Capstone Reports First Quarter 2011 Financial ResultsBy Capstone Mining Corp., PRNE
Tuesday, May 24, 2011
VANCOUVER, May 25, 2011 -
- Gross Sales Revenue of $110.1 Million, Net Earnings of $18.9 Million
($0.09 per Share)
- (All financial information prepared in accordance with International
Financial Reporting Standards ("IFRS"); all amounts in US$ unless otherwise
Capstone Mining Corp. (CS: TSX) ("Capstone") today announced its
financial results for the three months ended March 31, 2011. Net earnings for
the quarter were $18.9 million and cash flow from operating activities was
$6.7 million. Capstone ended the quarter with cash on hand of $181.2 million,
after repaying C$17.4 million of its long-term obligations in the first
quarter. Copper production for the quarter at Capstone's two mines, Cozamin
and Minto, totalled 16.1 million pounds of payable copper at an estimated
total cash cost of $1.59 per payable pound.
Capstone will hold a conference call Wednesday, May 25, 2011 at 11:30 am
Eastern time (8:30 am Pacific time) to discuss these results; call-in details
are provided at the end of this release. This release should be read in
conjunction with Capstone's unaudited interim consolidated financial
statements and management's discussion and analysis ("MD&A") for the three
months ended March 31, 2011, which are available on Capstone's website at:
capstonemining.com/s/FinancialStatements.asp. An updated corporate
presentation, including results to March 31, 2011, is also available at
2011 Q1 Overview Three months Three months ended March ended March 31, 31, 2011 2010 Gross sales revenue ($ millions) 110.1 88.0 Payable copper produced (millions lbs) 16.1 21.2 Total cash cost per payable pound of copper produced (1) ($) 1.59 1.12 Copper sold - (millions lbs) 22.8 21.2 Net earnings for the period ($ millions) 18.9 14.8 Earnings per common share ($) 0.09 0.07 Adjusted net earnings (1) ($ millions) 16.8 21.9 Adjusted Earnings (1) per common share ($) 0.08 0.11 Cash flow from operating activities ($ millions) 6.7 4.4 Cash flow from operating activities per common share ($) 0.03 0.02 Cash, restricted cash & short-term deposits ($ millions) 181.2 114.5
 The items marked with a "1" are alternative performance measures;
please see "Alternative Performance Measures" below.
"Revenues and net earnings rose in the first quarter due to higher metal
prices," said Darren Pylot, Capstone President and CEO. "The higher prices
were partially offset by higher cost of sales and depletion and amortization
on higher unit production costs and deferred stripping amortization.
Production was lower than planned in the first quarter, however so far
production in the second quarter is exceeding targets resulting in a
considerable portion of the first quarter production shortfall being made
"The biggest highlight for Capstone to date in 2011 was our announced
proposed acquisition of Far West Mining and our strategic partnership with
Korea Resources Corporation. Far West's Santo Domingo Project in Chile is
expected to give us 200% growth in anticipated copper production from 2011 to
2016," continued Mr. Pylot. "The transaction, if approved by Capstone and Far
West shareholders, is expected to close in mid-June."
Financial and Production Highlights for the Three Months Ended March 31,
- Recorded net earnings of $18.9 million or $0.09 per common share which
- Earnings from mining operations of $39.3 million,
- Realized copper price of $4.18 per pound.
- Administrative and stock based compensation of $6.4 million, and
- Current and deferred tax expenses of $12.2 million.
- Adjusted net earnings were $16.8 million or $0.08 per common share
after making adjustments for certain non-cash and non-recurring items.
- Generated cash flow from operating activities of $6.7 million or $0.03
per common share.
- Includes a realized loss on derivative instruments of $12.6 million.
- Working capital increased to $212.9 million at March 31, 2011 (which
included $181.2 million of cash) from $177.0 million at December 31, 2010.
- Fully repaid in January 2011 the C$17.4 million owing to Yukon Energy
Corporation related to the spur and main power lines servicing the Minto
Mine, seven years ahead of schedule.
- Produced a total of 16.1 million pounds of payable copper at an
estimated total cash cost of $1.59 per pound of payable copper.
- Recorded gross sales revenue of $110.1 million on the sale of 22.8
million pounds of copper, 3.0 million pounds of zinc, 1.0 million pounds of
lead, 7,765 ounces of gold and 348,401 ounces of silver.
- Produced 8.3 million pounds of payable copper at a total cash cost
of $1.57 per pound.
- Re-commenced mining in the Avoca stope at the end of March after
extensive rehabilitation efforts were completed, which is now operating at
- Completed 5,461 metres of diamond drilling in 12 holes underground on
the Mala Noche Footwall Zone ("MNFWZ") and the main Mala Noche Vein. Drilling
has expanded the MNFWZ where drilling continues.
- Completed mapping on three veins in the MNFWZ structure, which show
excellent lateral continuity of the mineralization.
- Completed 3,283 metres of diamond drilling in six holes on surface at
Cozamin on various targets. Surface drilling continues and results will be
released later in the year.
- Mined 13,831 tonnes of exploration development ore in the MNFWZ with
448 metres of lateral drifting to open access for geological mapping and to
provide material for ongoing metallurgical testing.
- Awarded the "Clean Industry" certification by the Mexican environmental
authorities in April following a 24 month implementation process.
- Produced 7.8 million pounds of payable copper at a total cash cost
of $1.62 per pound of payable copper.
- Completed final mining of the Minto Main pit in April. Stockpiled ore
will feed the mill until early 2012, at which time ore will be available from
- Commenced stripping in Area 2 in April 2011.
- The Yukon Water Board issued the amended Water Use License ("WUL") in
April 2011. Implementation of the modified license provisions is underway.
- The Yukon Environmental and Socio-Economic Assessment Board ("YESA")
issued the evaluation document for the Phase IV Permit application. An
amendment to the existing Quartz Mining License ("QML") was issued in March
which permitted mining to commence in Area 2/118 and a new QML for the Minto
Phase IV project was issued in May 2011.
- Completed the Phase V Pre-Feasibility Study in March 2011, extending
the Minto Mine life to 2020, at an average annual production of 43.0 million
pounds of copper in concentrates, at a total cost per pound of payable copper
of $1.34, net of by-product credits.
- Completed 17,792 metres of exploration drilling in 52 diamond drill
holes mostly in the Copper Keel/Wildfire area, providing sufficient data to
complete an initial mineral resource estimate, which is expected to be
completed by the end of the second quarter.
Kutcho, British Columbia:
- Completed a Pre-Feasibility Study ("PFS"), that contemplates a 12 year
mine life, with an IRR of 27%, NPV of C$155 million at a 10% discount rate
and a 3.4 year payback with average annual production of 34.7 million pounds
of copper, 54.5 million pounds of zinc and 672,000 ounces of silver.
Capstone re-iterates its full year 2011 guidance of 80-85 million pounds
of copper in concentrates.
At Cozamin, production grades and tonnes are ramping up as expected from
first quarter levels with the recent restart of mining in the Avoca area.
Much of the higher grade material previously scheduled in the first quarter
is expected to be shifted to subsequent quarters, limiting the overall impact
on the year. Various initiatives are being pursued in the second and third
quarters to increase mine ore inventory from the principal mining stopes,
which is intended to facilitate increased production from the mine. In
addition, development has been accelerated in other areas of the mine in
order to bring additional stopes into production by mid-year. This is
intended to provide additional high grade ore and flexibility to the overall
A mineral resource estimate for the MNFWZ is expected to be completed and
a Pre-Feasibility Study (PFS) commenced by the end of the second quarter. The
PFS will apply economic parameters to the MNFWZ resource block model to
determine economic viability. The PFS will also include a cost benefit
analysis to look at increasing production by expanding key infrastructure,
such as increasing the hoisting capability, mine ventilation and adding
additional mineral processing plant capacity along with a scenario of an
extended mine life using the existing plant and infrastructure. The study
will also examine other opportunities such as ways to make improvements to
bulk mining techniques of the current mineral reserve.
At Minto, contract crushing which commenced on April 15, has demonstrated
the ability to exceed production targets increasing throughput rates to a
level that is expected to allow recovery of the first quarter shortfall with
production ramping up ahead of schedule to the levels that were planned for
the fourth quarter of 2011. New mill daily and hourly throughput records have
been established in April and May since the implementation of the contract
crushing system. The high grade ore originally scheduled for March was mined
in April. This will shift some of the production planned for the first
quarter into the second quarter of 2011. The higher throughput and grades at
Minto in the second quarter have significantly reduced the year-to-date
production shortfall carried from the first quarter.
Driven by the recently discovered Wildfire and Copper Keel deposits at
Minto, Capstone also plans a PFS (Phase VI PFS) in 2011. This Phase VI study
is scheduled to start in the third quarter of 2011 using a new mineral
resource estimate that is being completed in two stages. A preliminary
resource estimate will be finished in the second quarter and will determine
the initial scope of the PFS. This will be followed by additional drilling,
and a more robust estimate in the third quarter. The new estimate will
incorporate the Wildfire and Copper Keel deposits into a larger framework of
a combined Area 2/118/Wildfire/Copper Keel block model. Similar to the
Cozamin PFS, this Minto Phase VI PFS will include a cost benefit analysis
using expanded production scenarios and mine life estimates versus the
existing Phase V plan.
Development activities at Kutcho in 2011 will be focused on carrying the
environmental and socio-economic assessment process forward and consultations
with the goal of obtaining all necessary permits for mine development by
mid-2012, as well as ongoing exploration.
Update on Proposed Acquisition of Far West Mining Ltd. and Formation of
Strategic Partnership and Joint Venture with Korea Resources Corporation
On April 17, 2011, Capstone announced that it had entered into an
arrangement agreement (the "Arrangement Agreement") with Far West Mining Ltd.
("Far West"), pursuant to which, and subject to the terms and conditions of
the Arrangement Agreement, Capstone will acquire all of the issued and
outstanding common shares of Far West in accordance with an arrangement of
Far West under the Business Corporations Act (British Columbia) (the
"Arrangement"). Assuming the Arrangement becomes effective, each Far West
shareholder will be entitled to elect to receive, in exchange for each Far
West share held, (i) 1.825 shares of Capstone and C$1.00 in cash, (ii) 2.047
shares of Capstone and C$0.001 in cash, or (iii) C$9.19 in cash, subject to
proration on the basis of an aggregate maximum cash amount of approximately
C$79 million, and provided that no Far West shareholder that elects option
(iii) above will receive less than C$1.00 in cash per Far West share.
Capstone has also agreed to form a long-term strategic relationship with
Korea Resources Corporation ("KORES") for the development of Far West's Santo
Domingo project. Concurrent with the completion of the Arrangement, KORES
will (i) acquire a 30% interest in the entity that will own the Santo Domingo
project for cash consideration of up to approximately C$210 million to
Capstone, and (ii) subscribe for an approximate 11% interest in Capstone for
aggregate cash consideration of approximately C$170-183 million (the "KORES
Subscription"). The shares will be subscribed for at a price of C$4.35 per
share, based on a 1% discount to the volume weighted average price of
Capstone shares on the TSX for the 5 trading days prior to April 17, 2011.
In connection with the Arrangement, Capstone has called the special
meeting of shareholders on June 13, 2011 to consider a resolution to approve
the issuance of (i) the Capstone common shares forming the consideration to
be paid to Far West shareholders, and (ii) the Capstone common shares to be
issued in connection with the KORES Subscription. The special meeting of
Capstone shareholders is being held concurrently with the meeting of Far West
securityholders, which has been called to consider the Arrangement. As the
Arrangement is conditional upon the receipt of a number of regulatory, court
and securityholder approvals, the exact timing of completion of the
Arrangement cannot be predicted, but it is expected to be on or about June
Conference Call and Webcast Details
Capstone will host a conference call on Wednesday, May 25, 2011 to
discuss these results. The conference call and webcast details are as
Date: Wednesday, May 25, 2011 Time: 11:30 am Eastern Time (8:30 am Pacific Time) Dial in: North America -- +1-888-231-8191, International -- +1-647-427-7450 Webcast: www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3530780 Replay: North America -- 1-800-642-1687, International -- +1-416-849-0833 Replay Passcode: 66806912
The conference call replay will be available until June 1, 2011. A
transcript of the call will also be made available on Capstone's website
(capstonemining.com/s/ConferenceCalls.asp) within 24 hours of the
Cautionary Note Regarding Forward-Looking Information
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
Capstone Mining Corp. (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 Company management's expectations or beliefs regarding future
events and include, but are not limited to, statements with respect to the
timing and implementation of the proposed transaction with Far West,
estimation of mineral reserves and mineral resources, the realization of
mineral reserve estimates, the timing and amount of estimated future
production, costs of production, capital expenditures, success of mining
operations, environmental risks, unanticipated reclamation expenses, title
disputes or claims and limitations on insurance coverage. In certain cases,
forward-looking statements can be identified by the use of words such as
"plans", "expects" or "does not expect", "is expected", "budget",
"scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not
anticipate", or "believes", or variations of such words and phrases or
statements that certain actions, events or results "may", "could", "would",
"might" or "will be taken", "occur" or "be achieved" or the negative of these
terms or comparable terminology. By their very nature forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. Such
factors include, among others, risks related to actual results of current
exploration activities; changes in project parameters as plans continue to be
refined; future prices of resources; possible variations in ore reserves,
grade or recovery rates; accidents, labour disputes and other risks of the
mining industry; delays in obtaining governmental approvals or financing or
in the completion of development or construction activities; as well as those
factors detailed from time to time in the Company's interim and annual
financial statements and management's discussion and analysis of those
statements, all of which are filed and available for review on SEDAR at
www.sedar.com. Although the Company has attempted to identify
important factors that could cause actual actions, events or results to
differ materially from those described in forward-looking statements, there
may be other factors that cause actions, events or results not to be as
anticipated, estimated or intended. There can be no assurance that
forward-looking statements will prove to be accurate, as actual results and
future events could differ materially from those anticipated in such
statements. Accordingly, readers should not place undue reliance on forward
Unless otherwise indicated, Capstone has prepared the technical
information in this news release ("Technical Information") based on
information contained in the technical reports, news releases and MD&A's
(collectively the "Disclosure Documents") available under Capstone Mining
Corp.'s company profile on SEDAR at www.sedar.com. 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.
The Technical Information contained in this news release of has been
prepared under the supervision of, and its disclosure has been reviewed by,
John Sagman, P. Eng., Capstone's Vice President, Technical Services and Brad
Mercer, P. Geo., Capstone's Vice President, Exploration, both Qualified
Persons under NI 43-101. In addition, Gregg Bush, Senior Vice President and
Chief Operating Officer for Capstone, reviewed all Technical Information in
this news release.
Alternative Performance Measures The items marked with a "1" are
Alternative performance measures and readers should refer to Alternative
Performance Measures in the Company's Interim Management's Discussion and
Analysis for the three months ended March 31, 2011 as filed on SEDAR and as
available on the Company's website for further details.
For further information: Capstone Mining Corp. Cindy Burnett, VP, Investor Relations Telephone: +1-604-637-8157 Email: firstname.lastname@example.org Website: www.capstonemining.com
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