Q3 2024 Ero Copper Corp Earnings Call
Thanks, see ya!
Speaker Change: Thank you for standing by. This is the conference operator. Welcome to the era copper third quarter, 2024 operating in financial results conference call. As a reminder, all participants are in the Elisanoly mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions.
To ask a question, you may press star, then one on your telephone keypad. Should you need assistance storing in the conference call, you may signal an operator by pressing star, then zero.
Speaker Change: I would now like to turn the conference over to Courtney Lynn, Senior Vice President of Corporate Development, Investor Relations and Sustainability. Please go ahead.
Courtney Lynn: Thank you, Operator.
Courtney Lynn: Good morning and welcome to AeroCopper's third quarter earnings call.
Courtney Lynn: Our operating and financial results were released yesterday afternoon and are available on our website. As are our financial statements and MD&A for the 3 and 9 months ended September 30, 2024.
On the call with me today are David Strang, Eros co-founder and chief executive officer, Makko DeFilippo, president and chief operating officer, and Wayne Drier, chief financial officer.
Courtney Lynn: We will be making forward-looking statements that involve risks and uncertainties from which actual results may differ materially.
Courtney Lynn: As a reminder, and unless otherwise noted, all amounts are in U.S. dollars. I will now pass the call over to David Strang.
Courtney Lynn: Bye.
David Strang: Thank you, Courtney.
Speaker Change: We appreciate that this is a busy week, especially with the news surrounding the U.S. presidential election. So thank you all for taking the time to join us today.
David Strang: Before diving into our third quarter results, I want to take a moment to discuss the leadership succession announcement we made yesterday.
David Strang: This transition is something we've been thoughtfully planning over the last two years, beginning with Noel's decision to step down as Executive Chairman in January of 2023.
Courtney Lynn: Snow's contributions have been instrumental in shaping Aero Copper from its early stages into the successful, high-growth copper producer we are today. And I am immensely grateful to have him, taken this unimaginable journey with him over the past eight years.
Noel: As I step into the role of Executive Chairman, I am excited about what lies ahead for IRO. I remain fully committed to our long-term success and look forward to continuing to support our growth in this new capacity.
Noel: with Makko assuming day-to-day leadership of Euro as president and CEO.
Courtney Lynn: We are incredibly
Courtney Lynn: capable heads.
Courtney Lynn: Makko has demonstrated exceptional leadership.
Courtney Lynn: advancing our strategic growth initiatives including the successful construction of Tokoma and strengthening our culture of accountability. I have absolute confidence in his ability to lead IRO into this next chapter.
Courtney Lynn: I am also pleased that Makko will have the full support of Jelson Batista.
Courtney Lynn: who joined us in September in anticipation of this transition.
Courtney Lynn: Jelson brings a wealth of experience from his 25 years in the mining industry, most recently serving as Chief Operating Officer of ArcelorMittal's Mining Division.
Courtney Lynn: His expertise will be invaluable as we continue to strengthen our operations and execute on our growth strategy.
Courtney Lynn: With that, let's move to our third quarter operating financial results.
Courtney Lynn: This past quarter brought both notable successes to celebrate as well as new challenges for our team to navigate.
Courtney Lynn: Among the successes was the completion of construction of Teotihuacan Operation, culminating in the first production of the first saleable copper concentrate in July 2024.
Courtney Lynn: Reaching this milestone just over three years after the publication of Tukumar's Optimized Feasibility Study in September, 2021 is a testament to our team's extraordinary dedication and hard work.
Courtney Lynn: What makes me most proud, however, is that we achieved this milestone without a single lost time injury.
Courtney Lynn: Another important milestone in the quarter was the execution of a definitive earning agreement on the Furnas Copper Gold project with a subsidiary of Valley Base Metals in July, consistent with the terms outlined in the binding term sheet announced in October 2023.
Courtney Lynn: We are delighted to partner with Violet Base Metals on this opportunity and look forward to advancing the project towards a final investment decision over the next few years.
Courtney Lynn: Shortly after executing the agreement, we applied for the drilling permits required to commence the Phase I drill program, which we received in September.
Courtney Lynn: Then in early October, we published an initial NI43-101 compliant mineral resource estimate.
Courtney Lynn: based on a contemplated high-grade underground mine scenario.
Courtney Lynn: In mid-October, the first drill rig arrived at site, and we kicked off the 28,000-meter Phase I drill program, which will focus on infill drilling and extending high-grade zones within the broader deposit to depth.
Courtney Lynn: As of the end of October, we have two drill rigs on site, with an additional two rigs expected to arrive by the end of this month.
Courtney Lynn: Our plan includes drilling approximately 4,500 meters in the fourth quarter, with the remainder scheduled for 2025.
Courtney Lynn: Alongside these achievements and strong progress we made in executing our growth strategy, we encountered operational challenges of both Karibu and Tukama.
Courtney Lynn: On a positive note, we achieved an 11.9% increase in copper production at Katariba during the quarter, producing 9,920 tons of copper in concentrate.
Courtney Lynn: driven by higher mind grades both for males and for large.
Courtney Lynn: This improvement reflects progress in developing high-grade stopes at Pilar during the quarter. However, underground development rates at Pilar have not advanced at the pace we had anticipated, primarily due to underperformance by the third-party contractor we engaged for this work.
Courtney Lynn: To address this, we are bringing on a second contractor before your end.
Courtney Lynn: In the meantime, lower mining rates at Paola are expected to extend into the fourth quarter. As a result, we are adjusting our four-year production guidance at Karaiba to 35,000-37,000 tons of copper in concentrate production.
Courtney Lynn: In addition to higher copper grades, several positive factors contributed to this impressive performance.
Courtney Lynn: As mentioned in our previous conference call, the tightness of the copper concentrate market enabled us to secure some of the most favorable treatment and refining terms we have ever seen.
Courtney Lynn: which kicked in as of May 2024 for both Karahiba and Tukama.
Courtney Lynn: Along with this, we also experienced higher gold by-product credits with regards to improving gold prices.
Courtney Lynn: This reduction in unit operating costs supported improved operating margins at Karahiba.
Courtney Lynn: At Tucumah, we began the quarter on a strong note, completing our first 24-hour shift of continuous mill operations and producing our first saleable concentrate in July. This positive momentum continued through most of August as we gradually ramped up mill throughput.
Courtney Lynn: However, as we approached higher throughput levels in late August, we encountered intermittent voltage fluctuations on the regional third-party power grid, which limited our ability to sustain higher throughput levels continuously.
Courtney Lynn: Initially, we were informed that the voltage fluctuations were due to regional wildfires, which led power utilities to reduce voltage throughout the transmission lines.
Courtney Lynn: Following a decrease in wildfire activity, the area, however, was struck by a severe windstorm.
Courtney Lynn: causing a 10-day power outage that impacted industrial power consumers including our Tukama operation.
Courtney Lynn: After power was restored, we safely restarted mill operations on October 16th. However, as we ramped up mill throughput once more, we observed a recurrence of the voltage oscillations initially attributed to wildfires.
Courtney Lynn: While the root cause remains under investigation, we've promptly deployed an engineering team to implement a mill power management solution, allowing for continuous plant operations despite minor voltage fluctuations.
Courtney Lynn: Since implementing this solution last week, the plant has maintained continuous operations and is increasing throughput daily and advancing toward full capacity.
Courtney Lynn: Due to the intermittent power disruptions, total mill throughput and consequently copper production for the third quarter was below plan.
Courtney Lynn: with throughput totalling 110,788 tonnes and copper production coming in at 839 tonnes of copper concentrate.
Courtney Lynn: The power issues encountered from late August through most of October have also extended our ramp-up to commercial production.
Courtney Lynn: As a result, we are revising our four-year copper production guidance for tukama to a range of 8,000 to 11,000 tons in concentrate.
Courtney Lynn: In light of the anticipated delay in achieving commercial production, we are narrowing our COPPIT C1 COPPIT Cash Cost Guidance to include only Kataiba, where we are maintaining cost guidance at $1.80 to $2 per pound for the reasons I outlined earlier.
Courtney Lynn: Before discussing Giavantina's performance, I'd like to briefly address our expectations for copper production in 2025.
Courtney Lynn: While we are still finalizing our production numbers for next year's budget.
Courtney Lynn: We anticipate that Caterpillar will initially underperform relative to previous 2025 guidance as its second development contractor ramps up in the first half of the year.
Courtney Lynn: However, we expect Tukama's production to trend towards the higher end of previous guidance due to positive grade reconciliation.
Courtney Lynn: Turning now to our Giavantina operations, we delivered another quarter of strong performance with gold production totaling 13,485 ounces.
Courtney Lynn: As mentioned on our second quarter conference call, gold grades were expected to be lower in the second half of the year, leading to decreased production and higher unit costs in the third and fourth quarters.
Courtney Lynn: Consistent with these expectations, our third quarter C1 cash costs and all-in sustaining costs for the quarter came in at $539 and $1034 respectively per ounce of gold produced.
Courtney Lynn: For the full year, we are reaffirming our increased gold production guidance range of 60 to 65,000 ounces and maintaining our reduced cost guidance range of $450 to $550 per ounce for C1 cash costs and $900 to $1,000 per ounce for all-in sustaining costs.
Courtney Lynn: Before I hand the call over to Makko and Wayne, I'll briefly cover our quarterly financial results.
Courtney Lynn: Our financial performance for the quarter reflects an expansion of operating margins driven by a significant reduction in unit costs at our Cataiba operations and higher realized gold prices at Chaventina.
Courtney Lynn: This margin growth led to quarterly operating cash flows of 52.7 million and adjusted EBIDA of 62.2 million.
Courtney Lynn: A liquidity position also remains strong with total balance sheet liquidity of 125.2 million at quarter end.
Courtney Lynn: As we continue ramping up production at Tucumán, we believe we reached the cash flow inflection point in October and anticipate building additional liquidity throughout the end of the year.
Speaker Change: I'll now pass the call to Makko to discuss our operating results in more detail. After which, Wayne will provide more detail on our financial results.
Makko DeFilippo: Thank you Dave and good morning everyone. Before commenting on our third quarter operating performance, I want to start by saying that I am truly honored to have been appointed the next CEO of Aerocopper.
Courtney Lynn: Having been with Aero since before our IPO, I take immense pride in what we've been able to achieve together over the past eight years.
Courtney Lynn: We have a strong underlying asset base, an outstanding portfolio of growth projects in Brazil, a proven mind-building team, and an extremely dedicated global workforce.
Courtney Lynn: I'm excited and deeply committed to continuing to serve our shareholders and to lead the sustainable execution of Aero's next stage of growth.
Speaker Change: Switching gears back to our operations and starting at Tucumã, as David mentioned, we navigated a highly dynamic ramp-up environment over the past few months due to intermittent voltage variability that was compounded by a major windstorm related disruption in early October.
Speaker Change: While these obstacles created some setbacks in the pace of overall ramp-up progress following a very successful July and August,
Speaker Change: I am proud of the resilience of our engineering project and operational teams on site.
Speaker Change: who in a joint effort with other major industrial users in the region were able to safely restore power to site in just 10 days.
Speaker Change: In parallel, over the past few weeks...
Speaker Change: we work closely with our automation partners and our broader engineering group to adjust our mill drive to accommodate this voltage variability. I'm optimistic about the progress we are seeing, and we've been able to achieve and sustain higher throughput levels at Tucumán since the implementation of this solution.
Speaker Change: It is worth mentioning that our recoveries and concentrate grades have continued to remain at or above design levels. During the second half of October, following restoration of power to site, we produced more copper from Tucumán than all of Q3, averaging
Speaker Change: recoveries of around 90% and concentrate grades above our design target of 25%.
Speaker Change: With the capital spend of Tucumá behind us and production and copper sales increasing, we're confident that Tucumá is going to be a fantastic operation.
Speaker Change: At Cariba, we saw a notable improvement in production and operating margins relative to the second quarter, driven largely by increased grades from the Palarm-Vermeos mines.
Speaker Change: However, as Dave mentioned, our ability to execute on the plans we developed for the third quarter were impacted by underperformance of a third-party development contractor in the Pillar Mine.
Speaker Change: The lower achieved development rates have now been reflected in our revised guidance range for CARIBBA.
Speaker Change: To improve access to high-grade stoves and increase operating flexibility, we're mobilizing a second third-party contractor to site by year-end to support our development efforts in 2025.
Speaker Change: At Firdas, I am pleased to report that the Phase I work program has begun in earnest, with drill rigs mobilized to site in October and the first drill core of our program now coming to surface.
Speaker Change: Our primary focus for the remainder of this year and through 2025 will be to complete the 28,000 meter phase one drill program and complete the scoping study as contemplated in the earn-in agreement. I will now turn the call to Wayne to discuss our financial results.
Wayne Drier: Thank you, Makko. As Dave highlighted, our third quarter financial results benefited from an expansion in operating margins, driven by a significant decrease in unit costs at Kariba and higher realized gold prices at Chaventino.
Wayne Drier: This resulted in higher-adjusted earnings before interest tax depreciation and amortization of 62.2 million dollars and adjusted net income attributable to owners of the company of 27.6 million dollars or 27 cents per share on a fully diluted basis
Wayne Drier: During the quarter, we took advantage of the rally in gold prices by opportunistically entering into zero-cost collars on 2,500 ounces of gold per month from January 2025 to December 2025.
Speaker Change: These contracts establish a floor price of £2200 and a ceiling price of £3425.
Speaker Change: allowing us to participate in gold price increases up to a level that is over 20 percent above the all-time high reached in October 2024.
Speaker Change: of our projected 2025 gold production at our Chavin Tino operation. With respect to our foreign exchange hedge program, we reported an unrealized gain of $9.8 million and a realized loss of $3.4 million for the quarter.
Speaker Change: with a weighted average floor and ceiling of 523 and 608 real per U.S. dollar, respectively. Ease extending through the end of 2025.
Speaker Change: Our liquidity position at the end of the quarter remains strong at approximately 125 million dollars. As Dave mentioned earlier, we believe we have passed a cash flow inflection point in October and expect our liquidity position to meaningfully increase as production and concentrate sales at Tucumar ramp up.
Speaker Change: I'll now pass the call back to David to share some closing thoughts.
David Strang: Thank you, Wayne, and thank you everybody for joining us today. Before I move into the Q&A session, I want to take a moment to express my gratitude to the entire ERO team.
Speaker Change: As I continue to be part of Euro's growth journey, I am more excited than ever about what lies ahead for us.
Speaker Change: I want to extend my best wishes to Makko and Jelson as they step into their new roles. I have full confidence they will exceed all expectations.
Speaker Change: I'd also like to thank Noel for his dedication and partnership over the past eight years. I'm incredibly proud of what we have achieved together and I wish him the best in his next chapter of his life.
Speaker Change: Now I hand the call back to the operator to open the line for questions.
Speaker Change: We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question, please press star and then 2. Our first question comes from Ralph Profitti with 8 capital. Please go ahead
Speaker Change: For more information visit www.FEMA.gov
Ralph Profitti: Thanks, operator. First off, David Makko Nelson, I offer my congratulations on the appointments and Noel, congratulations on his retirement.
Speaker Change: Thank you.
Speaker Change: Firstly, on Karaiba, if I may, it sounds like...
Speaker Change: The contractor issues are going to have a sort of a knock-on effect on dilution versus plan and reconciliation versus plan. I'm wondering if that's kind of what you meant by sort of the underperformance in the mine plan not only in Q4 but sort of the first part of 2025 and and if you can sort of help me to understand kind of what degree versus plan are we impacting dilution and reconciliation.
Speaker Change: Thank you.
Speaker Change: Yeah, thanks. Good question. And just to clarify, the issue with the third-party development doesn't have to do with dilution or any modifying factors for the stoves.
Speaker Change: It more has to do with our ability to increase operational flexibility and access additional high-grade stokes that we'd hoped would be in the plan for the second half of this year. Those are being shifted out into the first half of next year.
Speaker Change: And obviously, there's a knock-on effect to the entire plan with underperformance development rates. So, just to be clear, no impact on dilution.
Speaker Change: reconciliations or anything with respect to the soaps that are in the plan. It more has to do with the access and timing of getting to those soaps and mining them safely and successfully.
Speaker Change: allotment of its 25 megawatts on the grid at the time of this disruption and the reason I'm asking is is whether or not these Are sort of structural and systemic issues that perhaps require capital and as part of your investigation
Speaker Change: happening with the public utility and could there be some capital needed to ensure long-term reliability of the system?
Speaker Change: It's a really, really good question. With respect to the power grid and what is being done, it's...
Speaker Change: A little bit more complicated in terms of how the whole power grid works up in Pará because there are three separate power providers. Our prior provider ties into another network on which this oscillation issue occurs.
Speaker Change: Frankly, we became aware of it once and through our partners at Valley Base Metals, once the Onsepuma mine came back from maintenance and started drawing power back from, increased power from the grid.
Speaker Change: The good news is, with respect to that, is this is a situation that Vale had been dealing with historically. They have been able to put in systems in their own operations with respect to dealing with this issue.
Speaker Change: We have worked with our contractor, ABB, and working on a solution in and around. And for us, it really only affects our mill.
Speaker Change: It does not affect the rest of the operations.
Speaker Change: And so with regards to the mill, we have worked with them on software updates with regards to that, but we're not going to rest on that. Similar to what Ansipuma and some of the Vale operations have put in place, we are looking at putting another solution in place.
Speaker Change: The capital cost on these things is not excessive, it's a small amount of money, approximately a million dollars with regards to putting one of these systems in, and I can leave it to Makko to talk more broadly with regards to what that system looks like and how it performs.
Makko DeFilippo: Yeah, it's a good question. I think the main thing to take away from it is that the timing of the voltage oscillations that we experienced, I think were coincidental, although we're still working with our increased ramp-up.
Makko DeFilippo: to understand that. The solution itself, as Dave mentioned, two things were done. We immediately started engineering a contingency plan for a longer-term installation of a
Makko DeFilippo: Volatility at our substation.
Speaker Change: But in parallel, working with ABB and our engineering groups, we implemented this solution at our mill to accommodate the variability there. So I'd say the engineering for the long-term solution has been in progress.
Speaker Change: The permanent fix, if required, is not a significant investment. It's around a million dollars.
Speaker Change: Helpful answers. Thanks very much to the team.
Speaker Change: And the next question comes from Guillaume Rosito with Bank of America. Please go ahead.
Guillaume Rosito: Hi, thank you. Good morning everyone. First I'd like to also congratulate Dave on your journey and wish you best of luck in your new challenges and also Makko, wish you best of success in your new role. So my first question is on Caraima.
Speaker Change: then have some room to maybe still have some underperformances still mid-guidance or are you targeting the mid of the guidance and there's an upside risk to the top?
Speaker Change: then into 2025 when you talk about underperforming first half should we expect something the lines of the top end of the guidance and just understand what is the structure of what's going on there and what is circumstantial in terms of
Speaker Change: , and my second is to Wayne. I completely agree that we are at a time of inflection in terms of cash generation, especially as Tucumán ramps up and your capex bill goes down and then starts to generate a lot of cash.
Speaker Change: So the question is, where is that cash going? What are our priorities in terms of capital allocation?
Speaker Change: Just given the considerable underperformance of the stock recently, does it make sense to open a buyback program, or would you rather pay dividends, or would you rather take under leverage first and think about that? Just trying to understand what are your thoughts, Noman. Thank you.
Speaker Change: Yeah, so great question. I'll take the first part of that and.
Speaker Change: There was a few component parts of the question, so if I miss anything, just feel free to jump back in and let me know. But I think the primary question was on, you know, what's...
Speaker Change: systemic versus structural or temporary in nature. I think, you know, truly the development delays that we're seeing, we see as a moment in time in terms of our ability to have enough flexibility in the polar mine to continue to access high grade stoves.
Speaker Change: So, you know, we see that impacting, as Dave mentioned in the prepared remarks, we see that impacting, let's say, the first half of 2025. It's going to be a few quarters to get things back on track there.
Speaker Change: But overall, we're not seeing a major structural change in terms of the production volumes that we have over the next few years from Caribic Complex together. As I said, obviously, it's impacting this year because of that underperformance relative to our expectations, and we see that.
Speaker Change: You know, we see that impacting in the next few quarters, but by the second half of 2025, I think it's fair to say that we expect to be to be
Speaker Change: Bach in a good position with respect to operating flexibility around these high-grade stoves that will be aided by the efforts of a second third-party contractor that we're bringing on board.
Speaker Change: I think that probably covered a few of the different questions that were asked, but before we get into capital allocation, maybe just pause there and see if there's any questions on the operating side that weren't answered.
Speaker Change: I think that was great, Makko, and just one thing to make it clear, when you guys look at the guidance this year, is the top end where you guys are targeting and then have some no-no, or are you targeting the middle of the range and then have some upside in reaching the top end?
Speaker Change: Yeah, look, it's a great question. I mean, obviously, we're, you know, we've got a few months left in the year here. I think we gave ourselves a bit of room on production at Caribou.
Speaker Change: It's a very narrow range at this point, so I prefer not to comment on whether we're forecasting to be at the top end or bottom end. Let me just add in, we've just gone through October.
Speaker Change: On the revised plan, the team did a little better than what the plan had forecast.
Speaker Change: So Makko doesn't want to go, and the hesitancy is just making sure that we don't get too far over our skis. We're certainly, with regards to the plan that Jelston put in place since he's arrived, in terms of getting us back to where we need to be, October was better than what we expected.
Speaker Change: Let's see how November goes but this is this is all about getting the team to get back on track, start progressing every month and start keep improving. We've put in some conservative assumptions
Speaker Change: within this plan.
Speaker Change: Obviously, from our perspective as senior leaders of the company, we'd like the team to beat the plan.
Speaker Change: and so let's see how we're going. October was a good start.
Speaker Change: For more information visit www.fema.gov
Speaker Change: fruitful discussion around how best to handle the excess cash flow that we expect to produce. I think that's a discussion that is always robust and continually happens at our board.
Speaker Change: So, you know, I think next year we'll be at a point where we start to sort of, you know, formulate some plans on how best to start returning some of the cash to shareholders.
Speaker Change: Great, thank you very much guys.
Speaker Change: For more information, visit www.FEMA.gov
Speaker Change: And the next question comes from Connor McKay with Bentham Financial, please go ahead
Connor McKay: Thanks, Operator. And I echo the comments of congratulations there for Dave, Makko, and the rest of the team on your
Connor McKay: your new appointments. Just wondering, at Pilar, what are the cost implications you guys are anticipating of adding the second mining contractor? Is that going to impact long-term sustaining capital or operating costs going forward?
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: It's a great question, Connor. I think it's important to note with respect to third party contractors that bringing someone on board in 2025 was always part of the plan.
Speaker Change: We obviously accelerated that into the second half of this year in response to some of the challenges we had in the first quarter, so it's really a, it's just a pull forward of that plan. So when looking at our longer term.
Speaker Change: Outlaw Compliance, for the company we always had a development contractor in place starting in 2025 to increase the rate of development. We've had a third-party development contractor, in fact the same third-party development contractor, operating successfully throughout our operations.
Speaker Change: for the last several years, so this is something new to us.
Speaker Change: And as I said, it was always part of the operating plan, the idea with the second...
Speaker Change: Thank you.
Speaker Change: Got it. Thank you
Speaker Change: and Tukama. So I assume with the comments surrounding targeting the upper end of 2025 guidance, production guidance out of Tukama, you're fairly confident that commercial production is within reach in the near future, probably late this year or early next year, if I'm reading that correctly.
Speaker Change: Yeah, so let's be clear.
Speaker Change: Where we are right now, and we have to make sure everybody understood with regards to what we said, our preliminary work that we're doing right now is showing
Speaker Change: exactly what we said with regards to general guidance for next year. At the moment, you are correct, we are working, the mill is now in continuous operation. We are not seeing any voltage shutdowns of the mill.
Speaker Change: Makko and the team are now slowly ramping up that mill to commercial production levels and it is anticipated hope that we will be at commercial production within the next couple of months.
Speaker Change: It may slip into early 2025.
Speaker Change: Our hope is it's not. That's why we're using terminology like preliminary in general at this stage. Once we are better suited, once we've got through the next month with continuous operations, and as we said, continuing to ramp up through commercial production levels.
Speaker Change: then we'll be in a much better position to be able to have a more fruitful conversation with everybody regarding that. And that will dictate into our guidance that we will release in January of next year. But as it stands right now based upon the runway we see going forward here
Speaker Change: What we see is there's no reason to change our general guidance for next year.
Speaker Change: Got it. Appreciate the clarity there. Thank you. That's all for me.
Speaker Change: And the next question comes from Roald Ross with Clarkson Securities. Please go ahead.
Roald Ross: Good morning guys, congrats on the quarter and congrats on progress with with ramping up. So my first question is on Caraiba. I'm just curious if you can provide some color on the cash cost into the next year after having reached this low level.
Speaker Change: Thank you for watching. Bye.
Speaker Change: Yeah, look, I think from a cash cost perspective, there's a couple things that are creating some good tailwinds for us.
Speaker Change: I think I mentioned this last quarter, although it didn't come up this quarter, you know, in the early last year we started what we call our Full Potential Program. We've seen the benefits of that quarter on quarter, and so we're continuing to get supplier costs come down.
Speaker Change: I would say specific to Q3, we started to see the full benefit of improved treatment and refining charges, specifically related to, obviously the overall treatment and refining charges that are coming down, as David mentioned.
Speaker Change: I think it's important to note that the gold price strength continued to benefit us pretty significantly in Q3.
Speaker Change: And we also saw a weakening of the BRL during the quarter, which...
Speaker Change: If you follow the Brazilian Reg here, the last 24-48 hours has continued to be in a great spot for us in terms of improving margins relative to our expectations early in the year when we put our budget together. So I would say...
Speaker Change: You know, major tailwinds that we're continuing to experience, obviously the TCRCs, the strength of the gold price, and the weakening of the BRL overall tailwinds we expect to continue here for the next couple of months.
Speaker Change: to comment on or is it just a coincidence or should we sort of think that this discount could be also this wide going forward?
Speaker Change: Beep. Beep. Beep.
Speaker Change: No, look, I mean, we had lots of commentary on previous calls about this. Really, if you look at Q3, the copper price did slide in Q3. And so all of that is often just driven around when we ship concentrate. We're not a huge producer in terms of volume compared to some of our peers.
Speaker Change: So a lot of it is driven by the timing of shipments.
Speaker Change: and simply when you you can't take a simple arithmetic average.
Speaker Change: The timing of our shipments does drive that.
Speaker Change: Last quarter was a little higher than it was the quarter before, obviously the quarter before we saw a
Speaker Change: It's a very significantly strengthening copper price in Q2. I would suspect that most copper of our peers had a very tight range on their realized price. But that's all it is, nothing significant. Yeah, if you look at it, Q2, the LME average price was $442. Q3, the average LME price was $417.
Speaker Change: So, that's why you would see that change in the realized price is related directly to the underlying metal price offset a small amount by changes in the gold price over the same period of time.
Speaker Change: Okay, great. Lastly for Tukumar, could you give us some some color on the sustaining capex going forward as you reach nameplate capacity and everything is going as expected?
Speaker Change: Beep, Beep, Beep
Speaker Change: Yeah, look, I don't think it's appropriate at this point. We're obviously putting together our plans for next year with respect to sustaining capital. We don't see a meaningful variation from what we put on the past in terms of sustaining capital. Obviously, costs have increased relative to when we put out the feasibility study, just generally in the sector. So I think that's probably a fair comment.
Speaker Change: Thank you.
Speaker Change: But we're, you know, I'm going to hold comment on that until we put out our formal guidance in January. We're still focused right now on...
Speaker Change: on our ramp-up and getting to the commercial production level. So I suggest we revisit that in January with our four-year guidance for 2025, because we'll have to, again, put some clarity around what sustained capex is going to be. I expect it to be, you know,
Speaker Change: Fairly low in the first year of production. Obviously, we don't have a lot of it. It's a brand new plant That will increase a bit over time
Speaker Change: Yeah, great. I appreciate that. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you for watching!
Speaker Change: And the next question comes from Dalton Barretto with Canaccord. Please go ahead.
Dalton Barretto: Thanks, operator. Good morning, guys.
Dalton Barretto: I'm a little surprised to see all these operating challenges in Q3, given that we were just on site in the second week of September.
Dalton Barretto: I appreciate all the color that's been given on the call so far, but it's still a little bit unclear to me at Currie about what the root cause of the productivity issue with the contractor is. I mean, is this a newer contractor? Was there something temporary that happened, or is this more of a structural thing?
Dalton Barretto: And so I'm just wondering if you can comment on that and then maybe as you're caught up with the second contractor mid-2025 Whether you think it's sustainable on a go-forward basis at that point in time. Thanks
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: Yeah, look, it's a great question, Dalton, and I think really what you're looking at, if I go back to, you know, I think when we're talking about underperformance, it's relative to the expectation and the performance against the contract we signed.
Speaker Change: If I go, if I look at the curve of weekly increases, mobilization of equipment, mobilization and training of people, those were all behind. So when I look over the past couple of weeks.
Speaker Change: I'd say the development rates that the contract is achieving are in line with...
Speaker Change: with the full mobilization, but that mobilization took much longer than we anticipated, and largely due to the availability of equipment and resources in Brazil. I think that's a theme probably throughout the sector, but it certainly impacted our contractors' ability to ramp up.
Speaker Change: As I said, over the past couple weeks, they've increased their productivity and rates, so I don't see that as a systemic issue or like a challenge in the operation itself. It more has to do with the timing and their ability to achieve higher development rates.
Speaker Change: Okay, thanks for that, Makko. And then maybe switching gears to Tucuman as well, I think Dave said that you've only just installed that power management system last week. And I'm just wondering, I mean, have you...
Speaker Change: tested it at full capacity yet, and with your sort of regional neighbors running at full capacity yet, how comfortable are you that this is a permanent solution?
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: Yeah, look, it's a great question, Dalton. We took, you know, a couple weeks to implement the solution. The first phase was to really measure the volatility and variability that we saw, to put it into context.
Speaker Change: You know, the power arriving on site, the 138 kilovolt line, we see, you know, on millisecond frequencies, voltage drop to the 120 range.
Speaker Change: It took a couple of weeks to measure that data fully so that we could engineer the appropriate solution. As Dave mentioned, we put that in last week. We've seen the same levels of variability, that 120 range and the middle hasn't stopped turning.
Dalton Barretto: I would say that we're really encouraged, although it's only been a week, we've, if you look at the operating performance since we implemented that solution, we've been able to address the root cause of the issue at our mill. As I mentioned, there's a second, you know, a second solution.
Dalton Barretto: More expensive around a million dollars that we could implement and we started the engineering of that That solution in parallel a few weeks ago But we're really encouraged by the results you've seen with just the bill adjustment that we've done to date
Speaker Change: Dalton, I know I'm going to see you tomorrow, but Makko has just highlighted something I think we need to clarify. These voltage interruptions are generally
Speaker Change: 0.7 of a millisecond.
Dalton Barretto: So these aren't voltage fluctuations that sit there for minutes or half an hour or an hour.
Dalton Barretto: The issue with regards to it was, is the software package that was managing our mill.
Dalton Barretto: Moter was such that it had built-in safety frequencies.
Dalton Barretto: with regards to changes in voltage down to that millisecond. So what would happen was if we encountered one within, as Makko's pointed to me, 0.7 of a millisecond, the mill would go into standby mode.
Dalton Barretto: and then we'd have to just physically restart it. But the issue with regards to the restart is the whole system would take another 15 minutes to harken out to get booted up again. And when that would happen over eight times in a day,
Dalton Barretto: You can imagine how your continuous ability to operate at your...
Dalton Barretto: So we were able to operate in between these milch
Dalton Barretto: shutdowns by the safety equipment at capacity.
Dalton Barretto: But when we average it out on a continuous basis, it was because the mill would go into safe mode, or the motor.
Speaker Change: This ABB solution merely extends out that safety margin on the downside with regards to mill fluctuation. So what the mill motor will not do now is go into safe mode with regards to dropping voltage.
Speaker Change: the software package to an extent to be able to allow that when that voltage drop occurs the mill doesn't go into safe mode.
Speaker Change: Thank you.
Speaker Change: That's great caller Dave, thank you. That sounds like more of a teething pain type issue as opposed to a more structural issue. I appreciate that. Correct. That's all for me. Correct.
Speaker Change: Beep, Beep, Beep
Speaker Change: This concludes the question and answer session. I would like to turn the conference back over to David Strang for any closing remarks.
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David Strang: Thanks, Operator. Again, thank you, everybody.
David Strang: This is the last time I will be leading one of these. The next quarterly will be Makko's lead and I thank you all.
David Strang: for those who have been following us over the last eight years for the length of time you've put up with me and for those new people who are following us in the newer times, look forward to meeting some of you if I haven't met you before, but certainly supporting Makko in his role of running these quarterly earnings calls in the future. So thanks very much, enjoy your day. Bye-bye.