As M&A activity picks up in mining, more and more operators are looking for new acquisitions and strategic JVs. Mexico Mining Review asked Darren Pylot, President and CEO of Capstone Mining about the unique collaborative model of the mining operator and how copper and zinc prices are affecting operations at Cozamin in Zacatecas.


Mining models are fundamentally different from any other industry. For example, operators do not see fellow operators as their competition but rather partners that can add value to projects, says Darren Pylot, President and CEO of Capstone Mining. “Mining is a very capital-intensive business and the industry is seeing increasing joint ventures to share infrastructure costs to bring new projects online,” he says.

In Capstone’s case, at its Cozamin mine, it has an agreement with Endeavour Silver to allow both companies access to abutting land. Capstone has been granted exploration and exploitation rights on the Endeavour concessions below 2,000 meters above sea level (masl) where copper-rich mineralization has historically been found and mined by Capstone. Endeavour has rights below 2,000masl where more precious-metal dominant mineralization has been historically mined in the Zacatecas mining district.

Darren Pylot, President and CEO of Capstone Mining

Capstone has reaped the benefits of this partnership by being able to carry out an intensive drilling program at Cozamin with significant exploration success. “In mid-2018, we updated Cozamin’s Mineral Resource converting an additional 115,000 tons of indicated copper resources in the Mala Noche Footwall Zone, bringing the total measured and indicated for all drilling up to March 19, 2018, to 217,000 tons of contained copper,” says Pylot. “Based on the exploration success we have seen at Cozamin, we increased the brownfield exploration cost guidance an additional US$2 million to a total of US$9 million for 2018.”

Due to variations in copper prices, in 2018 Capstone branched out to start mining the previously undeveloped San Rafael zinc zone at Cozamin to take advantage of the elevated zinc prices and fill some of the mill’s excess capacity. “This additional zinc production has allowed us to lower our overall costs by increasing our by-product credits,” says Pylot. “LME zinc inventories are at historic lows and we continue to believe zinc prices will remain strong over the short and medium term.”

But he warns that the disadvantages of making large capital and time investments primarily in zinc is that producing mines have the ability to produce more zinc as a by-product of their primary metal quite quickly to take advantage of higher prices, similar to what Capstone has done at Cozamin. “We already had an existing zinc circuit; all we needed to do was develop into the zinc-rich zones,” he explains. “This ability of the industry to produce more zinc quickly equates to a zinc price that can be volatile depending on supply and demand. We have seen stronger zinc prices over the past few years due to some of the larger zinc mines closing because of depleted reserves.”

Capstone has also mitigated cycles by extending its project pipeline through extensive exploration at Cozamin. “Recently we have been seeing exploration success at Cozamin with high grade drilling results, which will, in the long term, be added to the mine plan to increase our production and lower our overall cost profile,” he says. “During mid-2018, copper prices fell abruptly and having a mine that operates well below the current price environment, such as Cozamin, puts us in a position to maintain financial and operational flexibility to weather these volatile periods.”

But he says it was not always easy to find the funds to allocate to exploration activity. “One of the main challenges faced by exploration projects is the cyclicity of the resource industry. In periods of low commodity prices, it is more difficult for companies to allocate funding to exploration, which is vital to meeting future demand for metals,” he says. “At Capstone, we strongly recognize the importance of continuing to invest in the future, and even during the recent lows in the commodity cycle, continued a very robust exploration program at our low-cost Cozamin mine in Mexico.”

Despite diversification measures, Pylot remains bullish on copper. “Fundamentally, our very positive medium and long-term view is unchanged and we are continuing to see robust demand from China and the rest of the world that is expected to outpace existing and new capacity,” he says.


This is an exclusive preview of the 2019 edition of Mexico Mining Review. If you want to get all the information, plus other relevant insights regarding this industry, pre-order your copy Mexico Mining Review or access our digital copy of the 2018 edition.


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