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Capstone Mining Delivers Consistent 2013 Second Quarter Financial Results

Stocks in this article: CS

Financial and Production Highlights for the Three Months Ended June 30, 2013

  • Net earnings of $9.2 million or $0.02 per common share which included:
    • Earnings from mining operations of $13.5 million,
      • Recognized copper price of $3.16 per pound,
    • Production costs included a $0.8 million non-cash charge related to the write-down of inventories at the Minto Mine,
    • $5.6 million in current and deferred tax expenses.
  • Adjusted net earnings [ 1 ] of $13.1 million or $0.03 per common share after making adjustments for certain non-cash and non-recurring items.
  • Operating cash flow before changes in working capital [ 1 ] of $28.6 million or $0.08 per common share.
  • Working capital decreased to $536.0 million at June 30, 2013 (which included $459.7 million of cash and cash equivalents) from $553.1 million at March 31, 2013.
  • Production of 18.6 million pounds of payable copper at a C1 cash cost [ 1 ] of $1.70 per pound of payable copper produced.
  • Revenue of $58.3 million on the sale of 17.2 million pounds of copper, 3.2 million pounds of zinc, 0.3 million pounds of lead, 4,653 ounces of gold and 385,142 ounces of silver.

Operational Highlights for the Three Months Ended June 30, 2013

Cozamin Mine:

  • Produced 12.2 million pounds of copper in concentrates at a C1 cash cost [ 1 ] of $1.22 per pound of payable copper.
  • Completed 5,211 metres of underground exploration drilling in 9 diamond drill holes.

Minto Mine:

  • Produced 7.2 million pounds of copper in concentrates at a C1 cash cost [ 1 ] of $2.49 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.
  • The environmental assessment, which is the first step towards permitting all new reserves identified in the Phase V and VI pre-feasibility studies, was submitted to the Yukon Environmental Socio-Economic Assessment Board (YESAB) for evaluation on July 5, 2013.

Santo Domingo Project:

  • Work on the definitive feasibility study and basic engineering continued as planned for completion by year-end.
  • Work on the environmental impact assessment for the project remains on track for completion and submission by year-end.

Kutcho Project:

  • The project environmental assessment continued to advance during Q2 2013, with further work identified to address technical development and stakeholder comments.
  • A combination of Kutcho technical development and resource demands related to Capstone's proposed acquisition of Pinto Valley has slowed progress on Kutcho's development.
  • Further work is required to refine the project concept, to evaluate engineering design alternatives and to update project economic expectations. In light of the time required to complete this additional work, the environmental assessment will not be submitted in Q3.

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.
  • On June 11, 2013, Capstone announced that the proposed transaction was approved by the U.S. Federal Trade Commission under the Hart-Scott Rodino Antitrust Improvements Act. Additionally, Capstone announced that the Pinto Valley operation achieved throughput and copper production targets that surpassed the thresholds stipulated in the acquisition agreement as a condition precedent to closing. Over a 20-day period in May, Pinto Valley production averaged 49,100 tonnes per day at an average grade of 0.33% copper, producing 6.5 million pounds of copper. Copper recovery averaged 84.2%, producing a copper concentrate with an average grade of 29.0%.  Also, in connection with the transaction, Capstone filed a National Instrument 43-101 compliant technical report in June, related to the 968 million tonne Measured and Indicated Mineral Resource at Pinto Valley.
  • Pinto Valley concentrate production continued to ramp up following the successful restart of mining operations during Q4 2012, with production of 35.5 million pounds of payable copper production in concentrate and 5.5 million pounds of payable copper cathode production during the first six months of 2013.
  • Transition teams from BHP Billiton and Capstone have a significant number of transition activities either completed or well underway and Capstone's post-closing integration team is substantially in place. The most significant remaining condition is the transfer of the operating permits. The proposed transaction is expected to close shortly after the permit transfers are complete, which is currently anticipated to occur in late Q3 2013. The proposed transaction remains subject to these and other customary closing conditions and there can be no assurance such conditions will be met or that the transaction will close.
  • Capstone's Normal Course Issuer Bid has been suspended until the proposed acquisition of Pinto Valley has been completed.

Production Outlook

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