Capstone Mining Corp.

Capstone Mining Corp.

March 31, 2009 01:06 ET

Capstone Reports Record Production & Earnings Following Business Combination With Sherwood

Net Income of US$131.8 million generates Earnings per Share of US$1.47 and EBITDA of US$167.7 million

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 31, 2009) - Capstone Mining Corp. (TSX:CS) today announced its financial results for the year ended December 31, 2008, with record production and earnings following its successful business combination with Sherwood Copper Corporation. Copies of the financial statements and management discussion and analysis are available on Capstone's website at Capstone will hold a conference call at 8:00 AM Pacific time (11:00 AM Eastern time) to discuss these results; call-in details are at the end of this release.

Financial reporting standards under Canadian generally accepted accounting principles ("GAAP") require that, since the business combination between Capstone and Sherwood was deemed a reverse takeover of Capstone by Sherwood for accounting purposes, financial reporting includes only Sherwood's results prior to the effective date of November 24, 2008, and Capstone and Sherwood's results thereafter, thus ignoring Capstone's results for almost 11 months. Capstone has therefore also provided a summary of pro forma results as though the merger had been effective on January 1, 2008 in order to provide a measure of actual performance, as well as results in accordance with Canadian GAAP. Given the complexity of the adjustments related to the business combination, readers are advised to read the Capstone's 2008 annual audited consolidated financial statements and 2008 management discussion and analysis to fully evaluate the results for 2008.

"Capstone's financial statements are complicated by the accounting treatment of the business combination with Sherwood," said Darren Pylot, Vice Chairman & CEO of Capstone Mining Corp. "Nevertheless, we had an excellent year with record production, earnings and cash flow and ended the year with a strong balance sheet, supported by a robust copper hedge position. This puts Capstone in an excellent position to continue its performance and growth in 2009."

"Both of Capstone's mines, Cozamin and Minto achieved record copper production," said Stephen Quin, President & COO of Capstone Mining Corp. "With the completion of major production expansions at both mines at the end of 2008, we are well positioned to deliver further significant increases in production and reductions in cost in 2009, while continuing our growth through exploration and production expansions."

Financial Highlights for 2008 in accordance with GAAP

These results, in accordance with GAAP, include the results for Sherwood for the full year and for Capstone only from November 24, 2008 onwards:

- Sales of 42.0 million pounds of copper, 2.0 million pounds of zinc, 24,344 ounces of gold and 132,465 ounces of silver.

- Net income of US$131.8 million (generating earnings of US$1.47 per share), including gains on derivative instruments, a gain on the Capstone-Sherwood business combination, and offset by an asset impairment of the Minto Mine, as compared to a net loss of US$40.7 million in the year prior.

- Net revenue of US$106.0 million on the sale of 53,061 dry metric tonnes ("dmt") of copper and 2,571 dmt of zinc concentrates, compared to US$0.7 million in the prior year.

- Cash flow from mining operations(i) of US$43.4 million, compared to a loss of US$1.6 million in the prior year.

- Earnings before interest, taxes, depreciation and amortization(i) ("EBITDA") of US$167.7 million.

- Received US$37.5 million from the sale of the majority of the future precious metals production from the Minto Mine.

- Repaid US$27.9 million in project debt against the Minto Mine, reducing the balance outstanding to US$29.9 million, of which US$14.2 million is currently in the debt service reserve account.

- Repaid the entire C$10 million corporate credit facility before year end.

- Ended the year with US$35.4 million of working capital, including US$41.6 million in cash.

- Held investments of US$8.1 million on the balance sheet, which includes 24.0 million common shares and 2.7 million special warrants of Silverstone Resources Corp., which have a market value of approximately US$42 million based on the closing share price of C$1.90 on March 27, 2009.

- Had a mark-to-market derivative instrument asset of US$105.3 million at year-end, comprised of 104.4 million pounds of copper forward sales between 2009 and 2013 at an average price of US$2.52 per pound. Following deliveries and changes in copper prices, the copper forward sales now total 96.7 million pounds with a mark-to-market value of approximately US$63.7 million as of March 20, 2009.

- Held US$37.0 million in inventories, including US$11.0 million in ore stockpiles, which are carried at the lower of cost or market, but include 828,983 tonnes of ore at an average grade of 2.04% copper already mined and stockpiled at the Minto Mine.

Pro Forma Highlights for 2008

The following is a summary of pro forma highlights for Capstone as though the companies had combined on January 1, 2008:

- Pro forma net revenue(i) of US$162.1 million.

- Pro forma net income(i) of US$152.1 million (which includes US$53.4 million gain on the business combination).

- Production of 74.1 million pounds of contained copper, along with by-products of 9.7 million pounds of zinc, 6.4 million pounds of lead and 1.6 million ounces of silver and 30,758 ounces of gold contained in concentrates.

- Production of 71.3 million pounds of payable copper in concentrates.

- Average total cash cost of US$1.25 per pound of payable copper produced(i), which was higher than expected because of negative provisional pricing adjustments, less pounds produced due to later than planned mine expansions (which are now complete) and exclusion of previously included deferred revenue related to the Cozamin Mine precious metal streams from cash costs.

- Cozamin Mine:

-- Completed Phase III mine expansion to 3,000 tonnes per day ("tpd") of throughput and established access to wider, higher grade ore zones that are now in production, with sustained processing of over 3,000tpd achieved February 2009 onwards;

-- Produced 26.4 million pounds of contained copper in concentrates, along with by-product 9.7 million pounds of zinc, 6.4 million pounds of lead and 1.3 million ounces of silver;

-- Processed 833,176 tonnes (2,283tpd) of ore averaging 1.6% copper, 1.3% zinc, 0.6% lead and 65 grams per tonne ("g/t") silver;

-- Produced 53,293dmt of copper concentrate averaging 22.4% copper; and

-- Recorded 25.2 million pounds of payable copper at a total cash cost(i) of US$1.44 per pound, which is higher than previously reported as a result of negative by-product credit price adjustments in the fourth quarter and removal from the calculation of the previously included non-cash deferred revenue silver credits and lower than forecast grade since the higher grade ore planned for processing in Q4/08 was not accessed until later in the quarter than planned.

- Minto Mine:

-- Completed Phase III mine expansion to 3,200tpd of mill throughput, supported by increased mine production, which rates were regularly achieved in March 2009;

-- Produced 47.7 million pounds of contained copper in concentrates, along with by-product 30,758 ounces of gold and 0.26 million ounces of silver;

-- Processed 809,426 tonnes (2,218tpd) of ore averaging 2.9% copper, 1.1g/t gold and 12g/t silver;

-- Produced 53,148dmt of copper concentrate averaging 40.7% copper;

-- Recorded 46.1 million pounds of payable copper at a total cash cost(i) of US$1.15 per pound.

-- Connected to the Yukon power grid in late November, significantly reducing the cost of power going forward; and

-- Successfully expanded the Area 2 and Area 118 deposits, and discovered new zones of higher grade copper mineralization at Ridgetop and Copper Keel.

- Kutcho Project:

-- Completed the acquisition of the Kutcho Project, a higher grade copper-zinc-gold-silver deposit, by acquiring 100% of the shares of Western Keltic Mines Inc.; and

-- Successfully defined a high grade core to the Main deposit at the Kutcho Project, which could support a smaller tonnage, higher grade operation with robust project economics.

Subsequent Events

Subsequent to the year end, Capstone reported the following significant events:

- Reported significantly enhanced mineral resources for the Cozamin Mine and Kutcho Project.

- Repurchased US$31.3 million of outstanding debentures, leaving US$4.1 million outstanding, funded by a US$40.0 million corporate revolving term facility.

- Discovered a fifth high grade copper zone at Minto North, 600m north of the Minto Mine;

- Entered into a voting agreement with Silver Wheaton Corp. in support of Silver Wheaton's premium share offer for Silverstone Resources Corp.

- Following deliveries and changes in copper prices, the copper forward sales now total 96.7 million pounds with a mark-to-market value of approximately US$63.7 million as of March 20, 2009.

Outlook for 2009

The current year, despite the challenges of the financial markets, looks to be an exciting one for Capstone, based on the following:

- Forecast production of 95 million to 105 million pounds of copper at a total cash cost(i) of US$1.00 per pound, net of by product credits and excluding any deferred revenue from precious metal sales based on an assumed C$1.20 per US$ and 12.5 Mexican pesos per US$.

- At the Cozamin Mine:

-- Production of 35-40 million pounds of copper, with by-product lead, zinc and silver, at an average total cash cost(i) of approximately US$1.00 per pound, net of by-product credits based on 12.5 Mexican pesos per US$;

-- Completion of a new mine plan, building off the significantly enhanced resource announced February 18, 2009, which should result in a significantly increased mineral reserve and mine life;

-- Capital expenditures of US$5.1million, comprised of US$4.8 million in sustaining capital related to the remains of the Phase III mine expansion and sustaining capital, plus US$0.3 million in exploration expenditures; and

-- A comprehensive evaluation of the exploration potential of the Cozamin Mine property, including the potential for additional mineral resource discoveries in the remaining, largely unexplored 4 kilometres of the main Mala Noche vein system and the potential of parallel, unexplored veins on the property.

- At the Minto Mine:

-- Production of 60-65 million pounds of copper, with by-product gold and silver, at a total cash cost(i) of approximately US$1.00 per pound, net of by-product credits based on an assumed C$1.20 per US$.

-- Completion of an updated mineral resource estimate, which will incorporate the results of 2008's successful drill program;

-- The updated mineral resource estimate will provide the basis for an independent pre-feasibility study designed to (a) convert a significant portion of these new mineral resources to mineral reserves and (b) incorporate a further Phase IV increase in mining and throughput to somewhere in the range of 4,000tpd to 5,000tpd;

-- Capital expenditures of approximately US$5 million comprised of US$2 million in sustaining capital and US$3 million in exploration expenditures on the Minto Mine property; and

-- Exploration is focused on (a) completing the drill definition of the Area 2/Area 118 and Ridgetop resources, plus geotechnical drilling, in support of the Phase IV study, and (b) exploration for new mineral resources, including the evaluation of the new, high grade, shallow Minto North discovery.

- Strong cash flow from operations based on the above production and supported by 43.1 million pounds of copper forward sold for delivery in 2009 at an average price of US$2.61 per pound. The Company's total forward sales position is 104.4 million pounds at an average of US$2.52 per pound to be delivered mostly between 2009 and 2011, with minor quantities for delivery in 2012 and 2013.

- At the Kutcho Project, completion of technical studies in support of a more robust underground or open pit project.

- Continued debt reduction, with US$22 million scheduled to be repaid during 2009.

Conference Call Details

Capstone will host a conference call on Tuesday, March 31 at 8:00 AM Pacific Time (11:00 AM Eastern Time) to discuss these results. The conference call may be accessed by dialing 1.877.848.1119 in North America or 1.416.849.7329 internationally. Please ask for the "Capstone Mining" conference call. The conference call will be archived for later playback until Tuesday, April 7, 2009 and can be accessed by dialing 1.866.501.5559 and entering the pass code 21302397#.

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 estimation of mineral reserves and 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 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 looking statements.

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 and news releases available under either Capstone Mining Corp.'s or Sherwood Copper Corp.'s company profile (as indicated) on SEDAR at 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 following employees of Capstone, each a Qualified Person, reviewed Technical Information contained in this news release: Brad Mercer, Professional Geologist and Kevin Weston, Professional Engineer reviewed Technical Information related to the Minto Mine and to the Kutcho Project; Hugh Willson, Professional Geologist and Robert Barnes, Professional Engineer reviewed Technical Information related to the Cozamin Mine. Stephen Quin, Professional Geologist reviewed all Technical Information in this news release.

(i)These are non-GAAP performance measures and readers should refer to Non-GAAP Performance Measures in the Company's Annual Management Discussion and Analysis for the year ended December 31, 2008 as filed on SEDAR for further details.

The TSX does not accept any responsibility for the adequacy or accuracy of this press release.

Contact Information

  • Capstone Mining Corp.
    Darren Pylot
    Vice Chairman & CEO
    (604) 684-8894 or 1-866-684-8894
    Capstone Mining Corp.
    Stephen Quin
    President & COO
    (604) 684-8894 or 1-866-684-8894
    Capstone Mining Corp.
    Chris Tomanik
    Investor Relations
    (604) 684-8894 or 1-866-684-8894
    Capstone Mining Corp.
    Mark Patchett
    Investor Relations
    (604) 684-8894 or 1-866-684-8894
    (604) 688-2180 (FAX)