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TheStreet Open House

Capstone Mining 2013 First Quarter Financial Results Demonstrate Solid Progress And Growth

Stocks in this article: CS

"Net earnings and cash flow were impacted by lower copper prices this quarter," said Darren Pylot, President and CEO of Capstone. "However, we are very pleased with the status of our operating mines, both of which have reached a level of operating maturity that permits considerable flexibility in their operations, allowing them to respond quickly as mining conditions dictate."

"The most significant news occurred subsequent to quarter end, with our announced agreement to purchase BHP Billiton's Pinto Valley copper mine and associated infrastructure in Arizona. We expect this transaction to close in the third quarter of 2013, and have a meaningful impact on our copper production," continued Mr. Pylot.

Financial and Production Highlights for the Three Months Ended March 31, 2013

  • Net earnings of $6.9 million or $0.02 per common share which included:
    • Earnings from mining operations of $13.3 million,
      • Recognized copper price of $3.51 per pound,
    • Production costs included a $0.2 million non-cash charge related to the write-down of ore stockpile inventory at the Minto Mine,
    • $2.8 million in current and deferred tax expenses.
  • Adjusted net earnings (1) of $6.1 million or $0.02 per common share after making adjustments for certain non-cash and non-recurring items.
  • Operating cash flow before changes in working capital (1) of $20.1 million or $0.05 per common share.
  • Working capital decreased to $553.1 million at March 31, 2013 (which included $485.4 million of cash and cash equivalents) from $562.1 million at December 31, 2012.
  • Production of 17.9 million pounds of payable copper at a C1 cash cost (1) of $1.72 per pound of payable copper produced.
  • Revenue of $57.7 million on the sale of 15.1 million pounds of copper, 4.4 million pounds of zinc, 0.7 million pounds of lead, 4,792 ounces of gold and 381,689 ounces of silver.

Operational Highlights for the Three Months Ended March 31, 2013

Cozamin Mine:

  • Produced 10.1 million pounds of copper in concentrates during Q1 2013 at a C1 cash cost (1) of $1.06 per pound of payable copper.
  • Completed 5,560 metres of underground exploration drilling in 10 diamond drill holes.
  • A resource update was announced in March 2013, bringing the Measured and Indicated resource in Mala Noche Footwall Zone ("MNFWZ") to 188.6 million pounds of contained copper, which includes the MNFWZ reserves.

Minto Mine:

  • Produced 8.4 million pounds of copper in concentrates during Q1 2013 at a C1 cash cost (1) of $2.50 per pound of payable copper.
  • Continued underground development of the ramp access by a contractor, with initial development ore release from underground still on track for the third quarter of 2013.

Santo Domingo Project:

  • Selected a port location and completed preliminary engineering studies for this greenfield port site located 110 kilometres from the Santo Domingo project. The port site was chosen because of its exceptionally high availability for loading iron vessels. Formal application for the marine concession was made in March 2013.
  • In connection with preparation of the feasibility study ("FS"), Capstone personnel has completed a preliminary estimate of the development capital required to build the Santo Domingo project. The capital cost is currently estimated at between $1.5 to $1.8 billion, dependent upon flow sheet variables and mine equipment lease/purchase options. Capstone is continuing on schedule to complete the FS by year end.
  • Completed 1,272 metres of condemnation drilling in support of the FS to sterilize a new tailings deposition area, which was identified as a superior location during the optimization process.

Kutcho Project:

  • Engineering activities continued to support the compilation of the environmental application as well as the evaluation of project design alternatives and review of project cost expectations.
  • The Application Information Requirements for the environmental assessment application were approved in Q4 2012.
  • Consultation with First Nations, moving towards Impact Benefit Agreements, continued during Q1 2013.
  • The project remains on track to submit an environmental assessment application near mid-2013.

Proposed Pinto Valley Acquisition:

  • On April 28, 2013, Capstone and BHP Copper Inc., a subsidiary of BHP Billiton Ltd. ("BHP Billiton") announced that they had entered into a definitive agreement pursuant to which Capstone will acquire BHP Billiton's Pinto Valley copper mining operation and the associated San Manuel Arizona Railroad Company in Arizona, USA for $650 million.
  • The purchase price is being paid in cash and is subject to customary adjustments. The purchase price will be satisfied from Capstone's existing $200 million Senior Secured Revolving Credit Facility ( $176 million available) and from a new 2.5-year $200 million Senior Secured Reducing Revolving Credit Facility, that are respectively committed and underwritten by The Bank of Nova Scotia, as well as with cash on hand. The new facility will include customary covenants and closing conditions, including closing of the Pinto Valley acquisition, and will bear interest at market rates. The acquisition agreement is not conditional upon financing.
  • The purchase agreement includes typical closing conditions, including regulatory approvals. Closing of the transaction is expected to occur in the third quarter of 2013.
  • Capstone's Normal Course Issuer Bid will be suspended until the proposed acquisition of Pinto Valley has been completed.

Production Outlook

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