Wildfire hinders Capstone’s expansion plans at Minto

VANCOUVER — Capstone Mining (CS-T) was forced to suspend operations at its Minto copper-gold mine in the Yukon, when an out-of-control forest fire came within 6 km of the mine, but a back burn around the mine perimeter allowed operations to restart on June 14. Nevertheless, the shutdown put a damper on recent news of plans to incorporate underground mining to extend Minto’s lifespan.

The fire started on May 30 when high winds blew a dead tree into contact with the spur line that supplies power to the mine. The fire spread quickly because the Yukon has been experiencing hot, dry weather with strong winds. Within a day, the fire covered 3 sq. km; 3 days after it started it had grown to 20 sq. km.

By June 7, the fire had moved to within 6 km of the mine. The Yukon Wildland Fire Management (YWFM) advised Capstone that it was unlikely the fire could be extinguished because of the weather conditions and the abundance of dry, fallen timber from previous forest fires. The YWFM decided to complete a back burn around the Minto mine, which means using a controlled fire to pre-burn available fuel to prevent the wildfire from reaching the site. To protect mine workers from fire and smoke, Capstone suspended mining and milling operations. By June 14, the back burn was complete around the southern and eastern sides of the mine, which were closest to the fire, and Capstone resumed operations. The YWFM still plans to complete the burn back around the rest of the mine to reduce future fire risk.

The suspension will not help Capstone achieve its Minto production guidance of 50 to 55 million lbs. copper — a goal that the company admitted had already become a challenge prior to the fire because of mill throughput issues in the first quarter. The new crusher system underperformed for the first two months of the year and then the dry-stacked tailings facility ran into sliming problems which reduced its throughput to 2,800 or 2,900 tonnes per day instead of 3,200 tonnes.

Capstone resolved the crusher problems and thought it had fixed the sliming issue but recently said some of the tailings facility problems have re-emerged.

While the company works out those issues it will also be advancing plans and permitting for its final mine expansion. Minto achieved commercial production in 2007 and has already undergone three expansions. In December, Capstone released a prefeasibility study for the phase 4 expansion, which is already underway and will increase throughput to 4,100 tonnes daily. The study predicted an eight-year mine life, based on current reserves.

In that prefeasibility announcement, Capstone said it was also evaluating potential opportunities to extend the mine life further by going underground. Now, the company has released the results of a scoping study, which looked at that possibility. The study is not compliant with National Instrument 43-101 regulations but Capstone decided it was best to release it because it will form the basis of its permit applications for the expansion to underground. Since permitting documents are in the public domain, the scoping study results would have soon become available.

The study envisions the parallel development of open-pit and underground mines at Minto. To date, Minto has tapped into the Minto Main pit, which has twice been pushed back to allow pit deepening. While mining at Minto Main, Capstone has also defined other deposits, known as Area 2, Area 118, Ridgetop and Minto North, which together host 24.3 million measured and indicated tonnes grading 1.12% copper, 0.41 gram gold, and 3.89 grams silver plus 5.8 million inferred tonnes at slightly lower grades.

Capstone had already planned to develop new open pits to mine each of these deposits. In the new scoping study, however, the open pits are developed more slowly because of simultaneous underground mining and exploration. Specifically, in phase 4, Capstone wants to permit, develop and mine Area 2 and Area 118 first, using both open-pit and underground mining. It will also conduct underground exploration at two other target areas called Minto East and Copper Keel, where mineralization is deeper.

Then, in phase 5, the company plans to develop open-pit mines at Minto North and Ridgetop as well as underground operations at Minto East and Copper Keel, provided exploration defined sufficient resources in those new areas.

The entire effort is expected to cost $75.7 million. Of that, $33.7 million is needed to purchase open-pit equipment in 2011, as the Minto mine converts from contract mining to owner-operated mining; $21.5 million would go towards underground development and equipment; and $9.1 million would fund the plant expansion and sustaining capital.

The plans are not yet solid, as the mill expansion, new pits and addition of underground operations first have to achieve approval from the Quartz Mining board as well as the Yukon Environmental and Socio-economic Assessment board.

In the first quarter of 2010, despite the crusher and tailings facility setbacks, the Minto mine processed 229,338 tonnes of ore grading 2.54% copper, 1.3 grams gold and 10.3 grams silver to produce 11.9 million lbs. copper, 7,651 oz. gold and 62,258 oz. silver.

Capstone also operates the Cozamin copper-silver-lead-zinc mine in Zacatecas state, Mexico, which is a large-scale underground operation. In the first quarter, Cozamin processed 259,656 tonnes of ore grading 1.9% copper, 1.17% zinc, 0.97% lead and 65 grams silver to produce 9.9 million lbs. copper, 3.8 million lbs. zinc, 3.6 million lbs. lead and 400,000 oz. silver.

The metal production brought in gross sales revenue of $88 million. That revenue translated into adjusted net earnings of $21.7 million over the quarter, which equates to 11¢ per share.

Capstone’s share price has spent most of the last 52 weeks between $2.70 and $3.20. Since April, it has fallen almost $1, likely due to the weakening copper price. In April, copper sold for as much as US$3.60 per lb. but by mid-June the price fell to less than US$3. At presstime, Capstone shares were $2.30. The company has 198 million shares outstanding.