Capstone widens loss as falling prices result in impairments

TORONTO (miningweekly.com) – Base metals producer Capstone Mining has widened its third-quarter loss to $216-million, or $0.44 a share, as falling metals prices resulted in noncash impairment charges of $199.2-million being  booked at Santo Domingo, in Chile, Minto, in Canada’s Yukon Territory, and Kutcho, in British Columbia.

This compared with a loss of about $100 000, or nil a share, for the comparable period of 2014.

Excluding exceptional items, the adjusted net income was $16.3-million, or $0.04 a share, below analyst expectations of $0.02 a share.

Revenue was $113-million in the period, down 39% from $183.9-million reported in the third quarter a year earlier. Revenue also decreased quarter-on-quarter as a result of both lower copper volumes sold, owing to lower copper production, as well as nearly 25% lower realised copper prices at $2.25/lb.

The TSX-listed company had earlier this month reported consolidated output of 22 100 t of copper for the three months ended September 30 and 66 900 t of copper in concentrate and cathode in the year-to-date periods, with additional by-products of zinc, molybdenum, lead, silver and gold.

On September 9, Capstone announced reductions to planned 2015 capital expenditure (capex) and site operating costs, and suspended work on the Santo Domingo project to ensure greater financial flexibility. These actions, when combined with $2.60/lb copper put options on about half of output, with pricing periods running to February 2016, were expected to place Capstone in a position to maintain the value of its current operations while remaining in compliance with all its debt covenants at guided production and costs through 2015, even at the average realised copper price of $2/lb expected for the fourth quarter.

In 2016, with the expected increases in grade at Pinto Valley and Minto, as well as lower capex, the company expected to remain in covenant compliance at an average realised copper price as low as $2.20/lb for the first half of the year. For the second half of the year, Capstone expected to remain in compliance down to an average realised copper price of about $1.85/lb, as the full financial benefit of processing the high-grade Minto North ore was realised.

However, should prices fall out of these ranges, Capstone noted that it had several additional options at its disposal to enhance its liquidity position.

These included seeking covenant relief, prepayment financing linked to offtake commitments for copper and the sale of silver output at Cozamin from May 2017, following the expiry of the current stream in April 2017.

Capstone’s 2015 guidance for 90 000 t of copper in concentrates and cathode remained unchanged; however, the distribution by mine was revised to reflect an outperformance at Minto and a shortfall at Cozamin. The C1 cash cost was lowered to between $1.95/lb and $2.05/lb of payable copper produced, net of by-product credits and selling costs, down from the $2/lb to $2.10/lb originally planned for 2015.

Capstone’s stock closed 1.56% higher on Wednesday at C$0.65 apiece, having lost 69% in value over the past 12 months.