Capstone ends Q1 in the red

Copper producer Capstone Mining (TSX: CS; US-OTC: CSFFF) widens its loss in the first quarter of 2015 due to impairments at the Pinto Valley mine in Arizona and the Minto mine in the Yukon.  

The miner reported a net loss of US$17.4 million, or US$0.05 per share, up from a loss of US$0.01 per share, a year ago. The recent loss included $6.2 million in non-cash write-downs on inventory at the Minto mine and on available-for-sale securities, plus US$3.3 million in one-time costs related to the operational restructuring at the Pinto Valley mine and standby fees at Minto for reduced surface mining rates.

The adjusted loss was US$0.02 per share, slightly ahead of the negative US$0.03 per share that analysts had expected.

Revenues were US$102.9 million, down 36% from the same period last year. Revenues suffered from lower payable production, higher costs, declining sales and weaker realized copper prices.

Total output from Capstone’s three copper assets — Pinto Valley, Minto and the Cozamin mine in Mexico — came in at 23,667 tonnes, of which Pinto Valley delivered 15,809 tonnes, Minto churned out 4,095 tonnes and Cozamin generated 3,773 tonnes. Total output fell 13% from the year ago, while consolidated C1 cash cost per payable pound produced rose 3% to US$1.97.

“Consolidated C1 cash cost came right in on guidance, benefiting primarily from Minto’s strong performance as a result of grade, the weaker Canadian dollar and better than targeted underground productivity,” James Slattery, Capstone’s chief financial officer, said on a conference call.

“At Pinto Valley, lower mill productivity was mitigated by higher grade ore, resulting in cash costs that met guidance. And at Cozamin, our highest margin operation, cash costs was above guidance due to lower grade, despite a reduction in cost per tonne milled.”

Copper sales fell 24% year-over-year to 20,082 tonnes and realized copper prices declined to US$2.47 per lb. from US$2.99 per lb. earlier.  

Meanwhile, Capstone continued optimizing its largest asset, the Pinto Valley mine. As part of the redesign, Capstone let go 40 salaried workers, trimming its salaried workforce by 15%. It also underwent a leadership change at the mine, and carried on with its maintenance reliability project that it started last year to improve productivity.   

At Minto, the miner expects to receive approval for its amended water use licence in the second quarter. The licence will allow it to start pre-stripping the high-grade Minto North deposit. Gregg Bush, the company’s chief operating officer, notes the firm has a backup plan that contemplates staging the stripping in case of a delay in the permit.

At Cozamin, Capstone implemented new ground support standards in the first half of 2014, which slowed down the mine’s development rate in the last half of 2014 and in the first quarter of 2015. To fix that, Capstone has brought on more training support for the development crews and an additional development contractor, Bush says.

On the growth front, Capstone is moving ahead with the PV2 mine life and PV3 extension project at Pinto Valley, where it has budgeted to spend US$53 million this year. The PV2 mine life envisions increasing Pinto Valley’s mine life from five to 12 years. Capstone anticipates completing a prefeasibility study on PV3 in the third quarter, which will evaluate two scenarios to extend the mine life further.

“We continue to believe that the potential for mine life extension or expansion at Pinto Valley represents significant value for Capstone,” the company’s CEO Darren Pylot said.

Capstone closed April 30 at $1.68 per share, down 17% for the year. BMO Research rates Capstone as an “outperform” with a $2.50 target price, while Desjardins Capital Markets has reduced its $2.40 target to $2.20 per share and maintains a buy-above-average risk rating on the stock.