Capstone Mining Corp. (“Capstone” or the “Company”) is pleased to announce that it has, through a wholly-owned subsidiary, entered into a definitive Precious Metals Purchase Agreement (the “Stream Agreement”) with Wheaton Precious Metals International Ltd., a wholly-owned subsidiary of Wheaton Precious Metals Corp. (collectively, “Wheaton”). Wheaton will pay an upfront cash consideration of $150 million upon closing for 50% of the silver production until 10 million ounces have been delivered, thereafter dropping to 33% of silver production for the life of mine from the Company’s Cozamin Mine in Zacatecas, Mexico (“Cozamin”).
“This deal is transformational, giving Capstone one of the lowest debt positions amongst base metal producers at a time when we are expecting significant copper production and cash flow growth. The $150 million for 50% of Cozamin’s silver is a strong validation of the ultimate mine life potential we expect to demonstrate through further resource to reserve conversion and ongoing exploration,” said Darren Pylot, President & CEO of Capstone. “We are now looking to strengthen our partnership with Wheaton as we are in advanced discussions for a potential gold stream on Santo Domingo.”
Upfront cash consideration of $150 million to Capstone upon closing of the Stream Agreement, expected in January 2021. Wheaton will make ongoing payments equal to 10% of the spot silver price at the time of delivery for each ounce delivered to them. Capstone will deliver 50% of life of mine payable silver from Cozamin until 10 million ounces have been delivered, after which the stream will be reduced to 33%. The Stream Agreement is effective December 1, 2020. Closing of the transaction is subject to the completion of certain corporate matters and customary conditions.
- Use of proceeds – pay down net debt to zero on closing, with a target of zero debt outstanding in 2021. This will position Capstone to fund attractive low risk, high return, quick payback organic growth projects at Pinto Valley and Cozamin. Advancing these projects will provide sustainable benefits for all stakeholders.
- Highly compelling cost of capital – stream structured at a cost lower than the Company’s current cost of financing and significantly lower than available capital markets alternatives, such as equity issuance and high yield debt.
- Capstone free cash flow potential remains robust – Cozamin continues to be a first quartile cost mine. From a corporate perspective, the elimination of interest costs due to debt repayment would largely offset the cost impact of the stream.
- Strategy for cash flow from operations – at spot copper prices, Capstone is expecting to generate $800 million in cumulative after-tax operating cash flow in the next three years (2021-2023). The Company will build cash on the balance sheet, positioning itself to make high return investments, such as exploration drilling and a paste backfill plant at Cozamin, and Eriez HydroFloat coarse particle flotation at Pinto Valley.
Jason Howe, Capstone’s SVP Corporate Development stated, “This is a strong endorsement from a global leader in the metals streaming sector. This will give Capstone an opportunity to get back to having a sector-leading balance sheet to fund strategic growth initiatives. By paying down debt, Capstone can now quickly build equity for shareholders moving forward.”
ADDITIONAL UPCOMING CATALYSTS AT COZAMIN
- The one-way ramp was completed three weeks ahead of schedule on December 7, 2020, on-budget with no lost time accidents.
- A pillar extraction prefeasibility study is targeted for release in early Q1 2021.
- The 80-hole drill program targeting the East extension to the MNFWZ is ongoing. A new MNFWZ West has been identified and is currently being drilled. A drilling update will be released in Q1 2021.
Capstone is committed to creating growth and value for our stakeholders, including our employees and contractors, the local communities in which we operate in and our shareholders.
ADVISORS AND COUNSEL
GenCap Mining Advisory Ltd. is acting as financial advisor to Capstone and Blake, Cassels & Graydon LLP is acting as legal advisor.