Capstone Mining 2014 Financial Results Highlight Significant Cash Flow Generation

Operating cash flow before changes in working capital of $199.4 million
(All amounts in US$ unless otherwise specified)

VANCOUVER, Feb. 17, 2015 /CNW/ - Capstone Mining Corp. ("Capstone") (TSX: CS) today announced its financial results for the year ended December 31, 2014, with operating cash flow before changes in working capital1 for the year a record $199.4 million. Notwithstanding this strong performance, Capstone posted a loss for the year of $22.4 million due to non-cash charges of $55.8 million, including $36.2 million related to a write down of inventory and capitalized mineral property costs at Minto, $11 million related to the impairment of available-for-sale securities and $8.6 million in the carrying value of the Kutcho development project. Copper production during the year at Capstone's three operating mines totalled 103,353 tonnes of copper in concentrates and cathode (99,739 tonnes of payable copper) at a C1 cash cost1 of $1.93 per payable pound of copper produced.

Capstone will hold a conference call and webcast on Wednesday, February 18, 2015 at 11:30 a.m. Eastern time (8:30 a.m. Pacific time) to discuss these results; call-in details and information on associated slides are provided at the end of this release. This release should be read in conjunction with Capstone's consolidated financial statements and management's discussion and analysis ("MD&A") for year ended December 31, 2014, which are available on Capstone's website at http://capstonemining.com/investors/financial-reporting/default.aspx and on SEDAR. An updated corporate presentation, including results to December 31, 2014, in addition to the 2014 year-end webcast slides, will also be available at http://capstonemining.com/investors/events-and-presentations/default.aspx.

NOTE:  The transaction to acquire the Pinto Valley Mine closed on October 11, 2013 and therefore its results of operations are included in the Company's reported results from that date forward.

Overview







Q4 2014

Q4 2013

2014

2013

Revenue ($ millions)

139.5

136.8

656.0

332.0






Copper in concentrates produced (tonnes)

22,478

25,180

100,940

50,972

Copper cathode produced (tonnes)

617

640

2,413

640






Payable copper produced (tonnes)

22,282

24,915

99,739

49,697

C1 cash cost per payable pound of copper produced1 ($)

1.88

1.78

1.93

1.72






Copper sold (tonnes)

23,705

20,084

103,901

45,408

Realized copper price per pound sold ($)

2.79

3.30

3.03

3.30






Net loss ($ millions)

(34.4)

(23.4)

(22.4)

(11.9)

Net loss per common share ($)

(0.09)

(0.06)

(0.06)

(0.03)






Adjusted EBITDA1 ($ millions)

40.4

31.5

231.6

105.6

Adjusted EBITDA per common share1  ($)

0.11

0.08

0.61

0.28






Operating cash flow before changes in working capital1 ($ millions)

30.7

22.8

199.4

85.7

Operating cash flow before changes in working capital per common share1 ($)

0.08

0.06

0.52

0.23






Cash and cash equivalents ($ millions)

150.1

104.4

150.1

104.0






Net (debt) cash1 ($ millions)

(127.7)

(211.6)

(127.7)

(211.6)

(1) These are alternative performance measures; please see "Alternative Performance Measures" at the end of this release.

"This past year was a transitional one for Capstone as we integrated Pinto Valley into our organization and completed the first full year of operation under our ownership. The trend of reducing cash cost and a final fourth quarter C1 cash cost of $1.82 per pound at that operation underscore the progress we have made so far," said Darren Pylot, President and CEO of Capstone. "The significant operating cash flow we generated in 2014 of $199.4 million also demonstrates the substantial potential of all of our operations."

"At the same time we continue to manage our business and growth opportunities in a prudent manner. The need to maintain a disciplined and flexible approach became particularly evident in the first part of 2015, when copper prices dropped to a 5-1/2 year low," continued Mr. Pylot. "Through 2015, we will remain focussed on maintaining flexibility in both our operating model and financial position so that we can quickly adapt to market conditions as required."

Financial and Production Highlights for the Year Ended December 31, 2014

  • Adjusted EBITDA1 of $231.6 million or $0.61 per common share after making adjustments for certain non-cash and other items.
  • Operating cash flow before changes in working capital1 of $199.4 million or $0.52 per common share.
  • Net loss of $22.4 million or $0.06 per common share which included:
    • Earnings from mining operations of $104.7 million,
      • Realized copper price of $3.03 per pound.
    • Production costs included a $26.3 million non-cash charge related to the write-down of inventory at the Minto Mine,
    • A non-cash charge of $9.9 million related to the write-down of capitalized mineral property costs at Minto,
    • A non-cash charge of $8.6 million related to the write-down of capitalized mineral property costs at Kutcho,
    • A non-cash charge of $11.0 million related to the impairment of available-for-sale securities,
    • $37.4 million in current and deferred tax expenses.
  • Working capital decreased to $106.5 million at December 31, 2014 (which included $150.1 million of cash and cash equivalents) from $139.9 million at December 31, 2013.
  • Production of 99,739 tonnes of payable copper at a C1 cash cost1 of $1.93 per pound of payable copper produced.
  • Revenue of $656.0 million generated primarily from the sale of 103,901 tonnes of payable copper.

Operational Highlights for the Quarter and Year Ended December 31, 2014

Pinto Valley Mine:

  • Produced 14,606 tonnes of copper in concentrates and 617 tonnes of copper cathode during Q4 2014 at a C1 cash cost1 of $1.82 per pound of payable copper produced.
  • Produced 62,716 tonnes of copper in concentrates and 2,413 tonnes of copper cathode during 2014 at a C1 cash cost1 of $2.03 per pound of payable copper produced.
  • Completed the Pinto Valley Phase 2 Pre-Feasibility study ("PV2 PFS") in March 2014, extending the mine life at Pinto Valley to 2026, at an average annual production of 54,200 tonnes of copper in concentrate and 2,900 tonnes of copper cathode, at a Life of Mine ("LOM") C1 cash cost1 of $2.00 per pound of payable copper.
  • Work is ongoing related to the implementation of improvements identified by the PV2 PFS, with the project execution plan in place, orders for the majority of the mine equipment placed and detailed engineering and construction underway.
  • Completed an internal scoping study in 2014 that evaluated the resources at Pinto Valley not included in the current mine plan. As a result, two cases will be advanced to the Pre-Feasibility study level ("PV3 PFS"). The PV3 PFS base case will include a 10% to 15% increase in throughput and the possibility of a mine life extension beyond 2026 and a second case will evaluate a throughput increase to 90,000 tonnes per day combined with a potential mine life extension. The PV3 PFS is expected to be completed in the third quarter of 2015, at which time we will evaluate the two alternatives and the best use of capital.

Cozamin Mine:

  • Produced 4,573 tonnes of copper in concentrates during Q4 2014 at a C1 cash cost1 of $1.30 per pound of payable copper produced.
  • Produced 19,813 tonnes of copper in concentrates during 2014 at a C1 cash cost1 of $1.26 per pound of payable copper produced.
  • Exploration drilling from surface to test structural splays off of the main Mala Noche vein system continued throughout 2014.
  • During 2014 Capstone acquired 45 mining concessions covering 770 hectares situated along strike and surrounding current Capstone claims, giving Capstone control of the majority of the Mala Noche vein system and many of its subsidiary splays both along strike and at depth.

Minto Mine:

  • Produced 3,299 tonnes of copper in concentrates during Q4 2014 at a C1 cash cost1 of $2.94 per pound of payable copper produced.
  • Produced 18,411 tonnes of copper in concentrates during 2014 at a C1 cash cost1 of $2.33 per pound of payable copper produced.
  • Surface mining was suspended at the end of Q3 2014 due to delays in receipt of the Water Use License ("WUL") Amendment, which is required to permit pre-stripping at Minto North. Fresh ore from underground mining was supplemented with stockpiled ore to feed the mill in Q4 2014. On February 6, 2015, the Yukon Water Board requested additional information after the public comment period closed. Minto responded to this Information Request on February 16. As a result, we do not expect that the Minto North deposit will be stripped as planned at the beginning of Q2 2015. We will continue to work with the Yukon Water Board to secure the required WUL Amendment as expeditiously as possible, but will not be making any commitment of capital until an acceptable permit is received. Copper prices are currently at levels where the economics of the Minto Mine, without the Minto North deposit, are questionable. We are evaluating all options for optimizing the cash flows from Minto in the current market climate.

Santo Domingo Project:

  • The Company completed the tender process for Engineering, Procurement, Construction ("EPC") and Engineering, Procurement, Construction Management ("EPCM") packages for project development. Capstone has selected POSCO E&C ("POSCO") as the preferred EPC fixed price lump sum contractor for the Santo Domingo project. While the EPC contract has not been negotiated or concluded, Capstone has awarded a Limited Notice to Proceed to the end of Stage-Gate 1, which will include confirmation of completeness of the engineering and contractual performance guarantee parameters. This award totals approximately $4.5 million and is part of Capstone's previously announced 2015 base case budget of $16.9 million (of which Capstone's 70% share is $11.8 million). This work is expected to be completed before the end of Q2 2015. Following Stage-Gate 1, next steps will be determined and communicated. The total capital cost of the project is expected to be at or below the previously estimated $1.7 billion.
  • On January 27, 2015, the third information request from the authorities was received. Under the current timetable the Environmental Impact Assessment is now expected to be received during Q2 2015, which aligns with the revised engineering development plan outlined above.
  • A third party objection to the Santo Domingo port concession application was rejected by the Chilean Armed Forces, clearing the way for the anticipated approval of the application in Q1 2015.

Greenfield Exploration:

  • Exploration work at Project Providencia in Region II, Chile during 2014 included extensive soil and rock geochemical surveys, geological mapping, several different Induced Polarization surveys, and drilling. Eight different prospect areas were identified for their potential to host copper gold mineralization of porphyry-type and IOCG and Manto type mineralization. 
  • Exploration work during Q4 2014 at Project Providencia included drilling of 7,036 metres over 25 holes.

Corporate:

  • Subsequent to year-end, Capstone entered into an amended senior secured corporate revolving credit facility ("RCF") for up to $500-million. This facility amends Capstone's existing senior secured corporate revolving term facility and allowed for the repayment and cancellation of the existing senior secured reducing revolving credit facility.
  • The RCF comprises a committed $440-million plus a $60-million accordion. It has a four-year term maturing in January, 2019 (with extension rights on mutual consent), an interest rate of US LIBOR plus 3.0% (adjustable in certain circumstances) and a standby fee of 0.675%, payable on the undrawn balance of the facility. The $60-million accordion may be exercised by Capstone once additional credit is committed from existing and/or new lenders.

Financial and Production Highlights for the Quarter Ended December 31, 2014

In Q4 2014 the Company recorded a net loss of $34.4 million. The main contributors to the net loss were:

  • Non-cash charges of $32.3 million relating to a write down of inventory ($11.4 million) and capitalized mineral property costs ($9.9 million) at Minto and the impairment of available-for-sale securities ($11.0 million).
  • A reduction in realized copper price from $3.30 per pound in Q4 2013 to $2.79 per pound in Q4 2014, a decrease of 15%
  • Adjusted EBITDA1 was $40.6 million or $0.11 per common share after making adjustments for certain non-cash and other items.
  • Operating cash flow before changes in working capital1 was $30.7 million or $0.08 per share.
  • Working capital decreased to $106.5 million at December 31, 2014 from $139.9 million at December 31, 2013.
  • Produced a total of 22,282 tonnes of payable copper at an estimated C1 cash cost1 of $1.88 per pound of payable copper produced.
  • Revenue of $142.0 million generated primarily from the sale of 23,751 tonnes of payable copper.

Production Outlook

Capstone's 2015 guidance for 90,000 tonnes ±5% of copper in concentrates, at a C1 cash cost1 of $2.00 to $2.10 per pound of payable copper, net of by-product credits and selling costs, remains unchanged.

Conference Call and Webcast Details

Date:

Wednesday, February 18, 2015

Time:

11:30 a.m. Eastern Time (8:30 a.m. Pacific Time)

Dial in:

North America: 1-888-390-0546, International: +416-764-8688

Webcast:

http://www.newswire.ca/en/webcast/detail/1460897/1625621

Replay:

North America: 1-888-390-0541, International: +416-764-8677

Replay Passcode:

380257#

The conference call replay will be available until Wednesday, March 4, 2015. The conference call audio and transcript will be available on Capstone's website within approximately 24 hours of the call at http://capstonemining.com/investors/conference-calls-and-webcasts/default.aspx.

 

About Capstone Mining Corp.

Capstone Mining Corp. is a Canadian base metals mining company, focused on copper. We are committed to the responsible development of our assets and the environments in which we operate. Our three producing mines are the Pinto Valley copper mine located in Arizona, US, the Cozamin copper-silver mine in Zacatecas State, Mexico and the Minto copper mine in Yukon, Canada. In addition, Capstone has two copper development projects; the large scale 70% owned copper-iron Santo Domingo project in Region III, Chile, in partnership with Korea Resources Corporation, and the 100% owned copper-zinc Kutcho project in British Columbia, Canada, as well as exploration properties in Chile. Using our cash flow and strong balance sheet as a platform, Capstone's strategy is to continue to grow with mineral resource and reserve expansions and exploration, and through acquisitions in politically stable, mining-friendly regions. We will pace our growth with our financial capacity, ensuring we retain, as a priority, sufficient financial flexibility to meet the requirements of our existing operations and our committed development projects, while maintaining an adequate cushion to deal with market volatility and operating risks inherent in the mining industry. Our headquarters are in Vancouver, Canada and we are listed on the Toronto Stock Exchange (TSX). Further information is available at www.capstonemining.com.

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 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 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", "outlook", "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. In this document, certain forward-looking statements are identified by words including "may", "future", "expected", "intends", "guidance" and "estimates". 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, dependence on key personnel, labour pool constraints, labour disputes; availability of infrastructure required for the development of mining projects; delays or inability to obtain governmental and regulatory approvals for mining operations or financing or in the completion of development or construction activities; compliance with debt covenants, 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 management's discussion and analysis of those statements, all of which are filed and available for review under the Company's profile 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. The Company provides 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-looking statements.

National Instrument 43-101 Compliance

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 in this news release ("Technical Information") 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"). The disclosure of the Technical Information contained in this news release has been reviewed and approved by Brad Skeeles, P. Eng., Vice President of North American Operations (Technical Information related to mining and production), Brad Mercer, P. Geol., Vice President, Exploration (Technical Information related to mineral exploration activities), and Gregg Bush, P. Eng., Senior Vice President and Chief Operating Officer, all Qualified Persons under NI 43-101. 

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 year ended December 31, 2014 as filed on SEDAR and as available on the Company's website for further details.

Cautionary Note to United States Investors

This news release contains disclosure that has been prepared in accordance with the requirements of Canadian securities laws, which differ from the requirements of U.S. securities laws. Without limiting the foregoing, this news release may refer to technical reports that use the terms "indicated" and "inferred" resources. U.S. investors are cautioned that, while such terms are recognized and required by Canadian securities laws, the SEC does not recognize them. Under U.S. standards, mineralization may not be classified as a "reserve" unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. U.S. investors are cautioned not to assume that all or any part of indicated resources will ever be converted into reserves. U.S. investors should also understand that "inferred resources" have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. It cannot be assumed that all or any part of "inferred resources" will ever be upgraded to a higher category. Therefore, U.S. investors are also cautioned not to assume that all or any part of inferred resources exist, or that they can be mined legally or economically. Accordingly, information concerning descriptions of mineralization and resources contained in this news release may not be comparable to information made public by U.S. companies subject to the reporting and disclosure requirements of the SEC.

SOURCE Capstone Mining Corp.

For further information: Cindy Burnett, VP, Investor Relations and Communications, 604-637-8157, cburnett@capstonemining.com

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