JUNIOR MINING

The case for Capstone's strong first quarter

It is as much in what didn't happen than what did that underpins why Capstone Mining called Q1 2012 a "strong" one.

HALIFAX, NS (MINEWEB) - 

It doesn't make for either eye-popping headlines or sexy leads - when things go really smoothly - but that doesn't mean it's not worth reporting. Among other notables, this quarter Capstone Mining (TSX: CS) cut a clean transition from milling what was left of stockpiled ore from a spent pit at its Minto copper mine in the Yukon to starting up a new open pit a couple hundred metres to the south. Indeed, goodwill for the smooth transition was readily on display in a Thursday conference call. Analysts prefaced questions with congratulations to Capstone for dovetailing production between pits at Minto.

Over the years Capstone has made a series of new discoveries around its Minto main pit that it has since targeted for production. The first to make it to the mill is Area 2/118 zone just to the south of the Minto main pit. That feed keeps Capstone on track to meet yearly guidance of 80 million pounds copper in concentrates, including production from its other operating mine, Cozamin in Mexico.

Barring some unforeseen event, the smoothness of the transition will mean there is no awkward quarter where Capstone production drops precipitously. Using the tail end of the Minto stockpile meant Capstone could produce much the same amount of copper in concentrates this quarter as in previous ones. In the first quarter Capstone churned out 19 million pounds copper in concentrates versus 17 million pounds during the same quarter a year ago. Meanwhile net earnings held steady, $16 million versus $19 million a year ago. Now, with Area 2/118 online, Capstone can breathe easy. The copper will keep flowing.

There were financial points to feel good about as well. Capstone can now claim to be debt free, having paid off a C$5 million convertible debenture during the first quarter. For better or worse all its hedges are now gone (better assuming copper prices are strong). Capstone also entered a new $200 million credit facility to draw from, if need be, and it grew cash holdings to a whopping $502 million. This hoard looks to be enough to largely fund two of Capstone's advanced stage development projects, the relatively massive and 70-percent owned Santo Domingo project in Chile and the smaller Kutcho copper project in northern BC.

Of these two potential operations, Santo Domingo dominates in terms of impact on Capstone's production-to-be. Capstone wants to have it up and running in 2015 and by 2016 sees it producing around 200 million pounds copper a year, more than double its current total yearly production. Darren Pylot, Capstone president and CEO, said during the Thursday conference call that Santo Domingo was still on track. There was "no schedule slippage" as he put it in answer to an analyst question. Environmental permitting has begun, a feasibility study should be out in Q1 2013, port facility agreements should be worked out this year and power the next, Pylot said.

Taken altogether this was why Pylot could describe the first quarter as "strong" without exaggeration.