All amounts in US$ unless otherwise
indicated
Capstone Copper Corp. (“Capstone” or the “Company”)
(TSX:CS) today reported financial results for the six months and
quarter ended June 30, 2023 (“Q2 2023”). Copper production in Q2
totaled 39.3 thousand tonnes at C1 cash costs1 of $3.01 per payable
pound of copper produced. The Company has provided H2 2023 guidance
of 83-93kt of copper at C1 cash costs1 of $2.55 to $2.75 per
payable pound. Link HERE for Capstone’s Q2 2023 webcast
presentation.
"We are excited to report that construction at our flagship
Mantoverde Development Project ("MVDP") remains on-time and
on-budget ahead of our ramp-up commencing by year-end. Furthermore,
despite a challenging start to the year, we expect our operational
performance to improve in H2," commented John MacKenzie, Chief
Executive Officer.
"We would also like to note the retirement of Giancarlo Bruno,
and thank him for the role he played in the development of Mantos
Blancos and Mantoverde, and welcome James Whittaker as our new SVP,
Head of Chile. As we continue to execute on our sector leading
growth, Mr. Whittaker brings over 30 years of experience in
operations and project development, and most recently was with BHP
Chile as President of Escondida. This year marks an inflection
point for Capstone Copper; with a strong team, a deep organic
growth profile, and a solid balance sheet, I believe we are
well-positioned to benefit all stakeholders."
Q2 2023 OPERATIONAL AND FINANCIAL HIGHLIGHTS
- Net loss of $33.9 million, or $(0.05) per share for Q2 2023.
Adjusted net loss attributable to shareholders1 of $12.2 million,
or $(0.02) per share for Q2 2023. Q2 2023 adjusted net loss
attributable to shareholders1 is lower compared to Q2 2022 adjusted
net loss attributable to shareholders1 of $27.7 million due to
lower income taxes.
- Adjusted EBITDA1 of $43.4 million for Q2 2023 compared to
$115.8 million for Q2 2022. The decrease in Adjusted EBITDA1 is
driven by lower copper sold (40.8 thousand tonnes in Q2 2023 versus
45.5 thousand tonnes in Q2 2022) and a lower copper price of
$3.76/lb compared to $4.10/lb (prior to unrealized provisional
pricing adjustments).
- Operating cash flow before changes in working capital of $22.0
million in Q2 2023 compared to $40.7 million in Q2 2022.
- Consolidated copper production for Q2 2023 of 39.3 thousand
tonnes at C1 cash costs1 of $3.01/lb. Copper production was lower
than expected in the second quarter due to unplanned downtime in
the crushing circuit at Pinto Valley resulting in approximately
twelve lost production days plus mill maintenance downtime at
Mantos Blancos. Lower production levels and maintenance expenses
were the key drivers related to higher consolidated cash costs, as
input costs have largely tracked in-line with expectations.
- The Company has provided H2 guidance of 83kt to 93kt of copper
production at C1 cash costs1 of $2.55/lb to $2.75/lb. H2 2023 is
expected to be improving in terms of production and costs, compared
to H1. This results in updated consolidated 2023 copper production
guidance of 163kt to 173kt at C1 cash costs of ~$2.75/lb to
$2.85/lb.
- Mantoverde Development Project ("MVDP") remains on budget and
on schedule. Construction is progressing well on all key areas of
the project with overall progress at approximately 88% complete.
Total project spend inception-to-date was approximately $706
million at the end of June 2023 of a total budget of $825
million.
- Total available liquidity1 of $419.6 million as at June 30,
2023, composed of $117.6 million of cash and short-term
investments, and $302.0 million of undrawn amounts on the corporate
revolving credit facility.
1 These are alternative performance measures. Refer to the
section entitled “Alternative Performance Measures” in the
Cautionary Notes
OPERATIONAL OVERVIEW
Refer to Capstone's Q2 2023 MD&A and Financial Statements
for detailed operating results.
Q2 2023
Q2 2022
2023 YTD
2022 YTD
Copper production (000s tonnes)
Sulphide business
Pinto Valley
12.6
13.3
25.5
27.7
Cozamin
6.7
6.4
11.9
12.3
Mantos Blancos
8.4
8.7
19.2
9.4
Total sulphides
27.7
28.4
56.6
49.4
Cathode business
Mantos Blancos
3.3
3.7
6.6
4.0
Mantoverde2
8.3
13.1
16.8
14.3
Total cathodes
11.6
16.8
23.4
18.3
Consolidated
39.3
45.2
80.0
67.7
Copper sales
Copper sold (000s tonnes)
40.8
45.5
78.2
71.0
Realized copper price1
($/pound)
3.71
3.66
3.93
4.06
C1 cash costs1 ($/pound)
produced
Sulphides business
Pinto Valley
2.98
2.82
3.03
2.70
Cozamin
1.63
1.25
1.67
1.19
Mantos Blancos
3.18
2.49
2.77
2.52
Total sulphides
2.72
2.36
2.66
2.29
Cathode business
Mantos Blancos
3.08
3.67
3.22
3.72
Mantoverde
3.92
3.40
3.97
3.42
Total cathodes
3.68
3.46
3.76
3.49
Consolidated
3.01
2.78
2.99
2.62
2 Mantoverde production shown on a 100% basis.
Consolidated Production
Q2 2023 copper production of 39.3 thousand tonnes was 13% lower
than Q2 2022 primarily as a result of expected lower oxide
production at Mantoverde on lower grade ore related to the mining
sequence as we are transitioning to sulphide ore for MVDP. In
addition, Pinto Valley had lower overall mill throughput due to
unplanned downtime related to the primary crusher conveyor support
structure repair resulting in approximately twelve days of
downtime.
Q2 2023 C1 cash costs1 of $3.01/lb were 8% higher than $2.78/lb
Q2 2022 mainly impacted by 13% lower production partially offset by
lower production costs at Mantoverde related to lower acid prices
and diesel prices.
2023 YTD copper production of 80.0 thousand tonnes of copper is
higher than the 67.7 thousand tonnes in 2022 YTD, primarily as a
result of full quarter of production in Q1 2023 versus nine day
production in Q1 2022 at Mantos Blancos and Mantoverde.
2023 YTD C1 cash costs1 of $2.99/lb were 14% higher than 2022
YTD mainly on lower throughput rates, and operational costs
slightly higher than prior year.
Cathode production is from copper oxide ore that requires
sulphuric acid leaching, solvent extraction and electrowinning
(SX-EW) to produce copper cathodes which are a finished copper
product for the market. Sulphide production requires a mill that
utilizes a grinding and flotation process to recover sulphide
minerals in a copper concentrate saleable as an intermediate
product to smelters and refiners. Capstone's low-cost sulphide
production is growing significantly with the MVDP to be completed
late in 2023.
Pinto Valley Mine
Copper production of 12.7 thousand tonnes in Q2 2023 was 5%
lower than in Q2 2022 mainly on lower mill throughput during the
quarter (Q2 2023 - 44,336 tpd versus Q2 2022 - 46,821 tpd) as a
result of an unplanned twelve-day down time for conveyor and
counterweight structure repair and maintenance. Grade was
consistent with the same period prior year (Q2 2023 – 0.34% versus
Q2 2022 - 0.34%). Recoveries were slightly lower compared to the
same period last year (Q2 2023 - 87.4% versus Q2 2022 - 88.2%).
2023 YTD production was 8% lower than 2022 YTD mainly due to
lower mill throughput (48,249 tpd in 2023 YTD versus 52,585 tpd in
2022 YTD) driven by heavy rainfall in Q1 2023, including flooding,
which resulted in plugged chutes and screens; in addition, there
was unplanned maintenance on the secondary crusher and conveyor
belt replacement. Recoveries were higher than 2022 YTD (87.1% 2023
YTD versus 85.0% 2022 YTD) due to lower mill throughput. The mill
feed grade was consistent with the same period last year (0.32% in
2023 YTD versus 0.33% in 2022 YTD).
Q2 2023 C1 cash costs1 of $2.98/lb in Q2 2023 were 6% higher
than Q2 2022 of $2.82/lb primarily due to lower production
($0.13/lb), increases in operating costs due to inflation
($0.11/lb) and lower capitalized stripping costs ($0.07/lb),
partially offset by stockpile buildup (-$0.07/lb) and lower
refining costs (-$0.08/lb).
2023 YTD C1 cash costs1 of $3.03/lb were $0.33/lb higher
compared to the same period last year of $2.70/lb primarily due to
lower production ($0.22/lb), increased mining costs due to
inflationary pressures on explosives and grinding media, and higher
spend on rental equipment, mining equipment tools and contractors
($0.20/lb) and lower capitalized stripping ($0.06/lb), partially
offset by higher by-product credits on higher molybdenum production
and lower treatment costs (-$0.15/lb). The cash costs are expected
to trend down in H2 as result of higher production.
Mantos Blancos Mine
Q2 2023 production was 11.7 thousand tonnes, comprised of 8.4
thousand tonnes from sulphide operations and 3.3 thousand tonnes of
cathode from oxide operations, 6% lower than the 12.4 thousand
tonnes produced in 2022 YTD. The lower production was driven
primarily by lower mill throughput (14,555 tpd in Q2 2023 versus
15,218 in Q2 2022) resulting from mill downtime caused by unplanned
repair and maintenance of a mill lubrication system, restricted
throughputs caused by tailings dewatering challenges due to
presence of clays in the top benches of Phase 20, and other
challenges related to the integration of pre-existing and new
equipment. Head grades were lower in Q2 2023 compared to the same
period last year (0.85% in Q2 2023 versus 0.90% in Q2 2022), due to
mine plan sequence, and recoveries were higher in Q2 2023 compared
to the same period last year (73.9% in Q2 2023 versus 69.7% in Q2
2022), driven by reagent optimization and operational improvements
in the flotation area. A plan to address the plant stability during
the second half of 2023 is underway that includes improved
maintenance and optimization of the concentrator. We expect Mantos
Blancos to be consistently delivering higher throughput rates
during Q4.
2023 YTD production of 25.8 thousand tonnes, comprised of 19.2
thousand tonnes from sulphide operations and 6.6 thousand tonnes of
cathode from oxide operations, was higher than the same period last
year due to full operational Q1 2023 compared to nine-day stub
period in Q1 2022.
Combined Q2 2023 C1 cash costs1 were 3.15/lb (3.18/lb sulphides
and 3.08/lb cathodes) compared to combined C1 cash costs1 of
2.85/lb in Q2 2022, 10% higher than the same period last year
mainly due to lower production ($0.12/lb), an increase in
contracted services and labour cost mainly driven by unfavourable
foreign exchange rate and inflation impact ($0.36/lb), plant
maintenance and spare parts spend ($0.10/lb), partially offset by
lower main consumables prices (-$0.32/lb) (realized acid prices
averaged $156/t in Q2 2023 versus $268/t in Q2 2022 and diesel
price averaged $0.68/l in Q2 2023 versus $1.03/l in Q2 2022).
Combined 2023 YTD C1 cash costs1 of 2.89/lb (2.77/lb sulphides
and 3.22/lb cathodes) were consistent with $2.89/lb in 2022 YTD.
For the second half of 2023, we expect a reduction in combined C1
cash costs1 as the production mix is expected to have a higher
ratio of concentrates to cathodes and lower acid prices (average
2023 YTD $184/t and estimated remaining $152/t).
Mantoverde Mine
Q2 2023 copper production of 8.3 thousand tonnes was 37% lower
compared to 13.1 thousand tonnes in Q2 2022. Heap operations grade
was lower as a result of mine sequence (0.31% in Q2 2023 versus
0.49% in Q2 2022), and recoveries were slightly lower (73.4% in Q2
2023 versus 75.7% in Q2 2022). Heap throughput was slightly lower
as well (2.7 million tonnes in Q2 2023 versus 2.8 million tonnes in
Q2 2022). Dump operations grades were consistent with the same
period last year. Production for the remainder of the year should
be positively impacted by higher irrigation rates as a result of
higher availability of water following a planned shutdown on the
desalination plant that impacted water availability and the
electrical tie-ins that have been completed year to date.
2023 YTD production of 16.8 thousand tonnes was higher than the
same period last year due to full operational Q1 2023 compared to
nine-day stub period in Q1 2022.
Q2 2023 C1 cash costs1 were 3.92/lb, 15% higher than 3.40/lb in
Q2 2022 due to lower production ($1.90/lb) partially offset by
lower sulphuric acid prices (-$0.88/lb) ($155/t in Q2 2023 versus
$251/t in Q2 2022) and lower mine cost mainly driven by lower
diesel prices (-$0.63/lb) ($0.69/l in Q2 2023 versus $1.04/l in Q2
2022).
2023 YTD C1 cash costs1 were 3.97/lb, 16% higher than $3.42/lb
in 2022 YTD. For the second half of 2023, we expect a reduction in
C1 cash costs1 due to lower energy prices (average YTD $0.24/kWh
and estimated remaining $0.19/kWh).
Cozamin Mine
Q2 2023 copper production of 6.6 thousand tonnes was higher than
the same period prior year mainly on higher grades (1.98% in Q2
2023 versus 1.88% in Q2 2022) as a result of mining higher grade
areas. Recoveries and mill throughput were consistent quarter over
quarter.
2023 YTD production was 4% lower than 2022 YTD due to lower
throughput as a result of change in mining method (cut-and-fill)
(3,602 tpd in 2023 YTD versus 3,789 tpd in 2022 YTD), partially
offset by higher grades (1.88% in 2023 YTD versus 1.86% in 2022
YTD). Recoveries were consistent with the same period last
year.
Q2 2023 C1 cash costs1 were 30% higher than the same period last
year mainly due to inflationary price increases on the main
consumables, unfavourable foreign exchange rate, start of paste
plant operations, which resulted in an increase in labour,
contractor and cement costs, and changes in mining method
($0.44/lb), partially offset by higher copper production
(-$0.06/lb).
2023 YTD C1 cash costs1 were 40% higher than the same period
last year primarily due to the change in mining method which
resulted in an increase in contractor utilization, unfavourable
foreign exchange rate and higher spend on mechanical parts to
increase equipment availability and reliability ($0.34/lb). In
addition, cash costs were impacted by lower production ($0.05/lb),
lower zinc by-product credits due to planned lower zinc production
($0.05/lb).
Mantoverde Development Project
Construction of the MVDP located at the existing Mantoverde
(oxide) operation continues to progress well. The MVDP is expected
to enable the mine to process 231 million tonnes of copper sulphide
reserves over a 20-year expected mine life, in addition to existing
oxide reserves. The MVDP involves the addition of a sulphide
concentrator (12.3 million tonnes per year) and tailings storage
facility, and the expansion of the existing desalination plant.
Upon completion, the Company expects the MVDP to increase
production from approximately 34,000 to 36,000 tonnes of copper
(cathodes only) in our full year guidance for 2023 to approximately
110,000 to 120,000 tonnes of copper (copper concentrate and
cathodes) post project completion. In parallel, C1 cash costs1 are
expected to decrease from a range of ~$3.70/lb to ~$3.80/lb in the
full year guidance for 2023 to blended costs of below $2.00/lb
after project completion and ramp up. The decline in expected costs
will be driven by the mine's transition to becoming a primary
producer of copper concentrate. Upon completion of the MVDP,
approximately 75% of Mantoverde's production will come from the
lower-cost sulphide copper. The mine will also benefit from the
production of approximately 31,000 ounces of gold per year that
will generate by-product credits.
MVDP is progressing under a lump-sum turn-key engineering,
procurement, and construction (EPC) contract with Ausenco Limited,
a multi-national EPC management company, with broad international
experience in the design and construction of copper concentrator
projects of this scale in the international market. The execution
plan includes a Capstone Copper owner’s team working with the
contractors during the execution phase.
The Mantoverde Development Project is progressing well at
approximately 88% complete and remains on track for commissioning
and feeding first ore to the mill in late 2023. Areas of focus in
Q2 2023 were:
- Stockpile dome was completed in May;
- Stockpiled approximately 4.4 million tonnes of sulphide ore
grading ~0.63% copper and 0.11 g/t gold to date;
- The primary crusher's mechanical and electrical tie-in was
completed;
- Mechanical installation of all flotation cells was completed
according to plan; and
- Critical equipment assembly is in progress according to the
planned schedule: the SAG mill´s internal rubber lining was
completed and the ball mill´s liners were installed.
As of June 30, 2023, the cost of the different components of the
project, including the lump-sum turnkey EPC, continue on track and
on target. The total project capital remains at $825 million and
inception-to-date project spend, excluding finance costs, totals
$706 million.
A virtual tour of the project can be viewed at
https://vrify.com/decks/12698-mantoverde-development-project
Chilean Tax Reform
In May 2023, the Chilean Congress finalized the discussion
surrounding the proposed Mining Royalty Bill, which was reviewed
and approved by the Constitutional Court of Chile on July 15, 2023.
The Mining Royalty Bill, which is expected to be passed into law
once signed by the President of Chile and published in the Official
Gazette, is anticipated to be effective on January 1, 2024.
The Mining Royalty Bill contains two components, an ad-valorem
component and a mine operating margin component. The ad-valorem
component is applicable to companies with annual sales of copper
that are higher than the equivalent of 50,000 metric tonnes of fine
copper ("MTFC"). If the company's "Adjusted Mining Operational
Taxable Income", or "RIOMA" as it is referred to in Chile, is
negative, the ad-valorem component to be paid will be calculated by
subtracting the negative amount of the RIOMA from the ad-valorem
component. The ad-valorem component of the Mining Royalty will be
deductible when determining First Category income taxes, however,
not for purposes of determining RIOMA. The ad-valorem component is
capped at 1% of gross copper revenues.
The mine operating margin ("MOM") component will vary depending
on the sales volume of the company, along with whether more than
50% of its annual production is copper. Mining companies which
derive more than 50% of their income from copper sales and exceed
50,000 MTFC will pay a tax rate that fluctuates between 8% and 26%
based on the following table:
MOM
Maximum effective rate
Less than 20%
8%
greater than 20% but less than
45%
the rate increases linearly to
12%
greater than 45% but less than
60%
the rate increases linearly to
26%
Greater than 60%
26%
The MOM component will not be applicable in cases where the
RIOMA is negative and is calculated based on total mine operating
margin, which includes silver and gold by-products. The final
Mining Royalty Bill includes depreciation as a fully deductible
operational expense, however, unlike the First Category deduction,
it is on a non-accelerated basis.
The Mining Royalty includes a maximum limit to the total tax
burden, consisting of (1) the corporate income tax paid in the
respective year, (2) the Mining Royalty (both ad-valorem and MOM
components) and (3) withholding taxes to which owners would be
subject to upon distribution of dividends. The calculation of
withholding taxes assumes a 100% distribution, and is calculated
considering a tax burden of 35% of net taxable income, i.e. an
additional 8% to the First Category rate of 27%. The Mining Royalty
establishes that when the sum of three component exceeds 46.5% of
RIOMA, then the Mining Royalty would be adjusted in such a way that
it does not exceed the limit.
As a change in tax law is accounted for in the period of
enactment, we expect the effect of the change to be recognized in
our results for the three and nine months ended September 30, 2023.
The Company is in the process of reviewing the expected impact,
however, upon enactment we expect to record a deferred income tax
expense in the range of $45 million to $55 million and a
corresponding increase to deferred income tax liabilities. The
Mining Royalty is not expected to have an impact on Santo Domingo
which has 15 years of tax stability post commencement of commercial
production as a result of Decree Law No. 600 ("DL 600") during
which time it will remain subject to the current Specific Tax on
Mining. Furthermore, given the Company's growth projects in Chile,
we do not expect to incur cash withholding taxes for many
years.
Surety Bond Utilization
In May 2023, Minto Metals Corp. ("Minto") announced that they
had ceased all operations at the Minto Mine located within the
Selkirk First Nation's territory in the Yukon and that the Yukon
Government had assumed care and control of the site.
In conjunction with Capstone's sale of the Minto Mine in 2019,
Minto posted a surety bond of C$72 million to cover potential
future reclamation liabilities. While this surety bond is
outstanding, the Company remains an indemnitor to the surety bond
provider. As Minto has defaulted on the surety bond during the
quarter, Capstone recognized a liability of approximately US$54
million (C$72 million) related to our obligations to the issuer of
the surety bond.
Mantoverde - Santo Domingo District Integration Plan
The Company is focused on creating a world-class mining district
in the Atacama region of Chile, targeting over 200,000 tonnes per
year of low-cost copper production with the potential to also
become one of the largest and lowest cost battery grade cobalt
producers in the world outside of China and the DRC. Capstone
Copper has the opportunity to unlock a total of $80-100 million per
year in operating cost synergies, while also enabling additional
copper and cobalt production, infrastructure capital savings, and
the potential for significant tax synergies.
Santo Domingo FS Update
Santo Domingo has started the flowsheet optimization process
previously announced by awarding Ausenco a Prefeasibility Study
("PFS") subsequently followed by a Feasibility Study ("FS") scope.
Most improvements identified through the development of several
technical assessments conducted by subject matter experts before
this work have been confirmed and integrated into the PFS design.
Taking into consideration the previous feasibility study and
recently produced metallurgical testwork data and optimized mine
plan, Ausenco will put together a new Technical Report that will be
used to update the market with the Santo Domingo current business
case, which is expected to be completed by year-end. Also, project
debottlenecking activities have continued to maintain Capstone
Copper's "shovel ready" position by advancing permitting and
formalizing agreements with third parties.
The Feasibility Study will incorporate some of the synergies
previously identified by Capstone in the Mantoverde-Santo Domingo
district, namely related to water and power initiatives. This
includes a plan to expand the existing Mantoverde desalination
plant to 840 litres per second, utilization of existing water
pipelines, and upgraded energy transmission capacity to Santo
Domingo.
Mantoverde Optimized FS and Phase II
The Company is currently analyzing the next expansion of the
sulphide concentrator. Capstone has identified that the
desalination plant capacity and major components of the comminution
and flotation circuits of the Mantoverde Development Project are
capable of sustaining average annual throughput of between 40,000
and 45,000 tonnes per day with no major capital equipment upgrades.
Capstone continues to work with Ausenco's engineering team to
develop the Optimized Mantoverde Development Project (MVDP
Optimized FS), including evaluating the costs and timelines of
debottlenecking the minor components of the plant to meet the
potential throughput target. The conceptual engineering study was
completed in Q2 and the Feasibility Study is on track for
completion in Q1 2024.
Given the above, the Mantoverde Phase II study will evaluate the
addition of an entire second processing line, possibly a
duplication of the first line, to process some of the additional
77% of resources not utilized by the optimized MVDP. Current
activities are focused on understanding the optimum concentrator
capacity and mine plan, along with the implications to the timing
and permitting for the project.
Mantoverde - Santo Domingo Cobalt Feasibility Study
Update
A district cobalt plant for Mantoverde - Santo Domingo may also
unlock cobalt production from Mantoverde while producing a
by-product of sulphuric acid which can then be consumed internally
to further significantly lower operating costs in the cathode
leaching process at Mantoverde.
The cobalt recovery process consists of a concentration step, an
oxidation step, and a cobalt recovery step. The concentration step
considers a conventional froth flotation circuit treating copper
flotation tails to produce a cobaltiferous pyrite concentrate which
is expected to contain between 0.5% and 0.7% Co. Two proven cobalt
processes are under evaluation, Heap Leaching-Ion Exchange and
Roasting. The roasting case requires higher capital and would need
a longer timeline for permitting and construction, while the heap
leaching-ion exchange process is expected to have moderately lower
cobalt and acid production but lower capital requirement, a quicker
timeline to production and lower risk due to the use of heap leach
infrastructure already in place at Mantoverde. We anticipate the
heap leaching-ion exchange approach to be the preferred
methodology, and is where most of the work today is focused.
At a combined MV-SD target of 4.5 to 6.0 thousand tonnes of
cobalt production per year, this would be one of the largest and
lowest cost cobalt producers in the world outside of China and the
DRC.
Mantos Blancos Phase II
Mantos Blancos is currently evaluating the potential to increase
throughput of the Mantos Blancos sulphide concentrator plant from
7.3 million tonnes per year to 10.0 million tonnes per year using
existing underutilized ball mills and other process equipment. As
part of the Mantos Blancos Phase II Project, we are also evaluating
the potential to extend the life of copper cathode production. The
Mantos Blancos Phase II Feasibility Study is expected to be
released in 2024, and the environmental DIA application was
submitted in August 2022.
PV District Growth Study
The company continues to review and evaluate the consolidation
potential of the Pinto Valley district. Opportunities under
evaluation include a potential mill expansion and increased
leaching capacity supported by optimized water, heap and dump
leach, and tailings infrastructure. This could unlock significant
ESG opportunities and may transform our approach to create value
for all stakeholders in the Globe-Miami District. Constructive
discussions with key district stakeholders advanced during the
quarter. A district growth study at Pinto Valley is anticipated in
2024.
Management Additions
Effective August 1, 2023, James ("Jim") Whittaker was appointed
as Senior Vice President, Head of Chile. Jim's most recent role was
with BHP Chile as President of the Escondida copper mine. Prior to
that he was Executive General Manager at OceanaGold where he led
the operations and project development of the Haile Gold Mine in
the southeastern U.S. He has also held the role of Executive
General Manager with Barrick Gold where he led mining operations
and project development in Peru and Argentina. Giancarlo Bruno,
former SVP, Head of Chile, will be retiring effective August 11,
2023 after a long and successful career that has included executive
positions with several large Chilean mining companies. Jim and
Giancarlo are working closely together to ensure a smooth transfer
of responsibilities and knowledge.
Also effective August 1, 2023, Hayden Halsted was appointed Vice
President, Mining & Maintenance. Hayden brings over 30 years of
experience in the mining and civil construction industries,
primarily in South America, where he held several senior leadership
roles at STRACON.
In May 2023, Edgar Rocha joined the Chile team as Project
Director, Santo Domingo Project. Edgar has more than 18 years of
experience in project management and engineering for projects in
the U.S., Portugal, and Chile, and has previously held senior
project roles at Freeport-McMoRan and Lundin Mining.
Corporate Exploration Update
Cozamin: Q2 2023 exploration focused on infilling the
Mala Noche Main Vein West Target with one underground rig from the
west exploration crosscut station. Development of the proposed
lower elevation mine cross-cut will allow for additional infill
drilling starting in late Q3 2023 to develop an updated mineral
resource estimate in 2024.
Copper Cities, Arizona: On January 20, 2022, Capstone
Mining announced that it had entered into an 18-month access
agreement with BHP Copper Inc. ("BHP") to conduct drill and
metallurgical test-work at BHP's Copper Cities project ("Copper
Cities"), located approximately 10 km east of the Pinto Valley
mine. An amendment to the agreement was completed in March 2023
extending the term by another six months. Drilling with two surface
rigs twinning historical drill holes was completed in 2022 with
metallurgical testing continuing in 2023. As explained in the PV
District Growth Study section, district consolidation opportunities
are being evaluated.
Planalto, Brazil: Step-out drilling at the Planalto Iron
Ore-Copper-Gold prospect in Brazil, under an earn-in agreement with
Lara Exploration Ltd. ("Lara"), continued in Q2 2023. During Q1
Capstone and Lara amended the Planalto Option Agreement extending
the timeframe to complete the feasibility study until 2026 and
Capstone now plans to complete 10,000 metres of exploration
drilling during 2023, and a metallurgical test program has been
initiated with results expected in 2024. Capstone currently has a
51% interest in the Planalto Project and can increase its interest
to 61% by delivering a feasibility study before 2026.
2023 Outlook
The results in H1 were impacted by unfavourable weather and
unplanned maintenance downtime. H2 2023 is expected to have an
improved operating performance at Pinto Valley and reduced downtime
at Mantos Blancos leading to more consistent throughput. We expect
to produce 83,000 to 93,000 tonnes of copper on a consolidated
basis during H2 2023 at C1 cash costs1 of $2.55 to $2.75 per
payable pound of copper produced.
Full year capital guidance (including capitalized stripping) of
$620 million and exploration guidance (brownfield and greenfield)
of $10 million remains unchanged. In addition, MVDP remains on
track and on budget.
Capstone’s H2 2023 (6 month period)
operating guidance:
Copper Production
(‘000s tonnes)
C1 Cash
Costs1
(US$ per payable lb Cu
Produced)
Sulphides Business
Pinto Valley
28.0 – 31.0
$2.40 – $2.60
Cozamin
11.5 – 12.5
$1.70 – $1.80
Mantos Blancos
21.0 – 24.5
$2.35 – $2.55
Total Sulphides
60.5 – 68.0
$2.25 – $2.45
Cathode Business
Mantos Blancos
5.0 – 6.0
$2.85 – $3.00
Mantoverde2
17.5 – 19.0
$3.50 – $3.70
Total Cathodes
22.5 – 25.0
$3.35 – $3.55
Consolidated Cu Production
83.0 – 93.0
$2.55 – $2.75
2 Mantoverde production shown on a 100% basis
Key C1 Cash costs1 input assumptions:
CLP/USD: 800:1
MXN/USD: 17:1
Silver: $25/oz
Molybdenum: $20/lb
Gold: $1,850/oz
FINANCIAL OVERVIEW
Please refer to Capstone's Q2 2023 MD&A and Financial
Statements for detailed financial results.
($ millions, except per share
data)
Q2 2023
Q2 2022
2023 YTD
2022 YTD
Revenue
333.9
356.6
669.5
624.7
Net (loss) income
(33.9
)
92.0
(62.9
)
127.1
Net (loss) income attributable
to shareholders
(36.5
)
75.1
(56.5
)
109.1
Net (loss) income attributable to
shareholders per common share - basic and diluted ($)
(0.05
)
0.11
(0.08
)
0.19
Adjusted net (loss)
income1
(12.2
)
(27.7
)
5.2
32.5
Adjusted net (loss) income
attributable to shareholders per common share - basic and
diluted
(0.02
)
(0.04
)
0.01
0.06
Operating cash flow before
changes in working capital
22.0
40.7
65.1
111.1
Adjusted EBITDA1
43.4
115.8
109.3
240.2
Realized copper price1
($/pound)
3.71
3.66
3.93
4.06
($ millions)
June 30, 2023
December 31, 2022
Total assets
5,642.4
5,380.9
Total non-current financial
liabilities
993.9
709.5
Net debt1
(760.4
)
(483.1
)
Attributable net (debt)/cash1
(608.9
)
(483.1
)
CONFERENCE CALL AND WEBCAST DETAILS
Capstone will host a conference call and webcast on Wednesday,
August 2, 2023 at 08:00 am PT/11:00 am ET. Link to the audio
webcast: https://app.webinar.net/MROlAWvjvz8
Dial-in numbers for the audio-only portion of the conference
call are below. Due to an increase in call volume, please dial-in
at least five minutes prior to the call to ensure placement into
the conference line on time.
Toronto: (+1) 416-764-8650 Vancouver: (+1) 778-383-7413 North
America toll free: 888-664-6383
A replay of the conference call will be available until August
9. 2023. Dial-in numbers for Toronto: (+1) 416-764-8677 and North
American toll free: 888-390-0541. The replay code is 998635#.
Following the replay, an audio file will be available on Capstone’s
website at
https://capstonecopper.com/investors/events-and-presentations/.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document may contain “forward-looking information” within
the meaning of Canadian securities legislation and “forward-looking
statements” within the meaning of the United States Private
Securities Litigation Reform Act of 1995 (collectively,
“forward-looking statements”). These forward-looking statements are
made as of the date of this document and the Company does not
intend, and does not assume any obligation, to update these
forward-looking statements, except as required under applicable
securities legislation.
Forward-looking statements relate to future events or future
performance and reflect our expectations or beliefs regarding
future events. Our Sustainable Development Strategy goals and
strategies are based on a number of assumptions, including
regarding the biodiversity and climate-change consequences;
availability and effectiveness of technologies needed to achieve
our sustainability goals and priorities; availability of land or
other opportunities for conservation, rehabilitation or capacity
building on commercially reasonable terms and our ability to obtain
any required external approvals or consensus for such
opportunities; the availability of clean energy sources and
zero-emissions alternatives for transportation on reasonable terms;
our ability to successfully implement new technology; and the
performance of new technologies in accordance with our
expectations.
Forward-looking statements include, but are not limited to,
statements with respect to the estimation of Mineral Resources and
Mineral Reserves, the success of the underground paste backfill and
tailings filtration projects at Cozamin, the timing and cost of the
Mantoverde Development Project ("MVDP"), the timing and results of
the Optimized Mantoverde Development Project ("MVDP Optimized FS")
and Mantoverde Phase II study, the timing and results of PV
District Growth Study (as defined below), the timing and results of
Mantos Blancos Phase II Feasibility Study, the expected reduction
in capital requirements for the Santo Domingo project, the timing
and success of the Mantoverde - Santo Domingo Cobalt Feasibility
Study, the timing and results of the Santo Domingo FS Update and
success of incorporating synergies previously identified in the
Mantoverde - Santo Domingo District Integration Plan, the
realization of Mineral Reserve estimates, the timing and amount of
estimated future production, the costs of production and capital
expenditures and reclamation, the timing and costs of the Minto
surety bond obligations, the budgets for exploration at Cozamin,
Santo Domingo, Pinto Valley, Mantos Blancos, Mantoverde, and other
exploration projects, the timing and success of the Copper Cities
project, the timing and success of the Planalto project, the
success of our mining operations, the continuing success of mineral
exploration, the estimations for potential quantities and grade of
inferred resources and exploration targets, our ability to fund
future exploration activities, our ability to finance the Santo
Domingo project, environmental risks, unanticipated reclamation
expenses and title disputes, the success of the synergies and
catalysts related to prior transactions, in particular the
potential synergies with Mantoverde and Santo Domingo, the
anticipated future production, costs of production, including the
cost of sulphuric acid and oil and other fuel, capital expenditures
and reclamation of Company’s operations and development projects
and the risks included in our continuous disclosure filings on
SEDAR+ at www.sedarplus.ca. The impact of global events such as
pandemics, geopolitical conflict, or other events, to Capstone is
dependent on a number of factors outside of our control and
knowledge, including the effectiveness of the measures taken by
public health and governmental authorities to combat the spread of
diseases, global economic uncertainties and outlook due to
widespread diseases or geopolitical events or conflicts, supply
chain delays resulting in lack of availability of supplies, goods
and equipment, and evolving restrictions relating to mining
activities and to travel in certain jurisdictions in which we
operate. In certain cases, forward-looking statements can be
identified by the use of words such as “anticipates”,
“approximately”, “believes”, “budget”, “estimates”, “expects”,
“forecasts”, “guidance”, “intends”, “plans”, “scheduled”, “target”,
or variations of such words and phrases, or statements that certain
actions, events or results “be achieved”, “could”, “may”, “might”,
“occur”, “should”, “will be taken” or “would” or the negative of
these terms or comparable terminology.
In certain cases, forward-looking statements can be identified
by the use of words such as “anticipates”, “approximately”,
“believes”, “budget”, “estimates”, expects”, “forecasts”,
“guidance”, intends”, “plans”, “scheduled”, “target”, or variations
of such words and phrases, or statements that certain actions,
events or results “be achieved”, “could”, “may”, “might”, “occur”,
“should”, “will be taken” or “would” or the negative of these terms
or comparable terminology. In this document certain forward-looking
statements are identified by words including “anticipated”,
“expected”, “guidance” and “plan”. By their very nature,
forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by
the forward-looking statements. Such factors include, amongst
others, risks related to inherent hazards associated with mining
operations and closure of mining projects, future prices of copper
and other metals, compliance with financial covenants, surety
bonding, our ability to raise capital, Capstone Copper’s ability to
acquire properties for growth, counterparty risks associated with
sales of our metals, use of financial derivative instruments and
associated counterparty risks, foreign currency exchange rate
fluctuations, market access restrictions or tariffs, changes in
general economic conditions, availability and quality of water,
accuracy of Mineral Resource and Mineral Reserve estimates,
operating in foreign jurisdictions with risk of changes to
governmental regulation, compliance with governmental regulations,
compliance with environmental laws and regulations, reliance on
approvals, licences and permits from governmental authorities and
potential legal challenges to permit applications, contractual
risks including but not limited to, our ability to meet the
completion test requirements under the Cozamin Silver Stream
Agreement with Wheaton Precious Metals Corp. ("Wheaton"), our
ability to meet certain closing conditions under the Santo Domingo
Gold Stream Agreement with Wheaton, acting as Indemnitor for Minto
Metals Corp.’s surety bond obligations, impact of climate change
and changes to climatic conditions at our operations and projects,
changes in regulatory requirements and policy related to climate
change and greenhouse gas ("GHG") emissions, land reclamation and
mine closure obligations, aboriginal title claims and rights to
consultation and accommodation, risks relating to widespread
epidemics or pandemic outbreaks; the impact of communicable disease
outbreaks on our workforce, risks related to construction
activities at our operations and development projects, suppliers
and other essential resources and what effect those impacts, if
they occur, would have on our business, including our ability to
access goods and supplies, the ability to transport our products
and impacts on employee productivity, the risks in connection with
the operations, cash flow and results of Capstone Copper relating
to the unknown duration and impact of the epidemics or pandemics,
impacts of inflation, geopolitical events and the effects of global
supply chain disruptions, uncertainties and risks related to the
potential development of the Santo Domingo project, risks related
to the Mantoverde Development Project, increased operating and
capital costs, increased cost of reclamation, challenges to title
to our mineral properties, increased taxes in jurisdictions the
Company operates or is subject to tax, changes in tax regimes we
are subject to and any changes in law or interpretation of law may
be difficult to react to in an efficient manner, maintaining
ongoing social licence to operate, seismicity and its effects on
our operations and communities in which we operate, dependence on
key management personnel, potential conflicts of interest involving
our directors and officers, corruption and bribery, limitations
inherent in our insurance coverage, labour relations, increasing
input costs such as those related to sulphuric acid, electricity,
fuel and supplies, increasing inflation rates, competition in the
mining industry including but not limited to competition for
skilled labour, risks associated with joint venture partners and
non-controlling shareholders or associates, our ability to
integrate new acquisitions and new technology into our operations,
cybersecurity threats, legal proceedings, the volatility of the
price of the common shares, the uncertainty of maintaining a liquid
trading market for the common shares, risks related to dilution to
existing shareholders if stock options or other convertible
securities are exercised, the history of Capstone Copper with
respect to not paying dividends and anticipation of not paying
dividends in the foreseeable future and sales of common shares by
existing shareholders can reduce trading prices, and other risks of
the mining industry as well as those factors detailed from time to
time in the Company’s interim and annual financial statements and
MD&A of those statements and Annual Information Form, all of
which are filed and available for review under the Company’s
profile on SEDAR+ at www.sedarplus.ca. Although the Company has
attempted to identify important factors that could cause our actual
results, performance or achievements to differ materially from
those described in our forward-looking statements, there may be
other factors that cause our results, performance or achievements
not to be as anticipated, estimated or intended. There can be no
assurance that our forward-looking statements will prove to be
accurate, as our actual results, performance or achievements could
differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on our
forward-looking statements.
COMPLIANCE WITH NI 43-101
Unless otherwise indicated, Capstone Copper has prepared the
technical information in this document (“Technical Information”)
based on information contained in the technical reports, Annual
Information Form and news releases (collectively the “Disclosure
Documents”) available under Capstone Copper’s company profile on
SEDAR+ at www.sedarplus.ca. Each Disclosure Document was prepared
by or under the supervision of a qualified person (a “Qualified
Person”) as defined in National Instrument 43-101 – Standards of
Disclosure for Mineral Projects of the Canadian Securities
Administrators (“NI 43-101”). Readers are encouraged to review the
full text of the Disclosure Documents which qualifies the Technical
Information. Readers are advised that Mineral Resources that are
not Mineral Reserves do not have demonstrated economic viability.
The Disclosure Documents are each intended to be read as a whole,
and sections should not be read or relied upon out of context. The
Technical Information is subject to the assumptions and
qualifications contained in the Disclosure Documents.
Disclosure Documents include the National Instrument 43-101
compliant technical reports titled "NI 43-101 Technical Report on
the Cozamin Mine, Zacatecas, Mexico" effective January 1, 2023, “NI
43-101 Technical Report on the Pinto Valley Mine, Arizona, USA”
effective March 31, 2021, “Santo Domingo Project, Region III,
Chile, NI 43-101 Technical Report” effective February 19, 2020, and
"Mantos Blancos Mine NI 43-101 Technical Report Antofagasta /
Región de Antofagasta, Chile" and "Mantoverde Mine and Mantoverde
Development Project NI 43-101 Technical Report Chañaral / Región de
Atacama, Chile", both effective November 29, 2021.
The disclosure of Scientific and Technical Information in this
document was reviewed and approved by Clay Craig, P.Eng., Director,
Mining & Strategic Planning (technical information related to
Mineral Reserves at Pinto Valley and Cozamin), and Cashel Meagher,
P.Geo., President and Chief Operating Officer (technical
information related to project updates at Santo Domingo and Mineral
Reserves and Resources at Mantos Blancos and Mantoverde) all
Qualified Persons under NI 43-101.
Alternative Performance Measures
Alternative performance measures are furnished to provide
additional information. These non-GAAP performance measures are
included in this document because these statistics are key
performance measures that management uses to monitor performance,
to assess how the Company is performing, and to plan and assess the
overall effectiveness and efficiency of mining operations. These
performance measures do not have a standard meaning within IFRS
and, therefore, amounts presented may not be comparable to similar
data presented by other mining companies. These performance
measures should not be considered in isolation as a substitute for
measures of performance in accordance with IFRS.
Some of these alternative performance measures are presented in
Highlights and discussed further in other sections of the document.
These measures provide meaningful supplemental information
regarding operating results because they exclude certain
significant items that are not considered indicative of future
financial trends either by nature or amount. As a result, these
items are excluded for management assessment of operational
performance and preparation of annual budgets. These significant
items may include, but are not limited to, restructuring and asset
impairment charges, individually significant gains and losses from
sales of assets, share based compensation, unrealized gains or
losses, and certain items outside the control of management. These
items may not be non-recurring. However, excluding these items from
GAAP or Non-GAAP results allows for a consistent understanding of
the Company's consolidated financial performance when performing a
multi-period assessment including assessing the likelihood of
future results. Accordingly, these Non-GAAP financial measures may
provide insight to investors and other external users of the
Company's consolidated financial information.
C1 Cash Costs Per Payable Pound of Copper Produced
C1 cash costs per payable pound of copper produced is a measure
reflective of operating costs per unit. C1 cash costs is calculated
as cash production costs of metal produced net of by-product
credits and is a key performance measure that management uses to
monitor performance. Management uses this measure to assess how
well the Company’s producing mines are performing and to assess
overall efficiency and effectiveness of the mining operations and
assumes that realized by-product prices are consistent with those
prevailing during the reporting period.
All-in Sustaining Costs Per Payable Pound of Copper
Produced
All-in sustaining costs per payable pound of copper produced is
an extension of the C1 cash costs measure discussed above and is
also a non-GAAP key performance measure that management uses to
monitor performance. Management uses this measure to analyze
margins achieved on existing assets while sustaining and
maintaining production at current levels. Consolidated All-in
sustaining costs includes sustaining capital and corporate general
and administrative costs.
Net debt / Net cash
Net debt / Net cash is a non-GAAP performance measure used by
the Company to assess its financial position and is composed of
Long-term debt (excluding deferred financing costs and purchase
price accounting ("PPA") fair value adjustments), Working capital
facility, Cost overrun facility from MMC, Cash and cash equivalents
and Short-term investments.
Attributable Net debt / Net cash
Attributable net debt / net cash is a non-GAAP performance
measure used by the Company to assess its financial position and is
calculated as net debt / net cash excluding amounts attributable to
non-controlling interests.
Available Liquidity
Available liquidity is a non-GAAP performance measure used by
the Company to assess its financial position and is composed of RCF
credit capacity, the $520 million Mantoverde DP facility capacity,
Cash and cash equivalents and Short-term investments. For clarity,
Available liquidity does not include the Mantoverde $60 million
cost overrun facility from MMC nor the $260 million undrawn portion
of the Gold stream from Wheaton related to the Santo Domingo
project as they are not available for general purposes.
Adjusted net (loss) income attributable to
shareholders
Adjusted net (loss) income attributable to shareholders is a
non-GAAP measure of Net (loss) income attributable to shareholders
as reported, adjusted for certain types of transactions that in our
judgment are not indicative of our normal operating activities or
do not necessarily occur on a regular basis.
EBITDA
EBITDA is a non-GAAP measure of net (loss) income before net
finance expense, tax expense, and depletion and amortization.
Adjusted EBITDA
Adjusted EBITDA is non-GAAP measure of EBITDA before the pre-tax
effect of the adjustments made to net (loss) income (above) as well
as certain other adjustments required under the RCF agreement in
the determination of EBITDA for covenant calculation purposes.
The adjustments made to Adjusted net (loss) income attributable
to shareholders and Adjusted EBITDA allow management and readers to
analyze our results more clearly and understand the cash generating
potential of the Company.
Sustaining Capital
Sustaining capital is expenditures to maintain existing
operations and sustain production levels. A reconciliation of this
non-GAAP measure to GAAP segment MPPE additions is included within
the mine site sections of this document.
Expansionary Capital
Expansionary capital is expenditures to increase current or
future production capacity, cash flow or earnings potential. A
reconciliation of this non-GAAP measure to GAAP segment MPPE
additions is included within the mine site sections of this
document.
Realized copper price (per pound)
Realized price per pound is a non-GAAP ratio that is calculated
using the non-GAAP measures of revenue on new shipments, revenue on
prior shipments, and pricing and volume adjustments. Realized
prices exclude the effects of the stream cash effects as well as
TC/RCs. Management believes that measuring these prices enables
investors to better understand performance based on the realized
copper sales in the current and prior period.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230802100120/en/
Jerrold Annett, SVP, Strategy and Capital Markets 647-273-7351
jannett@capstonecopper.com
Daniel Sampieri, Director, Investor Relations & Strategic
Analysis 437-788-1767 dsampieri@capstonecopper.com
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