Capstone drives home record results

Vancouver – Despite what has been a difficult market for copper Capstone Mining (CS-T) is reporting record year for revenues and copper production in 2008 following a late-November merger with Sherwood Copper.

In a conference call Capstone president and chief operating officer Stephen Quinn described the year as one where the companies were in “mill-expansion mode.”

Treating the companies’ results as if they had been a combined business for the year ending Dec. 31, 2008, net revenue reached US$162 million and net income was US$152 million.

During the year Capstone produced 74 million lbs. copper, 9.7 million lbs. zinc, 6.4 million lbs. lead, 1.6 million oz. silver and 31,000 oz. gold. Production comes from its two operating mines: Cozamin in Mexico and Minto in the Yukon.

Overall cash costs were US$1.25 per lb. payable copper.

At Cozamin Capstone processed 833,176 tonnes of ore grading 1.6% copper, 1.3% zinc, 0.6% lead and 65 grams silver per tonne at a cash cost of US$1.44 per lb. copper.

At Minto Capstone milled 809,426 tonnes grading 2.9% copper, 1.grams gold per tonne and 12 grams silver with cash costs coming in at US$1.15 per lb. copper.

Capstone says the cash costs were higher than expected at both mines largely due to delayed mill expansions, which are now finished, and flooding that blocked access to higher grade zones at Minto.

In 2009, however, with mills operating at about 3,000-3,200 tonnes per day at both mines, Capstone expects cash costs to decrease to US$1.00 per lb. copper.

It will be “higher copper and lower zinc going forward,” Quinn said.

Record revenues allowed Capstone to make significant debt repayments.

It repaid a $10 million credit facility and debts of US$28 million on the Minto Mine leaving about US$30 million to go on the latter loan.

It ended the year with US$35 million in cash.

Looking forward Capstone estimates production of between 95 and 105 million lbs. copper in 2009 of which there are 43 million lbs. of forward sales locked in at US$2.61 per lb.

Between 2009 and 2011 Capstone has committed about 104 million lbs. copper in forward sales at a price of US$2.52 per lb. copper.

In the coming year Capstone plans on producing a new prefeasibility study on the Minto Mine and to update the Cozamin Mine resource estimate.

The prefeasibility will consider a phase IV expansion of the Minto Mine to between 4,000 and 5,000 tonnes per day.

Quinn said the company also had over 800,000 tonnes of ore in stockpile so that the “mill is chock-a-block of ore ahead of it.”

And exploration will continue. Capstone is following 4 km of potential strike length of the Mala Noche vein which hosts Cozamin’s ore and will also explore adjacent and parallel vein systems.

At Minto Capstone is especially charged about the new Minto North discovery.

In February Capstone reported three drill results from an area about 600 metres north of the Main zone open-pit that hit good mineralization starting at depths of between 50 and 60 metres.

Hole 390 hit 28 metres grading 2.59% copper, 0.59 gram gold and 7.1 grams silver. Hole 392 returned 30 metres grading 2.4% copper, 1.16 grams gold and 8.6 grams silver. And hole 393 hit 26.4 metres grading 2.69% copper, 1.22 grams gold and 10.4 grams silver.

As for Capstone’s Kutcho project in northern B.C. Quinn, noting that the project was “somewhat overshadowed” by mill expansions, said the company currently favours the project’s underground and higher grade potential.

A June scoping study had outlined a $183 million, 4,000-tonne-per-day open pit mine. It was based on 7.3-year mine life and an indicated resource estimate of 10.5 million tonnes averaging 1.73% copper, 2.35% zinc, 0.27 gram gold and 26.3 grams silver.

But now Quinn says Capstone is “shifting that focus” and envisioning an underground mine, with a concomitantly less difficult permitting process and a significantly reduced capital cost.

A study of options at the Kutcho project will be out later this year.

On news of the financial results Capstone’s share price 3¢ to close at $1.67. The company has 164.7 million shares outstanding.