a higher copper price of $3.69/lb compared with $3.45/lb (prior to unrealized provisional pricing adjustments), partially offset by lower copper sold (43,300 tonnes in Q4 2023 versus 44,700 tonnes in Q4 2022).
• Operating cash flow before changes in working capital of $80.4-million in Q4 2023 compared with $76.1-million in Q4 2022.
• At the MVDP, construction of all elements required to commence commissioning activities were completed by year-end 2023. MVDP will continue to systematically commission the concentrator plant with first saleable concentrate expected in Q2 2024. Project total capital remains unchanged at $870-million. Focus is on a safe, efficient and phased project commissioning and ramp-up.
• Expected 2024 consolidated copper production growth of 25 per cent driven by the ramp-up of MVDP, resulting in 2024 guidance of 190,000 to 220,000 tonnes of copper at 17-per-cent-lower C1 cash costs of $2.30/lb to $2.50/lb. Total 2024 sustaining and expansionary capital expenditure guidance is $275-million, plus an additional $180-million for capitalized stripping.
• Total available liquidity of $352.8-million as at Dec. 31, 2023, composed of $126.8-million of cash and short-term investments, and $226-million of undrawn amounts on the corporate revolving credit facility. Subsequent to year-end, the company completed a share offering that will increase available liquidity through net proceeds to the company of approximately $253-million ($342-million).

Operational overview

Refer to Capstone's Q4 2023 management's discussion and analysis and financial statements for detailed operating results.

Consolidated production

Q4 2023 copper production of 44,100 tonnes was 3 per cent lower than Q4 2022 primarily as a result of lower oxide production at Mantos Blancos driven by lower dump throughput, grade and recoveries.

Q4 2023 C1 cash costs of $2.67/lb were 7 per cent higher than $2.50/lb Q4 2022 mainly impacted by 3-per-cent-lower production (19 cents/lb), partially offset by lower operational costs (down two cents/lb).

Pinto Valley mine

Copper production of 15,900 tonnes in Q4 2023 was 6 per cent higher than in Q4 2022. Lower mill throughput during the quarter (Q4 2023 -- 53,134 tonnes per day (tpd) versus Q4 2022 -- 55,222 tpd), resulting from unplanned 97 hours of downtime, was offset by higher grades (Q4 2023 -- 0.36 per cent versus Q4 2022 -- 0.32 per cent) due to mining in the higher-grade Castle Dome area of the mine. Recoveries were slightly lower compared with the same period last year (Q4 2023 -- 86.5 per cent versus Q4 2022 -- 86.9 per cent).

C1 cash costs of $2.36/lb in Q4 2023 were 5 per cent lower than Q4 2022 of $2.48/lb primarily due to higher capitalized stripping (down 34 cents/lb), higher gold byproduct credits (down 21 cents/lb) and higher production (down 16 cents/lb), partially offset by increases in operating costs driven by higher contractor spend, electricity cost, ball mill liner cost and mechanical parts costs (53 cents/lb), stockpile drawdown (four cents/lb), and higher treatment costs on higher volume of copper sold (three cents/lb).

Mantos Blancos mine

Q4 2023 production was 11,600 tonnes, composed of 9,700 tonnes from sulphide operations and 1,900 tonnes of cathode from oxide operations, 18 per cent lower than the 14,200 tonnes produced in Q4 2022. The lower production was driven primarily by lower dump throughput tied to power outage and issues in leach pumping system, and lower grade and recoveries impacting cathode production. The mill throughput of 13,814 tpd in Q4 2023 was impacted by mill downtime caused by a planned repair that lasted three days and additional maintenance of the concentrator plant that lasted five days (power outage and pinion shaft-bearing assessment). A plan to address the plant stability is under way that includes improved maintenance and optimization of the concentrator and the tailings system. Mantos Blancos 2024 sustaining capital guidance includes approximately $35-million to achieve sustainable nameplate operating rates. During the first half of 2024, the focus will be on receiving and installing the engineering and infrastructure upgrades in the tailings dewatering area of the plant in the second quarter. The company expects Mantos Blancos to achieve its nameplate operating throughput rates late in the second quarter.

Combined Q4 2023 C1 cash costs were $2.71/lb ($2.58/lb sulphides and $3.32/lb cathodes) compared with combined C1 cash costs of $2.09/lb in Q4 2022, 30 per cent higher than the same period last year mainly due to lower production (48 cents/lb), an increase in contracted services and labour costs mainly driven by unfavourable foreign exchange rate and inflation impact (13 cents/lb), spare parts spend (12 cents/lb), plant maintenance and spare parts spend (18 cents/lb), partially offset by lower key consumable prices (down 29 cents/lb) (realized acid prices averaged $153/t in Q4 2023 versus $273/t in Q4 2022 and diesel price averaged 82 cents/litre in Q4 2023 versus 97 cents/l in Q4 2022).

Mantoverde mine

Q4 2023 copper production of 10,000 tonnes was 5 per cent lower compared with 10,500 tonnes in Q4 2022. Heap recoveries were lower (64.6 per cent in Q4 2023 versus 77 per cent in Q4 2022), which was partially offset by higher dump throughput as a catch-up of September's lower throughput due to a temporary sulphuric acid supply shortage at a Chilean smelter.

Q4 2023 C1 cash costs were $3.68/lb, 1 per cent higher than $3.65/lb in Q4 2022 due to an increase in contracted services, explosive consumption, spare parts spend and labour cost mainly driven by higher mine movement (74 cents/lb) and lower production (12 cents/lb), partially offset by lower key consumable prices (down 83 cents/lb). Realized sulphuric acid prices averaged $174/t in Q4 2023 versus $253/t in Q4 2022, whilst energy prices averaged 21 cents/kilowatt-hour in Q4 2023 versus 17 cents/kWh in Q4 2022 and diesel price averaged 83 cents/l in Q4 2023 versus 94 cents/l in Q4 2022.

Cozamin mine

Q4 2023 copper production of 6,600 tonnes was 14 per cent higher than the same period prior year mainly on higher mill throughput (3,786 tpd in Q4 2023 versus 3,430 tpd in Q4 2022). Grades were higher than the same period last year due to mining sequence (1.95 per cent in Q4 2023 versus 1.89 per cent in Q4 2022). Recoveries were consistent quarter-over-quarter.

Q4 2023 C1 cash costs were 26 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 (51 cents/lb) and higher treatment costs (seven cents/lb), partially offset by higher copper production (down 17 cents/lb) and higher byproduct credits due to higher silver prices (down six cents/lb).

Mantoverde development project

Construction of all elements of the MVDP that were required to commence commissioning were completed during the fourth quarter of 2023. Commissioning activities are under way, and the company is focused on a safe, efficient and phased project commissioning and ramp-up. 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 (nominal 32,000 ore tonnes per day) and tailings storage facility, and the expansion of the existing desalination plant and other minor infrastructure.

MVDP is progressing under a lumpsum 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 Ausenco during the execution phase. The contract with Ausenco includes the project commissioning and ramp-up.

Key milestones during the commissioning and ramp-up include:

• First ore to the primary crusher -- completed in Q4 2023;
• First ore to the grinding circuit -- on track for Q1 2024;
• First saleable concentrate -- on track for Q2 2024;
• Achievement of nameplate operating rates -- expected during Q3 2024.

As of Dec. 31, 2023, cash capital spent at MVDP totalled $809-million versus the project capital estimate of $870-million.

MVDP optimized feasibility study and phase II

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 can sustain an average annual throughput of approximately 45,000 tonnes per day (an increase of over 40 per cent above the base case nameplate throughput capacity). 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. Completion of the optimized feasibility study is expected in the first half of 2024.

Given the above, the Mantoverde phase II opportunity will evaluate the addition of an entire second processing line, possibly a duplication of the first line, to process some of the additional approximately one billion tonnes of resources not in reserves.

Santo Domingo feasibility study update

The company has continued updating the feasibility study (FS) with contributions from third parties. Ausenco is optimizing the process configuration and updating the technical report to take into consideration recently produced metallurgical test work data, updated mine plan with a lower strip ratio, and a modernized milling and flotation circuit with a lower overall footprint and operating cost compared with the previous design. One of the key improvements is the definition of an iron concentration circuit that can produce two different qualities of product: a bulk 65-per-cent-grade iron concentrate and a premium 67 per cent iron concentrate. The technical report is expected to be delivered in the first half of 2024.

Mantoverde -- Santo Domingo 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 process at Mantoverde.

The cobalt recovery process comprises a pyrite flotation step to recover cobaltiferous pyrite from MVDP tails and redirect it to the dynamic heap leach pads, which will be upgraded to a bio-leach configuration through the addition of an aeration system. The pyrite oxidizes in the leach pads and the solubilized cobalt is recovered via an ion exchange plant treating a bleed stream from the copper solvent extraction plant. The approach has been successfully demonstrated at the bench scale, and on-site piloting commenced in January, 2024. Engineering has commenced for a small plant treating only Mantoverde pyrite concentrates to produce up to 1,500 tonnes per annum (tpa) of contained cobalt. In line with this, Santo Domingo has initiated a feasibility study to assess, as part of the copper/iron circuit overall layout optimization being conducted by Ausenco, the optimum process configuration for the pyrite flotation and pumping transportation facilities needed to transport pyrite concentrate to Mantoverde's leach facilities.

At a combined MV-SD target of 4,500 to 6,000 tpa of mined cobalt production, this would be one of the largest and lowest-cost cobalt producers in the world, outside of Indonesia and the Democratic Republic of the Congo.

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. District consolidation could unlock significant ESG (environmental, social, governance) opportunities and may transform the company's approach to create value for all stakeholders in the Globe-Miami district. Constructive discussions with key district stakeholders advanced during the quarter.

Chilean tax reform

In August, 2023, Chile passed the mining royalty into law to be effective on Jan. 1, 2024, replacing the prior specific tax on mining activity. As a change in tax law is accounted for in the period of enactment, rather than from its effective date, the company recorded an initial deferred income tax charge and a corresponding increase to deferred income tax liabilities during Q3 2023.

The mining royalty contains two components, a 1-per-cent ad valorem component on net copper revenues and a mine operating margin (MOM) component based on rates ranging from 8 per cent to 26 per cent.

The mining royalty includes a maximum limit to the total tax burden, consisting of (1) corporate income tax; (2) mining royalty (both ad valorem and MOM components); and (3) imputed withholding taxes. The mining royalty establishes that when the sum of the three components exceeds 46.5 per cent of MOM, then the mining royalty is to be adjusted in such a way that it does not exceed the limit.

The mining royalty is not expected to have an impact on the Santo Domingo mine, 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 prior 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, although the deduction is available when calculating the cap under the new mining royalty.

Management and board of director additions

Effective Jan. 15, 2024, Oscar Flores joined Capstone as general manager, Mantoverde. Previous general manager Pablo Asiain will be retiring, effective March 31, 2024. During this transition period, Mr. Flores and Mr. Asiain will work closely together to transfer knowledge and responsibilities to ensure operational continuity during the MVDP commissioning and ramp-up. Mr. Flores is a mining engineer with over 25 years of progressive experience, including past general management positions with Kinross, AMSA, Anglo American and Codelco in Chile, along with New Gold in Mexico, Australia and Canada.

Effective Jan. 8, 2024, Gordon Bell joined Capstone's board of directors as a new independent director. He was most recently vice-chairman for the mining and metals group of RBC Capital Markets before his retirement from RBC Capital Markets in 2022. Previously Mr. Bell was the global head for RBC's mining and metals group, leading the expansion and growth of the firm's mining and metals practice domestically as well as in London, Australia and Asia. Mr. Bell has global expertise in corporate strategy, debt and equity financing, shareholder engagement, and mergers and acquisitions. He received a bachelor of science in mining engineering from Queens University in Kingston, Ont., and an MBA from Washington University in St. Louis, Mo.

2024 outlook

Guidance for 2024 on production, C1 cash costs and capital expenditures that was previously disclosed on Jan. 24, 2024, remains unchanged. Capstone expects to produce between 190,000 and 220,000 tonnes of consolidated copper in 2024, at C1 cash costs of $2.30 to $2.50 per payable pound of copper produced. Capstone first-half (H1), second-half (H2) 2024 and full-year 2024 production and cost guidance are as noted herein.

In 2024, the company plans to a spend a total of $275-million in sustaining and expansionary capital expenditures at its operating mines and the Santo Domingo project.

In addition, the company plans to spend a total of $180-million in capitalized stripping at its three open-pit mines.

Finally, the company plans to spend $15-million in brownfield and greenfield exploration activities in 2024.

Financial overview

Please refer to Capstone's Q4 2023 management's discussion and analysis and financial statements for detailed financial results.

Conference call and webcast details

Capstone will host a conference call and webcast on Thursday, Feb. 22, 2024, 4 p.m. Eastern Time/1 p.m. Pacific Time (Friday, Feb. 23, 2024, 8 a.m. Australian Eastern Daylight Time).

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: 416-764-8650

Vancouver: 778-383-7413

Australia: 18-0007-6068

North America toll-free: 888-664-6383

A replay of the conference call will be available until Feb. 29, 2024. Dial-in numbers for Toronto: 1-416-764-8677 and North American toll-free: 888-390-0541. The replay code is 862300 followed by the pound key. Following the replay, an audio file will be available on Capstone's website.

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