Capstone a steady eddy among the copper miners

VANCOUVER — Vancouver-based copper producer Capstone Mining (CS-T) is one of the good news stories among the mid-tier base metals producers.

The company’s annual results released on March 13 show a strong balance sheet and an ability to meet — or in some cases, exceed — expectations.

The next step for Capstone is defining a sustainable growth pipeline, which the company is tackling this year.

As an operator, Capstone has reliably met its guidance estimates. In 2012, the company cranked out 83 million lb. copper in concentrates at total cash costs of US$1.50 per lb., which compares to a guidance of 80 million contained lb. copper at between US$1.55 and $1.65 per lb.

Despite a rise in production costs, up from US$1.45 per lb. in 2011, Capstone maintained stable net earnings at US$59.6 million, or 16¢ per share. Higher production also helped the company cope with a lower realized copper price that dropped US24.6¢ to US$3.66 per lb. The company’s adjusted net earnings totalled US$78 million — up from US$52.2 million in 2011 — with operating cash flows falling slightly to US$114 million. Working capital, however, jumped US$22.3 million to US$562.1 million, and includes US$500 million in cash and equivalents.

Capstone enjoyed strong performance from both its operating mines, with record mill throughput at the Cozamin polymetallic mine in Zacatecas, Mexico, as well as the Minto copper-gold mine in the Yukon.

Cozamin produced a record 46.9 million lb. copper in concentrates in 2012, with mill throughput clocking in at 3,205 tonnes per day. Results were also promising on the exploration side, with an infill drill program boosting indicated resources.

Capstone focused on a sizeable inferred resource at its Mala Noche footwall zone, and announced in early March that the deposit totals 4.8 million measured-and-indicated tonnes grading 1.78% copper, 35 grams silver per tonne and 0.26% zinc. Cozamin’s global resources rose to 12.9 million measured-and-indicated tonnes of 1.48% copper, 50 grams silver and 1.18% zinc, at a US$35-net-smelter-royalty-return cut-off grade.

Brad Mercer, Capstone’s vice-president of exploration, notes that the Mala Noche vein and Mala Noche zone remain open, and will be targeted by a 20,000-metre drill program this year that will cost the company US$4.5 million.

Production at Minto fell off slightly due to access to lower grades from more stockpile material feeding the mill. The mine produced 35.9 million payable lb. copper and achieved throughput rates of 3,665 tonnes per day during 2012. Capstone is working towards underground production at the site, with initial ore expected in the third quarter.

The company had more exploration success at Minto because of resource upgrades at its Fireweed and Inferno North extensions. Capstone completed a US$4.9-million, 29,500-metre program at the targets in 2012, which hold indicated resources totalling 2.2 million tonnes grading 2.14% copper, 1.01 grams gold and 8.9 grams silver. Fireweed and Inferno tacked on 101 million lb. measured-and-indicated copper, along with 86 million lb. in the inferred category.

Capstone’s production guidance for 2013 demonstrates a similar jump in production, offset by rising production costs. The company expects to produce 85 million lb. copper in concentrates this year at costs ranging from US$1.65 to US$1.75 per lb.

If there is one black mark on Capstone’s 2012 review, it is rising development costs at the company’s 70%-owned Santo Domingo copper-iron-gold joint venture, located 800 km north of Santiago, Chile. The large-scale project was initially to have cost US$1.2 billion, but during its annual report Capstone updated its capital estimate to between US$1.5 billion and US$1.8 billion. Santo Domingo is projected to produce 144 million lb. copper, 4.1 million tonnes iron concentrate and 15,000 oz. gold over an 18-year mine life.

Capstone has traded within a 52-week range of $2.03 and $3.17, and hit a first-quarter high of $2.82 per share in early January. The company has 381 million shares outstanding, and closed at $2.36 at press time for a $900-million market capitalization.