Good morning, ladies and gentlemen, and welcome to the Capstone Mining Corp. Fourth Quarter Results twenty nineteen Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, 02/12/2020.
I would now like to turn the conference over to Gerald Natt, Vice President, Strategy and Capital Markets. Please go ahead.
Thank you, and good morning. I'd like to welcome everyone on
the call today. The news release announcing Capstone's twenty nineteen fourth quarter financial results is available on our website. And if you're logged into the webcast, we will be advancing slides, which are also available on our website. With me today are Darren Pilot, President and CEO Raman Rendawa, Chief Financial Officer Jason Howe, Vice President of Corporate Development and Mike Rickersham, General Manager of Pinto Valley Mine. Following our brief remarks, there will be 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 Pyle.
Thank you, Joe, and good morning, everyone. Before we start, I just want to note the title of this presentation, transition completed to a new capstone. Our story has been simplified. We have two operating mines, Pinto Valley and Cozamin, that collectively deliver 20% growth and 10% lower cost by 2021. They both have tremendous upside, which we are focused on surfacing with low risk capital spending and quick payback.
We have cut nearly $30,000,000 out of our cost structure and have a strong balance sheet to execute on numerous organic growth opportunities that we now have before us. For those of you not logged into the webcast, we're on Slide number four, the presentation. Overall, we ended the year above the midpoint of production guidance. And on C1 costs, we were below the low end of guidance. Raman will further expand on these results later in the call.
I will share with you the key advancements we made at both Pinto Valley and Cozamin in Q4 to position both mines for near term growth. Moving on to Slide five of the webcast. At Pinto Valley, we took some additional downtime in November to advance maintenance and to make some modifications in our fine crushing plant. We decided to do this so that it would be possible to perform an operational test in December, which would push throughput levels beyond previously understood limits. By examining where all the bottlenecks exist through our entire plant, we can then generate the necessary projects or operational adjustments to optimize performance.
These results in December were excellent. We were able to achieve eighteen days above 60,000 tonnes per day, achieved an all time weekly average record of 63,500 tonnes per day and also achieved a record breaking daily throughput rate of 70,300 tonnes per day. The order that we processed for all this testing was of normal hardness and normal characteristics that we typically see at Pinto Valley. So we're really confident that the data from the test we generate will generate the right projects for us as we look to lock in that type of performance at these higher levels. So as a result of the test work done, we have launched a PD3 optimization study that will focus on a series of low CapEx and quick payback projects that collectively will allow us to maximize performance and cash flows of the operation.
We expect to report the results in the second half of this year. Phase one of this optimization has already begun with the approved $15,000,000 upgrade to the which is installing two secondary crushers, screen decks and two ball mill shelves. This one year payback project is expected to result in 56,000 to 50,000 tonnes per day in 2021. Slide five gives some color on various ideas that we are already looking into, like blast fragmentation, new tertiary crushers and screens, verde mills to add grinding capacity and more concentrate capacity in the flotation plant. Moving to Slide 6.
2019 was a transformational year for Cozamin. The excellent work from our exploration team has resulted in announcing some of the best drill results the mine has ever seen. Cozamin is a Tier one minutee and a cornerstone cash flow asset for Capstone. As I've said before, we've operated it now for over thirteen years, and it looks like the best is yet to come at this mine. We expect to release an updated mineral reserve and resource estimate and a technical report in Q4 of this year.
The development of the one way ramp continues to be on schedule for completion by the end of this year, and the raised board project is also progressing well and expected to be completed in early spring. I'll now turn the call over to Jason to give you a brief update on Santo Domingo.
Thanks, Darren. Moving on to Slide seven. Our Santo Domingo project is fully permitted and shovel ready. During 2019, we received all the required construction and environmental permits from the Chilean authorities, along with an approved mine closure plan. The project continues to receive local government and community support.
The strategic process to rightsize and monetize our ownership is still ongoing, and we'll provide more information when available. Prior to the end of this quarter, we will file an updated feasibility study, which will include the economic assessment to produce a cobalt sulfate that is used directly in battery manufacturing for electrical vehicles, energy storage and other high growth applications. Some noteworthy developments that will be reflected in our news release in the following weeks will include recently completing pilot plant and metallurgical test work, confirming quality concentrate with copper concentrate over 29% and iron concentrate over 66%. We negotiated an MPC fixed price contract for the processing plant as well as firm quotes for mobile equipment. We also negotiated a power purchase agreement with a major Chilean power company, and we have received indicative offers for water from Chilean diesel operators.
Now with regards to the coronavirus, now COVID-nineteen, while it's certainly having an impact on the global supply chain, as I'm sure you're all aware, Capstone exposure is currently limited. We've entered into multiple offtake agreements with smelters and traders that allow us the option to ship to Japan, Korea, The Philippines, domestically to U. S. Smelters or blend in Mexico. I will now turn the call over to Raman to give you a brief update of our results.
Thanks, Jason. Moving on to Slide eight. Focusing on Q4, we produced 35,400,000 pounds of copper, slightly below our expectations due to downtime at Pinto Valley to bring ahead maintenance to perform the operational test in December. We finished the year strong with a total of 153,400,000 pounds of copper at C1 cost of $1.78 per pound payable, lower than our cost guidance of $1.0.8
to $2 per pound.
Net income of approximately $13,000,000 was positively impacted by higher revenue as Q4 sales of 40,000,000 pounds were higher than our production of 35,000,000 pounds In addition, our results included a positive tax recovery of $23,000,000 as a result of recognizing a future tax asset for use of corporate tax pools. Our adjusted net loss tax has the favorable impact of the future tax asset. Next slide, Slide nine. I'm proud to announce that I'm proud to announce that Capital One has now removed $27,500,000 of sustainable annualized cost out of business when compared to 2018 burn rate, achieving our target of 25,000,000 to $30,000,000 Crystal Valley achieved an additional $2,500,000 in Q4, bringing their year to date total to $15,000,000 bringing down their annual property cost from $230,000,000 to an annual run rate of $215,000,000 which equates to a reduction in overall site operating cost of approximately
$0.80 per tonne milled.
We expect our tonne per tonne milled cost to further decrease in 2021 upon upgrade of the secondary crushers, which will improve our plant throughput. Compared to 2018, Pinto Valley produced about the same amount of copper at $15,000,000 lower OpEx spending, which resulted in a $0.22 per pound lower ASIC. Also shown on Slide nine, we have industry leading low SG and A costs now. We have moved to a lean, decentralized operating model at the beginning of 2019, which reduced our G and A without depreciation from eighteen million dollars down to $14,000,000 with a target for 2020 of between $12,000,000 to $13,000,000 which
equates to $0.8 per pound.
Focus for 2020 will be the capital investment of both mines, which will return growth production by twenty percent and reduce our costs even further by 10%. With that, I'll pass it back to Eric to talk about our upcoming catalysts for 2020. Thank you, Raman, and we're now on Slide 10. Looking ahead to 2020, at Pinto Valley, as previously mentioned, we have commenced that phase one study of the PD three optimization with the installation of the first of the two secondary crushers and screen decks going in, the first one being installed in late March or, at the latest, early April. For Phase two of the PD optimization, we'll be analyzing the results of that test work in December and identifying these low capital projects or operational tweaks to boost the performance even higher.
Currently at Pinto Valley, we're also working on completing the PD-four expansion study at 100,000 tonne per day or plus case, and this will be announced in the 2020. At Cozamin, a level of confidence, as I said, is expected post expansion production increasing to between 50,000,055 pounds of copper and 1,500,000 ounces of silver by 2021 and beyond. And this confidence continues to increase as we remain on track to complete the one way ramp for the 2020. For the Cozamin drilling program, we continue to target the release of an updated mineral resource and reserve by the end of this year. And work on San Domingo's updated technical report, as Jason mentioned, including an economic assessment of the cobalt opportunity, is very near completion, and we expect to have those results out very shortly.
On the next slide, in conclusion, we're very excited about Capstone's future. Our strategy as we look to grow involves prudent capital investment to increase net asset value per share. We've been very fortunate to identify small CapEx and big impact projects like the $5,000,000 one way ramp that will lead to a 50% copper and silver production growth increase at Cozamin starting next year. The $15,000,000 Phase one optimization project comes with a one year payback and will position Pinto Valley well next year within with higher throughput and lower costs, as Raman mentioned. Phase two is expected to generate a number of these similar high impact projects with the ultimate goal of realizing sustainable performance, like we mentioned in the test work in December.
With that, we're now ready to take questions.
Your first question comes from the line of Dalton Baretto from Canaccord.
I'm intrigued by this experiment at Pinto Valley in December at this optimization plan. Can you talk a little bit about what went right in December compared to your normal operating procedures? And then maybe what you need to do to make that run rate sustainable? And then maybe lastly, just what and how much you need to invest to get up to 70,000 tonnes per day?
This is Mark Lukercham. Thanks for asking your question. I'd start with saying December was a real eye opener for us. We have never seen those kinds of production rates before this facility, and what unlocked that capacity was two things. Primarily, it was better fragmentation and blasting in the mine, coupled with that value chain uptime and capacity that came from getting the maintenance strategy right in November.
So if you couple getting the right funds generated in the mine with availability and capacity and their existing equipment, you'll see more days like we have when we book those records late in that month. Our challenge is to find out how can we get the value chain to perform reliably, more consistently. And that's what our 2020 CapEx investment plan is all about. So as I look forward to 2020, we have a schedule for upgrading two of our secondary crushers with screen decks that go along with that. We were upgrading two of our ball mill shelves, and that will put us in a position where we'll be running at those higher run rates more consistently than we enjoy in the sender.
This is a year for us to invest and build that capacity.
Okay. Then just maybe my last question. In terms of incremental investment to get to 70,000 tonnes per day and beyond, what are you guys thinking there? How much are going to invest? Where are you targeting it?
Thank you. What we're doing is we're going to spend some time between now and the end of the second quarter to build that plan and really understand how we can unlock more consistent capacity at that rate across the value chain. When we ran at those high rates in December, we found we had at least one good problem, and that is our concentrate handling was having a difficult time keeping up with the extra volume. That's one of the things we know we need to focus on. We'll be building that plan over the next several months.
Okay, great. And then maybe I can switch gears and just ask one question on Santo Domingo. So just given everything that's gone on first in Chilean and now with the copper price, are you guys thinking differently at all about the JV process?
Dalton, no. Process continues as as is. Yeah. I mean, we've had some, with the protests in Chile and and now with the coronavirus, but I think I think we're in a good spot right now, you'll see in the next coming weeks of how we've advanced the project in the last year. And as Darren talked about as well with the Cobalt's opportunity, we hope that opens up a few doors, and we see a lot more interest around the project and round sharing infrastructure.
Your
next question comes from the line of Orest Wowkodaw from Scotiabank.
Just following up on Dalton's question about Pinto Valley. Obviously, you took some maintenance downtime in the fourth quarter to in order to do some of those test work. Do you think that's going to continue through this year as you work on the study? And I'm just wondering if we should think about or plan about certain maintenance shutdowns related to this in the first half of the year. And then also on the back of that, just curious if there's any variability to the planned grade profile at Pinto this year?
Orest, it's Darren here. We have the only downtime that we would assume within the plan this year would be the installation of the crushers and screen decks and, obviously, the two ball mill shell replacements. Now, we have scheduled that downtime into our guidance and forecast. So as long as that goes according to the plans that we have built, there should be no additional time that you would expect. And that we obviously haven't replaced those before, so it'll be obviously, we need to do that according to our guidance, but that's built in.
Okay. But can you Darren, can
you just maybe give us better detail of is that happening all in Q1? Or is it spread between Q1, Q2? Sounds like there'll be some variability in the throughput as the year goes on.
Yes. This is Michael Grisham again. What you'll see is that spread out across the course of the year. We'll have one of the crushers installed some time late March, early April. Another one will hide sometime in perhaps September.
And the bond rail shells will be scheduled with a couple of months break in between as well, but the first one will begin sometime probably in June. I think it's important to note that while these installations are going on, it's not going take a general plan to shut down for this. One of the advantages with these new crushers is it's a very low impact installation procedure because they fit to the existing pedestals for our current crusher. So we'll run at slightly reduced rates while these installs are underway, but it doesn't require a full plant outage.
Okay, great. Can you give us what the planned mining grade is at Pinto Valley this year? And is there volatility in that through the year? Or is it going be pretty steady?
The grade is expected to be just over 0.3 copper this year. It's going to be one of the lowest years in the five year plan. That's why I'm excited about 2020. We've got this investment program at a time when we're working through some of the lower grades in the pit. We're going to come out of this very strong.
Your next question comes from the line of Stefan Ioannou from Cormark Securities.
Maybe just a sort of slight follow-up to Orest's question there on the last bit. Just with the grade in Q4 at Pinto Valley down at 0.3, was that just really a function of that current sort of grade profile coming into effect? Did you actually sort of work with that knowing that you're going to have the downtime in November and December to sort of just maybe not sort of necessarily put some of your better grade through then?
Stefan, is there no, that was actually as predicted and part of the mine plan and sequencing for
the year of ending the year last year. Okay. Okay. Great. And then just to follow-up on Orest's question.
Obviously, we're budgeting the budgeting throughput rate is in the 53,000 range for this year. So when we if we do experience some longer than anticipated downtime or what we have in our back pocket, so to speak, is the confidence level that we can run the operation on days above 60,000 tonnes a day now. So we do have that test work is something that we can take with us and use if we need it. There's no question. We don't have the capacity to run it at 60,000 tonnes a day or above for the full year yet because we don't have the flotation of grinding, but we can absolutely do that on individual days to make up or increase the throughput beyond what we're guiding and budgeting.
Your next question comes from the line of Craig Hutchinson from TD Bank.
Good morning. My
question is on Cozin. And I just wanted to get some clarity on zinc grades as we look forward into this year and into next year. Obviously, next year,
the target is to go
to higher grade, thicker stopes, more copper concentrated. But
can you give us a
sense of what it looked like for zinc grades? Can we assume similar run rates that we have in the past?
Craig, it's Darren. I think the big difference is the zinc rate comes in lower than what we previously expected because our recovery rates have been much higher than expected. We were expecting 48% to 50% recovery in zinc, and we're getting between 6570%, which is allowing us to lower the cutoff grade in the San Rafael zone and mine more of the zinc than expected. So that's why the grade is lower because we're recovering higher. And we do expect for the most of the zinc will all be mined out by the end of this year because, obviously, when we get into the expansion, we want to replace the zinc with the copper in the mill.
So, obviously, a higher return on copper than zinc. So the plan is to mine as much of that as we can this year and then be mostly off of it going into next year.
Okay. Perfect. And then
at Pinto Valley, I think you guys noted in your outlook that you expect to have your plant of operations permits midyear. Are there any other outstanding permits? Have you received back your amended aquifer protection permit yet? Or is that still outstanding as well?
This is Mike. I'd have to go back and double check. I know that we have accomplished a completion of about four permits outside of the EIS. There may be a couple of of small outstanding items with, departments in the state of Arizona, but they're all progressing smoothly.
Okay. So nothing major?
No. The EIS is our main focus this year.
Your next question comes from the line of Pierre Zelenkourt from Hayward.
Just a lot of clarification. So you're looking to achieve 57,000 tonnes per day by 2021. So that's your stated objective. Is there any upside potential there given the success you've had?
Think, Pierre, it's Darren, with the mill shell replacement and the upgrade to the crushing circuit that will allow the right particle size to maximize these ball mills. I think if we could average that 57,000, 58,000 tonnes per day consistently for a year, which we've never done, we've never been close to that, that would be a huge upgrade. And then from there, we can look looking at these smaller capital, higher payback projects such as, say, 30 mills in the grinding circuit and more flotation capacity in the and grinding sorry, and filtering in the flotation plant. We can look to build up those results. But yes, so there's definitely upside, and we think we can do it with low capital, high return projects to add on to the crushing one that we already have.
Okay. So it sounds like the $15,000,000 upgrade you're talking about, that's what gets you to 57,000 tons per day. And how is that reflected in unit costs and cash costs? Well,
as we initially as we said, we expect the cost of the operation to come down an additional 10%, reflecting that increase in production of copper.
Okay. So basically, take it 10% down from what you reported this year, say?
Exactly. Okay. Yes. All of the money that we took out of the business this year over last year is sustainable going forward. None of that was onetime costs.
And we think it'll go down another 10% from the baseline being this year with this higher throughput and obviously more copper production resulting from it.
So when you you were talking about a reduction of 27,500,000.0 in 2019. Have you got a target for 2020?
Peter, we haven't come up with a public target, but obviously, we're going to continue to further look at our costs through our business at Pinto Valley. That's part of that 10% reduction that I'm at Cozamin.
Thanks very much.
Your next question comes from Oscar Cabrera from CIBC.
You, operator, and good morning, everyone. Guys, can you remind me on your environmental impact statement that you're looking from the U. S. Forest Service, Is there an increase to or a change in location of the tailings dam? Or is it just raising the level of the tailings dam walls?
Yeah. Oscar, it's Darren. Yeah. We are just looking for additional leasing additional land on one of the walls of our tailing dam, and and we'll be increasing up that getting that land to go higher with the with the tailing and one corner of our pit to allow us to push back in the optimal directions to take advantage of the ore, we're asking for some ground around one edge of our pit. Those are the only two modifications.
We're not looking to relocate tailings or any any build and any plant equipment or anything else. It's just adding a bit of ground around what we already have. So we've already gone through the the public comment period. It's closed. We're now gathering those comments and waiting for, you know, response from the force services.
So the large lift on EIS has been completed, which allows us to be very confident that we will have it, have it all wrapped up by the end of this year.
Okay. That's helpful. And, you know, know, given the the current environment in in the state with what happened to one of your one of the other companies that has a development project, as you are going through the questions, is there anything that that, you know, alarmed you or that could be a red flag for one of these district judges to have a different opinion than U. S. Forest Service?
What I mean, we haven't got everything, Oscar, and there's always opposition to projects. But what I can tell you was over 90% of the comments and support have been in support, both at the town hall meetings and in response to the public comment period. So that's over 90% positive. And I would say that there's other projects in Arizona that have flipped, and over 90% would be negative. So we obviously employ 600 plus people who are in operating mines.
It's much different than greenfield projects. And but that being said, we are obviously ready and expecting some opposition as there is with any mining project.
Yeah. No. And it sounds like you're finding debottlenecking the mill. Mine doesn't seem to be a bottleneck. In terms of the of the tailings capacity of p v three, what are what are you using in terms of throughput, and how many how many more years would you have available to you to mine if you have if you go ahead with PV3?
Well, the objective of the test in December and then the results of the optimization will be to utilize the ore in our PV3 pit shell faster. We're permitted to store all of that material in our tailings facilities. What we aim to do is to get it through the plants out more quickly and more efficiently.
At this time, I show no further questions. I would now like to turn the call back to Darren for any closing remarks.
Thank you, everybody, and thank you for those questions. We appreciate your support. And again, please don't hesitate to contact us with any additional questions. Thank you very much, and have a good day.
Ladies and gentlemen, this does conclude Capstone Mining Corp. Fourth Quarter twenty nineteen Results Conference Call. Thank you for your participation. You may now disconnect.