Despite widening adjusted Q4 loss, Capstone beats forecasts as sales, prices sag

TORONTO (miningweekly.com) – Declining copper sales and dramatically lower realised prices have conspired to cut back base metals producer Capstone Mining’s fourth-quarter revenue 34% year-on-year.

This resulted in a wider adjusted net loss of $7.8-million, or $0.02 a share, though this still managed to beat analyst expectations of losing $0.03 a share.

For the three months ended December 31, revenue was down by $47-million year-on-year to $92.1-million, as the average realised price for copper fell 27% to $2.05/lb. However, with the company’s forward options on copper sales, it reported an adjusted realised copper price of $2.26/lb. This included realised gains of $10.1-million related to copper output contracts exercised in the fourth quarter, against nil in the same period of 2014.

Copper prices had slumped 3% so far this year, following a 25% decline last year. Capstone said its fully loaded all-in cost per payable pound sold in the period fell nearly 5% to 2.78/lb.

DEBT DOUBTS
The company’s net debt position nearly doubled to $247.9-million for the quarter.

Vancouver-based Capstone had been working through a lower-grade zone at the flagship Pinto Valley mine, in Arizona, and it was busy stripping a higher-grade deposit at the mine, in the hope that lower capital spending and improving grades at Pinto Valley and Minto would improve its fortunes in the second half of the year.

This had raised analyst fears that the company could break certain debt covenants. Capstone president and CEO Darren Pylot noted during a conference call on Wednesday that management had several ‘levers’ at its disposal should copper markets weaken further during the year.

“If markets do not improve, we have a number of options to ensure liquidity and covenant compliance should circumstances warrant. We ended the year in compliance with all of our debt covenants. All of our mines are operating on plan with significantly lower operating costs projected for 2016 and we remain focused on cost control and efficiencies across the company,” stated Pylot.

Pylot advised that a sale of part of the assets would be a last recourse, but negotiations on debt covenant relief were already started to ensure that the company did not run into cash flow problems, while capital expenditure was focused on stripping the higher-grade deposit at Pinto Valley.

Quarterly cash flows had deteriorated by almost 60% in the fourth quarter, to $12.5-million.

Pylot also did not rule out the possibility of selling a stream on Pinto Valley if things did not improve by 2017.

For the full year, the company’s net loss totalled $251.5-million – a net loss of $31.9-million after adjusting for certain noncash and nonrecurring charges.

Copper output for the year totalled 92 600 t (89 300 tonnes of payable copper) at a C1 cash cost of $1.99/lb produced and copper sales for the year of 87 500 t at a C1 cash cost of $2/lb sold.

Capstone's 2016 production guidance was 108 000 t of copper with C1 cash costs of $1.45/lb to $1.55/lb of payable copper produced net of by-product credits and selling costs.

Capstone’s stock was down 74% for the past 12 months, but on Wednesday traded 5.63% higher at C$0.38 apiece.