1 event: capstone mining corporation q4 results conference call time

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CAPSTONE MINING CORPORATION Q4
RESULTS CONFERENCE CALL
11H30 E.T.
CAPSTONE MINING CORPORATION-CC-031511
28 MINUTES
MARCH 15, 2011
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OPERATOR: Good morning. My name is Alicia and I will be your
conference operator today. At this time I would like to welcome everyone
to the Capstone Mining Corporation’s fourth quarter and 2010 yearend
results conference call.
All lines have been placed on mute to prevent any background
noise. After the speakers’ remarks there will be a question-and-answer
session. If you would like to ask a question during this time, simply press *
then the number 1 on your telephone keypad. If you would like to withdraw
your question, please press the # key. Thank you.
Mr. Darren Pylot, President and CEO, you may begin your
conference.
DARREN PYLOT (President and Chief Executive Officer, Capstone
Mining Corp.): Thank you, Operator, and good morning, everyone.
Welcome to Capstone’s 2011 yearend financial and production results
conference call. Joining me today from the boardroom in Vancouver is our
CFO, Richard Godfrey. And also on the line from Mexico is our COO,
Gregg Bush.
All the amounts today discussed will be in U.S. dollars unless
otherwise specified.
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Getting into the highlights for 2010, both financial and production net
earnings were $72.6 million or $0.36 per share, which included earnings
from mining operations of $117.9 million, and that’s with a realized copper
price of $3.42 a pound. Gains on disposal of investments were $26.1
million, which is made up of mostly from sales from Silver Wheaton and
Nevada Copper shares. Net loss of $15.5 million on the derivative
instruments, and the $36.1 million loss for incurred and future tax
expenses.
Adjusted net earnings for the year were $45.1 million or $0.23 per
share, and that’s after making adjustments for the non-cash and nonrecurring items. Cash flow from operating activities was $86.3 million or
$0.43 per share. Working capital increased up to $176.8 million at
yearend, which does include $192.4 million of cash, restrictive cash in
short-term deposits.
During the year we fully repaid the final $10 million Canadian
remainder of the facility of the Minto project debt. As well we repaid U.S.
$8.5 million owing as a capital lease obligation to the Alaskan Industrial
Development and Export Authority, which was related to the refurbishment
on the Skagway Port facilities. And both of those facilities were repaid well
ahead of schedule.
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We produced a total of 73 million pounds of payable copper at an
estimated total cash cost of $1.40 per pound net of by-product credit. We
recorded record gross sales revenue of $301.3 million on the sale of 72.8
million pounds of copper, 15 million pounds of zinc, 9.4 million pounds of
lead, 25,460 ounces of gold, and 1,582,033 ounces of silver. And that does
not include any of the sales revenue from Minto in the fourth quarter. As
we previously announced, we lost our ice bridge earlier than expected in
the fourth quarter due to lower than normal water levels in the Yukon
River, which meant no metal shipments from Minto at all in quarter four. All
of that metal has since been shipped in Q1. And a second vessel’s been
nominated to arrive at the end of March, and we’ll have the Q1 production
on that shipment as well.
Operating highlights starting with Cozamin. We produced 34.1
million pounds of payable copper at a total cash cost of $1.25 per pound
net of by-products for the year. For the fourth quarter our cash costs were
$1.91 per pound, which is obviously much higher than budget, and that’s
due to the lower production in the fourth quarter resulting from the rock fall
in the Avoca stope area.
Since the yearend we continue to rehabilitate the Avoca area, and
have developed other high-grade copper areas to supplement the mining
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during the first quarter. We expect the Avoca stopes to be at full production
in the second quarter of this year.
We updated the Cozamin mineral reserve, incorporating a new
mineral resource estimate for the Mala Noche main zone, which resulted in
more than an eight-year mine life. We made a new discovery, and as well
we’ve expanded on this new discovery, which is called the Mala Noche
Footwall Zone. It’s located in very close proximity within 90 metres of the
main Mala Noche zone, with a similar dip of the main zone, and very close
to active mine haulage. So it’ll be an area of focus for us in 2011.
We’ve driven a crosscut into that Mala Noche Footwall Zone, and
conducted lateral drifting on one of the several veins within that Footwall
structure to determine the strike continuity and to conduct face and back
sampling. As at yearend the lateral drifting was about 170 metres. We’re
through that, and have additional metres in advance to this date at an
average of four metres wide and a 2-per-cent copper grade, and we’re
continuing to do so to develop and evaluate the best ways to mine this new
Footwall Zone.
Exploration is continuing with two underground drills currently testing
the Footwall Zone where mineralization is currently open to the east, plus
up and down dip. But the copper grade is increasing with depth. Additional
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underground drills are en route, and will be added to this program to step
out on the Footwall Zone and continue to infill around the current drilling.
Two service drills are also en route to test additional surface targets
within the Cozamin property. A new mineral resource estimate is expected
in 2011, which will incorporate the Footwall Zone drill results, which are not
currently in any resource or reserve studies published to date.
At Minto we produced 38.9 million pounds of payable copper at a
total cash cost of $1.53 per pound net of by-product credit. We reported a
44-per-cent increase in the measured and indicated mineral resources
contained in the undeveloped deposit, which exclude the main deposit
where we’re currently mining, and the recently discovered Wildfire and
Copper Keel deposit and Inferno prospect. And it’s just based on drilling till
the end of April 2010. Since 2010 three drills have been active for the
better part of last year and will re-start again in February and we’ll be
drilling all through 2011 as well to infill the Copper Keel, Wildfire and test
out further the Inferno prospect.
Report of first-time mineral resource estimate for the Minto East
discovery, which is an underground deposit. We completed a tightened 24
survey over about 85 per cent of the property, which identified 73 new
anomalies that will warrant further exploration and is a priority for our drill
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program for the 2011 season. We made two new discoveries in 2010:
Wildfire and Inferno, which will be the main focus of our 2011 exploration
program, with a preliminary resource planned for April of this year. And
these discoveries were the result of testing and the combination of the
tightened 24, which works extremely well up at Minto, as well as other
geological models.
The phase V pre-feasibility study was substantially completed in
2010 and released yesterday morning, extending the Minto mine life to
2020 and an average annual production of 43 million pounds of copper per
year at a total cash cost per pound of $1.34 net of by-product credit.
Proven and probable open pit and underground mineral reserves
have increased to about 13 million tonnes, grading 1.53 per cent copper,
0.6 grams per tonne gold, and 5.2 grams per tonne silver for a contained
435 million pounds of copper, 247,000 ounces of gold, and 2.2 million
ounces of silver. Life of mine capital cost is estimated at $76 million, which
does not include closure or cost allowance of about $16 million.
Of that capital, $32 million is based on an assumption that we would
convert to self-mining, which is a decision that would be subject to a costbenefit analysis versus our current contract mining. And obviously if the
contractor could come in at those pre-feasibility numbers, we would be
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happy to stick with a contractor and not spend that additional capital on the
South mining. The balance of that capital is mainly related to underground
mining equipment, and developing the underground access
and
development to get in there and mine the underground deposits.
The water board hearing for the amended water-use license was
completed in December. The amended license is expected before the end
of this month, and will allow us to more efficiently manage our water
treatment program.
The Yukon environment and socio-economic assessment board
evaluation for the phase IV permit application was completed in 2010, and
the course mining license is expected by the end of this month as well,
which will allow us to start stripping area 2118 and have it ready for mining
by the end of 2011, which is our next pit to mine after we’ve mined out the
Minto Main Pit, which is expected to be fully mined out within the next two
months, and then we’ll process our stockpiles from the main area for the
rest of 2011.
At Kutcho during the year we issued an updated preliminary
economic assessment that enhanced the economic return of the project
and provided key elements to improve on, such as power alternatives,
improved metallurgy, coarser grinding testing to reduce energy costs, as
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well as a tailings management system to better manage environmental
concerns.
We also conducted a metallurgical program to advance the project to
a pre-feasibility study level. We completed a drill program within the ESSO
deposit, which intersected some exceptionally higher-grade copper-zincsilver-gold values. This resulted in a new mineral resource for ESSO,
which we released in December of 2010, which increased the resource
classification and also provided substantial increases in metal grades.
We also reported the pre-feas in February 2011, providing a 12-year
mine life for Kutcho with a net present value of $155 million at a 10-percent discount rate, and a 3.4-year payback after tax. The pre-feas report
will be filed on SEDAR by month end. We plan to file our environmental
application by the end of the third quarter this year, which will then start the
permitting timeline and continue to discuss the project scope with all the
stakeholders with the goal of making a production decision sometime in
the fourth quarter of this year.
Subsequent to the quarter end in January we fully repaid the $17.4
million owing to the Yukon Energy Corporation, which was related to the
spur and main power line servicing the Minto mine. We repaid that debt
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seven years ahead of schedule. The only debt really left on the balance
sheet is the $4-odd million in convertible debentures that expire in 2012.
The outlook for 2011, we forecast the production to be 80 to 85
million pounds of copper at a total cash cost per pound of $1.30-$1.35 net
of by-product credits.
Production is scheduled to ramp up over the fourth quarters of 2011
at Minto as crushing modifications are needed to be made and will be
made during the year to increase throughput.
Full production from the Avoca stopes at the Cozamin mine will be
delayed until late in the first quarter of 2011 as rehabilitation work is taking
longer than expected, but it is getting there, and we’ll be done in those
Avoca stopes expected by the end of the first quarter. But it’s not expected
to impact annual production. As I said earlier, we’ve developed other areas
in the mine with similar grades that we are drawing production from
currently.
So at this time I’d like to open the floor for any questions you may
have. Please go ahead.
OPERATOR: At this time I would like to remind participants in order
to ask a question, you may press * then the number 1 on your telephone
keypad. To ensure your question’s clearly understood, please pick up your
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handset if you are on a hands-free device or speakerphone prior to asking
your question. Thank you. We’ll pause for just a moment to compile the
Q&A roster.
Our first question comes from the line of Oris Walkada with
Canaccord. Your line is open.
ORIS WALKADA: Hi, good morning. I had two questions about the
phase V pre-feasibility study at Minto. The first one being the $76 million in
capex, is any of that included in your 2011 budget?
DARREN PYLOT: One second, Oris.
GREGG BUSH (Chief Operating Officer, Capstone Mining Corp.):
Do you want me to answer that, Darren?
DARREN PYLOT: Sure. Go ahead, Gregg.
GREGG BUSH: Yes, a substantial portion of the capex is included in
the underground… the underground development work, and initial capital
equipment for starting up the underground is all in 2011.
DARREN PYLOT: Gregg, if I could interrupt, it’s $23 million is
budgeted in the capex for this year’s number that we’ve published, Oris.
ORIS WALKADA: So $23 million of the $76?
DARREN PYLOT: Correct.
ORIS WALKADA: Okay. With a remainder to be spent in ’12?
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DARREN PYLOT: Most of it, I guess. That depends on if we go to…
obviously if we go to the South mining, right?
ORIS WALKADA: Okay. And then the second question around the
study, the text talks about average life of mine cash costs after selling
costs and by-products of $1.34 a pound. But when I look at your table,
your table seems to indicate that that $1.34 number’s actually before offsite costs of $0.30 a pound. Can you help me reconcile that?
DARREN PYLOT: Gregg, do you have that available with you or do
we have to get back to Oris?
ORIS WALKADA: Is the $1.34 a pound including or excluding off-site
costs?
DARREN PYLOT: Gregg, do you have that?
GREGG BUSH: No, I don’t have it in front of me, Darren.
DARREN PYLOT: Okay. Oris, we’ll have to get back to you on that.
ORIS WALKADA: Okay. Thank you.
OPERATOR: Again, if you would like to ask a question, you may
press * then the number 1 on your telephone keypad. As a reminder, if
you’re using a hands-free device or speakerphone, please pick up your
handset prior to asking your question.
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Our next question comes from the line of Stefan Ioannou with
Haywood Securities. Your line is open.
STEFAN IOANNOU: Great, guys. Yes, just to follow-up a little bit on
Oris’s questions. I sort of ran into a similar problem just reconciling the
opex. So anything you can help us with in terms of that $1.34 number,
whether it’s off-site or on-site would be much appreciated.
And then just wondering in the MD&A there’s also a mention that
there’s about $26 million of pre-strip for area 218/118. In the phase V
press release there’s a mention of 58 million tonnes of waste. Is the prestrip included in that number of is that additional? And how many tonnes of
pre-strip are there actually?
DARREN PYLOT: I don’t know. Gregg, do you have that with you or
do we have to get back?
GREGG BUSH: The pre-strip, yes. The pre-strip is included in the
2011 budget, and also in the study.
STEFAN IOANNOU: Okay. So the 58 million tonnes of waste
included…
GREGG BUSH: I believe it’s… yes.
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STEFAN IOANNOU: Okay. And you mentioned the budget for this
year’s $23 million, but there’s $26 million of pre-strip. So how does that
reconcile?
DARREN PYLOT: Gregg, did you hear that?
GREGG BUSH: Yes. Yes, I’m trying to think. Richard can probably
answer it, where that ended up finally in the budget.
STEFAN IOANNOU: I’m guessing that there’s the $26 is in addition.
Presumably the $23 is for the underground mine development and all that
sort of stuff, and the $26 is in addition to the $23, right?
GREGG BUSH: Yes, that is correct.
STEFAN IOANNOU: Okay. So it’s $23 plus $26, okay. Okay. And
then just wondering on the G&A this quarter it looked like it was up closer
to about $4 million. Is that going to be sort of a go-forward number here on
a quarterly basis or is it going to go drop back down to sort of the $2-plus
million level?
RICHARD GODFREY: It’ll be back down to the $2 level.
STEFAN IOANNOU: Okay. Great. And one last question, guys. I
don’t want to tie up the line here, but just on the… you mentioned that
there’s some pre-crushing that needs to be addressed at Minto. What
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exactly… what are the modifications, like what are you exactly doing
there?
GREGG BUSH: The current pre-crushing circuit was… it wasn’t
really installed for tracking long-term operation. So for the project that’s
planned for this year, it’s in a more permanent installation. It’s more
maintainable, and it also allows (inaudible) the undersized material in the
primary crusher product…
STEFAN IOANNOU: Okay.
GREGG BUSH: To take it around the secondary crusher.
STEFAN IOANNOU: Okay. And—
GREGG BUSH: And more capacity and finer, so we can get a finer
(inaudible).
STEFAN IOANNOU: I see. And the capex to get there is in that $23
million budget, right?
GREGG BUSH: Yes.
STEFAN IOANNOU: Okay, okay. Perfect. Thanks very much.
GREGG BUSH: It’s a small portion of it.
STEFAN IOANNOU: It’s a small number, okay. Okay. Thanks very
much, guys.
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press * then the number 1 on your telephone keypad. As a reminder, if you
are on a hands-free device or a speakerphone, please pick up your
We have a question from the line of Michael Scoon with Stifel. Your
line is open.
MICHAEL SCOON: Oh, hi there and thanks very much. Just a
question on the throughput at Minto just in the last two months. I think the
MD&A said that the throughput in December was 2,850 tonnes per day.
Wondering if you can give us any colour on whether that’s improved
through January or February?
DARREN PYLOT: Gregg, maybe you want to answer that one?
GREGG BUSH: Yes. Yes, it has… It’s been steadily improving, but
not nearly fast enough. We need to get this modification that I just
mentioned, in answering the previous question, will get the tonnage up to
where we have budgeted for the year. But we actually have… our budget
for this year has the tonnage ramping up through the year as we make
these capital improvements to the pre-crushing circuit.
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MICHAEL SCOON: Okay. Great. Thanks. And then just the second
question was on the capex at Cozamin for 2011. Is that just really
sustaining, not much in the way of large purchases there?
DARREN PYLOT: Yes, that’s basically all just sustaining an
underground development to provide more feed to the mill. Because the
mill can outperform the mine currently. The mill can process up to 4,000
tonnes a day. So the goal is to get more underground development to be
able to drive more feed from underground to the mill.
MICHAEL SCOON: Great. Thanks very much, guys. Appreciate it.
DARREN PYLOT: And back on that question, one of the things
we’re looking at doing is getting a contract crusher in there to pre-crush a
bunch of material while we do those modifications. So we’ve got a large
crushing stockpile at Minto, and as Gregg said, that’s our bottleneck at the
mill, at the plant. It’s not the plant itself, it’s the crushing.
MICHAEL SCOON: I see. Great. Thanks again, guys.
DARREN PYLOT: You’re welcome.
OPERATOR: Our next question comes from the line of David
Cotterell with BMO. Your line is open.
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DAVID COTTERELL: Good morning, guys. Just a couple of quick
ones for you. The first one was are you still thinking about the bulk mining
option you were talking about probably a couple of quarters ago for Minto?
DARREN PYLOT: Well David, what we’re doing, as I mentioned
earlier, we’re in filling all those at Wildfire, Copper Keel areas, and in
between the other deposits. So we evaluate this on a yearly basis. We
take our cut off down and look at the amount of tonnes we have on a bulk
mining basis.
And sometime throughout 2011 we are going to have to make a
decision whether we continue to high-grade the deposits and run it at a
lower rate such as somewhere between 4 to 5,000 tonnes a day. Or we
look at significantly ramping up the tonnage and lowering the cost profile.
And we feel we’ll be there by the end of this drill season in midway through
2011. So that’s when we plan to really take a good look at where we’re
going to be, on how we’re going to mine this long-term.
DAVID COTTERELL: Okay. Yes, just when I looked at the resources
that you put out the other day I was thinking that the reserve is such a
small part of it, you could really open this up, I suppose.
DARREN PYLOT: Exactly. And then that’s… I mean it’s just one…
it’s the cost benefit analysis. You go spend a lot of capital and lower your
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costs, and you’d have to put a permanent on-site tailings facility, and it’d
be a bunch of changes, but if it’s big enough it would warrant that. So we
just have to run the numbers and see what makes the most sense.
DAVID COTTERELL: Okay. The other one I had for you was just on
Cozamin. When you get back in the Avoca stopes is there any chance you
could… because you said guidance wouldn’t change even though you’re
not back in those areas yet. So I’m guessing when you go back into them
you’ll pull equipment and whatever out of the areas where you’re currently
mining. Is there possible upside to how much you could product out of
Cozamin this year?
DARREN PYLOT: Gregg, I’ll let you answer that one.
GREGG BUSH: Well no, I wouldn’t say there’s a lot of upside. I
mean we are looking at some options to increase production from some
areas. But it’s pretty preliminary at this point.
DAVID COTTERELL: Okay. Cool. All right, thanks, guys.
press * then the number 1 on your telephone keypad. As a reminder, if you
are on a hands-free device or a speakerphone, please pick up your
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Our next question comes from the line of Oris Walkada with
Canaccord. Your line is open.
ORIS WALKADA: Hi. Thanks for taking my follow-up. Darren, more
a question for you, just wondering if there’s been any progress in terms of
redeploying capital in the form of perhaps a dividend or a share buyback?
Just wondering where your thoughts are these days.
DARREN PYLOT: Well Oris, that is always on our mind. Again, we
try to balance that off with growth propositions. Currently we’re definitely
pretty excited about what we’ve got going in this Footwall Zone at
Cozamin, as well as our new discoveries at Minto. So that’s obviously our
first choice is to put as much capital as we can into our operations.
And then secondly with moving Kutcho with a much better prefeasibility study than that was previously in the PEA, we’re going to move
that towards a production decision as fast as possible.
We also do see some growth opportunities out there externally that
we’re focusing on right now. So the dividend is still there, but we feel the
best use of capital right now is to add more growth in the company, both
internally and possibly externally as well.
ORIS WALKADA: Okay. And would you say you’re getting closer to
acquiring some growth or is this still at preliminary stages type analysis?
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DARREN PYLOT: We’re always close, but you just never know,
right?
ORIS WALKADA: Yes.
DARREN PYLOT: We put a lot of time into that side of things. We
realize how important it is, but we also realize it’s got to be very accretive
to our shareholders, and that’s the first and foremost priority before we
make any decisions.
ORIS WALKADA: Okay. Thanks a lot.
DARREN PYLOT: You’re welcome.
OPERATOR: Our final question comes from the line of Stefan
Ioannou with Haywood Securities. Your line is open.
STEFAN IOANNOU: Great. Thanks. I think Oris got it again there for
me, but just while I got you on the line, just one other sort of minor detail
question. I’m just in the Kutcho Creek study. I noticed in the copper con
you got about sort of north of 5 per cent zinc in there. And I remember I
think in the previous study before that it looked like the zinc had been
taken down quite a bit. Is there a way of getting that zinc down or should
we expect a modest penalty for that or can you just maybe comment on
the quality of that concentrate?
22
DARREN PYLOT: So the penalty would be about $2.00 per tonne if
we didn’t improve on it. We didn’t get as much test as we wanted to done
on that. We’re doing all that testing at Cozamin, and they’re doing a great
job. So we’re doing more testing on that now. We expect to be able to get
that done, but the worst-case scenario would be if we didn’t improve it, it’d
be about $2.00 a tonne.
STEFAN IOANNOU: Okay. So it’s a pretty marginal number
anyways, yes.
DARREN PYLOT: It’s pretty marginal, but we were planning to get
that done. It was a question of do we want to get the study out or do we
want to delay it and do some more tests? We decided because it was a
marginal number, we put it out and then continue to work on that at the
Cozamin lab down in Mexico.
STEFAN IOANNOU: Sure. Sure. No, I totally understand. That’s
great. Thanks very much, guys.
DARREN PYLOT: And then just to clarify, before you go, if Oris is
still on the line, that $1.34 cash cost for Minto is not including selling costs.
OPERATOR: We have one further question from the line of Mark
Turner from Scotia Capital. Your line is open.
23
MARK TURNER: Yes, thanks for taking my call guys. Just another I
guess sort of detailed question on the Minto pre-feas yesterday. The prestripping then that would also be involved in the Minto North deposit is... I
guess, is that included in the $45.11 you have sort of per tonne average
over the life of mine? Does that, I guess, include sort of the average sort of
mining costs and stripping costs of that as well?
DARREN PYLOT: Yes, that would include all the stripping costs
averaged out through all the deposit.
MARK TURNER: Okay. Do you plan on maybe before the prefeasibility study is posted on SEDAR sort being able to provide us a
breakdown of maybe the pre-stripping and the tonnes sort of on a quarterly
basis so we can get a better handle I guess on when those cash flows
come out?
DARREN PYLOT: Yes. We’ve got that information. We can provide
that.
MARK TURNER: Perfect. I’ll follow-up then.
DARREN PYLOT: Okay. Thanks, Mark. I appreciate it.
MARK TURNER: Thank you.
OPERATOR: We have no further questions at this time. I turn the
call back over to the presenters.
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DARREN PYLOT: Thank you, Operator, and thank you, everyone for
joining us today. Please don’t hesitate to contact us with any additional
questions you may have on the quarter or the pre-feas that we’ve issued of
Minto. For those of you who haven’t met her yet, I would like to welcome
our new VP of Investor Relations, Cindy Burnett, who can also answer
questions and be contacted at the Capstone office. Jason Howe who was
previously responsible for Investor Relations and Business Development
will continue to head up Business Development.
Thank you, everybody, and have a great day. Appreciate you calling
in.
OPERATOR: And this concludes today’s conference call. You may
now disconnect.
****

1 event: capstone mining corporation q4 results conference call time

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