Capstone tweaks Minto’s mine plan after permit delay

Capstone Mining (TSX: CS; US-OTC: CSFFF) is modifying the mine plan at its Minto copper-gold-silver mine in the Yukon, after announcing that it had not received its amended water-use licence from the Yukon Water Board to pre-strip the Minto North pit, bringing an end to surface mining.

The Vancouver-based firm will defer stripping of the high-grade pit until 2015 — previously expected this September. It will compensate for lost ore by bringing forward underground ore from its fully permitted Area 118 in late September, as well as using stockpiled ore.

Capstone says it does not expect changes in Minto’s underground mining and milling operations or its 2014 production guidance, where it anticipates the mine will churn out 18,500 tonnes of copper in concentrates.

But Capstone’s surface mining contractor Pelly Construction has laid off 50 people since the delay. This is the contractor’s second round of cuts at Minto this year, with the first in January, when it lost 44 jobs after Capstone slowed open-pit mining to align with the permitting timeline.

Minto now has a 250-person workforce, with Capstone directly employing 171. The rest are contractors, mainly working underground.

Surface mining is at a standstill until Capstone receives the water permit, Cindy Burnett, the company’s vice-president of investor relations, said in an email.

“The timeline for review in the Yukon is not currently mandated, so there is no definitive timeline for receipt of the water-use licence,” she said in response to when the company would receive the permit.

Raymond James analyst Alex Terentiew says the reason for the delay relates to “staffing changes at one of the Yukon’s regulatory bodies, and uncertainty between two regulatory bodies on who has jurisdiction to grant the authority to commence pre-stripping of Minto North.”

Terentiew expects Capstone will receive the water-use licence in time for initial production to start from the pit in late 2015 or early 2016, after a five-month pre-strip.

While the analyst doesn’t see this hurting the company’s 2014 production, he has trimmed his 2015 copper production estimate for Capstone by 1% and for Minto by 4%, while raising his estimated operating costs for Capstone to $1.98 per lb. from $1.93 per lb., and for Minto to $2.36 per lb. from $2.24 per lb.

The company’s president and CEO Darren Pylot said he expects “no material difference” in Minto’s 2015 production.

On a second-quarter conference call in August, Pylot cautioned that if the company didn’t pre-strip by September, production from Minto North, previously set to come online in mid-2015, would be pushed to early 2016. “In addition, we have an alternative mine plan for 2015 in the event that Minto North were delayed further,” he said.

Located 240 km north of Whitehorse, Minto initiated production from the Main pit in 2007 and had a six-year mine life. Since then, exploration has added another nine years, extending the mine life to 2021, assuming the receipt of permits.

Capstone explains that under the Yukon regulatory process, new permits are needed every time reserves are added to a mine plan.

Capstone submitted an application to the Yukon Environmental Socio-Economic Assessment Board for the copper reserves added to the property last July, which the board supported.

Capstone applied for the amended quartz-mining and water-use licences at the Yukon Water Board and the government’s department of Energy, Mines and Resources on July 2, 2014, where it received the former permit on Sept. 22.

Because the delay doesn’t materially impact the operation, Terentiew has kept his “outperform” rating and $3.75 target price.

Along with Minto, Capstone operates the Pinto Valley copper mine in Arizona and the Cozamin copper-silver mine in Mexico. It expects combined 2014 production of 102,000 tonnes of copper in concentrates at C1 cash costs of $1.90 to $2 per lb. copper, net of by-product credits.