Capstone Copper Reports First Quarter 2023 Results
NEWS RELEASE
TSX:CS ● capstonecopper.com
May 3, 2023
Capstone Copper Reports First Quarter 2023 Results
All amounts in US$ unless otherwise indicated
Vancouver, British Columbia – Capstone Copper Corp. (“Capstone” or the “Company”) (TSX:CS) today reported financial results for the three months and quarter ended March 31, 2023 (“Q1 2023”). Q1 copper production totaled 40.7 tonnes at C1 cash costs1 of $2.96 per payable pound of copper produced. The Company reaffirmed its 2023 consolidated production, C1 cash costs1, and capital (including capitalized stripping) guidance of 170-190kt of copper, $2.50 to $2.70 per payable pound, and $620 million, respectively. Link HERE for Capstone’s Q1 2023 webcast presentation.
John MacKenzie, CEO of Capstone, commented, "We are pleased to report that construction at our transformational Mantoverde Development Project (“MVDP”) remains on-time and on-budget, with nearly 3 million tonnes of sulphide ore stockpiled to date ahead of our ramp-up commencing late this year. Furthermore, despite a challenging Q1 2023 marked by heavy rainfall at our Pinto Valley mine in Arizona, we are re-iterating our 2023 production, cost, and capital outlook. We anticipate production to increase sequentially, with a commensurate decrease in costs in the back half of 2023. This year is pivotal for Capstone, as we expect to complete MVDP construction in Q4, setting the stage for a doubling of consolidated cash flow and positioning us well for future growth".
Q1 2023 OPERATIONAL AND FINANCIAL HIGHLIGHTS
- Net loss of $29.0 million, or $(0.03) per share for Q1 2023. Adjusted net income1 of $8.5 million, or $0.02 per share for Q1 2023. Q1 2023 results are lower compared to the same quarter last year due to a lower realized copper price, inflationary pressure on costs, and an inventory build-up due to a sales lag in the availability of ocean going vessels for cathode shipments which totaled 2.4 thousand tonnes of copper. Given the strengthening Chilean peso, net income includes a realized foreign exchange loss of $8.5 million.
- Adjusted EBITDA1 of $65.3 million for Q1 2023 compared to $123.4 million for Q1 2022. The decrease in Adjusted EBITDA1 is driven by a lower realized copper price, a sales lag and inflationary pressure on costs, and realized foreign exchange loss of $8.5 million and realized derivative loss of $8.4 million.
- Operating cash flow before changes in working capital of $41.7 million in Q1 2023 compared to $70.4 million in Q1 2022.
- Consolidated copper production for Q1 2023 of 40.7 thousand tonnes at C1 cash costs1 of $2.96. Copper production was lower than expected in the first quarter due to unfavorable weather at Pinto Valley and maintenance downtime at Mantos Blancos focused on increasing mill throughput which translated into higher consolidated cash costs.
- The Company reiterates the 2023 guidance of 170-190kt of copper production at $2.50-$2.70 per pound, along with capital guidance (including capitalized stripping) of $620 million. We expect production to be back-half weighted, with sequential quarter-over-quarter improvements in copper production, notably at Pinto Valley.
1 These are alternative performance measures. Refer to the section entitled “Alternative Performance Measures” in the Cautionary Notes 1
- Mantoverde Development Project ("MVDP") remains on budget and on schedule. Construction is progressing well on all key areas of the project. Total project spend inception-to-date was approximately $654 million at the end of March 2023 of a total budget of $825 million.
- Total available liquidity1 of $529.1 million as at March 31, 2023, composed of $101.1 million of cash and short-term investments, and $428.0 million of undrawn amounts on the corporate revolving credit facility.
- On March 20, 2023, Capstone Copper announced a new Sustainable Development Strategy and the adoption of greenhouse gases ("GHG") emissions reduction targets to support the Company's commitment to responsible copper production.
- On March 31, 2023, the Company and its largest shareholder, Orion Resource Partners ("Orion") completed a secondary bought offering of common shares whereby Orion sold an aggregate of 57,500,000 common shares at a price of C$5.70 per share. Subsequent to the completion of the offering, Orion's shareholding decreased from approximately 32% to approximately 24%.
- Subsequent to quarter-end, the Company announced the results of an new Technical Report and life of mine plan for its Cozamin mine. The updated life of mine plan includes average annual copper production of 20 thousand tonnes of copper and 1.3 million ounces of silver over eight years at average C1 costs1 of $1.51 per payable pound of copper.
OPERATIONAL OVERVIEW
Refer to Capstone's Q1 2023 MD&A and Financial Statements for detailed operating results.
| Q1 2023 | Q1 2022 | |
| Copper production (000s tonnes) |
Sulphide business
| Pinto Valley | 12.9 | 14.4 |
| Cozamin | 5.2 | 5.9 |
| Mantos Blancos | 10.8 | 0.7 |
| Total sulphides | 28.9 | 21.0 |
| Copper sold (000s tonnes) | 37.5 | 25.5 |
| Realized copper price1($/pound) | 4.17 | 4.78 |
| Cathode business Mantos Blancos 3.3 Mantoverde2 8.5 | |
|---|---|
| 0.30 | |
| 1.20 | |
| Total cathodes 11.8 | 1.5 |
| Consolidated 40.7 | 22.5 |
| Copper sales |
C1 cash costs1 ($/pound) produced Sulphides business
| Pinto Valley | 3.09 | 2.60 |
| Cozamin | 1.72 | 1.12 |
| Mantos Blancos | 2.46 | 2.89 |
| Total sulphides | 2.61 | 2.31 |
Cathode business
| Mantos Blancos | 3.36 | 4.38 |
| Mantoverde | 4.02 | 3.63 |
| Total cathodes | 3.83 | 3.78 |
| Consolidated | 2.96 | 2.31 |
2 Mantoverde production shown on a 100% basis.
3 Q1 2022 production represents only nine days production for Mantos Blancos and Mantoverde
Consolidated Production
Q1 2023 copper production of 40.7 thousand tonnes of copper is higher than the 22.5 thousand tonnes in Q1 2022, primarily as a result of the addition of full quarter Mantos Blancos and Mantoverde production.
Q1 2023 C1 cash costs1 of $2.96/lb are a mix of sulphide and cathode business units compared to Q1 2022 which was predominately sulphide production. Cash costs are higher than guidance for the quarter due to lower production and inflationary pressure on costs which included some carryover of higher cost sulphuric acid inventory.
Q1 2023 consolidated sulphide C1 cash costs1 of $2.61/lb were 13% higher than in Q1 2022 primarily due to inflationary price increases on main consumables.
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
Q1 2023 production was 10% lower than Q1 2022 mainly due to lower mill throughput (52,207 tpd in Q1 2023 versus 58,412 tpd in Q1 2022) driven by heavy rainfall, including flooding, which resulted in plugged chutes and screens; in addition, there was unplanned maintenance on the secondary crusher. The mill feed grade was 6% lower (0.30% in Q1 2023 versus 0.32% in Q1 2022) due to mining sequence, which was partially offset by higher recoveries as a result of lower mill throughput.
Q1 2023 C1 cash costs1 of $3.09/lb were $0.49/lb higher compared to the same period last year of $2.60/lb primarily due to lower production ($0.30/lb), increased mining costs due to inflationary pressures on diesel prices, explosives, grinding media and higher spend on rental equipment, mining equipment tools and contractors ($0.24/lb), higher 2022 bonus payout ($0.05/lb) and lower capitalized stripping ($0.05/lb), partially offset by higher by-product credits on higher molybdenum production. The cash costs are expected to trend down as result of higher production but will be at the high end of the cost guidance range for Pinto Valley.
Mantos Blancos Mine
Q1 2023 production was 14.1 thousand tonnes, comprised of 10.8 thousand tonnes from the sulphide operations and 3.3 thousand tonnes of cathode from the oxide operations. Sulphide concentrate production increased by 9% quarter-over-quarter, driven by higher throughput (16,023 tpd vs. 15,246 tpd in Q4 2022) and higher recoveries (80.2% vs. 75.1% in Q4 2022). Copper grades remained strong at 0.94% (compared to 0.94% in Q4 2022). During Q1 2023, the focus was on preventative maintenance in order to increase reliability and improve online time. The quarter included 18 days operating at 20,000 tpd, and an average throughput rate of 19,000 tpd in February.
Combined Q1 2023 C1 cash costs1 were $2.68/lb ($2.46/lb sulphides and $3.36/lb cathodes). The cathode costs were significantly impacted by high sulphuric acid prices that averaged $212/tonne in Q1 2023 including inland transport costs and 11,300 tonnes of high-acid cost inventory ($240/tonne) as of the end of 2022. Recently, sulphuric acid prices have significantly decreased with contract prices of approximately $130/tonne for 2023. In addition, for the rest of 2023 we expect a reduction in combined C1 cash costs as the production mix will have a higher ratio of concentrates to cathodes with the ramp up in sulphide production during the year. Cash costs in Q4 2022 were lower as a result of a stockpile adjustment that was recorded.
Mantoverde Mine
Q1 2023 production was 8.5 thousand tonnes. Heap operations grade was 0.31% and recoveries were 69.0%. Dump operations grade was 0.17% and recoveries were 39.9%. The heap operations will have a lower grade during 2023 in range of 0.31% to 0.33% as result of mine sequence as we transition towards the sulphide ore for MVDP. As a result of 30% lower grade, the cash costs for 2023 will be higher than 2022 and then subsequently decline in 2024 with the commencement of sulphide production.
Q1 2023 C1 cash costs1 were $4.02/lb and were significantly impacted by high energy costs, averaging 25.6 c/kWh due to high coal prices included in the pricing formula of the energy contract, and high sulphuric acid prices, averaging $177/tonne for the quarter including inland transport costs and 17,600 tonnes of high-cost acid inventory as of the end of 2022. The impact of of higher cost sulphuric acid in opening inventory was approximately $1.3 million. For the rest of 2023, energy costs are expected to gradually decrease and in 2024 the coal price element will be eliminated from the pricing formula. In addition, sulphuric acid prices have significantly decreased with contract prices in the $140/tonne range for 2023.
Cozamin Mine
Q1 2023 production was lower than Q1 2022 due to lower throughput as a result of change in mining method (cut-and-fill) (3,410 tpd in Q1 2023 versus 3,704 tpd in Q1 2022) and lower grades (1.77% in Q1 2023 versus 1.84% in Q1 2022). Recoveries were consistent quarter over quarter.
Q1 2023 C1 cash costs1 were 54% higher than the same period last year primarily due to the change in mining method which resulted in an increase in employee headcount, higher power rates, planned higher spend on contractors and mechanical parts to increase equipment availability and reliability ($0.20/lb). In addition, cash costs were impacted by lower production ($0.17/lb) and lower zinc by-product credits due to planned lower zinc production, as well as lower silver prices ($0.15/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 235 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 36,000 to 40,000 tonnes of copper (cathodes only) in our current 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 $3.50/lb to $3.70/lb in the current guidance for 2023 to 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 byproduct 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 and remains on track for commissioning and feeding first ore to the mill in late 2023. Areas of focus in Q1 2023 were:
- Third electric rope shovel assembly and commissioning completed;
- Stockpiled nearly 3 million tonnes of sulphide ore grading ~0.6% copper;
- Structural and mechanical assembly completed in the primary crusher, while services facilities are progressing according to plan; and
- Installed critical equipment such as the SAG and ball mill, flotation cells, conveyor belts and other components in the final position and electromechanical assembly is progressing according to the planned schedule.
As of March 31, 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 $654 million.
The majority of the total project capital cost of $825 million is fully encompassed by the turn-key contract with Ausenco. The EPC contract total budget is approximately $525 million of which $413 million has been spent as of March 31, 2023. In addition, major mining equipment for approximately $140 million was price fixed prior to the elevated inflationary pressures observed this year.
A virtual tour of the project can be viewed at https://vrify.com/decks/12698-mantoverde-development-project
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. 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.
The district integration synergies include the following:
- Water and Power Infrastructure – 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.
- Port Infrastructure – opportunity to reduce Mantoverde’s concentrate trucking costs by $10 million per year by using the planned Santo Domingo port, located 65 kilometres from Mantoverde. This will also lower GHG emissions associated with transporting concentrate to customers.
- Integrated Operations – potential to lower district operating costs by $20-30 million by streamlining the organizational chart across both operations, increasing purchasing power given district scale, and standardizing equipment to promote productivity gains.
- Santo Domingo Oxides – potential addition of 8,000-10,000 tonnes per annum ("tpa") of copper production over the first 10 years of production, by leaching copper oxides at Santo Domingo and processing the concentrated solutions at Mantoverde’s underutilized SX-EW facility.
- Cobalt Opportunity – ability to reduce operating costs by approximately $45 million per year by building the cobalt and sulphuric acid production facility at Mantoverde that will process cobaltiferous pyrite produced by both Mantoverde and Santo Domingo. The benefits would be realized through the by-product production of sulphuric acid as well as the elimination of related sulphuric acid port and trucking costs.
Santo Domingo
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 which explores betterments identified through the development of several technical assessments conducted by subject matter experts. Taking into consideration the previous feasibility study, Ausenco will put together a new Technical Report to update the market with the Santo Domingo current business case. The press release associated with the Technical Report is expected in December 2023. Also, project debottlenecking activities have continued to maintain Capstone Copper's "shovel ready" position by advancing permitting and formalizing agreements with third parties.
Mantoverde Optimization 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), including evaluating the costs and timelines of debottlenecking the minor components of the plant to meet the potential throughput target. The conceptual engineering study is expected to be completed in Q2 and the Feasibility Study is on track for completion late in H2 2023.
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 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 cobalt processes are under evaluation, Roasting and Heap Leaching-Ion Exchange. In both cases, the technology is proven and is expected to deliver low cost cobalt production and GHG savings. 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 lower cobalt production but with a quicker timeline to production, and lower risk due to the use of heap leach infrastructure already in place at Mantoverde.
For the roasting case, the pyrite concentrate, which contains between 0.5% and 0.7% Co, is oxidized in a fluidized bed roaster to produce a cobalt calcine and a concentrated sulphuric acid by-product. The calcine is then subjected to various leaching, precipitation, solvent extraction and crystallization steps to produce battery grade cobalt sulphate heptahydrate. Capstone is also evaluating alternatives that may include the direct sale of some or all the cobalt as intermediate product, such as mixed hydroxide precipitate, to a partner, joint venture or an independent third-party refiner. At a combined MV-SD target of 6.0 to 6.5 thousand tonnes of cobalt production per year, this would be one of the largest and lowest cost cobalt producers in the world. Additional benefits of this project include the generation of carbon-free energy from waste heat emitted by the roaster, and the production of by-product sulphuric acid which can be used for heap or dump leaching to produce low-cost copper cathodes at Mantoverde, Mantos Blancos, or sold to other consumers within the district. Exploratory test-work has started at Mantoverde to confirm suitability of the Santo Domingo cobalt circuit flowsheet to process an integrated cobaltiferous pyrite feed.
For the heap leaching-ion exchange case, the pyrite concentrate from Mantoverde and Santo Domingo would be recovered and added to the oxide heap leach feed agglomerate drums. The pyrite would oxidize in the heap, producing by-product sulfuric acid in situ and solubilizing a significant fraction of the cobalt. A bleed stream containing cobalt in solution will then be directed to a recovery plant consisting of various steps of impurity removal, continuous ion exchange, and hydroxide precipitation to produce a cobalt hydroxide precipitate. It is believed that this approach would require significantly less capital expenditure and could potentially accelerate the production of cobalt from the district. Test work has commenced as planned, including cobaltiferous pyrite roasting and leaching tests for Santo Domingo, column leaching and selective flotation tests using Mantoverde ore, and ion exchange separation tests using Mantoverde raffinates.
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 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 H2 2023, and the environmental DIA application was submitted in August 2022.
PV4 Study
The PV4 PFS aims to maximize the conversion of approximately one billion tonnes of mineral resources to mineral reserves, significantly extending Pinto Valley’s mine life, and increasing the mine’s copper production profile. Given our review of district consolidation potential, the release of the PV4 study will be deferred while we investigate the incorporation of district opportunities including 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 surface value for all stakeholders in the Globe-Miami District.
Cozamin Updated Technical Report
The Company is pleased to announce the results of a new Technical Report for its Cozamin Mine in Zacatecas, Mexico. As at January 1, 2023, Probable Mineral Reserves stood at 10.2 million tonnes grading 1.65% copper, 43 g/t silver, 0.54% zinc and 0.29% lead. Measured and Indicated Mineral Resources were 19.7 million tonnes grading 1.58% copper, 47 g/t silver, 1.08% zinc and 0.41% lead. Inferred Resources were 12.3 million tonnes grading 0.72% copper, 38g/t silver, 1.97% zinc and 0.83% lead.
The updated life of mine plan includes average annual copper production of 20 thousand tonnes of copper and 1.3 million ounces of silver production over eight years at average C1 costs1 of $1.51 per payable pound of copper. Over the next five years from 2023 to 2027, average projected annual production is higher at 24 thousand tonnes of copper and 1.7 million ounces of silver, at lower average projected C1 costs1 of $1.46 per payable pound of copper.
Based on our experience mining the Mala Noche Footwall Zone ("MNFWZ") orebody at Cozamin to date, management believes the combination of mining methods outlined in the Technical Report will result in optimal mine performance, particularly in ore extraction. Furthermore, as Cozamin builds its skill set in paste backfill and cut and fill mining, there are several possibilities to extend the mine life and improve mining productivity and dilution. Specifically, the Technical Report outlines a number of opportunities to expand the mine that are not included in the life of mine plan and are not reflected in the mineral reserve estimate as of January 1, 2023, including: through exploration on drill targets open to the southeast, northwest, and downdip (at depth), by converting material classified as Inferred with additional drilling and studies, through the implementation of selective mining techniques to decrease dilution and lower mining costs, and through enhanced pillar recovery, leveraging the benefits of the paste backfill plant.
The company has filed on SEDAR a technical report titled "NI 43-101 Technical Report on the Cozamin Mine, Zacatecas, Mexico" that has an effective date of January 1, 2023. The Technical Report was prepared in accordance with the Canadian Securities Administrator's NI 43-101 Standards of Disclosure for Mineral Projects; and is available for review under the Company's profile on SEDAR at www.sedar.com and the Company's web site at www.capstonecopper.com.
| Cozamin Updated Life of Mine Plan 2023 to 2030 | |
| Life of Mine Plan2 | |
| Cu Production (Kt) Ag Production (Koz) Pb Production (Kt) Zn Production (Kt) Tonnes milled (M tonnes) Cu Grade (%) Cu Recovery (%) Ag Grade (g/t) Ag Recovery (%) Pb Grade (%) Pb Recovery (%) Zn Grade (%) Zn Recovery (%) | 23.8 25.4 23.8 25.3 22.3 17.8 15.6 5.3 1,411 1,576 1,678 1,829 1,832 1,549 1,353 404 0.2 0.4 3.2 2.7 4.5 4.4 7.5 2.2 0.8 0.8 3.5 2.9 5.3 5.6 9.0 2.6 1.38 1.38 1.36 1.41 1.47 1.32 1.42 0.48 1.80 1.92 1.84 1.88 1.60 1.44 1.19 1.19 95.62 95.84 95.54 95.57 94.66 93.85 92.45 92.96 38 42 46 48 48 46 39 35 83.64 84.68 83.66 84.04 80.82 79.37 76.02 75.07 0.04 0.05 0.27 0.23 0.35 0.39 0.60 0.51 31.26 54.52 87.19 84.40 87.11 84.72 88.44 89.64 0.34 0.29 0.49 0.43 0.57 0.64 0.91 0.89 17.39 20.80 53.33 47.73 63.83 65.78 69.52 61.34 |
| Operating Cost per Tonne ($/t milled) C1 Costs3 ($/lb) Sustaining capex ($M) Expansion capex ($M) | 58.78 60.73 58.17 57.95 60.58 59.22 59.94 59.84 1.63 1.56 1.31 1.32 1.49 1.57 1.73 1.86 27.6 19.7 15.2 20.9 14.8 12.2 3.1 - 7.6 - - - - - - - |
2 Cozamin’s Life of Mine Plan has been updated based on the Mineral Reserves as of January 1, 2023. Operating and capital costs assume an exchange rate of MXN$20 per USD$1.
3 C1 Costs assume by-product pricing of Ag = $20.00/oz in 2023, Ag = $22.00/oz in 2024-2025, and Ag = $21.00/oz thereafter; Pb = $0.90/lb and Zn = $1.10/lb in all periods. C1 Costs are net of by-products and includes the 50% silver stream, which provides 10% of silver price to Capstone for 50% of silver produced, and is an alternative performance measure. Please see the “Alternative Performance Measures” section.
Mineral Reserve Estimate as of January 1, 2023
| Classification | Tonnes Cu Ag Zn Grade Pb Grade | Cu Ag Zn Metal Pb Metal |
| Proven Probable | (kt) (%) (g/t) (%) (%) - - - - - 10,210 1.65 43.44 0.54 0.29 | (kt) (koz) (kt) (kt) - - - - 168 14,258 55 29 |
| Total | 10,210 1.65 43.44 0.54 0.29 | 168 14,258 55 29 |
Reserve Table Notes:
1. The Mineral Reserve is reported at the point of delivery to the process plant, using the 2014 CIM Definition Standards, and has an effective date of January 1, 2023.
2. The Qualified Person for the estimate is Mr. Clay Craig, P.Eng., a Capstone employee
3. The Mineral Reserve is reported within fully diluted mineable stope shapes generated by the Deswik Mineable Shape Optimiser software. Mining methods include long-hole stoping and cut-and-fill methods.
4. The Mineral Reserve is reported at or above a blended cut-off of $60.54/t NSR for long-hole stoping and $65.55/t NSR for cut-and-fill mining
5. The NSR cut-off is based on operational mining and milling costs plus general and administrative costs. The NSR formulae vary by zone. Three separate NSR formulae are used based on zone mineralization and metallurgical recoveries. Copper-silver dominant zones use the NSR formula: (Cu*66.638 + Ag*0.484)*(1-NSRRoyalty%). MNFWZ zinc-silver zones use the NSR formula: (Ag*0.290 + Zn*13.723 + Pb*13.131)*(1-NSRRoyalty%). MNV zinc-silver dominant zones use the NSR formula: (Ag*0.228 + Zn*12.121 + Pb*11.363)*(1- NSRRoyalty%). Metal price assumptions (in USD) of Cu $3.55/lb, Ag = $20.00/oz, Pb = $0.90/lb, Zn = $1.15/lb and metal recoveries of 96% Cu, 86% Ag, 0% Pb and 0% Zn in copper-silver dominant zones, 0% Cu, 61% Ag, 93% Pb and 88% Zn in MNFWZ zinc-silver dominant zones, and 0% Cu, 56% Ag, 80% Pb and 77% Zn in MNV zinc-silver dominant zones. The formulae include consideration of confidential current smelter contract terms, transportation costs and 1–3% net smelter return royalty payments. Royalties are dependent on the mining concession, and are treated as costs in the Mineral Reserve estimates.
6.Totals may not sum due to rounding.
Mineral Resource Estimate as of January 1, 2023
| Classification | Cu Ag Tonnes Grade Grade Zn Grade Pb Grade | Cu Ag Metal Metal Zn Metal Pb Metal |
| Measured Indicated | (kt) (%) (g/t) (%) (%) 400 1.25 53.8 1.23 0.40 19,264 1.59 46.8 1.08 0.41 | (kt) (koz) (kt) (kt) 5 692 5 2 306 28,970 207 79 |
| Measured + Indicated Inferred | 19,664 1.58 46.9 1.08 0.41 12,283 0.72 38.3 1.97 0.83 | 311 29,662 212 81 88 15,123 242 102 |
Resource Table Notes:
1. The Mineral Resource is reported insitu, using the 2014 CIM Definition Standards, and have an effective date of January 1, 2023.
2. The Qualified Person for the estimate is Mr. Clay Craig, P.Eng., a Capstone employee.
3. The Mineral Resource is reported inclusive of the Mineral Resource converted to Mineral Reserve. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability.
4. The Mineral Resource was estimated assuming underground mining by longhole stoping and post-pillar cut-and-fill with mineral processing by flotation. Mineral Resource estimates do not account for mining loss and dilution.
5. The Mineral Resource is reported above a net smelter return of US$59/t. Metal price assumptions in the NSR formulae were $3.75/lb Cu, US$22.00/oz Ag, US$1.35/lb Zn and US$1.00/lb Pb.
6. Metallurgical recoveries used in the NSR formulae are based on mineralization. Metallurgical recoveries vary by domain and NSR formula. The NSR formula for MNV zinc zones is (Ag*0.241 + Zn*15.511 + Pb*12.993)*(1-NSRRoyalty%) using metallurgical recoveries of 55% Ag, 80% Zn and 80% Pb. The NSR formula for MNV copper-zinc zones is (Cu*69.739 + Ag*0.498 + Zn*12.956)*(1-NSRRoyalty%) using metallurgical recoveries of 95% Cu, 85% Ag and 67% Zn.Copper–silver dominant zones use the NSR formula: (Cu%*$70.72 + Ag g/t$0.53) * (1-NSR Royalty%). Copper–silver dominant zones use the following metallurgical recoveries: 96.16% Cu and 85.83% Ag. Copper–zinc zones use the NSR formula: (Cu%*$69.74 + Ag g/t*$0.50 + Zn%*$12.96) * (1-NSR Royalty%). Copper–zinc zones use the following metallurgical recoveries: 94.82% Cu, 83.82% Ag, 66.95% Zn, and 0% Pb.MNFWZ zinc–silver dominant zones use the NSR formula: (Ag g/t*$0.35 + Zn%*$16.80 + Pb%*$15.11) * (1-NSR Royalty%).Zinc–silver dominant zones use the following metallurgical recoveries: 66.50% Ag, 86.79% Zn, and 92.86% Pb. The formulae include consideration of confidential current smelter contract terms, transportation costs and 1-3% net smelter return royalty payments.
7. Totals may not sum due to rounding.
Corporate Exploration Update
Cozamin: Q1 2023 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 18month 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 PV4 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"), was completed in Q1 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.
2023 Outlook
The Company reiterates the 2023 consolidated production, C1 cash costs1 and capital guidance (including capitalized stripping) of 170-190kt of copper, $2.50 to $2.70 per payable pound and $620 million, respectively. We expect production to be back-half weighted, with sequential quarter-over-quarter improvements in copper production, notably at Pinto Valley.
MVDP remains on track and on budget for commissioning and feeding first ore to the mill in late 2023.
FINANCIAL OVERVIEW
Please refer to Capstone's Q1 2023 MD&A and Financial Statements for detailed financial results.
| ($ millions, except per share data) | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | 335.6 | 268.1 |
| Net (loss) income | (29.0) | 35.1 |
| Net (loss) income attributable to shareholders | (20.0) | 34.0 |
| Net (loss) income attributable to shareholders per common share - basic and diluted ($) | (0.03) | 0.08 |
| Adjusted net income1 | 8.5 | 61.1 |
| Adjusted net income attributable to shareholders per common share - basic and diluted | 0.02 | 0.14 |
| Adjusted EBITDA1 | 65.3 | 123.4 |
| Cash flow from operating activities | 3.8 | (7.8) |
| Cash flow from (used in) operating activities per common share1- basic ($) | 0.01 | (0.02) |
| Operating cash flow before changes in working capital1 | 41.7 | 70.4 |
| Operating cash flow before changes in working capital per common share1– basic ($) | 0.06 | 0.16 |
| Total assets | 5,503.7 | 5,380.9 |
| ($ millions) | March 31, 2023 | December 31, |
|---|---|---|
| 2022 |
Long term debt (excluding financing fees and purchase price allocation fair value 692.0 595.0 adjustments)1
| Total non-current financial liabilities | 829.3 | 709.5 |
| Total non-current liabilities | 1,941.7 | 1,792.5 |
| Cash and cash equivalents and short-term investments | 101.1 | 171.9 |
| Net debt1 | (650.9) | (483.1) |
| Attributable net (debt)/cash1 | (491.7) | (34.1) |
CONFERENCE CALL AND WEBCAST DETAILS
Capstone will host a conference call and webcast on Wednesday, May 3, 2023 at 08:00 am PT/11:00 am ET. Link to the audio webcast: https://app.webinar.net/ZrDqayglNXe
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