VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - June 28, 2007) - Capstone Mining Corp. ("Capstone") (TSX:CS) announces its financial results for the 3rd quarter ending May 31 2007, including production and sales for the Cozamin Mine located in Zacatecas, Mexico.
THIRD QUARTER HIGHLIGHTS
- Operating profit of $7.8 million, or $0.09 per share.
- Mine operating cash flow of $8.9 million, or $0.11 per share.
- Net income of $5.8 million, or $0.07 per share including an unrealized foreign exchange loss of $2 million related to deferred revenue from the Silverstone transaction.
- Completed the Silverstone silver transaction whereby Capstone received US$44 million (US$20 million received in cash and US$24 million received in Silverstone shares and special warrants) in exchange for selling the next 10 years of silver production from the Cozamin mine.
- As of May 31, 2007 the market value of the investment in the securities of Silverstone was $65 million, or $0.79 per share.
- Working capital increased to $47.8 million or $0.58 per share with no debt.
- Total concentrate sales were $16.7 million including 2.9 million pounds of payable copper.
- Copper cash costs were $0.61 per pound of copper (net of by-product credits and including smelter, refining, transportation and all site costs).
- Completed construction of the mill expansion to increase capacity from 350,000 tonnes per year to 750,000 tonnes per year, an increase of 115%. Start-up commenced in mid June.
FINANCIAL RESULTS
Capstone today reported net income of $5.8 million, or $0.07 per share. This includes an unrealized foreign exchange loss of $2 million related to the value of US$44 million received from the sale of silver to Silverstone on April 4th as it relates to the Canadian dollar conversion at May 31, 2007. Capstone will be reporting the year end financial results in US$ and will no longer have to report fluctuations in foreign exchange between Canadian and US dollars. Net earnings increased by 51% from the previous quarter primarily due to increased metal production and higher metal prices.
Concentrate sales for the third quarter were $16.7 million, a 58% increase over Q2 - 2007, due to higher realized copper prices and increased production and concentrate shipments from the Cozamin mine. Operating cash flow in the quarter increased to $7.8 million from $4.8 million in the previous quarter. Working capital at May 31, 2007 was $47.8 million, an increase of $21.3 million from February 28, 2007, primarily due to the sale of the silver to Silverstone Resources Corp, as well as increased cash flow.
During the third quarter the average price for sales of copper, zinc and lead were US$3.62/lb, US$1.70/lb and US$0.94/lb respectively.
The Company sold all of its silver production from the Cozamin mine in Mexico over a 10 year period to Silverstone in consideration for an upfront payment of US$44 million of which US$20 million was received in cash and US$24 million in 19,155,310 special warrants of Silverstone which are convertible into common shares of Silverstone at no additional cost.
Silverstone will pay for each ounce of refined silver from the mine the lesser of US$4.00 per ounce of silver and the prevailing market price per ounce of silver.
Darren Pylot, President and CEO of Capstone Mining commented: "With the doubling of capacity at the mine, the sale of the silver to Silverstone resulting in a working capital position in excess of $47 million, Capstone is well positioned to take advantage of the current strong market conditions and look to expand in the base metal sector."
OPERATIONS
Total mill throughput for the quarter was 112,277 tonnes of ore, a rate of 1,200 tonnes per day. This increased tonnage was 15% higher than the previous quarter. Cash costs were $0.61 per pound of copper including by-product credits and all smelter, refining, transportation and site costs. Total costs were $1.08 per pound of copper which included the aggregate of cash costs, depletion and royalty. Total cash costs per pound of copper increased by 22% from the previous quarter largely due to a decrease in the average price received for zinc sales within the quarter.
Total concentrate sales were $16.7 million. 2.9 million pounds of payable copper, 1.5 million pounds of payable zinc, 700,000 pounds of payable lead and 143,000 ounces of payable silver. This was an increase of 45% from the previous quarter.
Total production for the third quarter totaled 3.5 million pounds of copper, 1.6 million pounds of zinc, 600,000 pounds of lead and 174,000 ounces of silver. This production is a 25% increase over the second quarter of 2007. Higher mill tonnage as the expansion was incrementally completed, and increased mine grades accounted for the improvement.
Inventory on site and at the port at the end of the third quarter totaled 3,842 dry metric tons ("DMT") of copper (Q2 - 2,559 DMT), 1,820 DMT of zinc (Q2 - 2,140 DMT) and 120 DMT of lead (Q2 - 213).
EXPANSION
During the quarter, Capstone completed the expansion of the mill capacity to 750,000 tonnes per year, a 115% increase from the previous operating throughput of 350,000 tonnes per year. All construction and commissioning has been completed and the start-up began in mid-June. The expansion was completed on schedule and under budget with final estimated costs of US$13.0 million compared to the original estimate of US$15 million. To date US$7.2 million has been spent and the remaining US$4.8 million are related to land purchase, mine equipment and development costs which will be incurred over the next 12 months. The expansion will increase the 2008 production at Cozamin to 26 million pounds of copper, 11 million pounds of zinc, 4 million pounds of lead and 1.2 million ounces of silver at planned mine grades.
EXPLORATION
The Company has completed 58 underground definition drill holes that total 18,200m of NQ core. An additional 2,300m of drilling distributed between 8 holes are planned for this program. A surface exploration drilling program totaling 4,800m of PQ and HQ core in 5 holes has been completed. These data indicate that Capstone will be able to increase all resource categories at Cozamin in concert with the current construction program that is planned to more than double daily production from the mine and plant. The definition drilling program is planned to be completed by the end of July and an updated resource estimate is to be completed by the fourth quarter on 2007.
CONFERENCE CALL
Capstone will hold a conference call to report third quarter 2007 results on Thursday, June 28th at 8:00 a.m. PT. The conference call will be chaired by Mr. Darren Pylot, President and CEO.
The conference call may be accessed by dialing 1.866.651.2245 in North America and 1.416.849.7332 internationally. Please ask for the Capstone Mining Corp. conference call.
The conference call will be archived for later playback until July 5th, 2007 and can be accessed by dialing 1.866.501.5559 and the pass code is 21238256#.
The information in this news release should be read in conjunction with the Interim Consolidated Financial Statements and Management Discussion and Analysis for the quarter ended May 31, 2007, which will be available on the Companies web site www.capstonemining.com and at www.sedar.com.
ABOUT CAPSTONE
Capstone is a Canadian based mining company currently operating the 100% owned Cozamin copper-silver-lead-zinc mine located in Zacatecas State, Mexico. Capstone has approximately 81.9 million shares outstanding and is well financed with no bank debt. More information is available online at: www.capstonemining.com.
CAPSTONE MINING CORP.
FORM 51-102F1 - MANAGEMENT DISCUSSION & ANALYSIS
MAY 31, 2007
1.1 Date of Report: June 26, 2007
The Management Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited interim consolidated financial statements for the nine months ended May 31, 2007, and the audited consolidated financial statements for the year ended August 31, 2006.
All dollar figures stated herein are expressed in Canadian dollars, unless otherwise noted.
This discussion includes certain statements that may be deemed "forward-looking statements". All statements in this discussion, other than statements of historical facts, that address future production, reserve potential, exploration drilling, exploitation activities and events or developments that the Company expects are forward-looking statements. Although the Company believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include market prices, exploitation and exploration successes, continued availability of capital and financing and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and that actual results or developments may differ materially from those projected in the forward-looking statements.
1.2 Overall Performance
Capstone Mining Corp. ("the Company") is a mining company with a primary focus to operate, expand and explore the Company's 100% owned Cozamin copper-silver-zinc-lead mine located in Zacatecas, Mexico that achieved commercial production in September 2006. The Company's shares are listed on the Toronto Stock Exchange ("TSX") under the symbol CS.
The Company had an operating profit of $20.3 million and earnings of $18.2 million during the nine months ended May 31, 2007, compared to operating profit of $Nil and a loss of $1.6 million in the nine months ended May 31, 2006.
During the nine month period ended May 31, 2007, the Company realized revenues of $28.2 million from sales of 7.9 million pounds of copper, $6.2 million from sales of 3.4 million pounds of zinc, $1.9 million from sales of 2.1 million pounds of lead and $5.9 million from sales of 432,000 ounces of silver in concentrates. The average price for sales of copper, zinc and lead during the nine months were US$3.21/lb, US$1.79/lb, and US$0.84/lb respectively.
Work continued during the quarter on the expansion of the mill to 2,200 tpd at the Cozamin mine with construction on schedule and budget. All major components have been installed and are being tested in operation. The expansion project will increase the production capacity of the Cozamin mine by greater than 100%, from 12 million pounds to 26 million pounds of copper per year by 2008.
The Company sold all of its silver production from the Cozamin mine in Mexico over a 10 year period to Silverstone in consideration for an upfront payment of US$44 million of which US$20 million was received in cash and US$24 million in 19,155,310 special warrants of Silverstone which are convertible into common shares of Silverstone at no additional cost.
Silverstone will pay for each ounce of refined silver from the mine the lesser of US$4.00 per ounce of silver and the prevailing market price per ounce of silver.
The Company has completed 58 underground definition drill holes that total 18,200m of NQ core. An additional 2,300m of drilling distributed between 8 holes are planned for this program. A surface exploration drilling program totaling 4,800m of PQ and HQ core in 5 holes has been completed. Initial results from these drill programs were released on March 22, 2007. These data indicate that Capstone will be able to increase all resource categories at Cozamin in concert with the current construction program that is planned to more than double daily production from the mine and plant. The definition drilling program is planned to be completed by the end of July and all results released to the public by the end of August.
Cozamin Mine
Third Quarter 2007 Highlights
Copper
- Copper in concentrate produced during the quarter was 3.5 million pounds of copper, 25% higher than the previous quarter.
- Copper concentrate sales for the quarter were 5,947 dry metric tons ("DMT"), containing 2.9 million pounds of copper, an increase from the 4,524 DMT sold during the previous quarter.
- The average price for sales of copper in the quarter was US$3.62/lb.
- Copper concentrate inventory at May 31, 2007 was 3,842 DMT, an increase in inventory from the 2,559 DMT of concentrate on hand at the end of the previous quarter.
- Silver in the copper concentrate produced during the quarter totaled 142,000 ounces, 28% higher than the previous quarter.
Zinc
- Zinc in concentrate produced during the quarter was 1.6 million pounds of zinc, 33% mores than the previous quarter.
- Zinc sales for the quarter were 1,949 DMT, containing 1.5 million pounds of zinc, an increase from no sales during the previous quarter.
- The average price for sales of zinc in the quarter was US$1.70/lb.
- Zinc concentrate inventory at May 31, 2007 was 1,820 DMT, a decrease in inventory from the 2,140 DMT of concentrate on hand at the end of the previous quarter.
- Silver in the zinc concentrate produced during the quarter totaled 6,000 ounces, 10% higher than the previous quarter.
Lead
- Lead in concentrate produced during the quarter was 0.6 million pounds of lead, 20% more than the previous quarter.
- Lead concentrate sales for the quarter were 502 DMT, containing 0.7 million pounds of lead, a decrease from the 978 DMT sold during the previous quarter.
- The average price for sales of lead in the quarter was US$0.94/lb.
- Lead concentrate inventory at May 31, 2007 was 120 DMT, a decrease in inventory from the 213 DMT of concentrate on hand at the end of the previous quarter.
- Silver in the lead concentrate produced during the quarter totaled 30,000 ounces, 10% lower than the previous quarter.
Third Quarter Production Results
The following table is a summary of the operating statistics for the current quarter (Q3 - 2007) compared to the previous quarters (Q2 - 2007 and Q1 - 2007).
-----------------------------------------------------------------------
Q3 - 2007 Q2 - 2007 Q1 - 2007
-----------------------------------------------------------------------
Total tons mined 131,325 100,620 90,281
-----------------------------------------------------------------------
Tons of ore milled 112,277 95,439 93,055
-----------------------------------------------------------------------
Copper grade (%) 1.65 1.58 1.5
-----------------------------------------------------------------------
Zinc grade (%) 1.65 1.45 1.8
-----------------------------------------------------------------------
Silver grade (g/t) 71 68 72
-----------------------------------------------------------------------
Lead grade (%) 0.6 0.53 0.7
-----------------------------------------------------------------------
Copper recovery (%) 85.7 84.5 85.3
-----------------------------------------------------------------------
Zinc recovery (%) 43.0 42.6 49.3
-----------------------------------------------------------------------
Silver recovery (%) 68.1 67.5 74.6
-----------------------------------------------------------------------
Lead recovery (%) 48.0 49.0 60.3
-----------------------------------------------------------------------
Copper production (million DMT lbs) 3.5 2.8 2.7
-----------------------------------------------------------------------
Zinc production (million DMT lbs) 1.6 1.2 1.9
-----------------------------------------------------------------------
Silver production ('000 ounces) 174 149 161
-----------------------------------------------------------------------
Lead production (million DMT lbs) 0.6 0.5 0.9
-----------------------------------------------------------------------
Note: Silver reports to all concentrates.
Labour
There was 1 minor lost time accident during the quarter. The number of personnel at the end of the quarter was 515 compared to 359 at the end of the previous quarter due to expansion construction and exploration activities.
Third Quarter Actual Sales Compared to Current Production Forecasts
The current forecasted copper, zinc, lead and silver production for fiscal 2007 is estimated to be 13 - 14 million pounds of copper, 8 million pounds of zinc, 3.5 million pounds of lead and 700,000 ounces of silver. Actual sales and costs for the first 3 quarters and production forecasts for the fourth quarter are tabulated below.
------------------------------------------------------------------------
Q1 (A) Q2 (A) Q3 (A) Q4 (F)
Sales Sales Sales Production
------------------------------------------------------------------------
Copper (million lbs) 2.9 2.1 2.9 4.0
------------------------------------------------------------------------
Zinc (million lbs) 1.9 Nil 1.5 1.9
------------------------------------------------------------------------
Lead (million lbs) Nil 1.4 0.7 0.9
------------------------------------------------------------------------
Silver ('000 ounces) 120 169 143 245
------------------------------------------------------------------------
Copper production costs, net of
by product credits,
per lb of copper US$(0.04) US$(0.02) US$0.20 US$0.20
------------------------------------------------------------------------
Off property costs for
transport, smelting
and refining per lb of copper US$0.48 US$0.41 US$0.41 US$0.41
------------------------------------------------------------------------
Total cash costs of production
per lb of copper US$0.44 US$0.39 US$0.61 US$0.61
------------------------------------------------------------------------
Market Trends
Copper prices have been increasing since late 2003. Copper prices averaged US$1.30/lb in 2004, US$1.67/lb in 2005 and US$3.05/lb in 2006. Copper prices retracted in the first couple of months of 2007 but have since begun to increase, averaging US$3.02/lb to May 31, 2007.
Zinc and lead prices have also been increasing since 2003. Zinc prices averaged US$0.47/lb in 2004, US$0.63/lb in 2005 and US$1.48/lb in 2006. Zinc prices appear to have stabilized in 2007, averaging US$1.61/lb to May 31, 2007.
Lead prices averaged US$0.40/lb in 2004, US$0.44/lb in 2005 and US$0.58/lb in 2006. Lead prices have continued to increase in 2007, averaging US$0.86/lb to May 31, 2007.
1.3 Selected Annual Information
The following financial data is selected information for the Company for the most recently completed financial years:
Aug 31, Aug 31, Aug 31,
2006 2005 2004
--------------------------------------
Total revenues $ - $ - $ -
Loss before discontinued
operations and other items 3,510,600 2,465,764 1,323,133
Basic and diluted loss per
common share before
discontinued operations and
other items 0.06 0.07 0.07
Loss for the year 3,217,627 2,287,205 2,443,545
Basic and diluted loss per
common share 0.05 0.06 0.12
Total assets 66,161,151 19,035,348 9,405,440
This financial information was prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and reported in Canadian dollars.
1.4 Results of Operations
The consolidated earnings for the nine months ended May 31, 2007 was $16,159,516 or $0.20 per share. This compares to a loss of $1,616,995 or ($0.03) per share for the same period in 2006.
The Company reported revenues of $42.2 million (2006 - $Nil). Revenues consisted of copper concentrate sales of $28.2 million, zinc concentrate sales of $6.2 million, lead concentrate sales of $1.9 million and silver in concentrate sales of $5.9 million.
Cost of sales for the period was $11.2 million (2006 - $Nil), treatment and transportation charges were $7.2 million (2006 - $Nil), royalty charges were $913,209 (2006 - $Nil) and depletion was $2.6 million (2006 - $Nil).
The increased general and administrative expenditures for the nine months ended May 31, 2007 compared to the same period in 2006 are due to the Company attaining commercial production as well as an unrealized foreign exchange loss related to deferred revenue.
Glencore International AG purchases the concentrates produced by the Cozamin mine pursuant to the terms of a written contract. The Company has also agreed to terms with Trafigura Beheer B.V. to purchase additional copper concentrates from the expansion pursuant to the terms of a written contract.
1.5 Summary of Quarterly Results
The following financial data is selected information for the Company for the eight most recently completed financial quarters:
May 31, Feb 28, Nov 30, Aug 31,
2007 2007 2006 2006
--------------------------------------------------------
Total revenues $ 16,625,086 $ 10,594,538 $ 14,929,191 $ -
Earnings (loss)
before
discontinued
operations and
other items 4,461,686 3,637,145 6,289,639 (1,720,838)
Basic and diluted
earnings (loss)
per common share
before
discontinued
operations and
other items 0.05 0.04 0.08 (0.03)
Earnings (loss)
for the period 5,808,500 3,835,338 6,515,678 (1,600,632)
Basic earnings
(loss) per common
share 0.07 0.05 0.08 (0.03)
Total assets 134,546,930 78,400,485 73,783,574 66,161,151
May 31, Feb 28, Nov 30, Aug 31,
2006 2006 2005 2005
--------------------------------------------------------
Total revenues $ - $ - $ - $ -
Loss before
discontinued
operations and
other items (903,872) (238,116) (647,774) (1,206,514)
Basic and diluted
loss per common
share before
discontinued
operations and
other items (0.01) (0.01) (0.01) (0.03)
Loss for the
period (793,978) (203,495) (619,522) (1,126,045)
Basic loss per
common share (0.01) (0.01) (0.01) (0.03)
Total assets 68,877,045 40,666,742 20,386,527 19,035,348
This financial information was prepared in accordance with Canadian GAAP and reported in Canadian dollars.
1.6 Liquidity
As at May 31, 2007, the Company's cash increased by $14,865,764 to $37,707,358. The Company's working capital was $47,793,767 (2006 - $27,002,592). The increase was primarily due to the Company selling its silver as well as having revenue during the nine months. Revenue from sales of copper, silver, zinc and lead, along with current cash balances will provide sufficient working capital for the Company to complete its 2007 expansion and exploration programs as well as carry out its day to day obligations. The Company had no long-term bank debt in either period.
The Company received $125,198 in proceeds from the exercise of warrants, $58,682 from the exercise of agent's options and $80,500 from the exercise of stock options for the nine months ended May 31, 2007.
1.7 Capital Resources
When the Cozamin project achieved commercial production for six months, a US$1,000,000 cash payment or the equivalent value in the Company's common shares was be paid to Grupo Minero Basis, S.A. de C.V. At May 31, 2007 the Company paid the commercial production obligation by issuing 679,080 shares of the Company.
The Company has completed the spin-out of its Silver exploration properties (which are the Copala, Claudia, Promontorio, Montoros and Martha projects). Silverstone Canada assumed all the rights and obligations relating to the option to purchase a 90% interest in the Silver exploration properties.
1.8 Off-balance Sheet Arrangements
There are no off-balance sheet arrangements.
1.9 Transactions with Related Parties
During the nine months ended May 31, 2007, a management company controlled by Darren Pylot, President, CEO and a director of the Company, received $15,833 per month from September 2006 to February 2007 and $18,333 per month from March to May 2007 (2006 - $15,000 per month from September 2005 to February 2006 and $15,833 per month from March to May 2006) to perform the presidential and managing director duties on behalf of the Company. This management company was paid a $47,500 (2006 - $20,000) bonus during the year. The Company charged $9,000 (2006 - $15,000) rent and $13,500 (2006 - $7,500) for administrative services to a public company with a director in common. Also, the Company charged $11,250 (2006 - $Nil) rent and $7,875 (2006 - $Nil) for administrative services to a public company with directors in common.
1.10 Third Quarter
During the Third quarter the Company continued successful production at its Cozamin copper-silver-lead-zinc mine. Construction continued on the expansion of the mine capacity and the exploration program continued with both on budget.
The Company sold all of its silver production from the Cozamin mine in Mexico over a 10 year period to Silverstone in consideration for an upfront payment of US$44 million of which US$20 million was received in cash and US$24 million in 19,155,310 special warrants of Silverstone which are convertible into common shares of Silverstone at no additional cost.
1.11 Proposed Transactions
The Company has budgeted US$6 million for phase 4 surface exploration and phase 5 underground infill drilling programs at the Cozamin project in 2007 in order to expand our reserves and resources. The Company has also budgeted US$15 million for the expansion of the mine to increase capacity. The Company has the required funds in order to complete its expansion and exploration programs.
There are no proposed asset or business acquisitions or dispositions, other then those in the ordinary course, before the board of directors for consideration.
1.12 Critical Accounting Estimates
N/A
1.13 Changes in Accounting Policies
N/A
1.14 Financial Instruments and Other Instruments
Cash is not subject to currency risks. The Company does not believe it is subject to any significant credit risk although cash is held in excess of federally insured limits, with a major Canadian banking institution.
Taxes receivable due from the Mexican government are denominated in Mexican Pesos and the note receivable, commercial production obligation and equipment lease obligations are denominated in US Dollars, which are subject to currency risks arising from the fluctuations in the Mexican Peso and the US Dollar.
The Company's other financial instruments consist of goods and service tax receivable (which are included in taxes receivable), receivables, due from Silverstone Resources Corp., due to related parties and accounts payable and accrued liabilities. In management's opinion, the Company is not exposed to significant interest, currency or credit risks arising from the financial instruments. The fair value of these financial instruments approximates their carrying values.
1.15 Other MD&A Requirements
Disclosure of Outstanding Share Data:
----------------------------------------------------------------------
----------------------------------------------------------------------
Number Contributed
of Shares Amount Surplus
----------------------------------------------------------------------
Authorized
Unlimited common shares, without
par value
Issued
Balance, August 31, 2006 80,830,512 $ 75,119,115 $ 1,134,665
Issued for commercial production
obligation 679,080 1,181,600 -
Issued for warrants exercised 94,969 125,198 -
Financing fees recovered - 4,024 -
Agent's options exercised 54,722 65,268 (16,016)
Issued for stock options 80,000 105,571 (25,072)
Bonus and long term shares 194,500 389,000 -
Stock-based compensation - - 290,181
----------------------------------------------------------------------
Balance, May 31, 2007 81,933,783 $ 76,989,776 $ 928,941
----------------------------------------------------------------------
----------------------------------------------------------------------
The following stock options were outstanding at May 31, 2007:
----------------------------------------------------- ----------------------------------------------------- Number Exercise of Options Price Expiry Date ----------------------------------------------------- 25,000 $ 0.45 September 15, 2008 75,000 0.75 March 22, 2009 100,000 0.75 June 11, 2009 120,000 0.95 January 12, 2010 382,500 1.05 March 1, 2010 100,000 0.95 April 20, 2010 95,000 1.10 January 23, 2011 1,077,500 1.57 March 9, 2011 20,000 1.40 June 14, 2011 10,000 1.65 September 8, 2011 560,000 1.88 March 14, 2012 ----------------------------------------------------- 2,565,000 ----------------------------------------------------- -----------------------------------------------------
At May 31, 2007, the following share purchase warrants were outstanding:
----------------------------------------------------- ----------------------------------------------------- Number Exercise of Shares Price Expiry Date ----------------------------------------------------- 243,697 $ 1.25 December 15, 2007 113,825 1.30 December 15, 2007 4,138,248 1.40 December 21, 2008 ----------------------------------------------------- 4,495,770 ----------------------------------------------------- -----------------------------------------------------
1.16 Internal Disclosure Controls and Procedures
We have evaluated the effectiveness of our disclosure controls and procedures and have concluded based on our evaluation that they are sufficiently effective to provide reasonable assurance that material information relating to the Company is made known to management and disclosed in accordance with applicable securities regulations.
Other information
Additional information relating to the Company, including the Company's AIF is on SEDAR at www.sedar.com.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
MAY 31, 2007
CAPSTONE MINING CORP.
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited - prepared by management)
------------------------------------------------------------------------
------------------------------------------------------------------------
May 31, August 31,
2007 2006
------------------------------------------------------------------------
ASSETS
Current
Cash $ 37,707,358 $ 22,841,594
Marketable securities (Note 4) 304,394 -
Receivables 5,368,818 280,761
Due from Silverstone Resources Corp. 694,693 -
Note receivable 168,024 -
Taxes receivable 2,564,741 2,431,839
Inventory (Note 5) 5,798,865 1,402,392
Prepaid and advances 801,244 165,295
------------------------------------------------------------------------
53,408,137 27,121,881
Property, plant and equipment (Note 7) 45,910,836 35,668,619
Investment in Silverstone 32,643,715 -
Note receivable (Note 8) 259,571 -
Taxes receivable 2,244,471 -
Mineral properties 80,200 3,370,651
------------------------------------------------------------------------
$ 134,546,930 $ 66,161,151
------------------------------------------------------------------------
------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities $ 4,131,937 $ 1,811,714
Commercial production obligation - 1,150,000
Equipment lease obligations 1,479,181 1,315,750
Due to related parties (Note 9) 3,252 12,252
------------------------------------------------------------------------
5,614,370 4,289,716
Deferred revenue (Note 10) 49,894,491 -
Equipment lease obligations (Note 11) 532,332 1,244,485
Asset retirement obligation (Note 12) 1,727,888 1,673,554
------------------------------------------------------------------------
57,769,081 7,207,755
------------------------------------------------------------------------
Shareholders' equity
Capital stock (Note 13) 76,989,776 75,119,115
Contributed surplus (Note 13) 928,941 1,134,665
Deficit (1,140,868) (17,300,384)
------------------------------------------------------------------------
76,777,849 58,953,396
------------------------------------------------------------------------
$ 134,546,930 $ 66,161,151
------------------------------------------------------------------------
------------------------------------------------------------------------
On behalf of the Board:
"Darren M. Pylot" "Tony Chan"
Director Director
The accompanying notes are an integral part of these interim consolidated financial statements.
CAPSTONE MINING CORP.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Unaudited - prepared by management)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
May 31, May 31, May 31, May 31,
2007 2006 2007 2006
--------------------------------------------------------------------------
Revenue
Copper $ 11,375,852 $ - $ 28,199,642 $ -
Zinc 2,660,641 - 6,168,901 -
Lead 695,323 - 1,895,678 -
Silver 1,963,270 - 5,954,594 -
--------------------------------------------------------------------------
16,695,086 - 42,218,815 -
Cost of sales (4,711,415) - (11,234,057) -
Treatment and
transportation (2,709,120) - (7,194,325) -
Royalty (385,126) - (913,209) -
Depletion (1,135,116) - (2,578,442) -
--------------------------------------------------------------------------
Operating profit 7,754,309 - 20,298,782 -
--------------------------------------------------------------------------
General and
administration
expenses
Amortization and
accretion 216,577 19,007 704,316 45,065
Foreign exchange
loss 1,550,721 289,605 1,551,909 156,255
Interest expense 43,853 - 150,973 -
Investor
relations 40,683 46,182 168,111 144,814
Management fees 100,000 67,500 195,000 157,500
Office and
administration 456,726 53,052 992,467 297,776
Professional
fees 196,922 23,796 734,756 154,388
Stock-based
compensation
(Note 11) 72,555 169,534 290,181 335,555
Travel and
accommodation 75,989 102,376 255,999 183,210
Wages 538,597 132,820 866,600 309,637
--------------------------------------------------------------------------
(3,292,623) (903,872) (5,910,312) (1,784,200)
--------------------------------------------------------------------------
Other items
Interest income 414,520 109,894 840,935 167,205
Recovery of
variable
interest entity 1,056,467 - 1,056,467 -
Write-off of
mineral
properties (124,173) - (124,173) -
Gain on sale of
property, plant
and equipment - - (2,183) -
--------------------------------------------------------------------------
1,346,814 109,894 1,771,046 167,205
--------------------------------------------------------------------------
Earnings (loss)
for the period $ 5,808,500 $ (793,978) $ 16,159,516 $ (1,616,995)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings (loss)
per share
Earnings (loss)
per common share
- basic $ 0.07 $ (0.01) $ 0.20 $ (0.03)
Earnings (loss)
per common share
- diluted $ 0.07 $ (0.01) $ 0.19 $ (0.03)
Weighted average
number of common
shares o/s
Basic 81,785,062 69,101,624 81,176,462 55,711,887
Diluted 84,479,722 69,101,624 83,065,449 55,711,887
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Deficit,
beginning of
period (6,949,368) (14,905,774) (17,300,384) (14,082,757)
Earnings (loss)
for the period 5,808,500 (793,978) 16,159,516 (1,616,995)
--------------------------------------------------------------------------
Deficit, end of
period $ (1,140,868) $(15,699,752) $ (1,140,868) $(15,699,752)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The accompanying notes are an integral part of these interim consolidated
financial statements.
CAPSTONE MINING CORP.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - prepared by management)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
May 31, May 31, May 31, May 31,
2007 2006 2007 2006
--------------------------------------------------------------------------
CASH FLOWS FROM:
OPERATING
ACTIVITIES
Earnings (loss)
for the period $ 5,808,500 $ (793,978) $ 16,159,516 $ (1,616,995)
Items not
affecting cash
Amortization 216,577 19,007 704,316 45,065
Accrued interest
income (47,702) (55,150) (277,086) (38,165)
Cost of sales 29,055 - 112,374 -
Foreign exchange (106,615) - 60,191 -
Depletion 1,135,116 - 2,578,442 -
Share bonuses 389,000 - 389,000 -
Loss on
disposition of
PPE - - 2,183 -
Write-off of
mineral property 124,173 - 124,173 -
Stock-based
compensation 72,555 169,534 290,181 335,555
Recovery of
variable interest
entity (1,056,467) - (1,056,467) -
Amortization of
deferred revenue (140,805) - (140,805) -
Changes in
non-cash working
capital items
(Increase)
decrease in
accounts
receivable (2,717,909) - (5,127,929) 5,000
Increase in taxes
receivable (635,845) (309,770) (2,684,175) (1,155,130)
Increase in
property, plant
and equipment (527,415) - (650,685) -
(Increase)
decrease in
prepaids - 866,961 - 38,890
Increase
(decrease) in
accounts payable (13,906) (818,522) 1,177,377 (204,296)
Decrease in due
from related
parties - - - 708
Increase in
Inventory (1,000,635) - (3,846,935) -
Increase
(decrease) in due
to related
parties (13,592) - (9,000) (11,208)
--------------------------------------------------------------------------
Cash flows
provided (used)
by operating
activities 1,514,085 (921,918) 7,804,671 (2,600,576)
--------------------------------------------------------------------------
INVESTING
ACTIVITIES
Investment in
Silverstone
Resources Corp. (1,110) (519,919) (1,110) (519,919)
Cash assumed by
Silverstone
Resources Corp. (582,242) - (582,242) -
Property, plant
and equipment (6,296,359) (490,268) (12,993,898) (1,142,476)
Short-term
investments - - - (3,000,000)
Purchase of
marketable
securities (304,394) - (304,394) -
Mineral
Properties 1,029,900 (4,364,132) (170,868) (13,123,033)
--------------------------------------------------------------------------
Cash flows used
in investing
activities (6,154,205) (5,374,319) (14,052,512) (17,785,428)
--------------------------------------------------------------------------
FINANCING
ACTIVITIES
Proceeds from
issuance of
capital stock 180,199 25,736,740 254,949 42,616,981
Capital stock
issuance costs - (602,987) 4,024 (602,987)
Due from
Silverstone
Resources Corp. (396,635) - (396,635) -
Equipment lease
payments (337,625) - (1,008,829) -
Proceeds from
sale of silver 22,260,096 - 22,260,096 -
--------------------------------------------------------------------------
Cash flows
provided by
financing
activities 21,706,035 25,133,753 21,113,605 42,013,994
--------------------------------------------------------------------------
Change in cash
during period 17,065,915 18,837,516 14,865,764 21,627,990
Cash, beginning
of period 20,641,443 3,725,844 22,841,594 935,370
--------------------------------------------------------------------------
Cash, end of
period $ 37,707,358 $ 22,563,360 $ 37,707,358 $ 22,563,360
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Supplemental disclosure with respect to cash flows (Note 16)
The accompanying notes are an integral part of these interim consolidated
financial statements.
CAPSTONE MINING CORP.
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2007
(Unaudited - prepared by management)
1. BASIS OF PRESENTATION
These unaudited interim consolidated financial statements include the accounts of Capstone Mining Corp. and its subsidiaries ("the Company"). All significant intercompany balances and transactions have been eliminated. These unaudited interim consolidated statements have been prepared in accordance with Canadian generally accepted accounting principles. All financial summaries included are presented on a comparative and consistent basis showing the figures for the corresponding period in the preceding year. The preparation of financial data is based on accounting principles and practices consistent with those used in the preparation of annual financial statements. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted. These unaudited interim consolidated statements should be read together with the audited financial statements and the accompanying notes included in the Company's latest annual report. In the opinion of the Company, its unaudited interim consolidated financial statements contain all adjustments necessary in order to present a fair statement of the results of the interim periods presented.
2. NATURE OF OPERATIONS
The Company is engaged in mining and related activities, including exploration, expansion and operating. The Company achieved commercial production at its Cozamin copper-silver-lead-zinc project located in Zacatecas, Mexico on September 1, 2006.
3. SIGNIFICANT ACCOUNTING POLICIES
Consolidation of variable interest entity
The Company had determined that it had a variable interest in Silverstone Resources Corp. ("Silverstone") for the year ended August 31, 2006. On April 4, 2007, Silverstone completed a private placement of 22,120,000 units at $1.45 per unit for gross proceeds of $32,074,000. The Company did not purchase any of the units in the private placement. A significant part of the proceeds from the private placement ($23,144,000) were used to purchase the Company's silver production from the Cozamin mine in Mexico. The remaining balance of funds of approximately $8,600,000 will be used to fund the continued operations of Silverstone and in addition, Silverstone will receive revenues from the operations of the Cozamin mine with regards to the silver content in the copper concentrate. Therefore, Silverstone will be able to operate without the financial support of the Company. As at May 31, 2007, the Company determined that Silverstone was not a variable interest entity and is not required to be included in the consolidated financial statements of the Company.
Marketable securities
Investments in publicly traded marketable securities are recorded at the lower of cost or quoted market prices with unrealized losses included in income. The market value is based on the closing price at the end of the period, as reported on recognized securities exchanges.
Long-term investments
Investments in shares of associated companies over which the Company has significant influence are accounted for by the equity method whereby the investment is initially recorded at cost, adjusted to recognize the Company's share of earnings or loss in the investment and reduced by dividends received.
Deferred Revenue
The Company has received an upfront payment in relation to the Silverstone agreement (Note 10). Deferred revenue will be recognized as sales on the delivery of silver.
4. MARKETABLE SECURITIES
---------------------------------------------------------------------------
---------------------------------------------------------------------------
May 31, August 31,
2007 2006
---------------------------------------------------------------------------
350,000 (2006 - Nil) common shares of Nord
Resources Corp. Market value of $261,660
(2006 - $Nil) $ 304,394 $ -
---------------------------------------------------------------------------
$ 304,394 $ -
---------------------------------------------------------------------------
---------------------------------------------------------------------------
5. INVENTORY
---------------------------------------------------------------------------
---------------------------------------------------------------------------
May 31, August 31,
2007 2006
---------------------------------------------------------------------------
Concentrate inventory $ 4,195,545 $ 1,198,374
Supplies inventory 941,583 204,018
Ore stock piles 661,737 -
---------------------------------------------------------------------------
$ 5,798,865 $ 1,402,392
---------------------------------------------------------------------------
---------------------------------------------------------------------------
6. INVESTMENT IN SILVERSTONE
-----------------------------------------------------------------------
-----------------------------------------------------------------------
May 31, August 31,
2007 2006
-----------------------------------------------------------------------
Shares Amount Amount
------------------------------------------
Investment in common shares
Conversion of note
receivable plus accrued
interest 4,056,171 $ 4,867,405 $ -
Exercise of share purchase
warrants 617 1,110 -
Conversion of special
warrants 8,407,882 12,191,429 -
-----------------------------------------------------------------------
Total investment in common
shares 12,464,670 17,059,944 -
-----------------------------------------------------------------------
Special warrants
Issued from Silverstone
Canada 19,155,310 27,775,200 -
Converted to common shares (8,407,882) (12,191,429) -
-----------------------------------------------------------------------
Total investment in special
warrants 10,747,248 15,583,771 -
-----------------------------------------------------------------------
Total investment $ 32,643,715 $ -
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Silverstone issued three convertible demand promissory notes totaling in principal $4,610,810. The convertible demand promissory notes bear interest at 6.25% per annum and were due on written demand by the Company at any time on or before July 2, 2007. On or before the demand date the Company had the option to convert some or all of the debt owed to it into common shares of Silverstone at a rate of one common share for each $1.20 of debt owed to the Company. In April 2007, the Company exercised its option and converted the principal amount of $4,610,810 plus accrued interest of $256,595 into 4,056,171 common shares of Silverstone.
During the interim period, the Company exercised 617 share purchase warrants of Silverstone (that were acquired in the open market at no additional cost) and purchased 617 common shares at $1.80 per share.
As outline in note 10, the Company received 19,155,310 special warrants of Silverstone with a value of $27,775,200 (approximately US$24,000,000) as part of the up front payment for the sale of its silver production. These special warrants are convertible into common shares of Silverstone at no additional cost. In April 2007, the Company converted 8,407,882 special warrants with a value of $12,191,429 in exchange for 8,407,882 common shares of Silverstone. As at May 31, 2007, the held approximately 19.9% of the issued and outstanding common shares of Silverstone.
7. PROPERTY, PLANT AND EQUIPMENT
---------------------------------------------------------------------------
---------------------------------------------------------------------------
May 31, 2007 August 31, 2006
---------------------------------- ---------------------------------
Accumu- Accumu-
lated lated
Amorti- Amorti-
zation zation
& Net & Net
Cost Depletion Book Value Cost Depletion Book Value
---------------------------------------------------------------------------
Cozamin,
Mexico
prop-
erty $42,364,995 $3,442,144 $38,922,851 $29,474,670 $ 250,973 $29,223,697
Mine
equip-
ment 1,412,247 92,984 1,319,263 742,710 33,843 708,867
Mine
equip-
ment
under
lease 3,642,628 403,286 3,239,342 3,686,725 124,088 3,562,637
Vehicles 528,730 92,374 436,356 220,410 56,910 163,500
Office
and
equip-
ment 556,147 222,676 333,471 509,718 165,335 344,383
Leasehold
improve-
ments 156,138 30,676 125,462 28,157 22,230 5,927
Asset
retire-
ment
oblig-
ation 1,673,554 139,463 1,534,091 1,673,554 13,946 1,659,608
---------------------------------------------------------------------------
$50,334,439 $4,423,603 $45,910,836 $36,335,944 $ 667,325 $35,668,619
---------------------------------------------------------------------------
---------------------------------------------------------------------------
8. NOTE RECEIVABLE
During the previous quarter the Company entered into an agreement with a contractor, whereby the contractor agreed to purchase mining equipment under lease. The purchase price including IVA tax totals US$555,450. The lease term is for a period of three years and bears interest at 8% per annum. The lease is repayable at US$15,134 per month, which includes interest.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
May 31, August 31,
2007 2006
---------------------------------------------------------------------------
Total note receivable (including taxes) $ 427,595 $ -
Current portion due within one year 168,024 -
---------------------------------------------------------------------------
Net long term portion $ 259,571 $ -
---------------------------------------------------------------------------
---------------------------------------------------------------------------
9. RELATED PARTIES TRANSACTIONS
The Company entered into the following transactions with related parties:
a) Paid or accrued management fees of $195,000 (2006 - $157,500) to a management company controlled by the president and director of the Company.
b) Charged rent of $9,000 (2006 - $15,000) and administrative services of $13,500 (2006 - $7,500) to a public company with a director in common.
c) Charged rent of $11,250 (2006 - $Nil) and administrative services of $7,875 (2006 - $Nil) to a public company with directors in common.
The transactions with related parties were in the normal course of operations and were measured at the exchange value, which represented the amount of consideration established and agreed to by the parties. The amounts due to related parties are comprised of due to director of $3,352 (August 31, 2006 - $7,752) and directors fees of $Nil (August 31, 2006 - $4,500) which are non-interest bearing, with no fixed terms of repayment.
10. DEFERRED REVENUE
The Company sold all of its silver production from the Cozamin mine in Mexico over a 10 year period to Silverstone in consideration for an upfront payment of US$44,000,000 comprised of US$20,000,000 in cash (received) and US$24,000,000 in 19,155,310 special warrants of Silverstone (received) which are convertible into common shares of Silverstone at no additional cost.
In addition to the upfront fee Silverstone agreed to pay for each ounce of refined silver from the mine the lesser of US$4.00 per ounce of silver and the prevailing market price per ounce of silver. The Company agreed to deliver a minimum of 10,000,000 ounces of silver to Silverstone over a 10 year period. If at the end of ten years, the Company has not delivered the agreed 10,000,000 ounces of silver, then it has agreed to pay Silverstone US$1.00 per ounce of silver not delivered.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
May 31, August 31,
2007 2006
---------------------------------------------------------------------------
Deferred revenue on sale $ 50,035,296 $ -
Amortization (140,805) -
---------------------------------------------------------------------------
Deferred revenue, ending balance $ 49,894,491 $ -
---------------------------------------------------------------------------
---------------------------------------------------------------------------
11. EQUIPMENT LEASE OBLIGATIONS
The Company leased to purchase certain mining equipment for a total purchase price including IVA tax of US$4,172,522 (CDN$4,638,198) of which US$1,168,439 (CDN$1,298,062) was paid as a down payment. The lease terms range for a period of two to three years. One lease bears interest at 6.5% per annum and is repayable at US$95,469 per month, which includes interest. The second lease bears interest at 8% per annum and is repayable for the first quarter at US$45,802 and each quarter thereafter at US$38,889, which also includes interest. The third lease bears interest at 7.83% per annum and is repayable for the first quarter at US$41,619 and each quarter thereafter at US$41,909, which also includes interest.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
May 31, August 31,
2007 2006
---------------------------------------------------------------------------
Total lease payable (including taxes) $ 2,011,513 $ 2,560,235
Current portion due within one year 1,479,181 1,315,750
---------------------------------------------------------------------------
Net long term portion $ 532,332 $ 1,244,485
---------------------------------------------------------------------------
---------------------------------------------------------------------------
12. ASSET RETIREMENT OBLIGATION
---------------------------------------------------------------------------
---------------------------------------------------------------------------
May 31, August 31,
2007 2006
---------------------------------------------------------------------------
Asset retirement obligation - beginning balance $ 1,673,554 $ -
Liabilities incurred - 1,673,554
Accretion expense 54,334 -
---------------------------------------------------------------------------
Asset retirement obligation - ending balance $ 1,727,888 $ 1,673,554
---------------------------------------------------------------------------
---------------------------------------------------------------------------
The total undiscounted amount of estimated cash flows required to settle the obligations is $2,453,998, which was adjusted for inflation at the rate of 2.45% and then discounted at 4.2% . Certain minimum amounts of asset retirement obligations will occur each year with the significant amounts to be paid on closure of the mine.
13. CAPITAL STOCK AND CONTRIBUTED SURPLUS
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Number Contributed
of Shares Amount Surplus
---------------------------------------------------------------------------
Authorized
Unlimited common shares, without
par value
Issued
Balance, August 31, 2006 80,830,512 $ 75,119,115 $ 679,848
Issued for commercial production
obligation 679,080 1,181,600 -
Issued for warrants exercised 94,969 125,198 -
Financing fees recovered - 4,024 -
Agent's options exercised 54,722 65,268 (16,016)
Issued for stock options 80,000 105,571 (25,072)
Bonus and long term shares 194,500 389,000 -
Stock-based compensation - - 290,181
---------------------------------------------------------------------------
Balance, May 31, 2007 81,933,783 $ 76,989,776 $ 928,941
---------------------------------------------------------------------------
---------------------------------------------------------------------------
The Company issued 679,080 shares to Grupo Minero Bacis, S.A. de C.V. as payment of the commercial production obligation. A total of 94,969 warrants were exercised, 27,040 at $1.25 at 37,027 at $1.30, and 30,902 at $1.40 per warrant and a total of 54,722 agent's options were exercised at $0.90. A total of 80,000 stock options were exercised, 50,000 at $0.95 and 30,000 at $1.10 per option and the Company issued 194,500 shares to its directors, officers and employees as bonus payments for a total value of $389,000. The Company also received a refund of $4,024 for financing fees not incurred.
Stock options
The Company has an incentive stock option plan in place under which it is authorized to grant options to executive officers and directors, employees and consultants. The Company has implemented a rolling plan, whereby it has reserved 10% of the issued shares for issuance under the plan. Options granted under the plan have a term not to exceed 5 years and are subject to vesting provisions as follows: 25% on date of grant and 25% every 3 months for a period of 9 months.
The following stock options were outstanding at May 31, 2007:
----------------------------------------------------- ----------------------------------------------------- Number Exercise of Options Price Expiry Date ----------------------------------------------------- 25,000 $ 0.45 September 15, 2008 75,000 0.75 March 22, 2009 100,000 0.75 June 11, 2009 120,000 0.95 January 12, 2010 382,500 1.05 March 1, 2010 100,000 0.95 April 20, 2010 95,000 1.10 January 23, 2011 1,077,500 1.57 March 9, 2011 20,000 1.40 June 14, 2011 10,000 1.65 September 8, 2011 560,000 1.88 March 14, 2012 ----------------------------------------------------- 2,565,000 ----------------------------------------------------- -----------------------------------------------------
Stock-based compensation
The total stock-based compensation expense recognized during the nine months ended May 31, 2007 under the fair value method was $292,858 (2006 - $557,095). The Company expensed $290,181 (2006 - $335,555) leaving an unamortized balance of $205,539 (2006 - $382,339).
The following weighted average assumptions were used for the Black-Scholes valuation of stock options:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
May 31, August 31,
2007 2006
---------------------------------------------------------------------------
Risk-free interest rate 3.92% 3.92%
Expected life of options 2 years 2 years
Annualized volatility 43.96% 47.74%
Dividend rate 0.00% 0.00%
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Warrants
At May 31, 2007, the following share purchase warrants were outstanding:
-----------------------------------------------------
-----------------------------------------------------
Number Exercise
of Options Price Expiry Date
-----------------------------------------------------
243,697 $ 1.25 December 15, 2007
113,825 1.30 December 15, 2007
4,138,248 1.40 December 21, 2008
-----------------------------------------------------
-----------------------------------------------------
14. FINANCIAL INSTRUMENTS
Cash is not subject to currency risks. The Company does not believe it is subject to any significant credit risk although cash is held in excess of federally insured limits, with a major Canadian banking institution.
Taxes receivable due from the Mexican government are denominated in Mexican Pesos and the note receivable, commercial production obligation and equipment lease obligations are denominated in US Dollars, which are subject to currency risks arising from the fluctuations in the Mexican Peso and the US Dollar.
The Company's other financial instruments consist of goods and service tax receivable (which are included in taxes receivable), receivables, due from Silverstone Resources Corp., due to related parties and accounts payable and accrued liabilities. In management's opinion, the Company is not exposed to significant interest, currency or credit risks arising from the financial instruments. The fair value of these financial instruments approximates their carrying values.
15. SEGMENTED INFORMATION
The Company operates in two reportable operating segments, being the operating of the Cozamin mine and the exploration of mineral properties.
------------------------------------------------------------------------
------------------------------------------------------------------------
Mexico Canada Total
------------------------------------------------------------------------
May 31, 2007
Revenue $ 42,218,815 $ - $ 42,218,815
Depletion (2,279,273) (299,169) (2,578,442)
Amortization (641,423) (62,893) (704,316)
Interest expense (150,973) - (150,973)
Earnings (loss) for the period 18,346,996 (2,187,480) 16,159,516
Property, plant and equipment 45,646,543 264,293 45,910,836
Mineral properties 80,200 - 80,200
Segment assets 94,852,687 39,694,243 134,546,930
------------------------------------------------------------------------
------------------------------------------------------------------------
August 31, 2006
Revenue $ - $ - $ -
Depletion - - -
Amortization (243,483) (94,245) (337,728)
Interest expense - - -
Earnings (loss) before
income taxes (332,902) (2,884,725) (3,217,627)
Earnings (loss) for the period (332,902) (2,884,725) (3,217,627)
Property, plant and equipment 35,529,719 138,900 35,668,619
Segment assets 43,951,314 22,209,837 66,161,151
------------------------------------------------------------------------
------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Exploration
Mining &
Operations Development Corporate Total
---------------------------------------------------------------------------
May 31, 2007
Revenue $ 42,218,815 $ - $ - $ 42,218,815
Depletion (2,578,442) - - (2,578,442)
Amortization (641,423) - (62,893) (704,316)
Interest expense (150,973) - - (150,973)
Earnings (loss)
for the period 18,047,826 (124,173) (1,764,137) 16,159,516
Property, plant
and equipment 45,646,543 - 264,293 45,910,836
Mineral properties - 80,200 - 80,200
Segment assets 94,772,487 80,200 39,694,243 134,546,930
---------------------------------------------------------------------------
---------------------------------------------------------------------------
16. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
------------------------------------------------------------------------
------------------------------------------------------------------------
May 31, May 31,
2007 2006
------------------------------------------------------------------------
Cash paid during the period for income taxes $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------
Cash paid during the period for interest $ 166,756 $ 52,847
------------------------------------------------------------------------
------------------------------------------------------------------------
Significant non-cash transactions during the nine-month period ended May 31, 2007 were as follows:
a) The Company issued 194,500 common shares with a value of $398,000 to its directors, officers and employees.
b) The Company issued 679,080 common shares with a value of $1,181,600 pursuant to the Bacis project agreement.
c) Included in inventory is $786,912, which relates to depletion.
d) The Company recorded the fair value of $290,181 for stock options vested during the period in contributed surplus. In addition the Company recorded $16,016 for agent's options exercised during the period in capital stock and contributed surplus.
e) The Company recorded $25,072 for stock options exercised during the period in capital stock and contributed surplus.
f) The Company recorded the sale of mining equipment of $584,529 from property, plant and equipment to note receivable. Included in property, plant and equipment is $1,349,060, which relates to accounts payable and accrued liabilities.
g) Included in mineral properties is $33,503, which relates to accounts payable and accrued liabilities.
h) The Company reclassified taxes receivable of $2,244,471 from current assets to long-term assets.
i) Net assets of Silverstone Resources Corp. eliminated from the cash flow statement are as follows:
------------------------------------------------------- Accounts receivable $ 8,563 Taxes receivable 306,802 Prepaid expenses 14,736 Property, plant and equipment 128,775 Mineral properties 3,370,651 Accounts payable and accrued liabilities (226,508) Due to Capstone Mining Corp. (3,729,544) Capital stock (900) Contributed surplus (454,817) ------------------------------------------------------- Cash assumed by Silverstone Resources Corp. $ 582,242 ------------------------------------------------------- -------------------------------------------------------
Significant non-cash transactions during the nine-month period ended May 31, 2006 were as follows:
a) The Company issued 1,000,000 common shares with a value of $950,000 pursuant to the Basis project agreement.
b) The Company issued 198,250 common shares with a value of $188,338 as part of the finance fee for a brokered private placement.
c) Included in due from Silverstone Resources Corp. are $2,799,929 of mineral property costs that relate to the spin-out of the Silver exploration properties of the Company and $744,906 due to related parties.
d) Included in property, plant and equipment is $1,150,000 which relates to commercial production obligation, $2,314,002 which relates to equipment lease obligation, $3,450,000 which relates to asset retirement obligation and $24,319,881 which relates to a reclassification of mineral properties.
e) Included in mineral property costs is $715,739 which relates to accounts payable and accrued liabilities and $58,793 of amortization on mine equipment.
f) The Company recorded the fair value of agent's options at an estimated fair value of $260,365 in connection with a brokered private placement financing. This amount is reflected in capital stock and contributed surplus.
g) The Company recorded $666,793 for agent's options exercised during the period in capital stock and contributed surplus.
h) The Company recorded $637,880 for stock options exercised during the period in capital stock and contributed surplus.
FOR FURTHER INFORMATION PLEASE CONTACT:
Capstone Mining Corp.
Chris Tomanik
(604) 684-8894
(604) 688-2180 (FAX)
Email: ctomanik@capstonemining.com
Website: www.capstonemining.com
