All amounts in US$ unless otherwise indicated
VANCOUVER, British Columbia--(BUSINESS WIRE)--Capstone Copper Corp. (“Capstone” or the “Company”) (TSX: CS) today reported financial results for the nine months and quarter ended September 30, 2023 (“Q3 2023”). Copper production in Q3 totaled 40.3 thousand tonnes at C1 cash costs1 of $2.88 per payable pound of copper produced. Link HERE for Capstone’s Q3 2023 webcast presentation.
John MacKenzie, CEO of Capstone, commented, "I am encouraged by the progress we made during the third quarter in executing on our plan to improve operational reliability and expand margins across our portfolio. As construction at our flagship Mantoverde Development Project ("MVDP") approaches completion by year-end, we look forward to a transformational year in 2024. Our excitement follows many years of dedicated effort by our mine build team in Chile. MVDP will drive a significant reduction in our consolidated unit costs and provide a pathway to record operating cash flow generation for Capstone Copper."
Q3 2023 OPERATIONAL AND FINANCIAL HIGHLIGHTS
- Net loss of $42.3 million, or $(0.05) per share for Q3 2023 compared to net income of $37.5 million, or $0.05 per share for Q3 2022.
- Adjusted net loss attributable to shareholders1 of $15.8 million, or $(0.02) per share for Q3 2023. Q3 2023 adjusted net loss attributable to shareholders1 is lower than Q3 2022 adjusted net loss attributable to shareholders1 of $22.7 million due to higher copper prices.
- Adjusted EBITDA1 of $62.8 million for Q3 2023 compared to $35.2 million for Q3 2022. The increase in Adjusted EBITDA1 is driven by a higher copper price of $3.75/lb compared to $3.18/lb (prior to unrealized provisional pricing adjustments), partially offset by lower copper sold (38.7 thousand tonnes in Q3 2023 versus 44.2 thousand tonnes in Q3 2022).
- Operating cash flow before changes in working capital of $59.3 million in Q3 2023 compared to $14.4 million in Q3 2022.
- Consolidated copper production for Q3 2023 of 40.3 thousand tonnes at C1 cash costs1 of $2.88/lb. Copper production in the third quarter was impacted by an unplanned eight days of cumulative downtime at Pinto Valley related to the secondary crusher jack shaft replacement and counter shaft repairs, plus planned maintenance downtime at Mantos Blancos. Lower production levels and maintenance expenses were the key drivers related to higher consolidated cash costs in the quarter.
- The Company reaffirms its H2 copper production guidance of 83kt to 93kt. C1 cash costs1 are trending towards the upper end of the H2 guidance range of $2.55/lb to $2.75/lb due to additional unplanned maintenance expenditures noted in Q3.
- Mantoverde Development Project ("MVDP") overall progress at 93% and remains on schedule. Construction is progressing well on all key areas of the project. Total project spend since inception was $763 million at the end of September 2023, compared to $706 million at June 2023. The project is on track for construction completion by year end 2023. As the project nears completion, the updated total project cost is estimated at $870 million which is a 5% increase and includes approximately $20 million in project improvements.
- Total available liquidity1 of $424.5 million as at September 30, 2023, composed of $129.5 million of cash and short-term investments, and $295.0 million of undrawn amounts on the corporate revolving credit facility.
1 These are alternative performance measures. Refer to the section entitled “Alternative Performance Measures” in the Cautionary Notes
Refer to Capstone's Q3 2023 MD&A and Financial Statements for detailed operating results.
Copper production (000s tonnes)
Copper sold (000s tonnes)
Realized copper price1 ($/pound)
C1 cash costs1 ($/pound) produced
2 Mantoverde production shown on a 100% basis.
Q3 2023 copper production of 40.3 thousand tonnes was 12% lower than Q3 2022 primarily as a result of expected lower oxide production at Mantoverde on lower ore grade related to the mining sequence as we are transitioning to sulphide ore for MVDP. Moreover, Pinto Valley had lower mill throughput due to unplanned maintenance downtime related to secondary crusher jack shaft replacement and counter shaft repairs resulting in approximately eight days of downtime.
Q3 2023 C1 cash costs1 of $2.88/lb were 4% higher than $2.76/lb Q3 2022 mainly impacted by 12% lower production, partially offset by higher capitalized stripping at Mantoverde and higher gold by-product credits at Pinto Valley.
2023 YTD copper production of 120.3 thousand tonnes of copper is higher than the 113.3 thousand tonnes in 2022 YTD, primarily as a result of full quarter of production in Q1 2023 versus nine day production in Q1 2022 at Mantos Blancos and Mantoverde.
2023 YTD C1 cash costs1 of $2.96/lb were 10% higher than $2.68/lb 2022 YTD mainly on higher operational costs, partially offset by higher capitalized stripping and by-product credits.
Cathode production is from copper oxide ore that requires sulphuric acid leaching, solvent extraction and electrowinning (SX-EW) to produce copper cathodes which are a finished copper product for the market. Sulphide production requires a mill that utilizes a grinding and flotation process to recover sulphide minerals in a copper concentrate saleable as an intermediate product to smelters and refiners.
Pinto Valley Mine
Copper production of 13.6 thousand tonnes in Q3 2023 was 3% lower than in Q3 2022 mainly on lower mill throughput during the quarter (Q3 2023 - 47,426 tonnes per day ("tpd") versus Q3 2022 - 48,143 tpd), resulting from unplanned eight-day downtime related to the secondary crusher jack shaft replacement and counter shaft repairs. Grade was consistent quarter over quarter (Q3 2023 – 0.34% versus Q3 2022 - 0.34%). Recoveries were lower compared to the same period last year (Q3 2023 - 87.4% versus Q3 2022 - 89.1%).
2023 YTD production was 6% lower than 2022 YTD mainly due to lower mill throughput (47,972 tpd in 2023 YTD versus 51,088 tpd in 2022 YTD) driven by heavy rainfall, including flooding, which resulted in plugged chutes and screens in Q1, conveyor belt replacement/structural support rebuild, and unplanned maintenance on the secondary crusher and associated conveyors which caused the equivalent of twenty days of downtime during Q2 and Q3. Recoveries were higher than 2022 YTD (87.4% 2023 YTD versus 86.3% 2022 YTD). The mill feed grade was consistent with the same period last year (0.32% in 2023 YTD versus 0.33% in 2022 YTD).
Q3 2023 C1 cash costs1 of $2.83/lb were 9% higher than Q3 2022 of $2.60/lb primarily due to increases in operating costs driven by higher contractor spend and mechanical parts costs ($0.32/lb) and lower production ($0.11/lb), partially offset by higher gold by-product credits and lower treatment and refining costs (-$0.21/lb).
2023 YTD C1 cash costs1 of $2.96/lb were 11% higher compared to the same period last year of $2.67/lb primarily due to increased mining costs due to inflationary pressures on explosives, and higher spend on rental equipment, mining equipment tools and maintenance contractors ($0.23/lb), lower production ($0.18/lb), and lower capitalized stripping ($0.05/lb), partially offset by higher gold and molybdenum by-product credits and lower treatment costs (-$0.15/lb). The cash costs are expected to trend down in Q4 as result of higher production.
Mantos Blancos Mine
Q3 2023 production was 12.2 thousand tonnes, comprised of 9.1 thousand tonnes from sulphide operations and 3.0 thousand tonnes of cathode from oxide operations, 11% lower than the 13.6 thousand tonnes produced in Q3 2022. The lower production was driven primarily by lower dump throughput, grade and recoveries impacting cathode production. The mill throughput of 14,176 tpd in Q3 2023 was impacted by mill downtime caused by planned repair and maintenance of the concentrator plant that lasted six days (liners and major components change). Recoveries were lower in Q3 2023 compared to the same period last year (76.3% in Q3 2023 versus 79.3% in Q3 2022), mainly driven by ore characteristics in the upper areas of the mine. A plan to address the plant stability during the second half of 2023 is underway that includes improved maintenance and optimization of the concentrator and the tailings system.
2023 YTD production of 37.9 thousand tonnes, composed of 28.3 thousand tonnes from sulphide operations and 9.6 thousand tonnes of cathode from oxide operations, was higher than the same period last year due to full operational Q1 2023 compared to a nine-day stub period in Q1 2022.
Combined Q3 2023 C1 cash costs1 were $2.82/lb ($2.85/lb sulphides and $2.75/lb cathodes) compared to combined C1 cash costs1 of $2.68/lb in Q3 2022, 5% higher than the same period last year mainly due to lower production ($0.11/lb), an increase in contracted services and labour cost mainly driven by unfavourable foreign exchange rate and inflation impact ($0.34/lb), plant maintenance and spare parts spend ($0.03/lb), partially offset by lower key consumable prices (-$0.34/lb) (realized acid prices averaged $141/t in Q3 2023 versus $273/t in Q3 2022 and diesel price averaged $0.76/l in Q3 2023 versus $0.97/l in Q3 2022).
Combined 2023 YTD C1 cash costs1 of $2.87/lb ($2.80/lb sulphides and $3.07/lb cathodes) were 3% higher compared to $2.78/lb in 2022 YTD. For the last quarter of 2023, we expect a reduction in combined C1 cash costs1 as the production mix is expected to have a higher ratio of concentrates to cathodes and lower acid prices (average 2023 YTD $171/t and estimated remaining $164/t).
Q3 2023 copper production of 8.6 thousand tonnes was 26% lower compared to 11.6 thousand tonnes in Q3 2022. Heap operations grade was lower as a result of mine sequence (0.32% in Q3 2023 versus 0.45% in Q3 2022), and recoveries were lower (66.5% in Q3 2023 versus 86.7% in Q3 2022) due to lower solubility ratio of the processed mineral and lower grades, all of which was partially offset by higher heap throughput (2.7 million tonnes in Q3 2023 versus 2.5 million tonnes in Q3 2022). Throughput from dump operations was lower compared with the same period last year due to a temporary sulphuric acid supply shortfall in September, and grades were consistent with the same period last year.
2023 YTD production of 25.4 thousand tonnes was lower than the same period last year, despite of full operational Q1 2023 compared to nine-day stub period in Q1 2022 due to lower heap grades as a result of mine sequence (0.31% YTD 2023 versus 0.48% YTD 2022) and lower recoveries due to lower solubility ratio of the processed mineral and lower grades. Production for the remainder of the year should be positively impacted by higher expected grades.
Q3 2023 C1 cash costs1 were $3.74/lb, 3% lower than $3.87/lb in Q3 2022 due to lower sulphuric acid prices ($156/t in Q3 2023 versus $285/t in Q3 2022) and lower mine costs mainly driven by lower diesel prices ($0.76/l in Q3 2023 versus $1.03/l in Q3 2022), partially offset by lower production.
2023 YTD C1 cash costs1 were $3.89/lb, 7% higher than $3.62/lb in 2022 YTD. For the last quarter of 2023, we expect a reduction in C1 cash costs1 due to lower energy prices (average YTD $0.22/kWh and estimated remaining $0.16/kWh) and higher production.
Q3 2023 copper production of 5.9 thousand tonnes was lower than the same period prior year mainly on lower mill throughput (3,567 tpd in Q3 2023 versus 3,829 tpd in Q3 2022). Recoveries and grades were consistent quarter over quarter.
2023 YTD production was 5% lower than 2022 YTD due to lower throughput as a result of change in mining method (cut-and-fill) (3,590 tpd in 2023 YTD versus 3,803 tpd in 2022 YTD). Recoveries and grades were consistent with the same period last year.
Q3 2023 C1 cash costs1 were 54% higher than the same period last year mainly due to inflationary price increases on the main consumables, unfavourable foreign exchange rate, start of paste plant operations, which resulted in an increase in labour, contractor and cement costs, changes in mining method and additional bolting requirements as part of strengthening ground support ($0.61/lb) and lower copper production ($0.08/lb), partially offset by stockpile buildup (-$0.07/lb).
2023 YTD C1 cash costs1 were 45% higher than the same period last year primarily due to the change in mining method which resulted in an increase in contractor utilization and higher spend on bolting, and unfavourable foreign exchange rate ($0.42/lb). In addition, cash costs were impacted by lower production ($0.06/lb) and lower zinc by-product credits due to planned lower zinc production ($0.03/lb).
Mantoverde Development Project
Construction of the MVDP located at the existing Mantoverde (oxide) operation continues to progress well. The MVDP is expected to enable the mine to process 231 million tonnes of copper sulphide reserves over a 20-year expected mine life, in addition to existing oxide reserves. The MVDP involves the addition of a sulphide concentrator (32,000 tonnes per day) and tailings storage facility, and the expansion of the existing desalination plant.
The MVDP is progressing under a lump-sum turn-key engineering, procurement, and construction (EPC) contract with Ausenco Limited, a multi-national EPC management company, with broad international experience in the design and construction of copper concentrator projects of this scale in the international market. The execution plan includes a Capstone Copper owner’s team working with the contractors during the execution phase.
The MVDP is progressing well at approximately 93% complete as at September 30, 2023 and remains on track for construction completion by year-end followed by an expected six-month ramp-up to nameplate production levels in 2024.
Key areas of work completed during Q3 2023 were:
- Stockpiled approximately 5.0 million tonnes of sulphide ore
- Commenced commissioning of the primary crusher
- Grinding area: lubrication and cooling system installed. Laying completion of medium-voltage conductors to the Ball/SAG mill. Rotation of SAG/Ball Mills performed
- Flotation area: All cells installed and water test started
- Filtering area: Filter installed, air blower and tank mounted
- Tailings Thickener: Rake glide test done, underflow control valves and metallurgical sampler assembly completed
- Sand Plant: Thickener rake assembly in progress
- Tailings Storage Facilities: Mass excavation completed; Starting Wall and Cut-off Trench nearing completion
As of September 30, 2023, the MVDP to date costs total $763 million. Our total capital cost for the MVDP is estimated to be 5% higher at approximately $870 million. The increase from the prior estimate of $825 million relates to the following main areas (1) Inflation ($20 million) - impacting the fourth electric shovel, the diesel price on pre-stripping, and the cost per unit on tailings infrastructure construction, (2) Project improvements ($20 million) - additional rotainers for added flexibility in concentrate transport and storage, water reservoir and additional camp and warehouse space, and (3) Ramp up / commissioning costs ($5 million).
A virtual tour of the project can be viewed at https://vrify.com/decks/12698-mantoverde-development-project
Mantos Blancos is currently focused on reliably achieving the installed capacity of 20,000 tonnes per day. We are executing on a plan to address plant stability that includes improved maintenance and optimization of the concentrator and tailings system. During the third quarter we addressed several bottlenecks in the crushing and grinding area of the operation. Moving forward, certain components in the tailings dewatering area, such as new handling and pumping infrastructure, are expected to be delivered and installed in early 2024, after which we expect Mantos Blancos to consistently deliver nameplate throughput rates.
The capital enhancements will enable future expansion opportunities as there will be installed capacity in certain parts of the process in excess of 20,000 tonnes per day. Once nameplate capacity is reached, we will recommence evaluating the potential to increase throughput of the Mantos Blancos sulphide concentrator plant to at least 27,000 tonnes per day using existing process infrastructure and new technologies, while also evaluating options to extend the life of copper cathode production.
Chilean Tax Reform
In August 2023, Chile passed the proposed Mining Royalty into law to be effective on January 1, 2024, replacing the current Specific Tax on Mining Activity.
The Mining Royalty contains two components, an ad-valorem component and a mine operating margin component. The ad-valorem component is applicable to companies with annual sales of copper that are higher than the equivalent of 50,000 metric tonnes of fine copper ("MTFC"). If the company's "Adjusted Mining Operational Taxable Income", or "RIOMA" as it is referred to in Chile, is negative, the ad-valorem component to be paid will be calculated by subtracting the negative amount of the RIOMA from the ad-valorem component. The ad-valorem component of the Mining Royalty will be deductible when determining First Category income taxes, however, not for purposes of determining RIOMA. The ad-valorem component is capped at 1% of gross copper revenues and will be reported in the royalties line on the income statement.
The mine operating margin ("MOM") component will vary depending on the sales volume of the company, along with whether more than 50% of its annual production is copper. Mining companies which derive more than 50% of their income from copper sales and exceed 50,000 MTFC will pay a tax rate that fluctuates between 8% and 26% based on the following table:
Maximum effective rate
Less than 20%
greater than 20% but less than 45%
the rate increases linearly to 12%
greater than 45% but less than 60%
the rate increases linearly to 26%
Greater than 60%
The MOM component will not be applicable in cases where the RIOMA is negative and is calculated based on total mine operating margin, which includes silver and gold by-products. The Mining Royalty allows depreciation as a fully deductible operational expense in the calculation of RIOMA, however, unlike the First Category deduction, it is on a non-accelerated basis.
The Mining Royalty includes a maximum limit to the total tax burden, consisting of (1) the corporate income tax paid in the respective year, (2) the Mining Royalty (both ad-valorem and MOM components) and (3) withholding taxes to which owners would be subject to upon distribution of dividends. The calculation of withholding taxes assumes a 100% distribution, and is calculated considering a tax burden of 35% of net taxable income, i.e. an additional 8% to the First Category rate of 27%. The Mining Royalty establishes that when the sum of three component exceeds 46.5% of RIOMA, then the Mining Royalty would be adjusted in such a way that it does not exceed the limit.
As a change in tax law is accounted for in the period of enactment, rather than from its effective date, the Company recorded a deferred income tax charge of $31.5 million and a corresponding increased to deferred income tax liabilities. The impact to Capstone operating mines is less than expected due to pre-existing tax losses and accelerated deprecation rates. The Mining Royalty is not expected to have an impact on Santo Domingo which has 15 years of tax stability post commencement of commercial production as a result of Decree Law No. 600 ("DL 600") during which time it will remain subject to the current Specific Tax on Mining. Furthermore, given the Company's growth projects in Chile, we do not expect to incur cash withholding taxes for several years but the deduction is available when calculating the cap under the new mining royalty.
Mantoverde - Santo Domingo District Integration Plan
The Company is focused on creating a world-class mining district in the Atacama region of Chile, targeting over 200,000 tonnes per year of low-cost copper production with the potential to also become one of the largest and lowest cost battery grade cobalt producers in the world outside of China and the DRC. Capstone Copper has the opportunity to unlock operating cost synergies, while also enabling additional copper and cobalt production, infrastructure capital savings, and the potential for significant tax synergies.
Santo Domingo FS Update
Santo Domingo has completed the flowsheet optimization process previously announced and Ausenco is currently updating the Feasibility Study ("FS") with contributions from third parties. Ausenco is optimizing the Technical Report to take into consideration recently produced metallurgical testwork data and updated mine plan. The optimized Technical Report is now expected to be delivered in the first half of 2024 as we are taking additional time to finalize key value drivers within the study and ensure we have selected the optimal project configuration.
MVDP Optimized FS and Phase II
The Company is currently analyzing the next expansion of the sulphide concentrator. Capstone has identified that the desalination plant capacity and major components of the comminution and flotation circuits of the MVDP are capable of sustaining average annual throughput of approximately 45,000 tonnes per day with no major capital equipment upgrades. Capstone continues to work with Ausenco's engineering team to develop the MVDP Optimized Feasibility Study, including evaluating the costs and timelines of debottlenecking the minor components of the plant to meet the potential increased throughput target. The feasibility study is expected in the first half of 2024.
Given the above, the Mantoverde Phase II opportunity will evaluate the addition of an entire second processing line, possibly a duplication of the first line, to process some of the additional 77% of resources not utilized by the MVDP Optimized.
Mantoverde - Santo Domingo Cobalt Study
A district cobalt plant for Mantoverde - Santo Domingo may allow for low-cost by-product cobalt production while producing a by-product of sulphuric acid which can then be consumed internally to further significantly lower operating costs in the cathode leaching process at Mantoverde.
The cobalt recovery process consists of a concentration step, an oxidation step, and a cobalt recovery step. The concentration step considers a conventional froth flotation circuit treating copper flotation tails to produce a cobaltiferous pyrite concentrate which is expected to contain between 0.5% and 1.0% Co depending on the ore grade. The oxidation step entails adding the pyrite concentrate to the Mantoverde heap leach process, which will be converted to a bioleaching process to oxidize and break down the pyrite, thereby releasing the cobalt into solution.
Jerrold Annett, SVP, Strategy and Capital Markets
Daniel Sampieri, Director, Investor Relations & Strategic Analysis