Mr. Darren Pylot reports
CAPSTONE Q3 2019 RESULTS, NEAR-TERM ORGANIC GROWTH
Capstone Mining Corp. has released its production and financial results for the three and nine months ended Sept. 30, 2019. Total copper production from continuing operations for third quarter 2019 totalled 39 million pounds of copper at consolidated C1 cash costs (1) of $1.85 per pound. For full financial and operational results, refer to Capstone's third quarter 2019 management's discussion and analysis and unaudited condensed interim consolidated financial statements. All amounts are in U.S. dollars unless otherwise specified.
Third quarter 2019 highlights and significant items:
- Third quarter
2019 copper production was 39 million pounds, and C1 cash costs (1) were $1.85 per payable pound produced. Copper sales were lower at 31 million pounds due to timing of the last shipment of the quarter at Pinto Valley.
Cozamin expansion project remains on track for the end of 2020 with the objective to debottleneck the mine with a one-way ramp system. The project is now expected to increase production to between 50 million to 55 million pounds of copper and 1.4 million to 1.5 million ounces of silver.
The company achieved cost reductions of $25-million on its target of $25-million to $30-million in annualized savings:
The company has now removed $25-million of annualized costs out of the business with the $12.5-million in savings at Pinto Valley plus $3.5-million on new revolver terms and improved cash management, $4-million from corporate administration, and $5-million from the disposition of Minto.
Pinto Valley delivered an additional $2.5-million in sustainable annualized cost savings in third quarter 2019, bringing the year-to-date total to $12.5-million. Pinto Valley is targeting to achieve a total of $15-million to $20-million in annualized cost savings.
- Third quarter 2019 net loss was ($10.7-million)
(third quarter 2018: net income of $1.3-million), which was impacted by lower realized copper prices and negative provisional pricing adjustments in the quarter of $3.4-million, as well as lower sales volumes due to the timing of shipments for Pinto Valley concentrate and resulting buildup of concentrate inventory. This resulted in a loss per share of (three cents) for the quarter (third quarter 2018: nil).
Third quarter 2019 adjusted net loss was ($8.7-million)
(third quarter 2018: adjusted net income of $1.0-million), and adjusted loss per share was (two cents) (third quarter 2018: nil). Adjustments for 2019 relate to inventory writedown and change in fair value on the Minto contingent receivable.
Two thousand nineteen production and
C1 cash costs (1)
guidance: Capstone expects to achieve consolidated production guidance of 145 million to 160 million pounds and consolidated C1 cash costs (1) guidance of $1.80 to $2 per payable pound produced.
Capstone announced high-grade copper and silver results drill results at Cozamin. See news release dated Nov. 5, 2019.
"Never have I been this excited about Capstone's future as both Cozamin and Pinto Valley have clear organic growth strategies in place, and we are focused on execution to deliver increased stakeholder benefits," said Darren Pylot, president and chief executive officer of Capstone. "Cozamin will leverage incredible growth from expansionary capital of less than $5-million, expanding copper and silver production by 50 per cent in 2021 and beyond. The continued exploration success achieved by our team is a paradigm shift for an already low-cost and highly profitable mine. Cozamin has already delivered over $400-million in cumulative free cash flow for Capstone, and it appears the best is yet to come in the decade ahead of us."
Mr. Pylot continued: "As Pinto Valley's operating momentum continues, we are concurrently focused on preparing the mine for higher copper prices with low-cost, quick-payback improvements to the mill, plus looking to expand the mine into a multigenerational asset. We have identified optimal [Pinto Valley phase 4] expansion scenarios to capitalize on the roughly one billion tonnes of resources currently not in reserves."
Cozamin: expansion update
During third quarter 2019, development work on the one-way ramp system continued and is on track for completion by the end of 2020. Concurrently, development of the raisebore to improve ventilation is also on track for completion in the first half of 2020. Once both development projects are completed, Cozamin's annual production is now expected to increase to between 50 million and 55 million pounds of copper and 1.4 million to 1.5 million ounces of silver. Expected production targets have increased due to the results of the additional 103 drill holes, to date, pointing to higher grades and thickness than in the current reserve.
Cozamin: mine life growth
During third quarter 2019, Cozamin acquired the Portree claim block that laid within the Mala Noche footwall zone (MNFWZ) area. The claim block is surrounded by high-grade inferred mineral resources and provides access so the company can now continuously infill drill and eventually mine the Portree area as well. A 2019/2020 infill drilling program was initiated earlier this year to move inferred mineral resources to the mineral reserve category with the expectation of adding additional mineral resources to support doubling the mine life, and the company is now targeting to update both mineral resources and mineral reserves before the end of 2020.
Cost reduction program
Capstone has achieved its cost reduction target range of $25-million to $30-million, using 2018 as a baseline. The company has now removed $25-million of costs out of the business with $12.5-million in savings at Pinto Valley plus $3.5-million related to the new revolver terms and improved cash management, lower corporate administration costs ($4-million), and holding cost savings due to the disposition of Minto ($5-million). A total of approximately $15-million to $20-million of savings is expected to come from Pinto Valley, of which $12.5-million has been achieved to date, primarily from manpower and contractor savings as a result of the new collective bargaining agreement and improved power pricing.
Pinto Valley phase 4 expansion study (PV4)
Preliminary work on the PV4 study continued in the quarter to evaluate potential expansion scenarios to take advantage of nearly one billion tonnes of mineral resources not currently scheduled in the PV3 pit shell. For the rest of 2019, PV4 study activities will be focused on further evaluating alternative infrastructure options.
Pinto Valley: crushing plant modernization
Pinto Valley has identified a small capital project to modernize the crushing equipment and other front-end upgrades to improve mill reliability and overall performance. The capital investment is estimated to be approximately $10-million to $15-million, with a double-digit rate of return. The return on investment is calculated based on increasing throughput from current levels to targeted production levels between 56,000 to 57,000 tonnes per day in 2021 and beyond, and reduced maintenance and power costs. These capital costs are subject to the board of directors' approval in the fourth quarter 2019.
Santo Domingo project progress
The Santo Domingo project is now shovel-ready as Capstone has obtained all permits and approvals for the start of construction from the Chilean authorities. During third quarter 2019, work to improve Santo Domingo's project economics continued to advance, and the company is targeting to release an updated National Instrument 43-101 report early next year, which the company expects will include infrastructure sharing, resulting in significantly reduced capital cost estimate, increased gold recoveries and a preliminary business case for producing battery-grade cobalt. The strategic process, which was launched in early 2019, is continuing and is aimed at evaluating alternatives regarding the project, which may include the sale of a majority portion of the project.
In Sept., 2019, Jerrold Annett joined Capstone as vice-president, strategy and capital markets. Mr. Annett has 24 years of global mining and capital market experience, with the last three years providing strategic direction and executive oversight for several junior exploration and development companies. His mining career started at Teck Resources and Falconbridge as a metallurgist and within their commercial metal sales groups, followed by 10 years in capital markets, most recently with Scotiabank, where he was head of mining institutional sales. He is a professional engineer and has a bachelor of applied science in mining and mineral engineering from Queen's University in Canada.
Refer to Capstone's third quarter 2019 management's discussion and analysis and financial statements for detailed operating results.
Q3 2019 Q3 2018 YTD 2019 YTD 2018
Copper production (million pounds)
Pinto Valley 29.9 31.3 91.6 86.1
Cozamin 9.1 9.6 26.5 26.8
Total from continuing operations (2) 39.0 40.9 118.1 112.9
Total from continuing operations (2)
(million pounds) 31.2 41.5 112.1 108.4
Realized copper price (2) ($/lb) $2.52 $2.72 $2.68 $2.93
C1 cash costs (1) ($/lb) produced
Pinto Valley 2.13 2.15 1.97 2.23
Cozamin 0.94 0.87 0.90 0.76
Consolidated from continuing operations (2) 1.85 1.85 1.73 1.88
For the nine months ended Sept. 30, 2019, production from continuing operations increased 5 per cent, and C1 cash costs (1) decreased 8 per cent compared with 2018.
The third quarter 2019 realized price of $2.52 per pound was impacted by $3.4-million negative provisional pricing adjustments recorded on previous-quarter sales. The two thousand nineteen year-to-date realized copper price was $2.68 per pound as compared with the LME (London Metal Exchange) average for the same period of $2.74 per pound.
Pinto Valley mine
For the nine months ended Sept. 30, 2019, production increased by 6 per cent compared with 2018 while C1 cash costs (1) decreased by 12 per cent. Production increased primarily due to an increase in copper grade (year-to-date 2019: 0.34 per cent versus year-to-date 2018: 0.31 per cent). C1 cash costs (1) were 26 cents per pound lower than 2018 as a result of the cost reduction program initiated in 2019, as well as higher production.
Copper production decreased by 500,000 pounds in third quarter 2019 versus third quarter 2018, primarily as a result of a decrease in grade (third quarter 2019: 1.48 per cent versus third quarter 2018: 1.70 per cent) and slightly lower recoveries, which were partially offset by higher throughput (3,204 tonnes per day versus 2,939 tonnes per day).
From a year-to-date perspective, copper production was consistent year over year. The lower blended head grade (2019: 1.49 per cent versus 2018: 1.80 per cent) was offset by significantly higher mill throughput (2019: 3,121 tonnes per day versus 2018: 2,591 tonnes per day).
C1 cash costs (1) increased in third quarter 2019 and year-to-date 2019 compared with the same period last year. This increase was primarily driven by lower production and an increase in development as the mine builds the areas available for long-hole stoping (building the prepared mineral inventory) to support increased mining rates planned for 2021.
(1) This is an alternative performance measure.
(2) The Minto mine was placed on care and maintenance in fourth quarter 2018 and was considered a discontinued operation under international financial reporting standard 5 up until the date of sale (June 3, 2019).
Conference call and webcast details
Capstone will hold a conference call on Nov. 6, 2019, at 10:30 a.m. Eastern Time (7:30 a.m. Pacific Time), to discuss these results. The webcast presentation will also be available at the company's website.
Date: Nov. 6, 2019
Time: 10:30 a.m. Eastern Time (7:30 a.m. Pacific Time)
Dial-in: North America: 1-888-390-0546 or international: 416-764-8688
Replay: North America: 1-888-390-0541 or international: 416-764-8677
Passcode: 447854 followed by the number sign
The conference call replay will be available until Nov. 13, 2019. Following the replay, an audio file will be available on Capstone's website.
This release is not suitable on a stand-alone basis for readers unfamiliar with Capstone and should be read in conjunction with the company's management's discussion and analysis and financial statements for the three and nine months ended Sept. 30, 2019, which are available on Capstone's website and on SEDAR, all of which have been reviewed and approved by Capstone's board of directors.
About Capstone Mining Corp.
Capstone Mining is a Canadian base metal mining company, focused on copper. It is committed to the responsible development of its assets and the environments in which it operates. Its two producing mines are the Pinto Valley copper mine, located in Arizona, United States, and the Cozamin copper-silver mine in Zacatecas state, Mexico. In addition, Capstone has the large-scale 70-per-cent-owned copper-iron Santo Domingo development project in Region III, Chile, in partnership with Korea Resources Corp., as well as a portfolio of exploration properties.
National Instrument 43-101 compliance
Unless otherwise indicated, Capstone has prepared the technical information in this news release based on information contained in the technical reports, annual information form and news releases available under Capstone Mining's company profile on SEDAR. Each disclosure document was prepared by or under the supervision of a qualified person as defined in National Instrument 43-101 (Standards of Disclosure for Mineral Projects) of the Canadian Securities Administrators. Readers are encouraged to review the full text of the disclosure documents, which qualifies the technical information. Readers are advised that mineral resources that are not mineral reserves do not have demonstrated economic viability. The disclosure documents are each intended to be read as a whole, and sections should not be read or relied upon out of context. The technical information is subject to the assumptions and qualifications contained in the disclosure documents.
The disclosure of technical information in this news release was reviewed and approved by Brad Mercer, PGeol, senior vice-president, operations and exploration (technical information related to mineral exploration activities and to mineral resources at Cozamin), Clay Craig, PEng, superintendent mine technical services, Pinto Valley mine (technical information related to mineral reserves and mineral resources at Pinto Valley), and Tucker Jensen, senior technical adviser, Cozamin mine, PEng (technical information related to mineral reserves at Cozamin), all qualified persons under NI 43-101, and Albert Garcia III, PE, vice-president, projects (technical information related to project updates at Santo Domingo).
Alternative performance measures
The items marked with a (1) are alternative performance measures, and readers should refer to alternative performance measures in the company's management's discussion and analysis for the three months and nine months ended Sept. 30, 2019, as filed on SEDAR and as available on the company's website.
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