Q4 2022 Capstone Copper Corp Earnings Call
Your conference operator today.
At this time I would like to welcome everyone to the Capstone <unk> 2022 year end results conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
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Thank you Mr. Gerald on it you may begin your conference.
Good morning, I'd like to welcome everyone to Capstone Koppers Q4, and year end 2022 conference call.
Please note that the news release and regulatory filings announcing capstone copper is 2022 fourth quarter financial and operational results are available on our website and on SEDAR.
Please note that the results are preliminary and subject to change based on final audited results.
You are logged into the webcast, we will advance the slide slides of today's presentation, which is also available in the investors section of our website.
I'm joined today by our CEO , John Mckenzie, our President and CEO COO Castle Omar.
Our Chief Financial Officer, Raman rent dialogue.
And our SVP risk ESG in General Counsel when do you think.
Following a brief remarks, there will be an opportunity for questions. Please note that the comments made on the call today will contain forward looking information within the meaning of applicable securities laws.
This information by its nature is subject to risks and uncertainties and actual results may differ materially from the views expressed today for.
For further information on the risks and uncertainties pertaining to our business. Please see capstone <unk>. Most recent filings which are available on our website and on SEDAR and finally I'll just note that all amounts will be will be.
We will discuss today are in U S dollars unless otherwise specified now I'll turn the call over to John Mckenzie.
Thank you Jos and good morning, everyone.
We're very pleased to present, our fourth quarter and full year 2022 results and achievements, which is the strongest quarter, but yes.
Well when exciting 2023, as our team executes on our sector leading growth plan.
In the fourth quarter, we produced a total of $45 5000 tonnes of copper.
Consolidated cash costs of $2 50 per payable pound of copper produced.
As previously disclosed we achieved a nine months guidance with total copper production of $136 3000 tonnes, a consolidated sea webcast costs $2 68 payable upon the Capex could you said the nine month period, ending December 31st 2022.
I'm proud of what we accomplished last year.
Recent key milestones at a one continuing to improve the asset policy of our business.
So the pace on near term growth.
Specifically last quarter, we completed the construction of the tourism and paste backfill and dry stacked tailings thoughts, which is currently ramping up.
Our mantra is bonkers concentrate the debottlenecking projects achieved 85% of banks take capacity in December and the cave commercial production.
We announced the months have added some sort domingo districts integration plan.
Which lays the foundation on which we.
Once you create one of the most exciting copper and cobalt districts in the world.
And we continue to make solid progress with respect to construction activities at the months of any development projects.
As at December 31st.
Project progress was 76%.
The project remains on budget and on track to start with commissioning by yearend.
At the MVP construction sites, the new processing time is taking shape.
You can see all those in place citation cell directed.
<unk>, that's being assembled which castle will provide more color on with our operating results.
I would encourage you to visit the virtual tour.
But taking on the verified link provided in our news release as well as the bottom of the slide.
And in the year, we announced the commitments to the copper mark about months of smokeless and loss severity bias showcasing our pursuits and best practices based on international standards for responsible mining, which Randy will provide further details on including our ESG strategy later on the call.
We are now on slide six.
Illustrates how we proactively improving the asset quality of our portfolio.
Great proportion of higher grade higher margin sulphide production driving lower costs across our business.
For the nine months periods ending December 31st.
<unk>.
On the other cost sulfide production as a percentage of the total was approximately 65%.
73% in 2023.
Primarily driven by the ramp up of the months as long as concentrate the debottlenecking projects completed last year.
Looking forward over the next 12 to 24 months, we expect a lower cost sulfide business to contribute over 80% of our total copper production.
The increasing with the developments of our sensor Domingo projects and driving company wide consolidated C. One costs towards $1 50 per pound.
Now I'll pass it over to Robyn for our financial results.
Thank you John we are now on slide seven.
From the end of Q3 to the end of Q4 last year, we saw the copper price increased more than 10%, which resulted in positive provisional pricing adjustments in the fourth quarter.
Our realized copper price for the quarter was $303 74 per pound, which was <unk> 11 cents higher than the <unk> average of $3 63 per pound.
As discussed in the prior quarter and going forward, we expect unrealized provisional pricing at <unk> to be offset by quotation periods hedges by utilizing derivative contracts to offset copper sales with the objective of achieving <unk> average pricing.
Adjusted EBITDA in Q4 up $80 5 million included a realized provisional pricing loss of $7 8 million related to Q2 Q3 copper sales that final settled in Q4.
Excluding the prior period provisional pricing loss EBITDA would've been approximately $90 million.
Moving on to slide eight on the left hand side, we summarize our available liquidity, which at year end was approximately $700 million.
Including $172 million of cash and short term investments and 525 million of Undrawn amounts on our 600 million corporate revolving credit facility, which was upsized. During Q4 as a result of exercising the $100 million accordion to further bolster our financial liquidity.
During the quarter, we drew down on the remaining amount of the 520 project debt facility as well as a $60 million cost overrun facility, whether it meant to avert a partner Mitsubishi materials Court.
As John mentioned earlier, we remain on track on budget for completion of the Manto Verde development project by the end of the year.
We ended last year with a consolidated net debt of $483 million.
On the right hand side of the page illustrates our EBITDA sensitivity at various copper prices you can see that 2023 is overshadowed by the EBITDA generation with Manto Verde sulfides at full run rate production.
At $4 per pound of copper and we expect to generate approximately $500 million of EBITDA in 2023 and over $1 billion of annual EBITDA with the benefit of mental verdict development project online.
The EBITDA generation associated with mental burden will enable accelerated opportunity to delever the aforementioned debt.
Below one times net leverage a copper prices between $3 50, and $4 per pound, which provides additional liquidity to advance our future growth pipeline.
Now I'll hand, it over to casuals for the operations review. Thanks, Ron are now on slide nine.
<unk> produced 15000 tonnes of copper at <unk> cash costs of $2 48 per payable pound.
During Q4, which was our best quarter last year from both the production and cost perspective looking ahead in 2023.
We are expecting similar production on an annualized basis 56000, 62000 tons lets see when cash costs.
$2 40, a pound to $2 60 per payable pound.
We continue to make good progress on the engineering details for the PV or feasibility study, which aims to tap into the $1 billion, Tony resource extending the mine life to beyond 2015.
Evaluating further investment opportunities in the grinding and metal recovery processes.
And improved ESG performance to maximize value for all stakeholders.
We are pleased to welcome Lindsay Potts who's the new GM for Pinto Valley, and that's joining us after 17 plus years with leadership positions in increasing role responsibility from new Chris Ridgeway.
Operations.
Moving to slide 10.
Cosmos mine had a transition Mary production quarter, producing 5800 tonnes of copper at.
Cone cash costs of $1 40 per payable pound.
The modification to the mining method was evaluated and implemented during the quarter to increase the realized mineral recovery from the mine in some areas where the depth of the ore body is shallow and the width of the ore body is variable we have determined that cut and fill mining will ensure a more efficient mineral recovery methodology.
We are also incorporating transverse long haul methodology in some key wide areas identified in the mineral reserves.
Overall, we expect this change will maximize the mineral recovery in the mining process at a slightly higher mining rate, allowing us to use some of our excess milling and paste fill dry stack capacity, we have on surface.
We anticipate this being outlined and a new technical report we will issue at the end of next month.
The paste fill on dry stack tailings facility is complete ramp up is underway.
Our mantas blancos asset as highlighted on slide 11.
Total sulfide and cathode production yielded 14th 2000, Twenty's copper at a blended C. One cash cost of $2 nine per payable.
The plant achieved 85% of throughput capacity for the month of December the key focus on the ramp up remains plant availability and in particular on mechanical compliance on preventative maintenance and systems.
Design work is underway for 2023 to utilize the unused capacity in the plant to increase the throughput from our current design at 20000 tonnes per day to 27.
Once per day.
Now on to mental Verde on slide 12.
Q3, 2022 production was 10 and a half.
1000 tonnes of copper in castle cone cash costs of $3 65 per payable pound visible progress was achieved at the MVP project.
Project progress is at 76% with $580 million.
As of yearend.
With many of the classical major escalator risks behind us and door materially diminishing the total expenditure for the project remains at $825 million and on schedule for year end 2023.
Wet commissioning.
The mental Verde development project will deliver blended C. One cost below $2, a pound and produce 120000 tons of combined cathode copper in concentrate with over 30000 ounces.
<unk> per year.
Okay.
Slides 13 through 17 show construction progress at several key areas of the MVP.
Slide 13 shows the primary crusher with the retaining wall and conveyances advancing well.
Structural steel erection is also advancing well as evidenced from the progress on the copper filtration buildings column cells and rough ourselves all major components are procured and onsite in preparation for final installation steps.
<unk> 14 shows the copper concentrate sector and a different perspective on the copper filtration and load out facility.
Sure on the right clearly displays the advancements of the assembly at the Sag and ball Mills.
The next slide 15 shows the overall site and the photo on the right shows the core source stockpile and the reclaim tunnels in preparation for the construction of the geodesic domes for dust control.
The pre strip for mining the sulfide ore is nearly complete and stockpiling of sulphide ore has commenced assembly at the third electric shovel is in progress and the new truck shop to accommodate the larger fleet is well underway.
And on slide 16.
An important piece of progress can be seen on slide 17, where the excavation of the core of the tailings facility as.
As the dam now emerging from the initial cutoff trench <unk>.
No major adverse geotechnical conditions were encountered and productivity have improved to ensure that the tailings will be ready and waiting for the completion of the sulfide plant.
In parallel we continue with our studies to evaluate the methodologies best suited to explode exploit the cobalt resorts that his presence at both mental birdie.
Central Domingo.
Moving to slide 18.
In addition to the previously disclosed on.
On the roaster option for Sensus Domingo, we are excited to be evaluating an alternative method for cobalt extraction, which would involve using our current heap leach infrastructure and adding ACC IX counter current ion exchange circuits.
The flow sheet concept is simple we would recover cobalt <unk> pyrite in our flotation circuit, which would prevent it from going to tailings.
High rate would be agglomerated, and our existing drums and placed onto the copper oxide seats, and then Eric with sulfuric acid.
The pyrite with oxidize and in the process would generate acid as well as releasing cobalt into the solution. The solution with contained both copper and cobalt. The copper has recovered from our existing Sx EW infrastructure, while the cobalt would be recovered from a future CCI explants. This.
<unk> level and we expect to have a study completed in 2024.
I should note that the current raffinate at the mental Verde operation already has considerable cobalt and solution greater than 350 ppm, which.
Which has accumulated over time, we are taking this solution and evaluating its possibility of extraction at several commercial labs.
Overall, the benefit of this heap leaching IX option is it will offset some of our asset requirements, but more importantly could prove to be significantly lower capital intensity than a roaster and ultimately much simpler to execute with a faster timeline to production.
Now over to Wendy King for the sustainability.
Thank you Kash.
We're now on slide 19.
We are pleased to introduce our ESG strategy.
The development of this strategy was a structured 12 month process with companywide stakeholder participation and aligned with our purpose and values.
We have a robust governance process, our oversight and execution.
This strategy is a reflection of our firm commitment to sustainability and sets out our priorities actions and targets over the next seven years focused on five initial priorities.
These priorities are biodiversity communities.
Airings climate and water.
We're also advancing diversity and inclusion targets in 2023, starting at the leadership level.
We will provide more detail on our strategy in the coming weeks and regularly report on our progress.
Ah Pinto Valley last year, we deployed mining equipment with tier four engines and pumps that meets U S. EPA tier four emission standards.
And provide fuel efficiency improvements we.
We have also implemented various initiatives and practices into valley, including a new mining.
Dewatering system.
New maintenance practices to reduce both petroleum product and solid waste generation.
And new desk controls to reduce water and fuel consumption.
<unk> Blancos amount of their day, we have moved to self assessment stage for the copper Mark assurance process.
And we expect to advance to the independent review stage in Q2.
Investment in efficient equipment continues at our Chilean operations with mental burden now commissioning its third electric shovel.
Thank you Randy.
On slide Tracy with our 2023 production and cost guidance announced last month.
We expect to produce between 170000 tons to 190000 tonnes of copper at.
<unk> cash costs of $2 50 to $2 70 per payable pump.
We remain focused on the execution of our near term growth profile, increasing copper production by 45% to approximately 260 260000 tonnes. Following the ramp up of the transformation once a major development project, which remains on time and on budget.
After this we are full.
Repayments at Sunset Domingo projects, which unlocks district synergies and generates an additional 45% of copper production to 380000 tons per year with further upside and extensions across our portfolio.
And finally on slide 21.
We have significant catalysts over the next two years to support our sector leading growth paths.
With further upside beyond this across our portfolio.
We have a talented technical team in place to execute on these studies and we look forward to releasing the results in the top line as shown on the slide.
With that we're now ready to take questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone. If you are using a speaker phone. Please lift the handset before pressing any case.
First question comes from Dalton Barreto at Canaccord. Please go ahead.
Thanks, Good morning, everybody John I wanted to start by asking you about what's going on in Chile, It's been pretty quiet lately, and just wondering where the whole process Dan.
Bob.
Overhauling the fiscal regime.
Yes, thanks for the question Nelson.
I think there are two main elements that are going on in Chile right now the first is the constitutional reform.
And I must say, we are really encouraged by the way.
That's gone.
The initial version that was voted on last year was.
Rejected by a very significant majority.
Indicating that the.
The majority of Chileans once it's a far more moderate constitution.
And one that's sort of continued the current sort of.
The economic model of the country.
So right now that process is.
Is advancing well lifts the new process will have three groups of people.
One which is a group of constitutional experts one as a group of people exit from the mainstream political parties.
And the third is a group of people. So is elected by the general population.
They will present I think by around October of this year, our revised constitutional proposal and the intention is that at the end of the year that will be voted on.
It certainly is progressing in the direction that we are.
I'll certainly talk to you very comfortable with.
With regard to the royalty discussions.
As you know there was.
So there's various proposals put forward of the past year.
The latest proposal.
This.
As far more reasonable than what we have seen.
Previous to that.
That has actually been.
Approved by the Senate Mining Commission and currently sits with the Senate Finance Commission.
It's unclear how long it will sit with them before they move it.
Whatever recommendations they have to the Senate.
For final approval.
<unk> agreed that whatever.
Whatever is put.
Put in place will actually be effective from 2024.
And I think overall our view on it is that.
It's.
A very very significant improvements on the previous proposals.
It does.
It does.
Presents an increase in.
In tax rates, we would obviously prefer to see that.
Slide no.
Due to these competitive competitiveness relative to some of the jurisdictions.
It's very much in the same ballpark now is most of it most of the competing jurisdictions.
Thanks, John that's very helpful. And then maybe I can switch gears and ask you about the Manto Verde sulfide.
There's some language in your release that talks about.
Spare capacity, if you will or the ability of the front end of the circuit to do more and there is also some language in terms of potentially twinning. The line as part of phase III. So.
Presumably on the assumption that both of those happen does that mean that the the sulfide mill will run north of 70000 tons per day, if I have my numbers right.
Yes.
That would be correct.
We obviously designing the COVID-19 multiple of 32000 tonnes a day.
We need to.
We have identified is that certain major pieces of equipment, particularly the crushers and the mills has additional capacity we need.
Need to fully evaluate what that additional capacity would look like and ultimately that's what we would call the Suez.
The future optimization of the MVP projects.
Once we've got that.
Optimize.
We put in place.
We will then look to ads.
An update cycle line to that.
Sue.
Or the.
Fully utilize the resource space.
So I think the numbers you mentioned, though.
At this stage, it's work in progress, but you're probably in the ballpark.
Great. Thank you and then just maybe if I can squeeze one last one and this one in PV for.
Given some of these investments you are targeting.
In the combination circuit as well as in flotation.
Can you tell us what the millican potentially do after that from a throughput and recovery perspective, and whether <unk> is going to play a big part in PV for.
Thanks, Nelson I'll ask castle to respond to that.
Thanks, Tom.
Okay.
I think what the way the way, we're sequencing PV or right now one of the critical elements as to.
Increased capacity of additional tailings these are old tailings facilities.
So one of the real drivers too.
Permits design, what we call TSS five.
That's really the key focus.
With that TSS five we believe we will have more return water.
So PV four is focused on the current infrastructure and the current.
Mills and crushers of what we can get out of them with an extension of some mill shells and the addition of changing the power and the motors. We believe we can get up to 70000 tons. However, that's contingent on coming up with solutions.
To generate more water and so thats what <unk> is about is one.
To permit the new tailings that we can expand and extend the mine life at the current capacity and capability of the mill, which is around 60000 tonnes a day.
And then evaluate the future opportunity.
Yes.
Increasing the capacity in the current infrastructure that we have.
And cash or other any.
Upside to your recoveries there as well.
Yes.
So we believe there are some modifications both in the moly plant, which we're actually sort of seeing at the start of this year and in the copper flotation circuit, where we believe there are some points available for copper flotation and then to your question.
Didn't answer with respect to jetty.
Still in the controlled phase of evaluation of our test.
Had versus the jetty.
<unk>.
As you well know the jetty technology.
The benefits of which happen over an extended period of time, so we're still evaluating that technology.
We think if that technology proves successful that Pinto Valley is one of the unique sites, where you can take advantage of this type of technology, because you already have sulfide.
Okay.
Dumps that are in place and it's truly incremental production.
The current production profile.
The mine itself and Thats really where the sulphide Leach technologies add benefit we don't see that the sulphide Leach technologies would be economic on a standalone basis, but certainly incremental production we continue to evaluate.
Understand.
We continue to evaluate what the results of this test program would be.
Okay.
That's great. Thanks al.
Thank you next question comes from Ross <unk> with Scotiabank. Please go ahead.
Hi, good morning.
In previous quarters, you quoted a completion percentage for the metal Verde project I believe it was 67% as of Q3 I didn't see that in the disclosure today can.
Can you give us an update there.
Yes, certainly.
So overall project completion is at 76%.
And the actual construction parts of the projects if I recall correctly is 57%.
Completion.
At the end of the year.
Okay perfect. Thank you and then I mean when.
When I take a look at your slide here of kind of upcoming catalysts clearly you've got a ton of growth options in the portfolio.
Can you maybe walk us through your thinking on priorities here like certainly I cant see how you could.
Build or develop all of these expansions and projects of one what how should how should we think around just the prioritization of these growth options.
Yeah. So it's a very good question.
No.
We're obviously ramping up.
Completing the ramp up of months as bunkers concentrated project.
EBITDA is in construction and Thats, obviously is our next big sort of transformational catalyst.
At the end of this year.
Clearly a number of studies going on in parallel with that and yesterday rock.
Tension.
Running major projects in parallel.
We will take a conservative approach to our balance sheet.
So our intention is.
We will be completing the copper iron deposits.
Face to face feasibility with sensor Domingo at the end of this year.
Our intention is then to weights upon sort of three factors one is the ramp up of months of Ed.
The second is obviously sort of building up our cash.
Our cash position.
Finalizing the financing plan for this answer Domingo project potentially bringing in a partner for this project as well.
And then finally, you sort of.
Assessing the macro environments at that point, so where is the corporate costs.
At that point.
That will really guide us as to the timing of <unk>.
The trigger on Sunset Domingo.
Yeah.
So that is very clearly on Nick's policy in terms of the way we step to sub debt.
We will be considering during this time to obviously, we need to ramp up months have added to fully evaluate the capacity of the system.
So understand.
How the what the most capital efficient optimization of this project will be.
I would comment that month's of Splunk, because phase two is something which.
Potentially could be done in parallel with some of these other projects.
It actually is more like a sort of brownfield.
Sustaining capex project, rather than any sort of major.
Expansion capital projects.
That's just moving us from 20000 tonnes, a day to 27000 tonnes a day using.
Using unused last question the thoughts we've had quite a few days, we will have achieved 25000 tons a day already with the current plants.
It really is just seeing what pieces of the plant we need to.
Kind of a debottleneck.
I think that that is a project, which conceivably would happen in parallel.
I would say that fundamentally.
Orders after we complete months of it.
Development projects.
Move to sensor Domingo.
After we will optum.
<unk>.
<unk> and from there we would look to move into the full months of <unk> Phase II project.
Thank you that's very helpful.
Sure.
Ladies and gentlemen, asking remind us should you have any questions. Please press star followed by one.
Next question comes from Ben <unk> Falcon Modinis Clarksons Securities. Please go ahead.
Hey, guys.
Seems like.
<unk> plant is getting sort of.
Less upfront.
Our future of them.
With the potential of peak leaching already in 2025.
Do you have any color on sort of.
Dollar figure range on the disappearance of the Capex between.
Heap leaching.
I'll ask castle to some.
Some comments on that.
Thanks, So there's a lot of work still yet to do.
Pilot testing bench scale testing.
And plant design, but the way we look at it is in an order of magnitude discussion if a roaster is it makes us a $1 billion.
As <unk> plants and the required infrastructure would be in the one hundreds of millions of dollars and that's sort of where we are at all be a function of the size and what modifications we need for our current agglomeration circuit.
And so that's sort of what we're saying and then there's the associated costs, specifically for Santa Domingo of what a heap leach pad and infrastructure Pls pipeline and return Raffinate line would be in addition to all that process. So those are the things that will come out.
At a scoping level with our pega when that cobalt study is due in.
We'll have more detail there, but we believe the difference in complexity and the difference in capital order of magnitude differences and that's why we're pursuing this.
Okay.
And we're pretty excited about this particular opportunity and we look forward to the pilot scale testing results.
Yes.
And if I can squeeze in one more.
Just looking at the sulfide cash costs.
In this quarter.
<unk>.
How should we think about the guided range for.
Turning to 2003 and also are there any timing considerations, we should think about for for the costs there.
Yes, I can take that Benedict our cash costs came down as you noticed have mentals blancos for Q4, and then future guidance is roughly in the same range just kind of baking in some inflationary impacts that youre seeing currently in the market for explosives and diesel still so.
That's why this the salt pets are kind of in that.
Claims that we guided to 20 to $2 40.
Okay. Thank you.
Okay.
Thank you and the next question comes from Craig Hutchison at TD Securities. Please go ahead.
Alright, good morning, guys.
You mentioned in your comments that Mentals Blancos phase two could be done in parallel with one of the bigger projects.
At the same be said about PV for or is that project more capital intensive or is it just it <unk> blancos has a better return on investment.
Hey, Greg.
Yes.
It could be I'd say the results of <unk> will come out it will be a function of.
Financing and what the current macro economic environment is.
But PV for itself I would say the big component of it is the construction of a new tailings dam.
And of course that sequence or that process is dependent on the permitting of the area, which is which.
Which in.
We've achieved the expansion at TSA for most recently with cooperation with the Forest service and it requires to go through that type of permitting sequencing also so the timing right now is in.
As in totally decided but we see that that is something we could undertake at the same time provided the financing scenario is correct.
And you mentioned just access to water. So what are some our solutions around that.
We believe that a new tailings dam itself would have a more efficient reclaim process. So that would increase our access to water specifically.
Okay.
And just my last question just in terms of leverage you guys had mentioned just always want to be served from our balance sheet, but what kind of leverage metrics that you guys kind of looking for here in order to go ahead with a new project build.
Yes, I mean, this year will be our peak leverage I guess when you look at our guidance, where we're at as we build this but we would quickly delever.
That ratio so we're trying to.
Say that below two times net leverage and then that would actually come off Craig as mental Verde comes on before we would make another financing for a construction decision on one of these projects.
Okay.
Okay perfect. Thanks.
Thank you there are no further questions I will now turn the call back over for closing comments.
Thank you.
We look forward to updating you again in April with our Q1 results.
I'll, then Stacey and feel free to reach out to general could see that if you have any further questions.
Thank you for your continued support and have a good day.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.