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Capstone Mining is a company I was researching all weekend because it seems to be in a very good situation right now.

To give you a quick overview of what the company is about, here is a summary off their website:

Capstone Mining Corp. is an emerging Copper-Silver producer in Mexico.  Our Cozamin Copper-Silver-Zinc Mine is on a fast track to production in Q3/2006. 

Goals for 2006 – Cozamin Copper-Silver-Zinc Mine

• achieve commercial production at 1,000 tpd in Q3/2006
• complete an updated resource estimate to increase resources, throughout capacity and mine life at Cozamin
• complete a feasibility study - COMPLETE

The key here is production; it will begin within months. Here are the key points from their feasibility study:

• The initial planned mill throughput rate will be 350,000 tonnes per year with average grades of 2.16% copper, 76.0 g/t silver and 1.0% zinc.
• Estimated average annual production is 16 million pounds of copper, 700,000 ounces of silver and 4 million pounds of zinc.
• Production is expected to begin early in the third quarter of 2006 based on construction completed to date.
• Resource and reserve data included in the feasibility study are up to December 23, 2005. Since then, Capstone has drilled an additional 25 underground holes, which will be included in an updated resource estimate in 2006.
• The Mala Noche vein system remains open along strike and down dip.

Capstone has 63.6 million shares outstanding. With their share price at $2.47 that gives them a market cap of about $157 million. 

Now let me do some simple math to see what kind of money Capstone will make within a year of production:

Revenue: 16 million lbs copper x $3.066 = $49,056,000 revenue

              700,000 ounces silver x $13.92 = $9,744,000 revenue

              4 million lbs zinc x $1.5186 = $6,074,400 revenue

                    Total Revenue = $64,874,400

Costs: $9,953,000 - capital costs, construction etc

          $32.80 (per tonne milled) x 350,000 tonnes during year = $11,480,000

                     Total Costs = $21,433,000

Profits: $43,441,400/63,600,000 shares = $0.68 profit per share!

So if I divide share price by profits, I get a forward p/e of only 3.6!

Folks, if my calculations are correct, this is an unbelievably amazing deal!

But that's not all, there is more!

Capstone recently announced that they will be spinning out their other silver assets in a special dividend:

Capstone sharesholders shall receive one unit of Silverstone for every three Capstone shares held on the record date (TBA). Each unit consists of one share of Silverstone and one-half transferable purchase warrant.  For more information, please review this news release.

The warrants really sweeten the deal! But the only bad part is that you have to buy before May 2nd to get the dividend.

The way their Investor Relations person explained it to me was like this:

If you have 15,000 Capstone shares, you will get 5,000 Silverstone shares and 2,500 Silverstone warrants. 

I think this is a great opportunity and I have bought some shares this morning and I may add more depending on how trading goes. More info: http://www.capstonemining.com/