Covenant violation risk diminishes for Capstone

TORONTO (miningweekly.com) – Copper producer Capstone Mining has reported a narrower first-quarter adjusted loss of $1.5-million, or nil per share, year-on-year, despite rising costs at its Minto mine, in the Yukon Territory of Canada.

For the period ended March 31, Capstone reported operating cash flow before changes in working capital of $18.9-million, or $0.05 a share, with a net loss of $12.8-million, or $0.03 a share.

Copper production for the quarter totalled 24 500 t (23 700 t of payable copper) at C1 cash costs of $1.72/lb produced. Copper sales for the quarter totalled 28 000 t at C1 cash costs of $1.77/lb sold.

Analysts at Dundee Capital Markets were bullish on the company, stating in a note to clients that the company’s Pinto mine was its future, while Minto represented the past.

Capstone had taken actions to protect its balance sheet, including price fixing and hedging 75% of first-quarter sales at $2.20/lb and 90% of second-quarter sales at $2.24/lb. “We do not believe a covenant breach is a risk for Capstone at this point (essentially 50% of 2016 production is hedged at $2.24/lb). With covenant risk fading, Capstone remains a pure-call option on copper with no currency risk,” Dundee analysts said.

Capstone said it was confident that, with these measures in place, it would remain compliant with all covenants at copper prices above $1.65/lb for the remainder of 2016.

The company reaffirmed its previously announced 2016 guidance for 108 000 t of copper in concentrates and cathode at C1 cash costs of $1.45/lb to $1.55/lb of payable copper.

Capstone's TSX-listed stock rose by as much as 7% on Wednesday to C$0.76 apiece, having rallied 73% since the start of the year on slightly more buoyant copper prices.