Capstone Copper Corp

TSX:CS

Earnings Call Transcript 2018-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the Capstone Mining Corp. Fourth Quarter Year-End Results Conference Call. [Operator Instructions] This call is being recorded on Wednesday, February 13, 2019. I would now like to turn the conference over to Mr. Paul Jones, Capstone's Vice President of Business Development and Investor Relations. Please go ahead.

[Paul Jones]

Thanks, Naomi. I'd like to welcome everyone on our call today. The news release announcing Capstone's 2018 fourth quarter financial results is available on our website, along with an updated corporate presentation with summary information on the company and our financial and operating results. With me today are Darren Pylot, President and CEO; Raman Randhawa, Chief Financial Officer; and Brad Mercer, Senior Vice President, Operations and Exploration.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 will discuss today will be in U.S. dollars, unless otherwise specified. I'll now turn the call over to Darren.

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

Thanks, Paul, and good morning, everybody. We ended 2018 on a very positive note, ending the year with 3 consecutive quarters of performance improvements. We achieved 2018 production and cost guidance with 155.2 million pounds of copper produced at a C1 cost of $1.83 per pound of payable copper. In 2018, we also repaid a total of $55 million to our revolving credit facility, which reduces our total net debt down to $150 million, and ending the year with over $70 million of cash and cash equivalents. Our net debt-to-EBITDA ratio now stands at 1.29x.In Q4, we've adjusted net income from continuing operations of $7.9 million and operating cash flow before changes in working capital of $16.3 million. Production at Pinto Valley in Q4 increased on planned higher throughput and Cozamin achieved throughput of over 3,000 tonnes per day.Looking ahead to 2019, we have a lot planned and we're very optimistic. At Pinto Valley, we have a very long reserve life as well as a lot of untapped potential. This year, we're planning on a scoping level study to examine the overall reserves and resources. We're sitting on over 1 billion tonnes of resource outside of the reserve and we want to explore what potential modernization and/or expansion opportunities might be possible, utilizing some or all of those resources.At Cozamin, we recently published a technical report with an extended mine plan out to 2024. For this year, we've budgeted an approximately $4 million of capital to build a one-way ramp loop to debottleneck the mine. We're essentially connecting an existing ramp to a planned ramp across a 1-kilometer drift. This will result in a 30% increase in production by the end of 2020 for annual production somewhere in the 40 million to 45 million pounds per year range of copper.At Santo Domingo, this year, we're continuing on the strategic process to rightsize the project with Capstone's financing capabilities. We're looking at a number of alternatives, including selling a portion of the project as well as potentially streaming the gold reserve and cobalt resource. This year, we'll also be conducting a preliminary economic assessment on the cobalt resource and we're on track to have the entire project permitted and shovel-ready in early 2020. So we're steadily improving, 2018 now behind us, we're very excited about the potential for this year with a number of catalysts at our different assets. And with that, we're now ready to take any questions from the floor. Thank you.

[Operator]

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

[Stefan Ioannou, Analyst of Institutional Equity Research]

Good to see the operational improvement at Pinto Valley. Just wondering, do you foresee it getting better as we go forward in the future quarters? Or have you sort of addressed all the reliability issues there through Q4?

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

Stefan, I think when you look at the 2018 performance quarter-over-quarter, you'll see that production steadily increase. And we're still not at the levels we were once at. So I think we're taking that momentum of '18 and planning to build on that into '19. And we feel good about this, the momentum so far this year.

[Stefan Ioannou, Analyst of Institutional Equity Research]

Okay. Great. And then also you said that Santo Domingo's a bit of a -- sort of a -- in the pipeline of things to consider but are you looking at anything else in sort of -- in terms of some of the broader grassroots exploration you had in the past? Or is it sort of very focused on, I guess, the 3 assets that we've been talking about?

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

Well, we do have a couple grassroots exploration projects outside of our portfolio that we are very excited about, hopefully getting to drill testing this year, so I know exploration team is very excited about what they have in Mexico and Chile. And then -- but to our more -- the larger scale stuff, as I talked about in the call and what was previously, each site has big catalysts in terms of expansion opportunities and potential at Pinto Valley to assume some of that billion tonnes of resource that were not in the mine plan and as well, we've got the expansion at Cozamin. So we think the lowest risk, highest return stuff is within the portfolio, but always looking obviously for a new deposit with our exploration team that has done so well at Cozamin.

[Operator]

[Operator Instructions] Your next question is from Pierre from Haywood Securities.

[Pierre D. Vaillancourt, VP & Senior Mining Analyst]

I'm just wondering if you could lay out your long-term, longer-term view for Pinto Valley. I know that you've addressed Cozamin and just wondering 5 years out, what you -- or even 3 years, what that could evolve into?

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

Thanks, Pierre. That's a good question. So there's 2 parts that we think there's -- we're going to explore this year some potential smaller capital projects that -- around crushing and flotation that we think maybe could lift the ceiling up where the operation is now, marginally, so that's one. And then two, our larger opportunity, we're taking things that didn't exist when we first got on the site at Pinto Valley such as lower cost, electricity, additional water, availability and autonomous mining and technologies that we believe can bring in a lot of the -- some or all of the resources that we don't have in the mine plan we just spoke about. So on a larger scale, we want to explore to see if we could significantly expand the operation at Pinto Valley, that would be a longer-term, plus 5-year project. And then the shorter-term, we're looking to increase that ceiling to where we -- higher than where we are now with some smaller capital projects.

[Pierre D. Vaillancourt, VP & Senior Mining Analyst]

Okay. So is it reasonable to expect much of an increase in throughput within a 2-year time frame? Or is it just kind of a let's wait and see how these projects pan out?

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

Yes. I think we're still working our way through. I mean, throughput is one part of the value chain. There's throughput recovery and availability. So we're looking at all those and trying to hit the maximum on all those points of the business. And then as I said, if we can improve them, once we get to a ceiling, we think we can do a couple of things to move it higher. So I think there is a chance of the overall copper production increasing over the next couple of years, but I just don't want to focus on the one, the throughput is not necessarily the key driver.

[Pierre D. Vaillancourt, VP & Senior Mining Analyst]

Yes, I just mentioned that because I know in the past, there was reference to 60,000 tonnes a day and possibly more, so.

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

Right. And I think that I'm not prepared to say we're going to go there yet because we've had challenges in the past that we're kind of running a full cycle now and dealing [indiscernible] where we're at and we're slowly building our confidence to keep inching up the throughput, but we're going to be careful as we do it.

[Operator]

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

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

Thank you, everybody, for participating on the call today. Appreciate your time and questions. Look forward to seeing you next year and next call. Have a good day, everybody. Thank you.

[Operator]

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