Capstone Copper Reports Second Quarter 2022 Results

All amounts in US$ unless otherwise indicated

VANCOUVER, British Columbia–(BUSINESS WIRE)–#CapstoneCopper—Capstone Copper Corp. (�Capstone” or the “Company”) (TSX:CS) today announced production and financial results for the quarter ended June 30, 2022 (“Q2 2022”). Quarterly consolidated copper production totaled 45,200 tonnes at C1 cash costs¹ of $2.78 per payable pound of copper produced. Link HERE for Capstone’s Q2 2022 management’s discussion and analysis (“MD&A”) and financial statements and HERE for the webcast presentation.

John MacKenzie, CEO of Capstone commented, “Capstone delivered a solid quarter and, despite inflationary pressures that have impacted the global mining industry, we generated approximately $115 million of adjusted EBITDA in the quarter. We are now seeing signs of declining sulphuric acid and diesel prices, and are benefitting from a weaker Chilean Peso. Our balance sheet remains strong with total expanded liquidity of $720 million providing good flexibility for the advancement of our transformational growth pipeline. We reiterate our production and cost guidance for the year. We are pleased with construction progress at Mantoverde Development Project (“MVDP”) which is currently over 60% complete, and the project remains on schedule and on budget.”

Q2 2022 OPERATIONAL AND FINANCIAL HIGHLIGHTS

• Net income of $92.0 million, or $0.11 per share. Adjusted net loss¹ of $10.8 million or $(0.01) per share for Q2 2022, with the main adjustments for Q2 2022 being $114.6 million of non-cash unrealized gain on derivative contracts and $14.0 million non-cash recovery on share-based compensation. Net income and adjusted net loss¹ were impacted by negative provisional pricing adjustments during the quarter related to the drop in realized copper prices¹ (Q2 2022: $3.66/lb versus Q2 2021: $4.78/lb) which amounted to $58.3 million in losses, compared to positive gain of $13.3 million in Q1 2022.
• Adjusted EBITDA¹ of $114.7 million compared to $128.0 million in Q2 2021, with the main adjustments being non-cash unrealized gain on derivative contracts, non-cash recovery on share-based compensation, and unrealized provisional pricing adjustments on revenue.
• Operating cash flow before changes in working capital of $40.7 million in Q2 2022 compared to $139.5 million in Q2 2021 which was inclusive of a $30 million gold precious metal stream deposit. The variance is related to the decrease in copper prices, increase in operating costs, and higher cash taxes in Mexico and Chile.
• Consolidated copper production of 45,200 tonnes at C1 cash costs¹ of $2.78/lb of copper produced for Q2 2022, which consisted of 13,300 tonnes at Pinto Valley, 6,400 tonnes at Cozamin, 12,400 tonnes at Mantos Blancos, and 13,100 tonnes at Mantoverde.
• Production and C1 cash costs¹ guidance for the nine-month period (April 1, 2022 to December 31, 2022) is re-iterated.
• In light of the recent drop in copper prices, the Company has taken the following proactive measures:
  • Capital guidance has been reduced by $40 million mainly at Santo Domingo and Pinto Valley
  • Initiated operating cost reduction reviews at all mine sites
  • Elimination of higher cost Glencore debt facility
  • H2 2022 copper hedges in place for 36,000 tonnes with a weighted average protected price of $3.73/lb, protecting all of the expected oxide production
  • Capital allocation focused on completion of Mantoverde Development Project (“MVDP”), future pipeline growth yet to be sanctioned post completion of various optimization studies underway
  • In addition, key input costs for acid, fuel and freight are starting to decline in Q3 2022
• On July 22, 2022, the Company closed the amendment and extension of the Capstone corporate revolving credit facility (“RCF”) from $225 million to $500 million plus $100 million accordion and extended the RCF by four years to May 12, 2026.
• Mantos Blancos Concentrator Debottlenecking Project (“MB-CDP”) is ramping up to design capacity to achieve targeted throughput rates and recoveries in Q3 2022.
• Mantoverde Development Project remains on schedule and on budget. Major construction is progressing well on the primary crusher, concentrate thickener and tie-in of the water desalination plant. Procurement, contracts and engineering are over 99% complete, with manufacturing and fabrication approximately 95% complete. Overall project completion was 60% as of the end of July 2022.
• Mantoverde-Santo Domingo (“MV-SD”) District Integration Plan will outline the approach Capstone Copper is taking to maximize value creation (including synergies) across the district. The integration plan will describe the optimized flowsheet during the Chile analyst tour and Investor Day during the week of November 14th.

1 These are alternative performance measures. Refer to the section entitled “Alternative Performance Measures” in the Cautionary Notes

OPERATIONAL OVERVIEW

Refer to Capstone’s Q2 2022 MD&A and Financial Statements for detailed operating results.

		Q2 2022		Q2 2021		2022 YTD		2021 YTD
Copper production (000s tonnes)
Sulphides business
Pinto Valley		13.3		13.4		27.7		29.9
Cozamin		6.4		6.3		12.3		11.4
Mantos Blancos		8.7		–		9.4		–
Total sulphides		28.4		19.6		49.4		41.3
Cathode business
Mantos Blancos		3.7		–		4.0		–
Mantoverde2		13.1		–		14.3		–
Total cathodes		16.8		–		18.3		–
Consolidated production		45.2		19.6		67.7		41.3
Copper sales
Copper sold (000s tonnes)		45.5		19.6		71.0		41.9
Realized copper price1 ($/pound)		3.66		4.78		4.06		4.43
C1 cash costs1 ($pound) produced
Sulphides business
Pinto Valley		2.82		2.33		2.70		2.12
Cozamin		1.25		0.99		1.19		0.96
Mantos Blancos		2.49		–		2.52		–
Total Sulphides		2.36		1.91		2.29		1.80
Cathode business
Mantos Blancos		3.67		–		3.72		–
Mantoverde2		3.40		–		3.42		–
Total cathodes		3.46		–		3.49		–
Consolidated C1 Cash Costs1		2.78		1.91		2.62		1.80
2 Mantoverde production shown on a 100% basis.

Consolidated Production

Q2 2022 copper production was 130% higher than Q2 2021 primarily as a result of including a full quarter of production for the Mantos Blancos and Mantoverde mines.

2022 YTD consolidated production of 67,700 tonnes of copper is higher than the 41,300 tonnes in 2021 YTD, primarily as a result of the addition of Mantos Blancos and Mantoverde mines production.

2022 YTD C1 cash costs¹ of $2.62/lb are a mix of sulphide and cathode business units compared to 2021 which was predominately sulphide production. Cathode production is from copper oxide ore that requires sulphuric acid leaching, solvent extraction, and electrowinning (SX-EW) to produce copper cathodes which is 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. Capstone’s low-cost sulphide production is growing significantly with full production from Mantos Blancos expected in Q3 2022 and with the Mantoverde Development Project completion and ramp-up late next year. The cathode business unit was impacted by record high sulphuric acid prices in Q2 but costs are expected to ease through H2 as acid prices are currently declining along with other raw inputs.

Pinto Valley Mine

Copper production of 13,300 tonnes in Q2 2022 was consistent with Q2 2021 mainly due to lower throughput during the quarter (Q2 2022 46,821 tpd versus Q2 2021 49,170) as a result of plant maintenance and repairs on the tailings thickeners, and offset by slightly higher grades (Q2 2022 – 0.34% versus Q2 2021 – 0.33%).

2022 YTD production was 7% lower than the same period last year primarily attributed to slightly lower grades (2022 YTD – 0.33% versus 2021 YTD – 0.34%), lower recoveries (2022 YTD – 85.0% versus 2021 YTD – 86.9%) as well as lower mill throughput (52,585 tpd in 2022 YTD versus 53,608 tpd in 2021 YTD). The lower grade versus the same period last year is a function of the mining sequence, the grade will improve slightly over the remainder of the year as well as the mill throughput.

Q2 2022 C1 cash costs¹ of $2.82/lb in Q2 2022 were higher than Q2 2021 of $2.33/lb primarily due to increases in operating costs ($0.38/lb), and increases in treatment and refining costs ($0.13/lb).

2022 YTD C1 cash costs¹ of $2.70/lb were $0.58/lb higher compared to the same period last year of $2.12/lb primarily due to decreased payable copper production ($0.17/lb), increased operating costs due to inflationary pressures on diesel, power, grinding media; and higher spend on rental equipment, mining equipment tools, contractors and dust suppression ($0.31/lb) and an increase in treatment and refining costs ($0.11/lb).

Cozamin Mine

Copper production of 6,400 tonnes was 2% higher in Q2 2022 than in Q2 2021 as a result of higher throughput of 3,874 tpd, and higher grades (1.88% versus 1.86%). The optimized technical report plan is delivering higher grades in 2022, and the higher throughput is a result of upgrades to the mill that occurred in Q1 2022.

2022 YTD production was 8% higher than the same period last year and attributed to the higher mining rates as the mine uses the availability of the Calicanto ramp increasingly compared to the prior year and higher throughput as a result of upgrades to the mill in Q1 2022 (3,789 in 2022 YTD versus 3,588 in 2021 YTD), higher grades (2022 YTD – 1.86% versus 2021 YTD – 1.83%).

Q2 2022 C1 cash costs¹ were 25% higher than the same period last year due to increases in operating costs ($0.23/lb) as a result of inflationary pressures on steel (grinding media), explosives, and insurance premiums, and planned higher spend on mechanical parts to increase equipment availability. There was also a decrease in by-product credits ($0.09/lb) as a result of lower zinc production as well as lower silver production and prices.

2022 YTD C1 cash costs¹ were higher than the same period last year primarily due to inflationary price increases in steel (grinding media), explosives and insurance premiums, planned higher spend on mechanical parts to increase equipment availability and reliability ($0.17/lb), lower zinc by-product credits due to planned lower zinc production, as well as lower silver prices ($0.07/lb) and higher treatment and refining costs ($0.03/lb), partially offset by higher copper production (-$0.06/lb).

Mantos Blancos Mine

2022 YTD production (including the nine days in March 2022 after closing of the Transaction) was 13,400 tonnes, 9,400 tonnes of copper in concentrate and 4,000 tonnes of cathode. C1 cash costs¹ were $2.89/lb combined, $2.52/lb for copper in concentrate and $3.72/lb for cathode. The sulphide cash costs are expected to decline with the ramp up of the MB-CDP to full capacity in Q3 2022 and copper cathode cash costs are currently being impacted by high cost of acid which averaged $275/tonne delivered in Q2 2022.

Mantoverde Mine

2022 YTD production (including the nine days in March 2022 after closing of the Transaction) was 14,300 tonnes of copper cathode. C1 cash costs¹ were $3.42/lb which were also impacted by high cost of acid.

Mantoverde Development Project

We expect completion of the MVDP to increase production from approximately 49,000 tonnes of copper (cathodes only) in our current guidance for the period from April to December 2022 (annualized) to 120,000 tonnes of copper (copper concentrate and cathodes) post project completion in 2024. In parallel, C1 cash costs¹ are expected to decrease from $3.70/lb in current guidance for the period from April to December 2022 to between $1.70/lb to $1.80/lb in 2024 after project completion and ramp up. The decline in expected costs will be driven by the mine’s transition to becoming a primary producer of copper concentrate. The mine will also benefit from the production of approximately 31,000 ounces of gold per year that will generate by-product credits. Upon completion of MVDP, approximately 75% of Mantoverde’s production will come from the lower-cost sulphide copper.

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 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.

As of June 30, 2022, the MVDP had achieved overall progress of 58% and construction progress of 25% and the schedule remains intact and the target for construction completion remains late 2023. Work completed in Q2 2022 includes:

• Assembly completed on first electric rope shovel; mine electrical loop available in mid-August for operational commissioning.
• Foundations for the primary crusher, stockpile reclaim, mills and floatation circuit are advancing well with earthworks on the truck shop and thickeners near completion.
• Procurement, contracts and engineering are 99% complete, with manufacturing and fabrication approximately 95% complete.
• Overall project completion was 60% as of the end of July 2022.

As of June 30, 2022, the cost of the different components of the project, including the EPC lump sum turnkey continue on track with the budget. The total project capital budget remains at $825 million and spend to date totals $418 million. Capstone is expected to spend an additional $233 million in H2 2022 and the balance of $175 million in 2023. The EPC contract total budget is approximately $525 million of which $263 million has been spent to date. The majority of the capital costs are fixed due to the nature of the lump sum turn-key contract with Ausenco of $525 million or 64% of the revised capital. In addition, the major mining equipment was price fixed prior to the current inflationary environment for approximately $140 million or 17% of the revised capital which brings the total fixed component to 81%.

Mantoverde Phase II

Mantoverde is currently analyzing the next stage of the MVDP. Alternatives are being considered to expand the plant capacity by either the addition of a new ball mill and secondary equipment or a complete new processing line, to process part of the 77% of resources unutilized by the Phase I of the MVDP. A conceptual study will be developed during the second half of 2022 to assess the best option for the next stage of MVDP which will be incorporated into a feasibility study targeted for H2 2023.

Mantos Blancos Concentrator Debottlenecking Project

The purpose of the MB-CDP is to increase throughput capacity at the sulphide concentrator plant from 11,000 tonnes per day (“tpd’) to 20,000 tpd (or from 4.2 million tonnes per year to 7.3 million tonnes per year). This will more than replace declining oxide production levels at Mantos Blancos.

The ramp-up progress continued in the quarter and the final modifications and adjustments were finalized in Q2 2022. The throughput continues to improve with the focus being sustaining throughput at targeted levels and achieving plant stability through-out the entire process.

In parallel, C1 cash costs¹ are anticipated to decrease from current guidance of $2.38/lb for the period from April to December 2022 to ~$2.00/lb in 2023 as an even greater share of Mantos Blancos’ production is sourced from the Sulphide concentrator plant and improving sulphide C1 cash costs¹ on higher throughput.

Mantos Blancos Phase II

Mantos Blancos is currently analyzing the potential to increase the throughput of the Mantos Blancos sulphide concentrator plant from 7.3 million tonnes per year to 10.0 million tonnes per year using the existing (currently unused/underutilized) ball mills and process equipment. As part of the Mantos Blancos Phase II Project we are also evaluating the potential to extend the life of copper cathode production. A pre-feasibility study on the Mantos Blancos Phase II Project was completed in Q2 2022 which will be incorporated into an Advanced Basic Engineering Study in Q4 2022.

Santo Domingo

Since closing of the Transaction, the Santo Domingo team has been integrated into the larger Capstone Copper team in Chile. The integrated project team is focused on identifying and evaluating the optimal integrated development plan for the Mantoverde-Santo Domingo district. The Mantoverde operation is located approximately ~35km southwest of the Santo Domingo project. The Company expects the integrated district plan to study alternatives and identify the best path forward to develop the copper (sulphides and oxides), gold, iron, and cobalt across both properties. An integrated development approach is likely to maximize potential synergies associated with the proximity of Santo Domingo to the existing Mantoverde operation, existing infrastructure (including a desalination plant, roads, power, and pipelines), and integration of other assets, such as the Santo Domingo port contract with Puerto Abierto S.A. and the rail option currently being assessed for products/supply transportation.

The potential synergies the Company expects to be maximized through an optimal integrated district development plan include the following:

1. Infrastructure synergies (including desalination plant, power, pipelines, port)
2. Integrated mine and process approach
3. Construction and supply chain synergies
4. Cobalt and sulphuric acid enhancements
5. Enabling revenue lines for Mantoverde cobalt and magnetite
6. Using excess solvent extraction and electrowinning (“SX-EW”) capacity

The revenue-enhancing opportunities include using excess electrowinning capacity at Mantoverde to potentially process both Santo Domingo oxide material and additional low-grade sulphides enabled by Jetti catalytic leach technologies which Capstone Copper has been first to implement at Pinto Valley. An updated base Santo Domingo feasibility study including district integration synergies will be released in H2 2023.

Santo Domingo contains oxide mineralization, which is located above the sulphide ore body and is part of the Santo Domingo and Iris Norte pre-stripping material. During Q2 2022, the Company continued with the exploration program, which is expected to be completed in Q3 2022. Preliminary metallurgical test results suggest the possibility to process Santo Domingo’s oxides at Mantoverde’s existing SX-EW plant. The results of the oxide drill program including an optimized flowsheet will be incorporated into an updated Santo Domingo feasibility study to be released in H1 2024.

Mantoverde-Santo Domingo Cobalt Feasibility Study Update

A district cobalt plant for Mantoverde-Santo Domingo may also unlock cobalt production from Mantoverde while producing a by-product of sulphuric acid which can then be consumed internally to further significantly lower operating costs on the 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. For the base case, the pyrite concentrate, which contains between 0.5% and 0.7% Co, is oxidized in a fluidized bed roaster to produce a cobalt calcine and a concentrated sulphuric acid by-product. The calcine is then subjected to various leaching, precipitation, solvent extraction and crystallization steps to produce battery grade cobalt sulphate heptahydrate. Capstone is also evaluating alternatives that may include the direct sale of some or all the cobalt as intermediate product, such as mixed hydroxide precipitate, to a partner, JV or an independent third-party refiner. At an expected 4.7 thousand tonnes of cobalt production per year from Santo Domingo plus expected additional tonnage from Mantoverde, this would be one of the largest and lowest cost cobalt producers in the world. Additional benefits of this project include the generation of carbon-free energy from waste heat emitted by the roaster, and the production of by-product sulphuric acid which can be used for heap or dump leaching to produce low-cost copper cathodes at Mantoverde, Mantos Blancos or sold to other consumers within the district.

Along the same timeline (Q4 2022) we intend to release an updated cobalt resource for Santo Domingo, as well as an initial cobalt resource for Mantoverde. The full updated cobalt feasibility study will be released in H1 2024.

Project development costs related to early works as required by the Environmental Permit to include flora and fauna relocation, basic and detailed engineering, land tenure costs, the industrial water pipeline and relocation of Regional Highway C-17. During Q3 2021, the Capstone Mining commenced major earthworks with respect to the C17 highway by-pass road which provides site access, and work on the electrical substation connection. Also, Capstone Copper has begun brownfield expansion drilling between the Santo Domingo and Iris Norte Pits.

PV4 Study

During the quarter, work progressed on the pre-feasibility study (“PFS”) for PV4 which aims to maximize the conversion of approximately one billion tonnes of mineral resources to mineral reserves, significantly extending Pinto Valley’s mine life and increasing the mine’s copper production profile. The PV4 study is focused on modest expansion of existing mill throughput to a range of 65,000 to 70,000 tpd with an extended life of mine. The PV4 study is expected to be released in H1 2023. The application of the following new technologies and innovation is being considered:

• Expansion of the use of Jetti catalytic leach technology which has the potential to increase mill cut-off grades and increase tonnage available for leaching. Column leach and test heap work are ongoing and the results will be included in the PV4 Study. An expanded dump leach strategy would translate to higher grades sent to the mill for processing and increased copper cathode production by expanding dump leach tonnage.
• Pyrite Agglomeration, with strong positive environmental, social and governance (“ESG”) implications as it would divert acid-generating minerals including pyrite and chalcopyrite from tailings to the dump leach operation. Additional copper recovery and lower costs via the generation of acid would be key economic drivers for this project.

Corporate Exploration Update

Cozamin exploration: The focus during Q2 2022 was on testing the Mala Noche Main Vein West Target with one surface rig and one underground rig from the west exploration crosscut station. Since the 2021-2022 exploration program started, approximately 43,500 meters of drilling have been completed from 53 holes and an additional 5,500 meters of drilling from 8 holes are planned for the remainder of this year. A proposed lower elevation mine cross-cut will allow for expedited infill drilling in 2023 to inform an updated mineral resource estimate in the second quarter of 2023. Surface drill testing of other targets along strike from the San Roberto and San Rafael mine areas are also planned for 2022.

Copper Cities, Arizona: On January 20, 2022, Capstone Mining announced that it had entered into an 18-month access agreement with BHP Copper Inc. (“BHP”) to conduct drill and metallurgical test-work at BHP’s Copper Cities project (“Copper Cities”), located approximately 10 km east of the Pinto Valley mine. In 2022, Capstone Copper plans to spend $6.7 million in a two-phase drill program aimed at twinning historical drill holes, and to select a portion of these for metallurgical testing. Drilling with two surface rigs is now complete with metallurgical testing underway.

Planalto, Brazil: Step-out drilling at the Planalto Iron Ore-Copper-Gold prospect in Brazil, under an earn-in agreement with Lara Exploration Ltd.

Contacts

Jerrold Annett, SVP, Strategy and Capital Markets

647-273-7351

jannett@capstonecopper.com

Kettina Cordero, Director Investor Relations & Communications

604-262-9794

kcordero@capstonecopper.com

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