Cozamin Reserves And Mine Life Grow For Capstone

VANCOUVER — May was a busy month for Capstone Mining (CS-T, CSFFF-O) and on the first of June investors took note, lifting the company’s share price almost 10% on news of a new reserve estimate and mine plan for one of the company’s operations.

The reserve update and life-of-mine plan was for Capstone’s Cozamin mine in Zacatecas state, Mexico. The company started mining the main San Roberto deposit in 2006 and has already pulled 1.58 million tonnes of ore from the ground grading 1.62% copper, 1.39% zinc, 0.57% lead and 68 grams silver per tonne.

A 131-hole drill program in 2008 more than replenished the extracted ore — an updated resource estimate in February expanded San Roberto and added a new deposit 500 metres along strike called San Rafael. Now Capstone has successfully converted most of the measured and indicated resources to reserve status and has used those reserves to extend the life of the recently upgraded mine.

Cozamin is now expected to continue producing copper, zinc, lead and silver for another eight years, based on proven and probable reserves of 8.1 million tonnes averaging 1.66% copper, 1.1% zinc, 0.29% lead and 59.6 grams silver. The reserve increase was enough to support an increased mine life even though Capstone just finished an expansion at the mine that lifted daily throughput to 3,000 tonnes per day from 2,200 tonnes daily.

During the next eight years, the mine should produce 258.6 million lbs. copper, 106.1 million lbs. zinc, 29.9 million lbs. lead, and 10.4 million oz. silver. Using zinc, lead, and silver as byproduct credits, the cash cost to produce a pound of copper at Cozamin should be US$1.10.

The operation is expected to bring in US$521 million in revenue over its remaining life after a 3% net smelter return. And the revamped project now carries a net present value of US$172 million, using an 8% discount rate.

Capstone is not finished exploring for additional resources at Cozamin. To start, the project currently hosts 1.1 million tonnes of inferred resource at San Roberto carrying 1.58% copper, 0.95% zinc, 0.17% lead and 52.5 grams silver that was not included in the reserve estimate. The new San Rafael deposit also carries a small inferred resource that requires further drilling. Then there is the 4 km of presumed vein extension to the northwest that is underexplored, as well as the possibility of acquiring claims to the east that cover the vein’s downdip projection.

May also marked six months since Capstone closed a friendly merger with Sherwood Copper to acquire the Minto copper mine, which sits near Carmacks in the Yukon. The open-pit Minto mine was commissioned in summer 2007 and has since seen three expansions, the last of which brought its throughput to 3,200 tonnes daily. Minto is now expected to produce 60 to 65 million lbs. copper in 2009, with byproduct gold and silver, at an estimated total cash cost of US$1 per lb.

But the biggest news from Minto of late stems not from the expansion but from exploration. The company has already completed 15,000 metres of drilling at Minto in 86 holes this year, probing the slew of partially delineated expansion zones near the main Minto deposit. But the program also hit a new zone — Minto North — and the new zone has returned the best gold grades in the property’s history.

The Minto North zone lies 600 metres north of the open pit and appears to host a thick, high-grade shallow body of copper mineralization with some exceptional gold grades. The latest set of drill results from Minto included two from Minto North: hole 474 cut 32.3 metres grading 3.04% copper, 5.99 grams gold per tonne and 12.6 grams silver from 61 metres depth and hole 468 returned 26.5 metres of 1.53% copper, 3.49 grams gold and 4.9 grams silver starting at 22 metres.

A set of results released a few weeks earlier included some more exciting intervals. Hole 466 hit 13.4 metres carrying 10.84% copper, 10.41 grams gold and 43.6 grams silver from 81 metres depth. Hole 475 cut 23.9 metres grading 7.82% copper, 3.05 grams gold and 32.4 grams silver from 76 metres down-hole. And hole 459 returned 25 metres averaging 3.65% copper, 2.25 grams gold and 14.3 grams silver from 84 metres below surface.

So far, the high-grade core is showing strong continuity; Capstone president and CEO Stephen Quinn says Minto North could “significantly enhance the economics of the Minto mine” because the high-grade zone is relatively shallow and so could be brought into production easily and quickly.

Other exploration targets at Minto have also returned promising results. Roughly 1 km southeast of the main pit is the Copper Keel target; one recent drill hole at Copper Keel returned 20.3 metres grading 1.84% copper, 1.61 grams gold and 8.2 grams silver from 70 metres depth. A few hundred metres to the west is the Ridgetop zone and from that area, hole 431 pulled 9.8 metres grading 2.23% copper, 1.61 grams gold and 10.7 grams silver, starting at 94 metres. And Area 118, which is directly south of the open pit, returned such intercepts as 6.3 metres of 3.65% copper, 1.43 grams gold and 17.4 grams silver from 241 metres depth and 49 metres of 0.65% copper, 0.1 gram gold and 1.7 grams silver from 283 metres.

New resource estimates for the entire Minto property, including Minto North, are nearing completion and results are expected by the end of June.

Early in May, Capstone closed a bought-deal financing, raising $50.1 million by selling 27.1 million shares at $1.85 apiece. Later in the month, the deal’s underwriters closed their overallotment option, buying another 4.1 million shares at the same price to raise $7.5 million.

As of mid-May, the company had US$59.4 million in cash, US$29.3 million in long-term debt, and access to a US$40-million undrawn bank facility. In addition, Capstone owns shares in Silver Wheaton (SLW-T, SLW-N) worth roughly US$46 million.

On news of the Cozamin update, Capstone’s share price gained 20¢ or 8.6% to close at $2.52 on 11.7 million trades. The company has a 52- week trading range of 65¢-$4.39 and 196 million shares outstanding.