Capstone sells Mexican mine to Luca for up to $385M

Capstone Copper (TSX: CS; ASX: CSC) is selling its Cozamin copper-silver-zinc-lead mine in Mexico to Luca Mining (TSXV: LUCA) for up to $385 million (C$540 million) as it redirects capital toward larger copper growth projects in Chile and the United States.

The deal announced Monday includes $275 million in cash at closing and $15 million in Luca shares, plus $35 million in deferred consideration and as much as $60 million in payments linked to future copper prices. The transaction is expected to close in the fourth quarter, subject to regulatory approvals and other customary conditions.

“It is an ideal time to streamline our portfolio through this divestiture as we advance towards transformational copper growth in Chile and the United States,” Capstone CEO Cashel Meagher said in a release.

The sale gives Vancouver-based Capstone additional financial flexibility as it concentrates investment on its copper portfolio in Chile and Arizona. Its growth pipeline includes the fully permitted Santo Domingo copper-iron-gold project near its Mantoverde operation in Chile, while the $176-million Mantoverde Optimized expansion is under construction.

Luca Mining’s Toronto-listed stock shot up 11% to C$1.15 each by mid-Monday for a market capitalization of C$317 million. Shares in Capstone Copper gained 0.8% to C$14.61 apiece, valuing the company at C$11.2 billion. 

Copper hurdle

Capstone will retain some exposure to Cozamin through the $15 million in Luca shares it will receive at closing. The $35-million deferred portion, due on the first anniversary of closing, can be paid in cash or Luca shares at Luca’s option.

The remaining $60 million depends on copper prices from 2027 through 2029. Capstone would receive $10 million for each year the average London Metal Exchange copper price is between $7 and $7.75 per lb., $15 million if it is between $7.76 and $8.50, and $20 million if it reaches at least $8.51.

Investors would likely need to expect higher copper prices to assign much value today to the contingent consideration, BMO Capital Markets mining analyst Rene Cartier said in a note. The payments will be calculated after each of the 2027, 2028 and 2029 calendar years based on the average annual LME copper price.

Capstone said it plans to use the net proceeds to strengthen its balance sheet and provide financial flexibility to support its growth pipeline.

Mexico expansion

For Luca, Cozamin adds a third producing Mexican mine to a portfolio that includes the Campo Morado polymetallic operation in Guerrero state and the Tahuehueto gold-silver mine in Durango state. Luca said Cozamin is expected to more than double its 2027 production profile based on current consensus estimates while increasing its exposure to copper and silver.

The acquisition also comes days after Luca agreed to acquire the El Barqueño gold-silver property in Jalisco from Agnico Eagle Mines (TSX: AEM; NYSE: AEM) for consideration of up to $60 million.

Cozamin, in Zacatecas state, has operated continuously under Capstone since late 2006, when commercial production began at 1,000 tonnes per day. The mine had three years of reserves at the time, but exploration subsequently extended its mine life to 2030.

From 2023 through 2030, Cozamin was forecast to produce an average of 20,000 tonnes of copper and 1.3 million oz. of silver annually at operating costs of $1.51 per payable lb. of copper. Production was projected to average 24,000 tonnes of copper and 1.7 million oz. of silver annually from 2023 through 2027, at operating costs of $1.46 per payable lb.

Luca plans an extensive resource validation and exploration program after closing aimed at extending Cozamin’s mine life and demonstrating its longer-term cash-flow potential.

The sale still requires stock exchange and Mexican National Antitrust Commission approvals. It is not conditional on shareholder approval or financing.