CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS. (unaudited) March 31, 2015 and (Expressed in US Dollars)

Transcription

1 CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited) March 3, 205 and 204 (Expressed in US Dollars)

2 Capstone Mining Corp. Condensed Interim Consolidated Balance Sheets (unaudited) (expressed in thousands of US dollars) ASSETS March 3, 205 December 3, 204 Current Cash and cash equivalents (Note 4) $ 22,65 $ 50,05 Receivables 26,629 9,656 Inventories (Note 4) 06,068 87,49 Other assets (Note 7) 8,62, , ,477 Mineral properties, plant and equipment (Note 5),47,60,467,248 Promissory note receivable (Note 6) 38,688 4,620 Other assets (Note 7) 5,928 20,407 Assets classified as held for sale (Note 8) 45,775 49,748 Total assets $,845,466 $,847,500 LIABILITIES Current Accounts payable and accrued liabilities $ 75,875 $ 7,95 Current portion of long term debt (Note 9) - 88,889 Other liabilities 3,980,89 79,855 6,975 Long term debt (Note 9) 298,496 84,492 Deferred revenue 2,46 3,952 Deferred income tax liabilities 53,040 53,528 Retirement benefit liabilities 7,243 6,989 Provisions 45,524 48,563 Other liabilities Total liabilities 596,76 570,263 EQUITY Share capital (Note ) $ 825,062 $ 825,062 Reserve for equity settled share based transactions 48,274 46,422 Share purchase reserve - (262) Investment revaluation reserve (482) (482) Foreign currency translation reserve (48,768) (35,494) Retained earnings 207, ,322 Total equity attributable to equity holders of the Company,03,449,059,568 Non-controlling interest 27,256 27,669 Total equity,248,705,277,237 Total liabilities and equity $,845,466 $,847,500 Commitments (Note 7) See accompanying notes to these condensed interim consolidated financial statements.

3 Capstone Mining Corp. Condensed Interim Consolidated Statements of Loss Three Months Ended March 3, 205 and 204 (unaudited) (expressed in thousands of US dollars, except share and per share amounts) Revenue (Note 2) $ 02,99 $ 60,793 Operating costs Production costs (Note 4) (73,094) (02,48) Royalties (,33) (,795) Depletion and amortization (23,823) (39,498) Earnings from mining operations 4,869 7,082 General and administrative expenses (6,424) (6,444) Exploration expenses (Note 5) (,833) (,094) Stock-based compensation (Note ) (,057) (2,777) (Loss) earnings from operations (4,445) 6,767 Other (expense) income Foreign exchange loss (489) (743) Impairment on available-for-sale securities (3,575) - Gain on disposal of investments Loss on disposal of equipment and mineral property interests - (5) Other expense (Note 5) (3,339) - (Loss) earnings before finance costs and income taxes (,848) 6,297 Interest and other income Interest on long term debt (Note 9) (2,77) (2,097) Other interest expense (,33) (,082) (Loss) earnings before income taxes (5,64) 3,362 Income tax expense (Note 0) (,733) (7,773) Net loss $ (7,374) $ (4,4) Net loss attributable to: Shareholders of Capstone Mining Corp. $ (6,959) $ (4,04) Non-controlling interest (45) (307) $ (7,374) $ (4,4) Loss per share - basic (Note 3) $ (0.04) $ (0.0) Weighted average number of shares - basic 382,044, ,483,867 Loss per share - diluted (Note 3) $ (0.04) $ (0.0) Weighted average number of shares - diluted 382,044, ,483,867 See accompanying notes to these condensed interim consolidated financial statements. 3

4 Capstone Mining Corp. Condensed Interim Consolidated Statements of Comprehensive Loss Three Months Ended March 3, 205 and 204 (unaudited) (expressed in thousands of US dollars) Net loss $ (7,374) $ (4,4) Other comprehensive (loss) income Items that may be reclassfied subsequently to profit or loss Change in fair value of available-for-sale investments, net of tax of nil (204 - $0) - (36) Effect of change in functional currency - (5) Foreign currency translation adjustment (3,274) (9,836) Total items that may be reclassfied subsequently to profit or loss (3,274) (0,023) Total other comprehensive loss for the year (3,274) (0,023) Total comprehensive loss $ (30,648) $ (4,434) Total comprehensive loss attributable to: Shareholders of Capstone Mining Corp. $ (30,233) $ (4,27) Non-controlling interest (45) (307) $ (30,648) $ (4,434) See accompanying notes to these condensed interim consolidated financial statements. 4

5 Capstone Mining Corp. Condensed Interim Consolidated Statements of Cash Flows Three Months Ended March 3, 205 and 204 (unaudited) (expressed in thousands of US dollars) Cash provided by (used in): Operating activities Net loss $ (7,374) $ (4,4) Adjustments for: Depletion and amortization 24,395 39,662 Income and mining tax expense,733 7,773 Inventory write-down (Note 4) 2,569 9,996 Impairment of available-for-sale investments 3,575 - Share-based compensation (Note ),057 2,777 Net finance costs 3,793 2,935 Unrealized loss on foreign exchange 2, Loss on disposal of assets - (273) Amortization of deferred revenue (,42) (2,336) Interest received Income taxes paid (4,378) (6,205) Payments on reclamation and closure cost obligations (45) (0) Changes in non-cash working capital (Note 4) (23,093) (5,045) (6,55) 45,74 Investing activities Mineral properties, plant and equipment additions (45,00) (7,459) Purchase of Pinto Valley net assets - (6,679) Proceeds on disposal of assets - 3 Proceeds from the disposal of available for sale securities - 9,503 (45,00) (4,604) Financing activities Proceeds from bank borrowings (Note 9) 33,925 - Repayment of bank borrowings (Note 9) (286,48) - KORES payment against promissory note (Note 6) 3,000 2,00 Repayment of finance lease obligations (232) (246) Proceeds from issuance of share capital (Note ) - 2,99 Financing fees (Note 9) (3,024) (82) Interest paid (2,99) (2,089) 24,530,782 Effect of exchange rate changes on cash and cash equivalents (403) (66) Increase (decrease) in cash and cash equivalents (27,524) 3,69 Cash and cash equivalents - beginning of period 50,59 04,227 Cash and cash equivalents - end of period $ 22,635 $ 35,98 Supplemental cash flow information (Note 4) See accompanying notes to these condensed interim consolidated financial statements. 5

6 Capstone Mining Corp. Condensed Interim Consolidated Statements of Changes in Equity (unaudited) (expressed in thousands of US dollars, except share amounts) Number of shares Reserve for equity settled share based transactions Attributable to equity holders of the Company Investment revaluation reserve Foreign currency translation reserve Share purchase reserve Retained earnings Non-controlling interest Share capital Total Total equity January, ,044,066 $ 825,062 $ 46,422 $ (482) $ (35,494) $ (262) $ 224,322 $,059,568 $ 27,67 $,277,239 Share-based compensation (Note ) - -, ,852 -,852 Settlement of share units Net loss (6,959) (6,959) (45) (7,374) Foreign currency translation (3,274) - - (3,274) - (3,274) March 3, ,044,066 $ 825,062 $ 48,274 $ (482) $ (48,768) $ - $ 207,363 $,03,449 $ 27,256 $,248,705 January, ,863,523 $ 88,59 $ 45,536 $ (,309) $ (7,467) $ - $ 245,464 $,090,743 $ 28,99 $,309,662 Exercise of options,09,58 3,69 (,492) ,99-2,99 Share-based compensation (Note ) - -, ,778 -,778 Change in fair value of available-for-sale securities (36) (36) - (36) Reversal of fair value on disposal of available-for-sale securities (5) (5) - (5) Net loss (4,04) (4,04) (307) (4,4) Foreign currency translation (9,836) - - (9,836) - (9,836) March 3, ,972,68 $ 822,20 $ 45,822 $ (,496) $ (27,303) $ - $ 24,360 $,080,593 $ 28,62 $,299,205 See accompanying notes to these condensed interim consolidated financial statements. 6

7 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts). Nature of operations Capstone Mining Corp. ( Capstone or the Company ), a Canadian mining company publicly listed on the Toronto Stock Exchange, is engaged in the production of and exploration for base metals in the United States ( US ), Mexico, Canada and Chile. Pinto Valley Mining Corp. ( Pinto Valley ), a wholly owned US subsidiary, owns and operates the copper Pinto Valley Mine located in Arizona, US. Capstone Gold S.A. de C.V. ( Capstone Gold ), a wholly owned Mexican subsidiary, owns and operates the coppersilver Cozamin Mine located in Zacatecas, Mexico. Minto Explorations Ltd. ( Minto ), a wholly owned Canadian subsidiary, owns and operates the copper Minto Mine located in Yukon, Canada. Kutcho Copper Corp. ( Kutcho Copper ), a wholly owned Canadian subsidiary, owns the Kutcho copper-zinc project in British Columbia, Canada. Capstone Exploraciones S.A. de C.V., a wholly owned Mexican subsidiary, is performing exploration for base metal deposits in Mexico B.C. Ltd., a wholly owned Canadian subsidiary, is performing exploration for base metal deposits in Canada. Capstone Mining Chile SpA, a wholly owned Chilean subsidiary, is performing exploration for base metal deposits in Chile B.C. Ltd. ( Acquisition Co. ) is a 70% owned subsidiary of Capstone and 30% owned by a wholly owned subsidiary of Korea Resources Corp. ( KORES ). Through Acquisition Co. s wholly-owned Canadian subsidiary, Far West Mining Ltd. ( Far West ), the Company is engaged in the exploration for and production of base metals primarily in Chile. Minera Santo Domingo SCM ( Santo Domingo ), a 70% owned Chilean subsidiary, is advancing the Santo Domingo copper-iron project in Chile towards a production decision. Far West Exploration S.A., a 70% owned Chilean subsidiary, holds active exploration properties in Chile. Far West Mining Pty Ltd. ( Far West Australia ), a 70% owned Australian subsidiary, holds exploration properties in Australia. The head office, registered and records office and principal address of the Company are located at 50 West Georgia Street, Vancouver, British Columbia, Canada and the Company is incorporated in British Columbia. These financial statements were approved by the Board of Directors and authorized for issuance on April 28, Significant accounting policies Basis of preparation and consolidation These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting using the same accounting policies and methods of application as the audited annual consolidated financial statements of the Company for the year ended December 3, 204 which were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ( IFRS ). Accordingly, certain information and footnote disclosure normally included in annual financial statements have been omitted or condensed. These condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company as at and for the year ended December 3,

8 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts) The Company has not applied the following revised or new IFRS that have been issued but were not yet effective at March 3, 205. These accounting standards are not expected to have a significant effect on the Company s accounting policies or financial statements: IFRS 7, Financial Instruments Disclosures (effective January, 208) requires new disclosures resulting from the amendments to IFRS 9. IFRS 9, Financial Instruments (effective January, 208) introduces new requirements for the classification and measurement of financial assets and liabilities. In May 204, the IASB issued IFRS 5 Revenue from Contracts with Customers ("IFRS 5") which supersedes IAS Construction Contracts, IAS 8 Revenue, IFRIC 3 Customer Loyalty Programmes, IFRIC 5 Agreements for the Construction of Real Estate, IFRIC 8 Transfers of Assets from Customers, and SIC 3 Revenue Barter Transactions involving Advertising Services. IFRS 5 establishes a single five-step model framework for determining the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. The standard is effective for annual periods beginning on or after January, 207, with early adoption permitted. The Company is currently evaluating the impact the standard is expected to have on its consolidated financial statements. Certain of the prior year comparative amounts have been reclassified to conform with the presentation adopted for the current period. 3. Financial instruments At March 3, 205 the levels in the fair value hierarchy into which the Company s financial assets and liabilities are measured and recognized on the Condensed Interim Consolidated Balance Sheets at fair value on a recurring basis are categorized as follows: Level Level 2 Level 3 Total Concentrate receivables - 3,02-3,02 Available-for-sale securities (included in other assets in the Condensed Interim Consolidated Balance Sheet) 5, ,758 Total financial assets $ 5,758 $ 3,02 $ - $ 8,860 Finance lease obligations $ - $,299 $ - $,299 Share based payment obligations - 2, Total financial liabilities $ - $ 3,708 $ - $,299 At March 3, 205, there were no financial assets and liabilities measured and recognized at fair value on a non-recurring basis. The Company s policy for determining when a transfer occurs between levels in the fair value hierarchy is to assess the impact at the date of the event or the change in circumstances that could result in a transfer. There were no transfers between Level and Level 2 during the three months ended March 3,

9 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts) Valuation methodologies for Level 2 financial assets accounts receivable arising from sales of metals concentrates The Company s metal concentrate sales contracts are subject to provisional pricing with the selling price adjusted at the end of the quotational period. At each reporting date, the Company s accounts receivable on these contracts are marked-to-market based on a quoted forward price for which there exists an active commodity market. There have been no changes in the three months ended March 3, 205 as to how the Company categorizes its financial assets and liabilities by fair-value through profit or loss, available-for-sale, loans and receivables, and other financial liabilities. Fair value of financial assets and liabilities not already measured and recognized at fair value on the Condensed Interim Consolidated Balance Sheets At March 3, 205, the carrying amounts of accounts receivable not arising from sales of metal concentrates, accounts payable and accrued liabilities, and other assets and liabilities are considered to be reasonable approximations of their fair values due to the short-term nature of these instruments. The Company s share-based payment obligations are recorded at fair value based on quoted market prices at the reporting date. The carrying value of the promissory note receivable approximates its fair value due to its demand nature. The fair value of the Company s loan facilities uses current market values and approximates the carrying value. Financial instruments and related risks The Company s activities expose it to financial risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth and shareholder returns. The principal financial risks to which the Company is exposed are commodity price risk, credit risk, foreign exchange risk, liquidity risk, and interest rate risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company s risk management framework and reviews the Company s policies on an ongoing basis. There have been no significant changes in the Company s exposure to these financial risks in the three months ended March 3, Inventories Details are as follows: March 3, 205 December 3, 204 Consumable parts and supplies $ 42,60 $ 40,073 Ore stockpiles,505,954 Concentrates 59,549 43,658 Cathode 2,404,464 Total inventories $ 06,068 $ 87,49 During the three months ended March 3, 205, concentrate and cathode inventories recognized as a production cost amounted to $70.5 million (204 $92.7 million). 9

10 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts) During the three months ended March 3, 205, the Company recorded a non-cash charge of $2.6 million (204 - $0.0 million) in production costs related to write-downs of Minto s ore stockpile and concentrate inventory to net realizable value. 5. Mineral properties, plant and equipment Details are as follows: Mineral properties Depletable Non-depletable Producing mineral properties Deferred stripping At January, 205, net $ 535,557 - Plant and equipment Subject to amortization Mineral exploration and Mill development development Plant & properties costs equipment $ $ 4, ,380 Facilitites & equipment under finance Construction leases in progress Total $ $ 54,02 $,467,248 $ 540,798 $ 4,545 Additions -,68 8,567 - (2) - 30,838 40,452 Disposals (54) - - (54) Reclassifications 7,887 - (7,888) - 44,445 - (44,444) - Depletion and amortization (3,579) - - (254) (,609) (80) - (26,252) Currency translation adjustments (3,84) - (339) (00) (4,386) (366) (788) (9,793) At March 3, 205, net $ 526,05 $,68 $ 54,38 $ 4,602 $ 355,655 $ 3,369 $ 39,68 $,47,60 At January, 205: Cost $ 682,70 $ 74,779 $ 540,798 $ 6,948 $ 453,82 $ 26,699 $ 54,02 $,849,9 Accumulated amortization (47,44) (74,779) - (,992) (25,802) (22,54) - $ (38,87) Net carrying amount $ 535,557 $ - $ 540,798 $ 4,956 $ 327,380 $ 4,545 $ 54,02 $,467,248 At March 3, 205: Cost $ 684,47 $ 69,659 $ 54,38 $ 6,25 $ 486,867 $ 24,454 $ 39,68 $,862,458 Accumulated amortization (58,420) (68,49) - (,649) (3,22) (2,085) - (390,857) Net carrying amount $ 526,05 $,68 $ 54,38 $ 4,602 $ 355,655 $ 3,369 $ 39,68 $,47,60 The Company s exploration costs incurred during the period were as follows: Three months ended March 3, 205 March 3, 204 Exploration capitalized to mineral properties $ 7,346 $ 3,28 Green field exploration expensed to the statement of earnings,833,094 Total exploration costs $ 9,79 $ 4,222 At March 3, 205, construction in progress relates to capital costs incurred in connection with sustaining capital at Pinto Valley, Cozamin and Minto Mine. As at March 3, 205, bank borrowings (Note 9) were secured on mineral properties, plant and equipment with a net carrying value of $986.3 million (December 3, 204 $992.8 million). 0

11 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts) 6. KORES promissory note Details of changes in the balance of the promissory note receivable are as follows: Balance, December 3, 204 $ 47,377 KORES payment against promissory note (3,000) Balance, March 3, 205 $ 44,377 March 3, 205 December 3, 204 KORES promissory note $ 44,377 $ 47,377 Less: current portion (5,689) (5,757) Long-term portion $ 38,688 $ 4,620 The current portion of the promissory note represents management s best estimate of the portion of the note that will be repaid within 2 months of the balance sheet date. 7. Other assets Details are as follows: March 3, 205 December 3, 204 Current: Taxes receivable $ 9,035 $ 5,809 Prepaids and other 9,27 5,758 Total other assets - current $ 8,62 $,567 Non-current: Taxes receivable $ 5,35 $ 5,39 Investments classified as available-for-sale 5,758 0,28 Deferred income tax assets,557,400 Other 3,262 3,488 Total other assets - non-current $ 5,928 $ 20,407

12 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts) 8. Held for sale assets The Kutcho project, which the Company classifies as held for sale, is included in the operating segment entitled Other within the Segmented Information - Note 6. The major classes of assets and liabilities of the Kutcho project at the end of the reporting period are as follows: March 3, 205 December 3, 204 Cash $ 20 $ 54 Receivables 2 5 Mineral properties 45,753 49,689 Assets classified as held for sale $ 45,775 $ 49,748 Accounts payable and accrued liabilites $ 8 $ 3 Reclamation and closure cost obligations Total liabilities associated with assets classified as held for sale $ 48 $ 74 Net assets classified as held for sale $ 45,727 $ 49, Long term debt Details are as follows: March 3, 205 December 3, 204 Long term debt 303, ,47 Financing fees $ (5,429) $ (2,766) Total long term debt $ 298,496 $ 273,38 Less: current portion - (88,889) Long term portion $ 298,496 $ 84,492 On January 2, 205, the Company drew down an additional $0.0 million on its senior secured corporate revolving term facility ( SSRCF ) and on January 5, 205, the Company repaid $22.2 million of the senior secured reducing revolving corporate credit facility ( SSRRCF ), thereby reducing the outstanding long term debt to $263.9 million on January 5, 205. On January 6, 205, the Company entered into an amended senior secured corporate revolving credit facility ( RCF ) with a four year term. The amended facility comprises a committed $440 million plus an available extension of $60 million. The rate is US LIBOR plus 3.0% with a standby fee of 0.675% payable on the undrawn balance (adjustable in certain circumstances). On January 26, 205, $283.9 million was drawn down on the RCF, of which $263.9 million was used to repay the outstanding balances on the SCRCF and the SSRRCF. During the first quarter of 205, the Company incurred fees of $2.4 million (204 - $0.2 million) associated with the amended SSRCF and the new RCF, which were capitalized and are being amortized to the statement of earnings over the term of the facility. During the first quarter of 205 a total of $0.4 million (204 $0.2 million) was amortized and recorded in other interest expense. 2

13 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts) The RCF is secured against the present and future real and personal property, assets and undertakings of Capstone (excluding certain assets, which include Acquisition Co., Far West, Santo Domingo, Far West Exploration S.A. and Far West Australia and subject to certain exclusions for Capstone Mining Chile SpA and Capstone Exploraciones, S. A. de C. V.). The credit facility requires certain financial ratios relating to debt and interest coverage. Failure to meet these covenants would result in a default under the facilities. Capstone was in compliance with these covenants as at March 3, 205. At March 3, 205 there were four Surety Bonds totaling $25.2 million to support various reclamation obligation bonding requirements. This comprises C$42.0 million securing reclamation obligations at the Minto mine and $92.0 million securing reclamation obligations at Pinto Valley. 0. Income taxes Income tax expense differs from the amount that would result from applying the Canadian federal and provincial income tax rates to earnings before income taxes. These differences result from the following items: Three months ended March 3, 205 March 3, 204 Loss before income taxes $ (5,64) $ 3,362 Canadian federal and provincial income tax rates 26.00% 26.00% Income tax (recovery) expense based on the above rates (4,067) 874 Increase (decrease) due to: Effects of different statutory tax rates on (losses) earnings of subsidiaires (,087) 496 Mexican mining royalty tax Impact of losses for which no deferred tax asset is recognized 5,09 5,876 Other,57 (265) Income tax expense $,733 $ 7,773 Current income and mining tax expense $ (2,97) $ (8,356) Deferred income tax recovery Income tax expense $ (,733) $ (7,773) 3

14 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts). Share capital Authorized An unlimited number of common voting shares without par value. Share issuances During the three months ended March 3, 205, no options were exercised and no shares were issued. Stock options Pursuant to the Company s amended stock option plan, directors may authorize the granting of options to directors, officers, employees and consultants of the Company. Options granted under the plan have a term not to exceed 5 years and vesting periods that range from zero to 2 years. The continuity of stock options issued and outstanding is as follows: Weighted average Options outstanding exercise price (C$) Outstanding, December 3, 204 2,24,458 $ 2.90 Granted 7,823,58.38 Expired (2,362,505) 2.99 Forfeited (4,529) 2.30 Outstanding, March 3, ,697,942 $ 2.45 As at March 3, 205, the following options were outstanding and outstanding and exercisable: Outstanding Outstanding & exercisable Exercise prices (C$) Number of options Weighted average exercise price Weighted average remaining life Number of options Weighted average exercise price Weighted average remaining life $0.67 5,75 $ ,75 $ $.30 - $.90 9,49, ,849, $2.3 - $2.99 3,932, ,590, $ $ , , $ $4.48 3,0, ,0, ,697,942 $ ,056,098 $ During the three months ended March 3, 205, the fair value of options granted was $3.6 million (204 $3.5 million) and had a weighted average grant-date fair value of C$0.57 (204 C$.6) per option. Assumptions used in calculating fair value of options granted during the period were as follows: Three months ended March 3, 205 March 3, 204 Risk-free interest rate 0.57%.34% Expected dividend yield nil nil Expected share price volatility 53% 5% Expected forfeiture rate 4.73% 4.62% Expected life 3.7 years 4.0 years 4

15 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts) Other share-based compensation plans The Company has other share-based compensation plans in the form of Deferred Share Units ( DSUs ), Restricted Share Units ( RSUs ) and Performance Share Units ( PSUs ). DSUs RSUs PSUs Outstanding, December 3, ,524 2,3,958,43,849 Granted 43,930 2,349,745,04,45 Forfeited - (97,99) (9,340) Settled - (273,28) (255,732) Outstanding, March 3, 205,048,454 4,290,566,90,92 During the three months ended March 3, 205, the fair value of DSUs, RSUs, and PSUs granted was $5.3 million (204 - $4.8 million) and had a weighted average grant-date fair value of C$.38 (204 C$2.88). Share-based compensation expense Three months ended March 3, 205 March 3, 204 Share-based compensation expense related to stock options $,852 $,778 Share-based compensation expense (gain) related DSUs, RSUs, and PSUs (795) 999 $,057 $ 2, Revenue The Company s revenue breakdown by metal is as follows: Three months ended March 3, 205 March 3, 204 Copper $ 09,46 $ 75,369 Zinc 3,02 3,605 Lead Molybdenum Silver 3,434 4,694 Gold,445 2,775 Total gross revenue 8,840 87,269 Less: treatment and selling costs (5,92) (26,476) Revenue $ 02,99 $ 60,793 5

16 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts) 3. Loss per share Loss per share, calculated on a basic and diluted basis, is as follows: Three months ended March 3, 205 March 3, 204 Loss per share Basic and diluted $ (0.04) $ (0.0) Net loss Net loss available to common shareholders - basic and diluted $ (6,959) $ (4,04) Weighted average shares outstanding Weighted average shares outstanding - basic and diluted 382,044, ,483,867 Weighted average shares excluded Stock options 26,697,942 22,474,32 Diluted loss per share was determined using the basic weighted average shares outstanding rather than diluted weighted average shares outstanding as the effects would have been anti-dilutive. 6

17 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts) 4. Supplemental cash flow information The components of cash and cash equivalents are as follows: March 3, 205 December 3, 204 Cash $ 22,65 $ 50,05 Cash classified as held for sale (Note 8) $ 22,635 $ 50,59 The changes in non-cash working capital items are comprised as follows: Three months ended March 3, 205 March 3, 204 Receivables $ (9,633) $ 4,469 Inventories (2,287) (3,955) Other current assets (3,436) 56 Accounts payable and accrued liabilities 2,200 (4,263) Other liabilities (937) (,352) Net change in non-cash working capital $ (23,093) $ (5,045) The significant non-cash financing and investing transactions during the period are as follows: March 3, 205 March 3, 204 Capitalized mineral properties, plant and equipment expenditures included in accounts payable and accrued liabilities $,748 $ 7,489 Fair value of stock options allocated to share capital upon exercise (Note ) $ - $, Other expense Details are as follows: Three months ended March 3, 205 March 3, 204 Pinto Valley restructuring costs $ 2,232 $ - Stand-by fees,088 - Other 9 - $ 3,339 $ - 7

18 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts) 6. Segmented information The Company is engaged in mining, exploration and development of mineral properties, and has operating mines in the US, Mexico and Canada. The Company has five reportable segments as identified by the individual mining operations of Pinto Valley (US), Cozamin (Mexico), and Minto (Canada), as well as the Santo Domingo development project (Chile) and Other. Segments are operations reviewed by the CEO who is considered to be the chief operating decision maker. Operating segment details are as follows: Three months ended March 3, 205 Santo Pinto Valley Cozamin Minto Domingo Other Total Revenue $ 63,643 $ 24,375 $ 4,90 $ - $ - $ 02,99 Production costs (46,349) (3,960) (2,785) - - (73,094) Royalties - (782) (35) - - (,33) Depletion and amortization (,92) (5,04) (7,590) - - (23,823) Earnings (loss) from mining operations 6,02 4,592 (5,825) - - 4,869 Exploration expenses (36) (,797) (,833) General and administrative expenses, and share-based compensation (36) (34) - - (7,2) (7,48) Earnings (loss) from operations 5,966 4,458 (5,825) (36) (9,008) (4,445) Other expense (,627) (56) 487 (38) (5,664) (7,403) Earnings (loss) before finance costs, and income taxes 4,339 3,897 (5,338) (74) (4,672) (,848) Net finance costs (867) (3) (2) - (2,72) (3,793) Earnings (loss) before income taxes 3,472 3,894 (5,549) (74) (7,384) (5,64) Income tax expense (297) (,833) 94 (4) 37 (,733) Net earnings (loss) $ 3,75 $ 2,06 $ (5,455) $ (88) $ (7,067) $ (7,374) Mineral properties, plant & equipment additions $ 26,94 $,570 $ 4,98 $ 6,982 $ 68 $ 40,452 8

19 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts) Three months ended March 3, 204 Santo Pinto Valley Cozamin Minto Domingo Other Total Revenue $ 84,526 $ 35,06 $ 4,6 $ - $ - $ 60,793 Production costs (56,787) (5,840) (29,79) - - (02,48) Royalties - (,52) (643) - - (,795) Depletion and amortization (2,227) (4,630) (22,64) - - (39,498) Earnings (loss) from mining operations 5,52 3,484 (,94) - - 7,082 Exploration expenses (34) (960) (,094) General and administrative expenses, and share-based compensation (55) (63) - - (9,003) (9,22) Earnings (loss) from operations 5,457 3,32 (,94) (34) (9,963) 6,767 Other income (expense) 88 (446) (92) (85) (35) (470) Earnings (loss) before finance costs and income taxes 5,645 2,875 (2,006) (29) (9,998) 6,297 Net finance (costs) income (449) (5) (65) - (2,306) (2,935) Earnings (loss) before income taxes 5,96 2,860 (2,7) (29) (2,304) 3,362 Income tax expense (3,547) (4,428) (73) (7,773) Net earnings (loss) $,649 $ 8,432 $ (,796) $ (29) $ (2,477) $ (4,4) Mineral properties, plant & equipment additions (includes $0. million in other classified as held for sale - Note 8) $,987 $,793 $ 9,088 $ 2,839 $ 6 $ 5,823 As at March 3, 205 Santo Pinto Valley Cozamin Minto Domingo Other Total Mineral properties, plant and equipment (includes $45.8 million in Other classified as held for sale - Note 8) $ 77,07 $ 6,07 $ 04,282 $ 529,594 $ 50,29 $,57,38 Total assets (includes $45.8 million in Other classified as held for sale - Note 8) $ 86,858 $ 59,577 $ 58,37 $ 538,56 $ 27,558 $,845,466 Total liabilities (includes $0. million in Other classified as liabilities associated with assets classified as held for sale - Note 8) $ 83,33 $ 59,093 $ 39,598 $ 5,258 $ 309,48 $ 596,76 9

20 Capstone Mining Corp. Notes to Condensed Interim Consolidated Financial Statements Three Months Ended March 3, 205 and 204 (tabular amounts expressed in thousands of US dollars, except share amounts) As at December 3, 204 Santo Pinto Valley Cozamin Minto Domingo Other Total Mineral properties, plant and equipment (includes $49.7 million in Other classified as held for sale - Note 8) $ 703,635 $ 9,548 $ 6,837 $ 522,653 $ 54,264 $,56,937 Total assets (includes $49.7 million in Other classified as held for sale - Note 8) $ 846,276 $ 62,733 $ 56,85 $ 529,052 $ 53,254 $,847,500 Total liabilities (includes $0. million in Other classified as liabilities associated with assets classified as held for sale - Note 8) $ 70,376 $ 64,549 $ 42,082 $ 4,290 $ 288,966 $ 570, Commitments As at March 3, 205 the Company had equipment purchase commitments of $7.7 million outstanding as part of the Pinto Valley expansion. 20

21 Management s Discussion and Analysis of Capstone Mining Corp. ( Capstone or the Company ) For the three months ended March 3, 205 The Company has prepared the following interim management s discussion, analysis (the MD&A ) as of April 28, 205 and it should be read in conjunction with the Company s unaudited condensed interim consolidated financial statements, and notes thereto for the three months ended March 3, 205. All financial information has been prepared in accordance with International Financial Reporting Standards ( IFRS or GAAP ) and all dollar amounts presented are US dollars unless otherwise stated. Cautionary Note Regarding Forward-Looking Information This document may contain forward-looking information within the meaning of Canadian securities legislation and forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 995 (collectively, forward-looking statements ). These forward-looking statements are made as of the date of this document and Company does not intend, and does not assume any obligation, to update these forward-looking statements, except as required under applicable securities legislation. Forward-looking statements relate to future events or future performance and reflect Company management s expectations or beliefs regarding future events and include, but are not limited to, statements with respect to the estimation of mineral reserves and mineral resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forwardlooking statements can be identified by the use of words such as plans, expects or does not expect, is expected, outlook, guidance, budget, scheduled, estimates, forecasts, intends, anticipates or does not anticipate, or believes, or variations of such words and phrases or statements that certain actions, events or results may, could, would, might or will be taken, occur or be achieved or the negative of these terms or comparable terminology. In this document, certain forward-looking statements are identified by words including may, future, expected, intends and estimates. By their very nature forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, risks related to actual results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of resources; possible variations in ore reserves, grade or recovery rates; accidents, dependence on key personnel, labour pool constraints, labour disputes; availability of infrastructure required for the development of mining projects; delays or inability to obtain governmental and regulatory approvals for mining operations or financing or in the completion of development or construction activities; compliance with debt covenants, and other risks of the mining industry as well as those factors detailed from time to time in the Company s interim and annual financial statements and management s discussion and analysis of those statements, all of which are filed and available for review under the Company s profile on SEDAR at Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. The Company provides no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

22 Table of Contents Nature of Business... 3 New Alternative Performance Measures... 3 Overview... 4 Financial and Operational Highlights... 4 Revised Credit Facility... 6 Outlook... 7 Mine Segment Profitability... 8 Pinto Valley Mine... 8 Cozamin Mine... 9 Minto Mine... 0 Consolidated Results of Operations... Revenue... Sales Overview... Operating Costs... 3 Other Income and Expense... 4 Taxes... 4 Selected Quarterly Financial Information... 5 Mining Operations... 6 Production Overview... 6 Pinto Valley Mine... 7 Cozamin Mine... 9 Minto Mine... 2 Santo Domingo Project Greenfield Exploration Kutcho Project Liquidity and Financial Position Review Precious Metals Streams Risks and Uncertainties Transactions with Related Parties Off Balance Sheet Arrangements Accounting Changes Alternative Performance Measures and Reconciliations Outstanding Share Data and Dilution Calculation... 3 Management s Report on Internal Controls Other Information National Instrument 43-0 Compliance... 32

23 Nature of Business Capstone, a Canadian mining company publicly listed on the Toronto Stock Exchange, is engaged in the production of and exploration for base metals in the United States ( US ), Mexico, Canada and Chile. Pinto Valley Mining Corp., a wholly owned US subsidiary, owns and operates the copper Pinto Valley Mine located in Arizona, US. Capstone Gold, S.A. de C.V. ( Capstone Gold ), a wholly owned Mexican subsidiary, owns and operates the copper-silver Cozamin Mine located in Zacatecas, Mexico. Minto Explorations Ltd. ( Minto ), a wholly owned Canadian subsidiary, owns and operates the copper Minto Mine located in Yukon, Canada. Kutcho Copper Corp. ( Kutcho Copper ), a wholly owned Canadian subsidiary, owns the Kutcho copper-zinc project in British Columbia, Canada. Capstone Mining Chile SpA, a wholly owned Chilean subsidiary, is performing exploration for base metal deposits in Chile B.C. Ltd. ( Acquisition Co. ) is a 70% owned subsidiary of Capstone and 30% owned by Korea Resources Corp. ( KORES ). Through Acquisition Co. s wholly-owned Canadian subsidiary, Far West Mining Ltd. ( Far West ), the Company is engaged in the exploration for and production of base metals primarily in Chile. Minera Santo Domingo SCM ( Santo Domingo ), a 70% owned Chilean subsidiary, is advancing the Santo Domingo copper-iron project in Chile towards a production decision. Far West Exploration S.A., a 70% owned Chilean subsidiary, holds active exploration properties in Chile. Far West Mining Pty Ltd. ( Far West Australia ), a 70% owned Australian subsidiary, holds exploration properties in Australia. New Alternative Performance Measures Effective for 205, Capstone has commenced reporting C cash cost on the basis of per pound of payable copper SOLD as well as the previously reported per pound of payable copper PRODUCED. Throughout the MD&A, explicit distinction will be made with respect to which measure is being reported. The Company has also commenced reporting additional Alternative Performance Measures that are more fulsome in nature, all of which will be reported on the basis of per pound of payable copper SOLD: All-in sustaining cost equal to C cash cost plus sustaining costs All-in cost equal to all-in sustaining costs plus development capital Fully-loaded all-in cost equal to all-in costs plus taxes and interest on long term debt These new unit cost figures are meant to provide our stakeholders with a better understanding of the economics of our operations. Additionally, each measure has been defined in a detailed table at the end of the MD&A and comparative amounts will also be reflected in the tables to show a full breakdown of amounts that would have been reported under the new measures. These are alternative performance measures: please see Alternative Performance Measures and Reconciliations below. Page 3

24 Overview Q 205 Q 204 Revenue ($ millions) Copper produced (tonnes) 23,677 27,25 Payable copper produced (tonnes) 22,853 26,245 C cash cost per payable pound produced () ($/lb) Copper sold (tonnes) 20,082 26,60 Realized copper price per pound sold ($/lb) * C cash cost per payable pound sold () ($/lb) All-in sustaining cost per payable pound sold () ($/lb) All-in cost per payable pound sold () ($/lb) Fully-loaded all-in cost per payable pound sold () ($/lb) Net loss ($ millions) (7.4) (4.4) Net loss per common share ($) (0.04) (0.0) Adjusted net loss () ($ millions) (8.9) (4.4) Adjusted net loss () per common share ($) (0.02) (0.0) Adjusted EBITDA () ($ millions) Adjusted EBITDA () per common share ($) Operating cash flow before changes in working capital () ($ millions) Operating cash flow before changes in working capital per common share () ($) Cash and cash equivalents ($ millions) Net debt () ($ millions) * Q 205 includes a negative provisional pricing adjustment of $2.7 million (204 $2.7 million) related to prior shipments, equivalent to $0.29 per pound (204 $0.04 per pound) of copper sold during the quarter. Financial and Operational Highlights Financial and Production Highlights for the three months ended March 3, 205 & 204 Net loss of $7.4 million or $0.05 per common share (204 net loss of $4.4 million or $0.0 per common share) which included: o Earnings from mining operations of $4.9 million (204 - $7. million), Realized copper price of $2.47 per pound sold (204 - $2.99 realized price) and a C cash cost of $.89 per payable pound sold (204 $.86 per pound sold). o Production costs included a $2.6 million (204 $0.0 million) non-cash charge related to the write-down of inventory at the Minto Mine, o A non-cash charge of $3.6 million related to the impairment of available-for-sale securities (204 $nil), o Operational restructuring costs of $2.2 million (204 $nil) related to Pinto Valley, o Stand-by fees of $. million (204 $nil) at Minto for reduced open pit mining rates, o $.7 million in current and deferred tax expenses (204 - $7.8 million). Adjusted EBITDA of $24.3 million or $0.06 per common share after making adjustments for certain non-cash and other items (204 $56.4 million or $0.5 per common share). Operating cash flow before changes in working capital of $6.5 million or $0.04 per common share (204 - $50.2 million or $0.4 per common share). These are alternative performance measures: please see Alternative Performance Measures and Reconciliations below. Page 4

25 Adjusted net loss of $8.9 million or $0.02 per common share after making adjustments for certain non-recurring items (204 net loss of $4.4 million or $0.0 per common share). Working capital increased to $93.6 million at March 3, 205 (which included $22.6 million of cash and cash equivalents) from $06.5 million at December 3, 204. Production of 22,853 tonnes of payable copper at a C cash cost of $.97 per pound of payable copper produced (204 26,245 tonnes at $.92 per pound produced). Revenue of $02.9 million generated primarily from the sale of 20,082 tonnes of payable copper (204 - $60.8 million generated primarily from the sale of 26,60 tonnes of payable copper) at a realized copper price of $2.47 per pound sold (204 $2.99 per pound sold) and a C cash cost of $.89 per pound sold (204 $.86 per pound sold). Additional Highlights Pinto Valley Mine: Produced 5,809 tonnes of copper in concentrates and cathode during Q 205 (204 6,893) at a C cash cost of $.93 per pound of payable copper produced (204 $2.2 per pound produced). During Q 205, an additional hydraulic shovel and three more haul trucks arrived at site as part of the capital considered under the PV2 expansion plan. Completed a reorganization to improve operational efficiency and accountability. As part of the redesign, approximately 40 salaried staff left the organization and a further 30 people changed roles, resulting in a reduction to the salaried workforce of 5% and restructuring costs of $2.2 million recognized in the quarter. Work continued during the quarter to advance two PV3 scenarios towards a Pre-Feasibility study level ( PV3 PFS ). The PV3 PFS base case will include a 0% to 5% increase in throughput and the possibility of a mine life extension beyond 2026 and a second case will evaluate a throughput increase to 90,000 tonnes per day combined with a potential mine life extension. The PV3 PFS is expected to be completed in the third quarter of 205, at which time we will evaluate the two alternatives and the best use of capital. Cozamin Mine: Produced 3,773 tonnes of copper in concentrates during Q 205 (204 5,0 tonnes) at a C cash cost of $.5 per pound of payable copper (204 $.23 per pound produced). Mine development rates were reviewed in Q 205 with a focus on improvement through training, thereby helping to ensure sufficient underground production inventory going forward. Efforts continued throughout Q 205 on the permitting process for additional surface drilling at the Cozamin mine site with the permit expected to be received in Q Underground access for the Mala Noche vein resource drilling program is advancing on plan with an expected start to the program in Q Minto Mine: Produced 4,095 tonnes of copper in concentrates during Q 205 (204 5,22 tonnes) at a C cash cost of $2.58 per pound of payable copper produced (204 $.94 per pound produced), which included $0.4 per pound of cost allocated from stockpile (204 $0.04 per pound) which was spent in prior periods, bringing the actual cash expended during Q 205 to $2.44 per pound of payable copper produced (204 $.90 per pound produced). The hearing with the Yukon Water Board on the Water Use Licence Amendment took place in the first week of March and the Company awaits receipt of the licence. The current plan has the mill continuing to process ore from underground and stockpiles, with surface mining on hold until receipt of the required licence, which is expected in Q These are alternative performance measures: please see Alternative Performance Measures and Reconciliations below. Page 5

26 Santo Domingo Project: The Company completed the tender process for Engineering, Procurement, and Construction ( EPC ) and Engineering, Procurement, and Construction Management ( EPCM ) packages for project development. Capstone has selected POSCO E&C ( POSCO ) as the preferred EPC fixed price lump sum contractor for the Santo Domingo project. While the EPC contract has not been concluded, Capstone has awarded a Limited Notice to Proceed to the end of Stage-Gate, which will include confirmation of completeness of the engineering and contractual performance guarantee parameters. This award totals approximately $4.5 million and is part of Capstone s previously announced 205 base case budget of $6.9 million (of which Capstone s 70% share is $.8 million). This work is expected to be completed before the end of Q Following Stage-Gate next steps will be determined and communicated. The total capital cost of the project is expected to be at or below the previously estimated $.7 billion. During Q2 205 the Company expects to present its third addendum for the Environmental Impact Assessment. Based on the current timetable it is now expected to be approved during Q2 205, which aligns with the revised engineering development plan outlined above. A third party objection to the Santo Domingo port concession application was rejected by the Chilean Armed Forces, clearing the way for the anticipated approval of the application in Q Greenfield Exploration: Exploration work at Project Providencia in Region II, Chile during Q 205 included minor infill soil sampling and trenching. Drilling resumed in late March but was temporarily halted due to extensive flash flooding in the Atacama region. Four separate copper-gold prospects are slated for testing when drilling resumes in Q Two targets are porphyry-type and two are IOCG / Manto type. To date in 205, a total of 496 metres of RC drilling was completed in two holes before the temporary shutdown. Revised Credit Facility In January 205 Capstone entered into an amended senior secured corporate revolving credit facility ( RCF ) for up to $500-million. This facility amends Capstone's existing senior secured corporate revolving term facility and allowed for the repayment and cancellation of the existing senior secured reducing revolving credit facility. The RCF comprises a committed $440-million plus a $60-million accordion. It has a four-year term maturing in January, 209 (with extension rights on mutual consent), an interest rate of United States LIBOR (London interbank offered rate) plus 3.0% (adjustable in certain circumstances) and a standby fee of 0.675%, payable on the undrawn balance of the facility. The $60-million accordion may be exercised by Capstone once additional credit is committed from existing and/or new lenders. These are alternative performance measures: please see Alternative Performance Measures and Reconciliations below. Page 6