Capstone Copper Corp

TSX:CS

Earnings Call Transcript 2019-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to Capstone Mining Corp. First Quarter Results 2019 Conference Call. [Operator Instructions] This call is being recorded on Thursday, April 25, 2019.I would now like to turn the conference over to Paul Jones, Vice President, Business Development and Investor Relations. Please go ahead.

[Paul V. Jones]

Thanks, operator. I'd like to welcome everyone on the call today. The news release announcing Capstone's 2019 first quarter financial results is available on our website, along with an updated corporate presentation. With me today are Darren Pylot, President and CEO; Raman Randhawa, Chief Financial Officer; and Brad Mercer, Senior Vice President, Operations and Exploration. Following our brief remarks, we will have an opportunity for questions. Comments made on the call today will contain forward-looking information. This information, by its nature, is subject to risks and uncertainties, and actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please see Capstone's relevant filings on SEDAR. And finally, I'll just note that all amounts we discuss today will be in U.S. dollars unless otherwise specified. Now I'll turn the call over to Darren.

[Darren M. Pylot, President, CEO & Director]

Thank you, Paul, and good morning, everyone. We're quite excited to share this quarter's results with you. After ending 2018 strong, we have started 2019 even stronger with Q1 representing the fourth consecutive quarter of improved operating results. Overall, we produced 41.4 million pounds of copper at a consolidated C1 cash cost of $1.56 per pound. This is our lowest consolidated quarterly cash cost in 9 quarters and represents a 20% increase in production and a 20% decrease in cost versus Q1 of last year.Additionally, Q1's consolidated costs were 8% lower than Q4 of last year despite relatively similar production levels. This demonstrates that we have been able to fundamentally reduce our costs and are not simply relying on higher production levels to present lower per pound cost. Our operations are now running at steady state and in a position from where we can look to further optimize and improve.At Pinto Valley, most operational Q1 metrics met or surpassed recent historical performance. Throughput at 54,800 tonnes per day is the highest that it's been since the end of 2017, which, combined with overall site operating costs of $8.82 per tonne milled, resulted in C1 cash cost of $1.79 per pound. This is the lowest quarterly C1 cash cost since 2016. While grades in Q2 are expected to be lower at approximately 0.28% copper, Q1's positive results demonstrate to us that operational execution at Pinto Valley is now well in hand and should form the basis from which we will judge performance going forward. At Cozamin, increased production from our zinc-rich San Rafael zone helped us increase our total mill throughput to over 3,000 tonnes per day, and that's the highest it's been in the past 5 years. Additionally, higher zinc and silver byproducts helped Cozamin C1 costs, which were $0.70 per pound copper for the quarter. In addition, our safety performance was exceptional. We had 0 lost time injuries in the quarter, which reduced our LTI frequency rate to 0.015. Overall, the company's safety performance has continually improved quarter-over-quarter since the launch of our Capstone Values in Action safety training program in 2018. To date, virtually all of our employees have completed the program. We're continually striving for improvement and diligently working towards our goal of zero harm. Now looking ahead to the rest of this year. At Pinto Valley, as I mentioned earlier, now that the site, in our opinion, has reached a steady operating state, we aim to reduce the overall dollar spend at site. We've identified a number of additional cost-saving opportunities, and we're currently developing a plan to attack these costs. We will report on our progress and findings after Q2. Additionally, work continues on the scoping level study aimed at identifying opportunities, take advantage of the roughly 1 billion tonne additional resources at Pinto Valley. We are currently evaluating a number of different scenarios, and we expect to be able to provide some additional clarity on those plans in the second half of this year. At Cozamin, work has commenced on the development of the one-way ramp to debottleneck the mine, and we remain on track to increase production by 30% by the end of 2020. For Santo Domingo, during the quarter, we received the tailings permit allowing us to submit the closure plan, which is the last preconstruction permit required. Additionally, as we had expected with an asset of this quality and stage of development, the strategic process launched at the beginning of the year has been quite robust. We will update the market on developments in this regard at the appropriate time. And finally, at Minto, we continue to advance discussions regarding the potential divestment of the site. And again, we will update you when we can on this. So in conclusion, after a very strong first quarter, we're quite excited about 2019's potential. We remain very much on track to meet production and cost guidance, and each of the catalysts at our sites are on track to be delivered as planned.So with that, we're now ready to take questions from the floor.

[Operator]

[Operator Instructions] Your first question is from Orest Wowkodaw from Scotiabank.

[Orest Wowkodaw, Senior Equity Research Analyst of Base Metals]

Congratulations on the improvement at Pinto Valley in particular. Two questions about Pinto, if I may. The first one, the -- you seem to be doing a lot better on your operating cost per tonne. And even when we include the stripping costs along with the operating cost, it looks like you're down a solid dollar or even more a tonne on a total level. I'm curious, how sustainable do you think that is? Or is there something that might trend those costs per tonne numbers back up in the coming quarters.

[Darren M. Pylot, President, CEO & Director]

Orest, it's Darren here. No, we believe those costs are sustainable. And actually, as I mentioned earlier, we've got some cost programs in place to even -- we think we can reduce cost further. The main driver is the contractor is out. Since we signed a new labor agreement in the middle of last year, we're able to hire more -- or retain more of our workforce and pay the going rate, so to speak, and not have so many contractors on site. So there's been a large amount of higher cost labor leaving the site and us retaining our own skilled labor. So that's helped a lot. As well as some of the consultants that were helping us on our maintenance and planning programs, we're now well in hand with those programs. We're able to let those consultants go as well. So those are the main drivers on why the costs have come down. And obviously the flip side of that is more operating time, more consistent running in the plant, less shutdown -- unexpected shutdowns because our maintenance and planning has improved significantly from first quarter of last year.

[Orest Wowkodaw, Senior Equity Research Analyst of Base Metals]

Okay. And then just secondarily on the Pinto Mine plan. The updated mine plan that you put out, I think going back now kind of 12 to 24 months ago, deferred a whole bunch of high grade at Pinto, specifically to 2021 and '22. There is a big spike up expected in grade to 0.36, 0.37 level. I'm just curious if there's been anything that may change that and whether that might get smoothed out or whether you still anticipate kind of lower grades in '20 and then this big spike up in '21, '22.

[Darren M. Pylot, President, CEO & Director]

It does. That is the mine plan, as you just mentioned, Orest. Now we are ahead this year on our stripping, and our goal is to get us further ahead as much ahead as we can because then we can bring some of the grades into this year. Everything will move forward by hopefully a quarter if we can. And so we do expect to remain ahead on the stripping. The mine is running extremely well. But yes, that is the mine plan. There's not a lot we can do about that -- those phases, so it would be that other than advancing stripping.

[Operator]

[Operator Instructions] Your next question is from Stefan Ioannou from Cormark Securities.

[Stefan Ioannou, Analyst]

Again, great to see the cost come down at Pinto Valley. Nicely done. I'm just wondering, in sort of the second quarter we've seen sales lag production. Is it -- is that just sort of just a pure timing thing? Is there some other larger issue under there? I mean I know you mentioned in your disclosure that the cash flow from operations would have been even higher had said sales matched the production for the quarter.

[Darren M. Pylot, President, CEO & Director]

Yes. Stefan, really, what happens is because we book all the scheduled ships at the beginning of the year, and we've just been producing a bit more than -- doing better than we forecasted at the start of the year, so those ships are lined up. And typically, so there's been one ship at the end of each quarter that we've produced more copper than planned, and it's just come in at the end -- been loaded right at the end of the quarter and actually paid for and recognized revenue early in that next quarter. So we'll probably pick -- add more trucking and shipping for the second half of the year now that we feel confident that we're at the increased rates at Pinto Valley. So we'll look to smooth that out a bit more and match the production to the sales a little bit better in the second half.

[Operator]

[Operator Instructions] There are no further questions at this time. Please proceed.

[Darren M. Pylot, President, CEO & Director]

Well, thank you, operator, and thank you, everybody, for joining us today. As always, if there's any further questions, please don't hesitate to contact any of us off-line. Thank you very much, and have a good day.

[Operator]

Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your lines.