Volume 11 | Issue 3 | Year 2008

Capstone Mining Corp is a publicly traded Canadian mining enterprise whose primary focus of operations is the expansion and exploration of the company’s 100-percent owned Cozamin copper-silver-lead-zinc high-grade low-cost mine located in the mining-friendly jurisdiction of the Zacatecas State in Mexico. “Nearly 80 percent of Cozamin’s 550 employees are the local population,” says Telesforo Martínez, general manager for Capstone’s operations at the Cozamin mine. “This confirms Capstone’s strong commitment to contributing to the development of the region’s potential and maintaining excellent relations with the surrounding communities, as well regional authorities and the national government.”
Capstone has approximately 81.4 million shares outstanding and is an extremely attractive partner for business: Capable of generating in excess of $40 million in free cash flow in 2008, it has a robust balance sheet with over $120 million in cash and investments and no debt. The company has strong silver exposure through the ownership of 23 million shares (or 22 percent) of Silverstone Resources Corp. Headed by its president & CEO, Darren Pylot, the company’s managerial team consists of highly experienced professionals including Robert Barnes (vice-president of operations), Hugh Wilson (vice-president of exploration), John Wright (in charge of business development), as well as directors Tony Chan, Ken Thorsen and Jack Marr. Thus, operating as an aggressive and dynamic enterprise, Capstone is rapidly achieving its objective of becoming an intermediate player in the base metals sector across the Americas.

Capstone (www.capstonemining.com) obtained an option to purchase 90 percent of the Cozamin mine in December 2003, with initial activities focusing on superficial exploration. In January and
December of the following year private placement financing raised funds to the value of C$9.1 million and C$8.5 million respectively. The mine itself was flooded and it was therefore necessary to pump it out in preparation for resource estimation and planned development of
work. Subsequently, in October 2005 the company completed initial third-party resource estimation and towards the end of the year a third private placement financing raised C$12.4 million of capital. In March 2006 Capstone Mining successfully completed a positive feasibility study and began mine rehabilitation and site upgrade to achieve capability of operations of 1000 tons per day (tpd).

A 100 percent interest in the Cozamin mine (subject to a net smelter return royalty, NSR, of 3 percent payable to Grupo Bacis on all metals produced) was acquired in June 2006 by means of an additional C$250,000 in cash and three million of Capstone’s shares. The company also completed the mine exploration and development phase at a cost of US $5 million. A month later the decision was made to spin-out silver projects as dividends, at a ratio of 1:3, thereby creating Silverstone Resources Corp. At the same time Capstone completed a vital updated third-party metal resource estimate for Cozamin which resulted in a significant increase in all resource categories. With operations at full swing, by September 2006 the mine achieved commercial production of 350,000 tons per year (tpy).

Adopting a forceful strategy of business operations, in the first quarter of 2007 the company made record earnings of C$12.3 million, with earnings per share (EPS) of C$0.15. Capstone closed 2007 with total revenues of US $55.3 million.

The polymetallic mine is located 3.8 km north-northwest of Zacatecas City in the mineral-rich Mexican state of Zacatecas. The site covers approximately 2,020 hectares and lies 2,450 metres above sea level. Mexico’s geopolitically stable environment and membership in NAFTA provide a secure operating environment for the project. The location of the Cozamin mine is also ideal because of its proximity to Zacatecas City (with a quarter of a million population), excellent logistics, roads, power, and water access available at the mine site. In addition, the local residents of Zacatecas have a strong mining tradition, providing the project with a knowledgeable and skilled source of labour.

“Thanks to Capstone’s highly focused management, the company completed exploration, development and initial production of 350,000 tpy on time and under budget,” points out Martínez. “Within 12 months of operations it expanded its output by 120 percent (to 750,000 tpy) at a cost of US $13 million, capital expenditure financed from the cash flow.”

Capstone has recently started expanding production to 3,000 tpd (or approximately 1 million tpy), an impressive 36 percent increase. This expansion is expected to be completed by September 2008 at a total budgeted cost of U.S.$9.5 million. It will include a new larger production ramp to be driven from surface down to the internal level 8 decline ramp within the mine (at a depth of approximately 1400 meters). The internal ramps from level 8 to level 12 will be enlarged and the underground crusher will be moved to a new dump pocket at level 11.5. This larger production ramp will provide the required additional ore haulage capacity and will complement the 1800 tpd shaft as well as allowing larger-sized trucks to transport ore to surface. The cost of the ramp and equipment is estimated at US$4.0 million.

In addition, a new 115kV high tension power line and substation will be constructed to supply up to 7.5MV to the mine. A 1.5MV generator will also be added to provide additional power to the mine before power line completion and will be used as an emergency power supply in the future when power outages occur. The upgrade in power is estimated to cost US$3.6 million. Modifications within the plant include increasing belt sizes within the crushing area and larger floatation cells to handle the increase in concentrates. This is estimated to cost US$1.2 million. An additional six-meter lift will be added to the tailings dam at a cost of US$700,000.

Cozamin offers excellent possibilities for finding additional mineralization, as the mine’s Mala Noche vein has so far only been partially exploited and not systematically explored to depth. However, Capstone’s deepest holes in the Mala Noche vein have in fact indicated that the copper-silver phase of mineralization extends to greater depths, thus offering further robust extraction possibilities.

Overall, a total of 18,000 meters of underground drilling and 650 meters of underground drifting are planned within the Cozamin mine. This drilling will be carried out in order to upgrade existing inferred resources to the measured and indicated categories as well as to continue to explore the depth. The entire 2008 program is budgeted to cost in the region of US$2.5 million. An additional 6,500 meters will be drilled from surface to explore the Mala Noche vein along the strike and outside of the current resource area. The program is budgeted at US$1.7 million.

Capstone is committed to excellence in all areas of its activities, including health, safety and environmental management. It also works with surrounding communities and offers employment opportunities to the local population, thereby contributing to the overall economic growth of the region and its inhabitants’ financial well being. Health, safety and environmental considerations are int grated into all aspects of managerial activities and strategic dec sion-making processes. In order to deliver on its commitment, Capstone has established high standards in these areas and has made continuous improvement one of the core values in its performance.

“The company meets both Mexican and Canadian environmental norms and complies with applicable norms and regulations,” confirms Martínez. “The Cozamin mine therefore has minimal negative impact on the surrounding environment.” In fact, during construction activities for the recent expansion, the mine team rehabilitated areas of historic disturbance, improved water management throughout the site, enhanced the containment flows in and around the plant and closed obsolete mine openings on the ground surface. In addition, in cooperation with appropriate regulators Capstone initiated a focused re-vegetation and ‘greening’ program that is integrated with the progressive reclamation scheme and ongoing routine operations. Environmental awareness and education programs were established and provided for all workers and core teams were trained in emergency first aid. With support from an on-site nurse practitioner, the project continues its exemplary safety record.

In addition to further expansion of the Cozamin mine, Capstone is very interested in developing additional projects in Mexico. With a robust balance sheet and no debt, Capstone is in an excellent position to implement strategic expansion decisions and is currently in the process of reviewing potential acquisitions in the country. The company will continue optimizing the production operations and recovery in Cozamin in order to meet the increasing market demand for base metals.

“We will also explore the resources along the strike and the down dip of the current reserve base,” explains Martínez. “Forecasts for 2009 show the possibility of extracting a total of one million tons of milled material, with 40 million payable pounds of copper, 10 million payable pounds of zinc, five million payable pounds of lead and 1.5 million payable ounces of silver. We are therefore positive that Capstone, thanks to successful projects such as Cozamin, will, over the next three to four years, become one of the most important intermediate companies operating in the base metal sector in the Americas.”

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