Capstone Copper Reports Third 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 September 30, 2022 (“Q3 2022”). Quarterly consolidated copper production totaled 45,700 tonnes at C1 cash costs¹ of $2.76 per payable pound of copper produced. Link HERE for Capstone’s Q3 2022 management’s discussion and analysis (“MD&A”) and financial statements and HERE for the webcast presentation.

John MacKenzie, CEO of Capstone commented, “Our Q3 results represent our second full quarter of combined operations as Capstone Copper and I’m very pleased with the integration efforts to date. Despite continued inflationary pressures felt across the industry, we kept costs in-line quarter over quarter and are seeing key input costs, particularly sulphuric acid, trend lower and which we expect to realize in 2023. We remain well positioned with a strong balance sheet and the right team to complete the construction of our world-class Mantoverde Development Project by the end of 2023, driving our next phase of near-term transformational growth.”

Q3 2022 OPERATIONAL AND FINANCIAL HIGHLIGHTS

• Net income of $37.5 million, or $0.05 per share. Adjusted net loss¹ of $19.3 million or $(0.02) per share for Q3 2022, down $48.0 million, or $0.11 per share compared to the same quarter last year due to a declining copper price, an incremental $22.5 million in realized provisional pricing losses and inflationary pressures on costs.
• Adjusted EBITDA¹ of $34.1 million which includes a realized provisional pricing loss of $32.5 million relating to Q2, compared to Adjusted EBITDA¹ of $72.3 million in Q3 2021 which included a realized provisional pricing loss of $10 million. The decrease is driven by a declining realized copper price ($3.29/lb in Q3 2022 compared to $4.15/lb in Q3 2021) and inflationary pressures on costs, particularly sulphuric acid and diesel fuel costs.
• Operating cash flow before changes in working capital of $13.9 million in Q3 2022 compared to $67.1 million in Q3 2021. The decrease is related to the decline in realized copper prices, increase in operating costs, and higher cash taxes in Mexico.
• Consolidated copper production of 45.7 thousand tonnes at C1 cash costs¹ of $2.76/lb of copper produced for Q3 2022, which consisted of 14.1 thousand tonnes at Pinto Valley, 6.4 thousand tonnes at Cozamin, 13.6 thousand tonnes at Mantos Blancos, and 11.6 thousand tonnes at Mantoverde.
• Total available liquidity¹ of $711 million as at September 30, 2022, comprised of $196 million of cash & short-term investments, $405 million of undrawn amounts on our $500 million corporate revolving credit facility as well as $110 million of undrawn amounts on our $520 Mantoverde Development Project facility.
• Proactive measures taken during the third quarter to protect downside risk with additional 2023 copper hedges as we complete the construction of Mantoverde next year. In total, 85 thousand tonnes of copper production in 2023 is hedged at a weighted average copper price of $3.45/lb. In addition, we commenced a quotational period (“QP”) hedging program, which will mitigate the QP price risk and assist in achieving realized copper prices closer to LME average in future quarters.
• Mantos Blancos Concentrator Debottlenecking Project (“MB-CDP”) averaged above the designed throughput level over 20 out of 27 planned operating days in October, with copper recoveries in line with expectations.
• Mantoverde Development Project remains on schedule and on target. Major construction is progressing well on the primary crusher, grinding and flotation area. Overall project completion was 67% as of the end of September 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 describing the optimized flowsheet will be presented during the Chile analyst tour and Investor Day during the week of November 14^th.

OPERATIONAL OVERVIEW

Refer to Capstone’s Q3 2022 MD&A and Financial Statements for detailed operating results.

Consolidated Production

Q3 2022 copper production was 127% higher than Q3 2021 primarily as a result of including production for the Mantos Blancos and Mantoverde mines.

Q3 2022 C1 cash costs¹ of $2.76/lb and 2022 YTD C1 cash costs¹ of $2.68/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 are a finished copper product for the market. Sulphuric acid prices of $255/tonne (average) in 2022 represent an historic high, and thus negatively impacted cash costs YTD. 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 the Mantoverde Development Project to be completed and in ramp-up late next year.

2022 YTD consolidated production of 113.3 thousand tonnes of copper is higher than the 61.5 thousand tonnes in 2021 YTD, primarily as a result of the addition of Mantos Blancos and Mantoverde production.

Pinto Valley Mine

Copper production of 14.1 thousand tonnes in Q3 2022 was 3% higher than Q3 2021. Higher grades (Q3 2022 – 0.34% versus Q3 2021 – 0.33%) and recoveries (Q3 2022 – 89.1% versus Q3 2021 – 88.0%) were partially offset by lower throughput during the quarter (Q3 2022 – 48,143 tpd versus Q3 2021 – 49,100 tpd) as a result of unplanned downtime in the tailings thickener and water pumping infrastructure.

2022 YTD production was 4% 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 – 86.3% versus 2021 YTD – 87.3%) as well as lower mill throughput (51,088 tpd in 2022 YTD versus 52,089 tpd in 2021 YTD).

Q3 2022 C1 cash costs¹ of $2.60/lb in Q3 2022 were higher than Q3 2021 of $2.44/lb primarily due to increases in operating costs ($0.29/lb) and treatment and refining costs ($0.12/lb), partially offset by higher capitalized stripping costs (-$0.16/lb) and higher copper production (-$0.07/lb).

2022 YTD C1 cash costs¹ of $2.67/lb were $0.45/lb higher compared to the same period last year of $2.22/lb primarily due to increased operating costs from 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), partially offset by higher capitalized stripping costs.

Cozamin Mine

Copper production of 6.4 thousand tonnes was consistent with the same period in the prior year. Q3 2022 throughput of 3,829 tpd, grades of 1.86% and recoveries of 96.8% were also consistent with Q3 2021.

2022 YTD production was 5% 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 (3,803 in 2022 YTD versus 3,678 in 2021 YTD), higher grades (2022 YTD – 1.86% versus 2021 YTD – 1.84%).

Q3 2022 C1 cash costs¹ of $1.20/lb were 29% higher than the same period last year mainly due to a decrease in by-product credits ($0.22/lb) as a result of lower zinc production as well as lower silver production and prices.

2022 YTD C1 cash costs¹ of $1.19/lb were 25% 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 ($0.20/lb), lower zinc by-product credits due to planned lower zinc production, as well as lower silver prices ($0.12/lb) and higher treatment and refining costs ($0.03/lb), partially offset by higher copper production (-$0.04/lb).

The paste backfill and dry stack tailings project continues to make good progress and will facilitate the mine’s planned long-term sustainability with project completion expected in Q4 and ramp-up in the first half of 2023. To date, we have invested $41 million of a total $55 million budget for the project.

Mantos Blancos Mine

Q3 2022 production was 13.6 thousand tonnes, 9.6 thousand tonnes of copper in concentrate and 4.0 thousand tonnes of cathode. Q3 2022 throughout of 14,334 tpd was 6% lower than the previous quarter due to several unplanned downtime events impacting performance. Offsetting lower throughput was strong mill copper recovery of 79.3% compared to 69.7% in the previous quarter and a higher mill feed grade of 0.92% versus 0.90% in Q2. The Mantos Blancos mill operated above the designed 20,000 tpd throughput level over 20 out of 27 planned operating day, with copper recoveries in line with expectations.

2022 YTD production (including the nine days in March 2022 after closing of the Transaction) was 27.0 thousand tonnes, 19.0 thousand tonnes of copper in concentrate and 8.0 thousand tonnes of cathode.

Combined Q3 2022 C1 cash costs¹ were $2.68/lb – $2.17/lb sulphides and $3.87/lb cathodes. The sulphide cash costs are expected to decline with the ramp-up of the MB-CDP to full capacity in Q4 2022 and copper cathode costs are currently being impacted by the high cost of acid which averaged $261/tonne delivered in Q3 2022. Sulphuric acid prices are showing signs of significant decline in 2023 with contract prices moving towards a range of $120/tonne to $140/tonne.

Combined 2022 YTD C1 cash costs¹ were $2.78/lb – $2.34/lb sulphides and $3.80/lb cathodes.

Mantoverde Mine

Q3 2022 production was 11.6 thousand tonnes.

2022 YTD production (including the nine days in March 2022 after closing of the Transaction) was 25.8 thousand tonnes of copper cathode. The MVDP remains on schedule and on budget. Major construction is progressing well on the primary crushing, grinding and flotation areas. Overall project completion was 67% as of the end of September 2022.

Q3 2022 C1 cash costs¹ were $3.87/lb which were also impacted by the high cost of acid, at an average of $266/tonne.

2022 YTD C1 cash costs¹ were $3.62/lb, at the lower end of guidance range.

Mantoverde Development Project

Construction of the MVDP located at the existing Mantoverde (oxide) operation continues to progress well. The MVDP is expected to enable the mine to process 235 million tonnes of copper sulphide reserves over a 20-year expected mine life, in addition to existing oxide reserves. The MVDP involves the addition of a sulphide concentrator (12.3 million tonnes per year) and tailings storage facility, and the expansion of the existing desalination plant.

Upon completion, the Company expects 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 $3.60/lb to $3.80/lb in current guidance for the period from April to December 2022 to below $2.00/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.

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 international 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 September 30, 2022, the MVDP had achieved overall progress of 67% and construction progress of 37%. The schedule remains intact and the target for construction completion remains late 2023. Work completed in Q3 2022 included:

• Assembly and commissioning of the first electric rope shovel with commissioning of a second shovel planned for mid-Q4 2022;
• Arrival of the SAG and ball mill shells in Chile and transport to the mine site has commenced with all other components already on site; and
• Began structural and mechanical assembly in the primary crusher, grinding and flotation area.

As of September 30, 2022, the cost of the different components of the project, including the lump-sum turnkey EPC continue on track and on target. The total project capital remains at $825 million and spend-to date totals $490 million.

The EPC contract total budget is approximately $525 million of which $294 million has been spent to date. The nature of the lump sum turn-key contract with Ausenco has the majority of the capital cost as lump sum of the total projected capital cost of $825 million. In addition, major mining equipment for approximately $140 million was price fixed prior to the elevated inflationary pressures observed this year.

Mantoverde Phase II

Mantoverde is currently analyzing the next expansion of the sulphide concentrator. 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 not utilized by Phase I of the MVDP. A conceptual study will be developed during the second half of 2022 to assess the best options for the next stage of MVDP which will be incorporated into a feasibility study targeted for H2 2023.

Mantos Blancos Concentrator Debottlenecking Project

The MB-CDP is expected 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 continued during the quarter with increased focus on achieving operational stability of the auxiliary systems such as the electrical and tailing systems. Mill throughput continues to improve and the plant has averaged above the design throughput level over 20 out of 27 planned operating days in October, with copper recoveries in line with expectations. Technical reviews of the year-to-date performance of Ball Mill 8 indicate that it is performing at higher than expected milling efficiencies, indicating that concentrator throughput greater than the nominal 20,000 tpd may be sustainable with minimal capital expenditure. The ramp-up to 20,000 tpd is targeted to be completed by year-end.

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 existing 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. The Advanced Basic Engineering Study is expected to be released in H1 2023, and the environmental DIA application was submitted in August 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 focused on maximizing 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. Recovery of Mantoverde cobalt
6. Use of excess solvent extraction and electrowinning (“SX-EW”) capacity

The revenue-enhancing opportunities include using excess electrowinning capacity at Mantoverde to potentially process Santo Domingo oxide material. An updated base case copper/iron Santo Domingo feasibility study including district integration synergies will be released in 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 Q3 2022, the Company continued with the exploratory oxide metallurgical program, which is now expected to be completed in Q4 2022. Preliminary metallurgical test results suggest the possibility to process the leach solution from Santo Domingo’s oxides at Mantoverde’s existing SX-EW plant. Subject to further positive results, the Company plans to complete an oxide drill program in the near future and the results, including an optimized flowsheet, are expected to 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 in 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. Also, the potential production of an iron hematite concentrate is considered which would allow for potential integration with SD iron production if the rail option confirms benefit for product transportation.

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.

Exploratory testwork has started at Mantoverde to confirm suitability of the Santo Domingo cobalt circuit flowsheet to process an integrated cobaltiferous pyrite feed. Evaluations are also underway to investigate the potential for early production of cobalt from Mantoverde by treating an oxide leach raffinate bleed and/or pyrite contained in the MVDP cleaner tailings.

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 an expansion of existing mill throughput and tailings impoundment facility, improvements to the metal recovery processes, and an extension of the life of mine. It is expected to be released in H1 2023 and considers the following process enhancements:

• A new tailings dam, TSF5, that would improve tailings water recovery while accommodating a longer mine life.
• Pyrite leach enhancement, 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.
• Ball mill circuit upgrades, including ball mill shell replacements, motor upgrades, cyclone feed pump and cluster upgrades, and process control upgrades.
• Flotation circuit upgrades, including froth cameras on primary rougher banks, variable-speed drives on key slurry pumps, and potentially additional flotation capacity.
• Moly plant upgrades, including additional flotation capacity and process control in the molybdenum plant.

Corporate Exploration Update

Cozamin: The focus during Q3 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 51,020 meters of drilling have been completed from 65 holes and an additional 1,200 meters of drilling from 2 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.

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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