Matt Kopman - IR Darren Pylot - President and CEO Jim Slattery - SVP and CFO Gregg Bush - SVP and COO

Stefan Ioannou - Cormark Securities Inc. Alex Terentiew - BMO Capital Markets Dalton Baretto - Canaccord Genuity Orest Wowkodaw - Scotiabank

Thank you. I'd like to welcome everyone on the call today.

The news release announcing Capstone's 2017 second quarter financial results is available on our website, along with an updated corporate presentation with summary information on the company and our financial and operating results. Also on the website are webcast slides to accompany our commentary today.

With me in the room are Darren Pylot, Capstone's President and CEO; Jim Slattery, Senior Vice President and Chief Financial Officer; and Gregg Bush, Capstone's Senior Vice President and Chief Operating Officer. I would like to advise you that this call is being recorded for replay through our webcast and conference call provider and is being broadcast live through an internet webcast system.

Following our brief remarks, there will be an opportunity for questions. Comments made on the call today will contain forward-looking information.

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 on these risks and uncertainties, please see Capstone's relevant filings on SEDAR.

And finally, I'll just note that all amounts we will discuss today will be in U.S. dollars, unless otherwise specified.

I'll now turn the call over to Darren Pylot.

Thank you, Matt and good morning everybody and welcome to our second quarter conference call. As always, Jim will start off the call by reviewing the financial performance; followed by Gregg, which -- who will give us an update on our operations; and then back to me for an update on corporate activities followed by your questions and comments.

So, now, I'll turn the call over to Jim.

Thank you, Darren. So, we reported net income of $12.8 million for the -- in the second quarter.

Our adjusted net income of $700,000 removes the effect of non-cash and non-recurring items. This was primarily an unrealized gain on our commodity derivatives that was recorded as a result of fluctuating copper prices.

Our operating cash flow before changes in working capital was $26 million for the quarter and $50.1 million year-to-date. We repaid $10 million on our revolving credit facility this quarter as was previously announced.

We've also made the decision to spend approximately $25 million at Minto this year for stripping and development. That is the next step in the extended mine life there.

This will generate cash flow, but primarily in 2018. So, while this will constrain our debt repayment somewhat, we still expect at the current copper prices, we could make up to another $20 million in debt repayments by the end of the year.

The $20 million in proceeds from the sale of our Kutcho project are also intended to be directed towards further debt repayment. Costs in the second quarter at Pinto Valley came down and we're back within the guided ranges expected and are representative of what we expect there to be for the remainder of the year.

However, our reforecast for the rest of the year does not have us making up all of the Q1 shortfall on the cost side. As a result, we expect to end the year between $0.10 and $0.20 above our C1 and all-in cost guidance at Pinto Valley.

In addition, the decisions we made at Minto to extend the mine life will also change the 2017 operating costs profile. We have added an extension to the Area 2 pit, which will begin stripping shortly and an additional underground area in Minto East.

When combined with the mine plan changes we have made to date, this will add about $0.50 a pound to Minto C1 and all-in costs of this year. In effect, we'll be expensing the stripping costs for the Area 2 extension and the development costs of the additional Minto East area in 2017 while the resulting benefit of the cash flow will come in 2018.

This is the first step towards the mine life extension at Minto. At Cozamin, both C1 and all-in costs are expected to be slightly higher than guided.

That's a result of lower byproduct credits and addition approved capital. As a result, we are revising our consolidated cost guidance upward for the full year by between 20 -- $0.15 and $0.20 per pound of copper produce on a C1 basis and on an all-in basis.

Now, I'll turn the call over to Gregg for the operational results.

Thanks, Jim. Starting with Pinto Valley, we operated as planned in the second quarter and third quarter in month and proof of records.

And since we were able to bring forward some [Indiscernible] activities into Q1 when we had the opportunity for refining to run similar -- for the remainder of the year. Cozamin continue to operate very well in the second quarter with production ahead of plan.

Development is also continuing ahead -- is also continuing to advance ahead of what we schedule and we expect to end the year about $1 million higher on capitalized development. This additional development will improve our flexibility, which is important as increasing percentage of the ores coming from the narrow veined footwall zone.

We've also had some good results with our Brownfield [Indiscernible] this year at Cozamin. In the mid-point of the year, we added another $1.1 million to our 2017 Cozamin exploration budget with two main objectives; continue to test copper targets for strike and dip extensions to the footwall zone and better define zinc resources in the Main Vein and San Rafael zone.

Economic, technical, and metallurgical evaluation continued on the zinc zone, which will be ongoing through 2017. At Minto, grade and recoveries continue to lag our original plan due to delays in deliveries sulfide ore in the Area 2 pit and earlier delays in the Area 2 [Indiscernible] development.

Productivity issues in the underground have been resolved and Minto is expected to meet its annual production guidance. We are advancing an extension to the Area 2 pit and the Minto East underground with [Indiscernible] to the copper field underground project in 2018, all of which are in current reserves.

These expenditures are being expense as operating costs in 2017 and as Jim -- as indicated at Jim's remarks, will increase Minto C1 costs for the year while not contributing production during the period. However, it does lay the ground work to take the mine life beyond mid-2020.

I'll now turn the call back over to Darren.

Well, thanks Gregg. So, just to reiterate key points for the quarter, all three mines have produced according to plan within the quarter and the plan to make our production guidance for the year.

Both Pinto Valley and Cozamin C1 costs are expected to continue at current Q2 levels, and we do have a plan in place to extend the mine life of Minto as Jim and Gregg mentioned with the Area 2 stripping and Minto East development being extended [ph] this year, but production from those areas are not taking effect until next year. So, the C1 costs will be elevated for the remainder of this year with the production associated with those areas contributing in 2018.

So, we're well set at for the second half of the year with operations running well and achievable operating forecast in place. We are in process to extend mine life, as Gregg mentioned, well beyond 2017.

And we have continued success drilling both copper and zinc as well as metallurgical work at Cozamin to extend the mine life there as well. We do expect to close the sale of Kutcho in the second half of the year, which will bring proceeds of about $21 million.

And year-to-date, we've made up $30 million in repayments on our revolving credit facility and we'll continue to direct any free cash flow towards debt repayment, which potentially is a $21 million from the Kutcho proceeds. And as Jim mentioned, at current prices, we should have free cash flow in excess of $20 million.

So, that could potentially reduce debt by a further $41 million by year end. Operator, that concludes our prepared remarks and we're now ready to take questions from the floor.

Hey, thanks very much guys. Just wondering can you give us maybe a little bit of color on sort of how you see the grade profile looking at Minto as -- move sort of into 2018 and beyond?

I think what we'll see -- I think what we're expecting to see on the extending mine plan, we'll see production levels similar to what we're guiding this year or at least through 2020.

Okay. And just I know in the past, we sort of talked loosely about obviously 2017 guidance and then beyond that looking at sort of the 2018 to 2021 timeframe.

You sort of talked about cash costs being in the -- corporately being in that of $1.50 to say $1.75. Is that still sort of hold true with the -- as you get sort of more comfortable with the outlook for Minto here going to 2020?

Yes, I believe the all-in costs I think we're expecting just under $2 for all-in costs.

For all-in, okay. Okay, that's great.

Thanks very much guys.

Yes, good morning guys. Just a question -- sorry, it sounds like there's a bit of -- okay, echoes gone now.

At Cozamin, can you maybe just tell us a little bit more what sort of stuff you're looking at there? I know the mine has been -- production there's generally been mine constraint, not necessarily a throughput constraint.

So, what sort of opportunities do you see there? And I guess expectations?

And I know very preliminary, you haven't come out with 2018 guidance yet, but what do you think we could see from that mine in the coming years from the San Rafael zone?

Well, Alex, we've been working our way at both extending kind of the straight [ph] lines that goes up and down yet on our [Indiscernible] unexplored for copper. So, we've been doing some Brownfield drilling there with some good success.

So, that will be mostly extending the mine life. And as well we've been obviously doing the network and drilling on the San Rafael zinc zone to bring more zinc in the mine plant beyond this year.

So, we've been successful on both fronts. And -- so we can see extended mine life both in terms of copper and zinc at Cozamin going out.

And you think higher throughput rates in the year or two down the road are possible?

I think it's definitely possible in terms of the mills able to process more. It's just the matter of how much of equipment we've got underground and the scalability of it.

So, probably a little early to say we can expand throughput, more on the mine life right now, but potentially, we could have spent throughput as well for us.

Okay. And sorry, I just had to clarify something.

I couldn't hear earlier. You said earlier on the call.

Minto -- I believe you said Minto and one of your other mines to continue at Q2 levels and costs. Can you just repeat what you said there?

What I said Pinto Valley and Cozamin will continue this year at current levels. And then because we're extending the stripping -- the development -- stripping development costs at Minto and we don't get the benefit of those towns until next year, the costs -- the C1 costs at Minto this year will be higher than what we've guided -- that we've previously guided because of that -- to extend the mine life.

Okay, great. Thanks.

And just one last question if I could. Just your other projects, Santo Domingo and your other exploration elsewhere in South America, with the more positive optimism we've been seeing in the market lately, have you been picking up any activities down there or elsewhere on the exploration front?

I know you talked a little bit about Cozamin, but anywhere else?

Well, we didn't -- you're right -- we did mention the Providencia in Chile as well as Santo Domingo, but we are working. We just don't have really significant update from either Santo Domingo or Providencia, but we are definitely encouraged by one, the iron ore price; and two, the changes.

We've talked about this early about the power costs and reduced and potential for infrastructure sharing. So, we are working away quite a bit on Santo Domingo, but really nothing to really update the market at this point.

Okay, great. Thank you.

Hey, good morning guys. Just a quick question on Pinto Valley here.

It looks like your total production costs were well below with the typical run rate as well, what's driving that?

Did you say that the costs were lower than what they should be and what's driving it?

Yes, I mean, according to your disclosure, the total production cost at Pinto Valley was just under -- around $45 million and that's reasonably below what the typical run rate is, if I'm not mistaken. I'm just wondering what's driving that.

For us, that we're just right in line with what we've guided and budgeted. So, [Indiscernible] some further -- we are working it on further because we saw that right on plan for stripping and unit costs were as budgeted and guided.

So, we'll have to -- we'll -- call in offline, we'll go through it for you.

Okay, sounds good. And just maybe at Cozamin, the Mala Noche in the zinc zone, I thought we're going to be producing some zinc this year.

It sounds like it's going to be delayed into next year, is that fair?

Yes. I mean, I can hand it to Gregg, but yes, we thought we could get in a little quicker.

We thought the zone would be easier mine to mine, but to network and drilling is not as easy as we thought. So, we're still working our way on to see if it's economical to drill the mine, those the Mala Noche zone, San Rafael absolutely for next year, but Gregg, I don't know if you have any further comments.

Yes. No, certainly San Rafael only haven't had -- we haven’t had any surprises there.

And what our intention was later this year and get into a small zone, a relatively high grade zinc that it's in the main San Roberto zone. But the network there has kind of got us kind of rethinking whether we want to do that.

So, -- and I have just highlighted the issue that we're seeing in that zone is not -- we don't see the same issue at all in San Rafael, so--

Okay, that's all from me guys. Thank you.

Hi, good morning guys. Just curious at Pinto Valley, obviously, a big improvement in Q2 relative to the weak Q1, what can you share us in regard to, say, July?

Like has throughout kept up with the Q2 rate? I'm just wondering also if there's any scheduled maintenance downtime that we need to think about there in the second half of the year.

Thanks.

Well, thanks Orest. As you know, Q1 was obviously a one-off in terms of the heavy rainfall followed by the repairs of the crusher.

And even in Q1, we returned back to the current rates of around that 58,000 to 59,000 tons per day and that's what we're budgeting plan for the remainder of the year. So yes, operations have continued post-Q2 at those levels and don't expect any other reasons why it wouldn't for the rest of the year.

We were able to take advantage of some maintenance that we did in Q1 that we pulled forward for the remainder of the year, so we don't have any large planned maintenance downtime periods for the rest of the year. So, we would expect things to be running as per the Q2 levels for the remainder of the year.

Okay. But I think your guidance still is -- it assumes that you come just short of your original guidance for Pinto for this year, correct?

Yes, I think what we've -- I think we've guided, but we had that plus or minus 5%, so we'll be short of the exact number, but we do expect to be within the range on consolidated basis overall.

Okay, great. Thanks very much.

Thank you.

Thanks everybody for joining us today on the call. And as always, please don't hesitate to contact us with any further questions you may have.

Thank you.