December 6, 2010 / 1:52 PM / 7 years ago

UPDATE 2-Capstone cuts production outlook on Mexico accident

* Cuts FY 2010 production view to 78-80 mln pounds

* Says operations at Cozamin resumed on a limited scale

* Shares have fallen about 3 percent since Nov 24 accident (Adds details, analyst comments, updates share movement)

By Bhaswati Mukhopadhyay

BANGALORE, Dec 6 (Reuters) - Capstone Mining Corp CS.TO said operations at its Cozamin copper mine in Mexico have resumed nearly two weeks after a fatal accident, but the company cut its 2010 production forecast again as a result of the incident.

Production levels are expected to ramp up to Cozamin's nominal capacity of 3,000 tonnes a day over the next week to 10 days, the Canadian miner said on Monday.

Cozamin, where a miner was killed in an accident on Nov. 24, is a large-scale underground copper mine that also produces silver, lead and zinc as by-products.

Limited mining in the avoca area at Cozamin will resume in January and is expected to return to full capacity in February, the company said. Avoca mining, which involves opening of very large cavities, costs less than traditional techniques.

Capstone now expects to produce 78 million to 80 million pounds of copper concentrate in 2010. In July it lowered its forecast to 80 million to 85 million pounds.

Analyst Stefan Ioannou of Haywood Securities, who feels the accident was a short-term setback for Capstone, said a "modest decrease" in this year's production won't alter the overall outlook for the company.

"There is not very much left of 2010. The market in general is basing the valuation of Capstone on 2011," Ioannou said.

In July, the company had cut its outlook by 13 percent, saying production at Cozamin and its Minto mine in Canada's Yukon territory would suffer because of crusher limitations and worn filter parts. [ID:nSGE66I0GC]

Ioannou, who has a "sector perform" rating on the stock, expects Capstone's Kutcho Creek project in the northwestern part of Canada's British Columbia to emerge as the next growth driver.

In September, the company said it had found additional high grade copper-zinc deposits at Kutcho. A preliminary assessment of showed the mine could produce, on average, 35.5 million pounds of copper and 39.8 million pounds of zinc annually.

"The other side of the Capstone story is they have a lot of cash now with very little debt. They have not done much with that in terms of buying projects. So you are going to see ... the company pay dividend with that cash," the analyst said.

Capstone ended the third quarter with $172 million in cash.

Capstone shares, which have gained 57 percent so far this year, have fallen about 3 percent since the accident. The stock was trading at C$4.41 on Friday afternoon on the Toronto Stock Exchange. (Editing by Frank McGurty)

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