Capstone Copper Corp. (CS) Earnings Call Transcript & Summary

Good afternoon, and welcome to Capstone Copper's Second Quarter 2026 Results Conference Call. [Operator Instructions]. This call is being recorded on Thursday, July 30, 2026. I would now like to turn the call over to Daniel Sampieri. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us today to discuss our second quarter results. Please note that the news release and regulatory filings are available on our website and on SEDAR+. If you are logging into the webcast, we will advance the slides of today's presentation, which are also available in the Investors section of our website. I am joined today by our President and CEO, Cashel Meagher; our SVP and Chief Operating Officer, James Whittaker; our SVP and Chief Financial Officer, Ramanpreet Randhawa; and our SVP, Risk, ESG and our General Counsel, Wendy King. During the Q&A session at the end of the call, we will also be joined by our Head of Technical Services, Peter Amelunxen, who is available for questions. Please note that comments made on the call today will contain forward-looking information within the meaning of applicable securities laws. This information, by its nature, is subject to risks and uncertainties, and actual results may differ materially from the views expressed today. For further information, please see Capstone's most recent filings, which are available on our website at www.capstonecopper.com. And finally, I'll just note that all amounts we will discuss today are in U.S. dollars unless otherwise specified. It is now my pleasure to turn the call over to our President and CEO, Cashel Meagher.

Thank you, Daniel, and hello to all of you dialing in from Americas, the Americas, Europe, Australia and around the globe. Today, we are pleased to present our second quarter 2026 results and achievements. At the beginning of this year, I spoke about 2026 being a year of operational stability and cash generation between periods of transformational growth. Q2 delivered exactly that, as highlighted on Slide 5. Our operations delivered consolidated copper production of 51,800 tonnes at consolidated C1 cash costs of $2.82 per pound in Q2. Improved production combined with exceptionally strong commodity prices, drove record EBITDA for the seventh consecutive quarter. This performance was underpinned by record throughput and record low cash costs at Mantoverde, strong throughput at Mantos Blancos and consistently solid execution at Cozamin with reliability initiatives underway at Pinto Valley. We have reaffirmed our 2026 guidance. As we execute on our operational targets, we remain focused on advancing our growth pipeline to increase production and lower costs. Near-term growth is driven by our MV-O project, which remains on schedule and on budget. Longer term, we recently submitted an EIA permit application at Mantos Blancos and progressed Santo Domingo towards a sanctioning decision, which continues to be expected in Q4. We are also prioritizing absolute cost reduction projects like the Mantoverde Pyrite Augmentation project, designed to reduce sulfuric acid requirements while increasing copper production. We continue to strengthen our financial position in Q2 and intend to deleverage further through internally generated cash flows over the course of this year, ensuring we are well positioned to invest in accretive growth opportunities. As we increase production to meet growing demand for copper, we remain committed to doing so responsibly, as highlighted in our recently published 2025 sustainability report. Our people remain at the core of everything we do, enabling Capstone to safely deliver results. At Mantoverde and Mantos Blancos, we have recently negotiated new three-year collective bargaining agreements with all unions, providing important stability as we continue to operate and advance growth in Chile. Since 2022, our company has matured, and we have delivered improved output from a diversified base of four operations in top-tier mining jurisdictions. As we look towards the future, our near-term growth pipeline enables Capstone to deliver the copper the world needs. And with that, I'll pass over to Raman for our financial results.

Thank you, Cashel. We are now on Slide 6. In Q2, we recorded copper production of 51,800 tonnes, marking improved output over the previous quarter. LME copper prices averaged $6.05 per pound in the quarter, up 4% compared to $5.83 per pound in Q1, and we realized a higher copper price of $6.22 per pound. After subtracting C1 cash cost of $2.82 per pound, we delivered strong gross margins of $3.40 per pound or 55% in Q2 despite global inflationary pressures. Record adjusted EBITDA of $354 million increased 8% quarter-over-quarter and 64% year-over-year. This marks our seventh consecutive quarter of record EBITDA driven by solid operations and strong copper prices. Lastly, we reported record adjusted net income attributable to shareholders of $97.6 million or $0.13 per share in Q2. Another quarter of record financial results builds on success of Q1 and forms a strong foundation for H2 2026. Next, as highlighted on Slide 7, we finished Q2 with a consolidated net debt of $675 million, which represents a reduction of $63 million from the prior quarter and over $100 million year-to-date. The decrease was primarily attributable to strong operating cash flows supported by higher realized copper prices. Turning to Slide 8. Our available liquidity at quarter end was greater than $1 billion, including $367 million of cash and cash equivalents and $715 million of undrawn amounts on our corporate RCF. The decrease in our absolute net debt, combined with a record EBITDA drove a further reduction in our net leverage with a net debt-to-EBITDA ratio of 0.5x at the end of Q2. This is down significantly from the peak during construction of the Mantoverde Development Project. The improvements made to net debt, leverage, liquidity since completing MVDP is aligned with our commitment to strengthening the balance sheet between periods of growth. The chart on the right-hand side of the page highlights our trailing 12-month EBITDA growth since 2023. At these copper prices, we expect EBITDA to continue to increase with Mantoverde Optimized coming online. On the far right, we have profiled our future growth with expected EBITDA close to $3 billion with both MV optimized and Santo Domingo run rate production. We have a strong platform to deliver peer-leading growth of approximately 70% compared to our 2025 production once both projects reach full rates. On to Slide 9, we present a snapshot of the year so far as well as our expectations for the second half. Our consolidated operations delivered solid results in H1, enabling us to reaffirm our consolidated 2026 production, cost and CapEx guidance. We are particularly pleased to see Mantoverde, Mantos Blancos performing well following project ramp-ups with both on track towards full year guidance. These two assets combined have generated approximately 70% consolidated EBITDA year-to-date. As a testament to the benefits of the diversified portfolio of assets, Cozamin is tracking towards the upper end of its site level production guidance range, partially balancing Al Pinto Valley, which is tracking towards the lower end. In the second half, we are expecting even stronger production, primarily driven by higher sulfide grades and throughput at Mantoverde. Stability in our operations allowed us to progress and execute a number of key catalysts during H1. Throughout the remainder of the year, we look forward to delivering reliable copper production and strong cash flow generation while continuing to advance our growth opportunities. On to Slide 10. We highlight some of the proactive steps we have taken to protect margins and maximize cash flow amidst the current inflationary environment. More importantly, copper markets have remained strong. Our operating locations and robust supply chains have ensured continued supply security. So to mitigate diesel volatility in the second half, we took advantage of a temporarily lower price to hedge 40% of the Chilean exposure at $0.82 per liter versus current spot of approximately $0.93 per liter and 50% of our U.S. Valley diesel exposure at $0.93 per liter versus current spot of approximately $1.28 per liter. With these protections in place, our exposure to diesel price volatility through the second half of 2026 has been significantly reduced, as shown on the sensitivities on the slide. We view our Cathode business as incremental, but most of our cash flow generated by the sulfides. This gives us valuable flexibility in how we respond to input cost pressures. Given the current elevated sulfuric acid prices, we leverage mine site flexibility to temporarily reduce higher calcium carbonate ore feed to the Mantoverde heap leach, which will lower our cathode production by approximately 5,000 tonnes and eliminate the requirement to purchase approximately 200,000 tonnes of sulfuric acid at spot in H2. We then reallocated the resource to lower-cost sulfide business, which will contribute to additional sulfide production of approximately 5,000 tonnes and is thus net neutral to consolidated copper production and a plus to optimized cash flow. The rest of the cathode business, including the dump leaches is unchanged and continues to generate cash. For the remainder of the year, approximately 80% of our asset consumption is fixed at a price of approximately $1.90 per tonne compared to spot prices around $4.50 to $4.70 per tonne. The Pyrite project will improve the economics of our oxide business going forward to reduce acid requirements and provide incremental copper production. Given first half cost performance and our expectations for a higher proportion of lower-cost sulfide production in the second half, we are reaffirming our 2026 cost guidance. And with that, I'll hand it over to Jim for the operations.

Thanks, Raman. We are now on Slide 12. We will start with our Mantoverde operation. For Q2, total production yielded 22,485 tonnes of copper at a record low combined C1 cash cost of $1.97 per payable pound. Plant throughput averaged a record 36,300 tonnes per day for the quarter, 13% above our design capacity despite completing five days of planned maintenance during April. We are also pleased to see strong recoveries maintained at an average of 90.2% for the quarter. Copper grades averaged 0.61% in Q2, which is slightly below our expectations for the year. At the bottom of the Mantoverde pit, we experienced more water than predicted this quarter, requiring some material from the lower benches to be placed on the stockpile to dry, which resulted in some lower grade stockpile material being utilized. The team responded quickly to add wells and pumps, which increased the extraction rate. With that infrastructure in place, we expect grades to improve at Mantoverde in the second half. As Raman noted, we responded to elevated sulfuric acid prices by temporarily pausing heap leach production at Mantoverde. The oxide ore we were mining over the last few months had higher calcium carbonate content, which requires more acid to process. So we stockpiled it with the option to leach it at a later date once acid prices normalize. Starting in August, we are into oxide ore with lower calcium carbonate grades requiring significantly less acid. We expect to resume heap leaching at that point, albeit at lower levels than previously expected with little ramp-up time required. Taken together, record throughput, strong recoveries and flexibility in our mine planning enabled Mantoverde to deliver a 24% improvement in unit costs in addition to improved production compared to last quarter. Moving to Slide 13. This quarter, we made good progress on the Mantoverde Optimized project. During our five-day planned maintenance down in April, we were also able to unlock higher throughputs by eliminating certain bottlenecks. This included improving the capacity of the rougher concentrate and regrind tanks as well as the complete replacement of key pumps and water systems. The remaining project tie-ins will be completed during an extended 15-day maintenance period in September, followed by a ramp-up period in Q4. Our expectations around capital costs and timelines are unchanged, with the increased sulfide throughput capacity of approximately 45,000 tonnes per day expected to be sustained starting in early 2027. Next on Slide 14, we are excited to highlight the Mantoverde Pyrite Augmentation project, which will incorporate a new pyrite recovery circuit into the existing concentrator plant. This project is designed to reduce Mantoverde's sulfuric acid requirements by a material 20% while increasing heap leach copper production by approximately 3,500 tonnes per year. At an assumed sulfuric acid price of $200 to $450 per tonne, this results in cost savings of approximately $18 million to $40 million per year. We expect this project to be completed in early 2028 for an estimated CapEx of $45 million, which will be incurred next year. The net present value of this project is around $200 million, assuming copper prices of $5 per pound and sulfuric acid prices of $200 per tonne. However, this increases significantly to approximately $350 million at spot prices. The project boasts a very high NPV to CapEx ratio of approximately 4x at longer-term prices and 7x at spot. Building the Pyrite plant also enables the opportunity to produce cobalt at Mantoverde in the future. The cobalt project is currently in the feasibility stage. Especially within the context of current inflationary environment, we will continue to prioritize projects like this that not only improve unit costs by proxy of increased production but also reduce absolute costs. Turning to Slide 15. Mantos Blancos continued to deliver on plan in Q2. Total sulfide and cathode production yielded 12,483 tonnes of copper at C1 cash costs of $3.93 per payable pound. Throughput averaged above design rates at 20,900 tonnes per day in Q2. Sulfide copper grades of 0.66% were in line with mine sequencing with the lowest grades of the year expected in Q2 and Q3. We continue to expect higher copper grades to return in 2027. Unit costs at Mantos Blancos were impacted by higher diesel and sulfuric acid prices in addition to higher maintenance spend to improve availabilities. Consistent operating performance at Mantos Blancos enabled the delivery of key growth catalysts this quarter, including submitting an EIA permit application for the next phase of Mantos Blancos. We expect to release a pre-feasibility study by the end of the year, including details of the increased throughput from the concentrator plant and increasing cathode production via historical tailings releaching. Moving to Pinto Valley on Slide 16, which produced 10,047 tonnes of copper at C1 cash cost of $4.17 per payable pound during Q2. Pinto Valley delivered incremental throughput improvements over Q1, and we see a clear path to future gains. The planned 10-day shutdown in Q3 directly targets the main areas that have constrained plant performance this year, the filter plant and the primary crusher, which we expect to position Pinto Valley for more stable operations. This investment in reliability is supported by a broader people strategy and asset management framework designed to deliver sustained improvements in mill availability. On the people side, this includes reducing turnover and strengthening training, while on the asset side, this includes improving maintenance practices. Once again, Cozamin delivered another quarter of strong consistent results in Q2, as shown on Slide 17. The operation produced 5,745 tonnes of copper at C1 cash cost of $1.52 per payable pound. Cash costs in Q2 came in towards the low end of the guidance range, driven by higher silver byproducts. And with that, I'd like to pass it to Wendy.

Thank you, Jim. In Q2, we released our 2025 sustainability report, detailing the meaningful progress we made on our sustainable development strategy as highlighted on Slide 18. We were particularly proud of the improvements to safety, driven by the implementation of a new HSE roadmap, including a 22% reduction in recordable injuries year after year. We are also tracking well towards our GISTM implementation across all tailings storage facilities by 2028, achieving 80% conformance in 2025 compared to 48% in 2024. In 2025, we strengthened our climate governance and risk assessment by expanding Scope 3 data collection towards our goal of disclosing Scope 3 emissions for all sites by the end of this year. Our workforce grew to over 8,000 employees in 2025 with increased representation of women and reduced turnover, reflecting our ongoing commitment to an inclusive, stable and engaged workplace. As Cashel mentioned, the stability was reinforced this quarter with new three-year collective bargaining agreements reached with both unions at Mantos Blancos. Following the Mantoverde agreement earlier this year, all of our Chilean operations now have labor stability for the next three years. Going forward, the Mantoverde Pyrite Augmentation project that Jim discussed also delivers meaningful sustainability benefits, less pyrite sent to our tailings facility, more copper from the heap leach and fewer trucks on the road, delivering sulfuric acid to site. At Capstone, we recognize that mining is a long-term business. We are committed to responsibly delivering copper production growth by continuing to embed sustainability throughout our organization. I will pass it back to Cashel.

Thanks, Wendy. Moving to Slide 20. This quarter, we continued to make steady progress towards a sanctioning decision at Santo Domingo expected in Q4 this year. In terms of the remaining work streams prior to FID, we are progressing detailed engineering to approximately 60% completion. We are evaluating the optimal financing strategy for the project, and we are advancing potential infrastructure opportunities. Our balance sheet is already in great shape, but we will continue deleveraging through internally generated cash flows prior to a sanctioning decision. Santo Domingo is transformational growth project that will deliver material improvements to our consolidated production and cost profile. That said, Capstone's growth story is not dependent on a single project. Our growth pipeline includes brownfield and greenfield projects built around assets we know well, jurisdictions where we have deep operating experience, established infrastructure and strong community relationships. We are committed to demonstrating an executable path to meaningful production growth while prioritizing disciplined capital allocation and sustainable free cash flow. On Slide 21, we highlight some of the key catalysts we look forward to delivering in pursuit of this goal throughout the second half. Mantoverde optimizes our nearest-term opportunity to deliver value by upgrading the plant to sustain sulfide throughput of 45,000 tonnes per day at a low capital intensity. As MV-O moves closer to completion, we have initiated our next brownfield expansion by submitting an EIA permit for Mantos Blancos in Q2. We look forward to further defining this opportunity with the release of the study by the end of the year. Slide 22 reinforces our multilayered growth trajectory, driven by organic brownfield expansion. The Santo Domingo project, district scale opportunities in Chile and Arizona and exploration upside across the portfolio. This is not growth for the sake of being bigger. These are low-risk, accretive opportunities to deliver value in the same top-tier mining jurisdictions as existing operations. Importantly, our growth pipeline is well aligned with the copper outlook, reinforcing the importance of continuing to accelerate growth to deliver value. Our capital allocation priorities remain consistent, sustain and continue to optimize our existing operations, invest in high-return growth projects and maintain a strong balance sheet. Capstone is well positioned as we enter a period where execution can directly translate into value. We have near-term operational momentum, a permitted growth pipeline and district scale optionality, which provides a strong foundation for Capstone to provide the copper the world needs now and into the future. And with that, we're ready to take some questions.

[Operator Instructions] Your first question comes from Orest Wowkodaw of Scotiabank.

The question around this pyrite project at Mantoverde. I mean, looking at the economics here, it seems like it's a no-brainer. I'm just curious on what the plan is for 2027, given that this project won't be online until early '28. Like, would you think about curtailing if asset pricing stays elevated, should we expect you to curtail cathode, at least the heap leaching through '27 until this is ready? Or how are you thinking about that transition period?

Orest, I can probably take that one on. I mean when we look at our cathode production, there is a certain amount of oxides when you think about it that are in kind of like the mix pit. So you're mining through them to get to the sulfide. So that's kind of like incremental oxide feed. And then basically, what we will be running the cathode business when you look into 2027 because that's a kind of a cutoff grade question that you triangulate with the calcium carbonate. So a lot of our material is actually low calcium carbonate. And if you're mining through it anyways, once we know the price of acid and start looking at that later in the year and the copper price, we can do a balancing act to make sure that's profitable. But then what this has kind of proven is we have that flexibility. If we were in an oxide-only pit and it had a higher calcium carbonate, there's no point in sending the trucks and shovels there. You might as well divert them to the sulfides, which gives us more flexibility. And our mill, as you noted, when you started, is running very well. So we can run higher than kind of nameplate a little bit and push more on the sulfide, which is way more cash flow positive than into oxide-only pit.

Okay. Is there any opportunities to reduce acid consumption at Mantos Blancos?

I'll give that to Peter.

Yes. We're evaluating it right now, Orest. The Mantos Blancos doesn't have a heap leach. It's a run-of-mine leach that generally consumes less acid anyway, but we're in the process of optimizing that as well. And another thing that is currently in, we're workshopping is asset swaps, for example, some assets has been repurchased. So we're looking at different opportunities.

Yes. And just to add to that, Orest, there is that future opportunity of leaching at Mantos Blancos that of course tails from the ripios. And in that process, we'll evaluate any of these initiatives we have. But keep in mind, that's likely a chloride leach. So it requires some testing to see if there's some compatibility or not.

Fair enough. Just finally, if I can. What kind of timing do you think we can expect for an exploration update at Mantoverde?

Yes. I think what it is, is we've concentrated a lot of the drilling to date, I guess, on the near pit inferred. So I think we've sort of said like the middle of next year is when we consolidate those mine plans. There'll probably be some conversion of inferred indicated and therefore, we'll evaluate its inclusion in the life of mine process. Outside of that, we've got a few drills running up to the north. And when we sort of consolidate a bunch of results, we'll put it out. We'll put those out. So maybe not necessarily the next quarter, but the quarter after that, we'll probably have enough meat on the bone to be able to sort of guide what our exploration plans for the region are and what the results are.

Your next question comes from Fahad Tariq of Jefferies.

At Mantoverde, is there an opportunity to displace more than 5,000 tonnes from the oxide to the sulfides? Or is it constrained by the 15-day tie-in in the third quarter?

No, not really. I mean that sort of movement is sort of built in with the mine. And we're being somewhat what I would call conservative on what the throughput capabilities are. I mean we've now disclosed what the production rates were, obviously, in June, and you're seeing similar performance through July. We're optimistic that perhaps the ramp-up will go faster than what we've built into our guidance, number one. And therefore, it's really up to the cadence of the mill to be able to accept more tonnage than necessarily the 45,000 tonnes a day and in a faster ramp-up. Obviously, internally, we're very optimistic that, that is indeed possible. And that's where we would see an uptick beyond that 5,000 replacement of sulfide over cathode and the opportunity therein. And we've always sort of kept that in our back pocket as a contingency in our guidance or in this case, as we remain within guidance, opportunity against guidance.

Got it. Okay. And then maybe just switching to Santo Domingo. Any update that you can provide on any potential discussions on the tolling agreement with companies that own the port and how we should be thinking about the CapEx. I would imagine the CapEx estimate is going to come, I think, in the third quarter before sanctioning in the fourth quarter, but please let me know if the time line is different.

Yes. Well, we have a dual process. We continue negotiating with port holders within the region to be able to optimize the project makeup. So that continues what I would characterize as very well. And then with respect to the CapEx, I think what we would see is the CapEx update would come in the fourth quarter in parallel and with sort of that FID announcement. We're sort of working towards what we call 60% detailed engineering, and it's sort of at that time, we can provide that certainty of CapEx for the project going ahead.

Your next question comes from George Eadie of UBS Financial.

Nice update here. Can I ask again on the 200,000 tonne reduction in asset at Mantoverde. What are the trade-offs there operationally to reduce this, I guess? And does it have any impact specifically on recovery, too?

No, it doesn't. It's just a cost per pound calculation. The way it works is some of the material that has the higher carbonate consumes more acid. And therefore, that cost to produce a pound exceeds the value of selling a pound. And really, that's how simple it is. So, what it means is some of those trucks that would have been moving that material to sustain production at the heap leach are just simply assigned to the capacity that we know exists within the sulfide plant. And therefore, we're just pulling those tonnes from there. The benefit, of course, in the short term is those tonnes have a higher margin and therefore, lower the cost overall. But in the long term, we still remain encouraged by our optionality with the oxide production and cathode production and especially now with the addition of this pyrite augmentation, which will reduce the overall cost structure therein. And then I'd add the other step change in the future. We mentioned it in the phone call where we're working on a feasibility study to add another byproduct credit to further enhance the economics of the oxide material to produce cathode, which is to produce a salable form of cobalt. And so, we're excited about that. And so next year, that will be another increment of cost reduction in our C1 to produce the copper.

Okay. That's clear. And then just back to Mantoverde Optimized, again, like just the comments early '27 and the sort of commentary before, could we realistically see that 45,000 tonne per day rate average in 1 quarter next year? Is that reasonable? And I guess with the tie-in, will you get more color or, I guess, conviction in how that ramp-up will go once you've done the tie-in as well this quarter?

Yes. Look, we're on time. The project is working as designed. So again, when we stated our guidance at the start of the year, we were always a little conservative in the ramp-up rate. If I'm to take the current performance of the plant as what we experienced in June and seems to be what we experienced in July, I'd be now more positive that we'll be able to ramp it up before the end of the year, to 45,000 tonnes a day, but we're not going to restate our guidance or that sort of contingency. That's sort of where we're sort of sitting. And what we put built into that guidance is the midpoint for Mantoverde itself was a throughput rate of 36,000 tonnes a day.

And in June, as we disclosed, we were at 40,000 tonnes a day. So, we're very close to the nameplate already, which gives us encouragement that there might be possibility in the future to exceed what we've designed it for, the 45,000 tonnes a day. But the proof is in the pudding. We've got to run it through to see what it will do.

Your next question comes from Marcio Farid of Goldman Sachs.

Congrats on the quarter, definitely a good operational setup there. I want to spend some time on the Mantoverde. Clearly, running above nameplate capacity for the full quarter and with selective trade, I think, in June at above 40,000 tonnes per day, it's quite remarkable. Just trying to understand what sort of level of throughput you think you can maintain going into the second half of the year? And if you look at the guidance for the year in terms of grades at just above 0.7%. Obviously, that implies some step-up from the first half, and you sort of maintained the expectation for grade for the year as well. Just wondering if there is a scenario here, we see stronger throughput combined with stronger grades into the second half of the year, which could bode very well for overall output as well.

Yes, you're exactly right, actually on what you explained. The project is going really, really well. We budgeted $176 million. We had about $142 million committed. So, the project burn rate is going very well. We're on track. We have the shutdown planned for September. And that should put us in a strong position to be able to ramp up the plant very quickly. As Cashel mentioned, we have all the indications that we'll be able to push that as much as possible. I think in our estimations, we're pointing around 41,000 average for the first quarter, but we're going to be trying to hit that as soon as possible. We are planning an increase in grade in the fourth quarter. We'll be going from 0.7 in Q3 up to 0.79 in Q4. That's our current plan. And recovery should basically be in line with plan. So yes, you're right. And yes, we are very optimistic about Q4 this year.

Great. And just one on Santo Domingo. How should we think about potential hedging before CapEx is committed? Is there any plan to do some sort of hedging both on either byproducts on the cost side or on copper per se, to reduce risks going into the CapEx plan?

Yes. Good question. So I mean, as we get closer to FID, we can look at hedging. But when you look at our balance sheet, and we're running multiple different scenarios. But at lower copper price environment, it still shows our balance sheet is in a strong spot. And as you can tell, we're delevering our target was 1x and we're at 0.5x and got another few quarters here to go underneath our belt. So we'll be in a very strong spot. So I think it gives us the ability to make that decision if we like. But where copper is trading right now, we're very comfortable with the balance sheet and then we'll consider at that time if we want to layer in some protection.