HBM Q4 2017 Earnings Call
Operator: Good morning. My name is Chris and I will be your conference Operator today. At this time, I would like to welcome everyone to the Copper Mountain Mining Corporation’s 2017 Year End Earnings Conference Call. All lines have been placed on mute to avoid any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Rod Shier, Chief Financial Officer of Copper Mountain Mining Corporation, you may begin your conference.
Rodney Shier: Thank you, Chris. After remarks by management, we will open the lines to participants for questions as noted. Please note that comments made today that are not of a historical factual nature may contain forward-looking statements. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcomes to differ materially from the actual outcomes. Please refer to the bottom of our latest news release and MD&A for more information. For those of you following on the webcast, we will be referring to page numbers of the supporting slides. I will now turn the call over to our CEO, Jim O'Rourke for his remarks.
James O'Rourke: Good morning, everyone, and thank you for joining this morning. Today, we will discuss the 2017 year end results of the operation at the Copper Mountain Mine and our corporate financials. I will briefly summarize the financial results and provide an update on the various operational activities after which Rod will provide the financial details for the 2017 year end. Turning to Page 2, first 2017 was a good year for Copper Mountain [Technical Difficulty] copper price coupled with the [Technical Difficulty] production rate allowed us to increase our cash position to $45 million after senior debt payments. During the 2017 year Copper Mountain completed a total of 13 shipments of copper concentrate, generated $304 million in revenue, net of treatment and refining charges and price adjustments. Gold and silver revenues accounted for about 14% of the gross revenues during the year. The total production for 2017 year was 88.3 million pounds of copper equivalent, which included 75.9 million pounds of copper, 23,600 ounces of gold, 277,000 ounces of silver. Copper production was within guidance, but at the lower end reflecting two rig plant shutdown of the concentrator while we changed the SAG mill bull gear. Now I refer to Page 3, mining activities for 2017 continued to be focused in the [Technical Difficulty] majority of the ore coming from the Pit 2 area. The Oriole pit which is at the south end of the Super Pit provided about 8% of the ore processed during the period. During the year a total of 72.6 million tonnes of material was mined including 26.2 million tonnes of ore and 46.4 million tonnes of waste for a strip ratio of 1.77 to one. Our mining fleet continues to enjoy high mechanic availabilities, which helped contribute to the 198,900 tonne per day mining rate achieved. This rate was above our 2017 mining guidance rate of 180,000 tons per day. Mining cost per ton during 2017 averaged to $1.69 per ton moved. I will now refer to Page 4, provides an overview of the mill performance. During the year, the mill processed a total of 14.1 million tonnes of ore, creating 0.32% copper. Gold recoveries averaged 77.2% for the year, while mill operating time was 90.3%. The mill achieved an average throughput rate of 38,600 ton per day during the period. Mill throughput and mill operating time averaged 40,600 ton per day and 93.2% respectively during the second half of the year, reflecting the normal operation following the downtime in the first half when the SAG mill gear was replaced. Now move onto Slide 5. 2017 site costs were $1.38 per pound of copper produced, and total cash costs were $1.81 per pound sold, both net of precious metal credits. These are compared to site costs of 1.17 per pound copper produced and total cash costs of $1.60 per pound copper sold, net of precious metal credits for 2016. Now we refer you to Page 6. We continue to strive for improvements at the mine site, and the gains made in the past few years have positioned the Company well to take advantage of the projected higher copper prices. 2018 production is estimated to be 80 million pounds of copper plus or minus 5%. Based on mill feed grade of 0.31% copper, mill throughput rate of 40,000 ton per day and a planned mining rate of 190,000 ton per day. The mine operation is well equipped to meet our guidance with the challenges being mill recoveries. A number of programs have been initiated, which includes limiting the mill tonnage to obtain a finer grind to improve mineral liberation, plus adding flash floatation and upgrading [Technical difficulty] the cleaners. I will now refer to Pages 7 and 8 and discuss exploration. On the exploration front, the Company completed two drill programs in 2017. The first drill program was within the active mining areas and focused on extending the mineralization in Pit 2 further to the west as well as adding additional resources in the Saddle Zone. This program had some success with the modest increase in mineable tons. The second drill program was in the New Ingerbelle deposit located one kilometer West of the Super Pit. The objective was to validate and confirm historical data. The program was successful in both confirming the historical data as well as extending mineralization, both at depth and laterally. Resources previously escalated from the historical data can now be upgraded to the measured and independent status thereby allowing advancement to reserves. The New Ingerbelle deposit has a potential to add an extra 10 years of mine life. Additional drill programs are planned to follow-up the 2017 drill programs and they will be completed during the summer. I will answer specific questions and during the answer-and-question period for those wishing more detail. I will now ask Rod to review the 2017 year end finance.
Rodney Shier: Thank you, Jim. As noted on Slide 9, the Company recognized revenue of 304 million for the period ended December 31, 2017, after pricing adjustments and treatment charges and this was based on sales of 73.9 million tonnes of copper, 23,800 ounces of gold and 264,800 ounces of silver. The average realized copper price for the 2017 year was US$2.82 per pound as compared to US$2.19 per pound for the period ended December 31, 2016. Copper prices increased by about 28% year-over-year. As noted on Slide number 10, cost of sales for the year ended December 31, 2017 was 245 million which resulted in a gross profit of 59.1 million as compared to cost of sales of 258 million which resulted in a gross profit of 19.6 million for the year ended December 31, 2016. General and administrative expenses which include some mine site administrative expenses were 6.7 million for the year ended December 31, 2017 slightly above the 5.6 million for the comparative 2016 year. For the year ended December 31, 2017 the Company recorded finance expense of 13 million on par with the finance expense of 12.6 million for the year ended December 31, 2016. Finance expense primarily consists of interest on loans and the amortization of our financing fee. For the year ended December 31, 2017 the Company recognized a non-cash unrealized foreign exchange gain of just under 21 million compared with a non-cash unrealized foreign exchange loss of 13 million for the year ended December 31, 2016 which primarily relates to the Company's debt as is denominated in U.S. dollars. During 2017, the Company recognized a non-cash unrealized loss on the interest rate swap of only $87,000, this compares with a non-cash unrealized loss on the interest rate swap of 91,000 for the year ended 2016, and this is all related to the revaluation of this interest rate swap liability required under the Company's loan agreements. It should be noted that these adjustments to income are required under IFRS are non-cash in nature, as outlined in the Company's MD&A and statement of cash flows. For the year ended December 31, 2017, the Company recorded a current resource tax expense of 1.18 million as compared with a current resource tax expense of 1.15 million for the previous year. This all resulted in a net income attributable to shareholders of the Company for the year ended December 31, 2017 of 47.9 million or $0.32 per share as compared to net income of 7.7 million or $0.06 per share for the period ended December 31, 2016. As you can see on our income statement, foreign exchange gains and losses can vary significantly on a quarter and yearly basis. Therefore, we really need to look at adjusted earnings, adjusted EBITDA to better measure the Company's financial performance. After we remove all the accounting non-cash items the Company reported adjusted EBITDA of $90.9 million and an adjusted earnings of $35.8 million or about $0.27 per share for the year ended December 31, 2017, compared with an adjusted EBITDA of $55 million and an adjusted loss of $11.7 million or $0.09 per share for the year ended December 31, 2016. This increase in adjusted earnings is primarily due to the increase in the copper price and clearly, it demonstrates the Company’s leverage to the copper price. As noted on Slide 11, the Company had cash flow from operations before working capital changes of $102 million during the 2017 year or about $0.77 per share as compared to $68.9 million for the 2016 year or about $0.55 per share. The Company continued to add cash to the balance sheet and pay down debt and ended 2017 year with $45 million in cash, and cash equivalents and this after paying down $50 million in principal and interest since the start of the year. At the end of the year, the Company also had an additional $15.4 in concentrate sales receivable and $11.3 million of concentrate inventory ready to be shipped. In conclusion, we enjoyed a strong operational year that has paid down debt and placed cash on the balanced sheet. We hope to enjoy a continuing positive copper price trend as we add resources and reserves, work towards increasing our mine life and continue to implement our business growth strategy with the acquisition of Altona that is scheduled for our shareholder vote on March 26. We would now like to open the lines for any questions people may have.
Operator: [Operator Instructions]. Your first question comes from Orest Wowkodaw of Scotiabank. Your line is open.
Orest Wowkodaw: Hi, good morning. I was hoping we can get an update on the Altona transaction, specifically when we could expect, I guess, the circular filed from Copper Mountain side, and then I had some questions also about the required vote from both companies. Can you give us the specific thresholds that need to be met in order to approve this transaction from both sides from a shareholder vote perspective, please?
Rodney Shier: Yes, sure. With respect to the transaction, the record date for both companies was last Friday, February 16. You are going to be seeing circulars mailed out this week on the 22nd. With respect to Copper Mountain, we have a single threshold for vote and that’s just a majority of votes at the shareholder meeting.
Orest Wowkodaw: Did that require like 50.1%? Or is that…
Rodney Shier: Exactly. Yes, exactly. Orest, that’s right.
Orest Wowkodaw: Okay. 50.1%. Okay.
Rodney Shier: And then down with respect to Altona’s shareholders, Yes, and our vote, as I noted in the top there, we are voting on the 26th of March. With respect to Altona’s shareholders, they need to get 75% of their shareholders voting and get a majority vote at the meeting, so 50.1% of those at the meeting. So there is sort of a two-tier threshold there.
Orest Wowkodaw: Okay. And both those votes are on the same day?
Rodney Shier: Yes, they are.
Orest Wowkodaw: Okay. Thank you very much.
Operator: Your next question comes from Stefan Ioannou of Cormark Securities. Your line is open.
Stefan Ioannou: Thanks very much guys. Just wondering, just looking with exploration going for this year, have you set a sort of a budget yet in terms of how much drilling you might do at New Ingerbelle or what additional drilling needs to be done there to really sort of get you ahead on the resource. I mean do you have enough drilling right now to sort of update the resource, or do you want to do some more drilling before you do that?
James O'Rourke: Sure. If we want to expand resources looking at probably about 10,000 to 15,000 meters of additional drilling that we would like to complete, hopefully this year the budget has not been set at this time.
Stefan Ioannou: Okay that’s great. Thanks very much. And is there much drilling plan in the Super Pit area still or is it sort of just as we have been seeing over the last few years or is there any major change this year in sort of Super Pit drilling?
Rodney Shier: I guess where we are just to clarify that point, as you know we have to get approval from our banks every year, so we have put out a place holder in there, about 1.5 million [Technical Difficulty] drilling this year, and either needs to put that program in and get approved as a second step by our Board before we can go spend that money.
Stefan Ioannou: And you could do 10,000 to 15,000 drilling if the budget permits and you would do that and so it would be - New Ingerbelle resource update like late this year end, or would that sort of - the anticipated timing for that?
James O'Rourke: No, I think what we are looking at, we have the drilling right now to do an update resource.
Stefan Ioannou: Okay you did, yes.
James O'Rourke: We plan to put that out, probably mid-year.
Stefan Ioannou: And then you put these about potentially from additional drilling through the summer?
James O'Rourke: Right, yes we will continue to try and expand it.
Stefan Ioannou: Okay great. Thanks very much guys.
Operator: Your next question comes from Alex Terentiew of BMO Capital Markets. Your line is open.
Alex Terentiew: Hi guys, just a couple of questions for me, first cash cost in the quarter 205 a pound, they were up this quarter from previous quarters, can you just give a bit of color on what drove that and if you are seeing some cost inflation come back to the mining industry now that the industry is doing a little bit better again, I will let you answer that and then I will ask my next one?
James O'Rourke: You can go first.
Rodney Shier: Yes, Alex, December is a year where we payout the bonuses to the employees at the mine site and they did achieve their production cost and production target numbers, so they got full bonus this year, so there would be a little bit extra expenses in there and that would see a increase. Yes I did that because I noticed that too, and I did the calculation and if we did a similar production year as last year, our costs would have been very similar, I think it was all-in of $1.65 compared to where it was. So I think it's also the little bit lower production.
James O'Rourke: I think also you will probably notice that our gold production was down a little bit, so the credits were a little less, but with regard to your question about pressure on the costs, so far we haven't experienced too much, but we have little bit in labor, we have had the couple of trucks issue which will add to the costs bottom line, and also I think fuel is probably one of our biggest uncertainties, as you say as global economy strengthens a bit, maybe fuel prices will go up and that has an effect on us. But I think that then you can math.
Alex Terentiew: Okay that’s very much in line with kind of what we are hearing form some other companies but I just wanted to check. Last question, I understand the new technical report mine plan update is in the works, but I was just wondering if you could walk us through little bit of changes between the 2015 Tech Report which calls for higher grades of around 0.37 copper in 2018, versus your guidance now for 0.31%. Maybe just walk us through what is changed in your mine plan and maybe what could we expect in this new update.
James O'Rourke: I think the biggest change was during the period of low copper prices, we moved more to the north of the Super Pit area where the gold grades were a little higher and the copper grades were lower. So in Pit 2, we had moved there away from the Pit 3 area where you had the higher copper grades. And I guess if you look at last year's results, we produced about 30,000 ounces of gold last year and only about 23,000 ounces this year. So the gold grade has been lower, but - sorry, the gold grade has been lower this past year, probably a lot due to the recovery and whatnot, but also depending on the areas of the Pit we are in. But there was a conscious decision to move in the probably 2015, 2016 era from the Pit 3 area which had the higher copper grades to the Pit 3 area which have had the lower copper grades and the higher gold grades.
Alex Terentiew: Okay. And for the new mine plan, like I said, I understand it's in the works. But are you kind of thinking of a relatively smooth grade profile or would there will be some periods of peaks where, like I said previously, you had some going to 0.37%, I think maybe even a little bit higher, but then obviously offset by some periods of lower grades as well.
James O'Rourke: Well, I think one of the things you probably noticed is that the 2016 drill program was quite successful in extending the Pit 2 area to the west and we do have some provisions ultimately to backfill Pit 2 once it's mined out and we don't want to sterilize that extension. So, we will be probably a little into that northern area of the Super Pit.
Alex Terentiew: Okay. Great. Thank you.
Operator: [Operator Instructions] Your next question comes from Marco Rodriguez of Stonegate Capital. Your line is open.
Marco Rodriguez: Good Morning guys. Thank you for taking my questions. I was just wondering if you can really talk a little more about your thoughts share regarding recovery rates for fiscal 2018 and beyond, I know you have made some comments in terms of some items that you are looking to do to kind of bring that up. Should we be thinking that it kind of stay safe steady here around that 77% rate or should we think that you can kind of make some meaningful improvements there?
James O'Rourke: Well, we are planning about 79%.
Marco Rodriguez: Got you. Okay. And last question here, I'm not sure if I missed this from the call, but was there any sort of CapEx guidance in the fiscal 2018?
James O'Rourke: No. We didn't give any guidance, but we are typically around $5 million, $6 million a year.
Marco Rodriguez: Got it. Got it. Thank you very much. I appreciate your time.
James O'Rourke: Okay. Thank you.
Operator: There are no further questions at this time, I will return the call to our presenters.
Rodney Shier: Okay. We would like to thank everybody for dialing in and as usual if you have any direct questions, please call or e-mail, Jim or myself directly, and we would be more than happy to answer them. Thank you very much and have a great day.
Operator: This concludes today's conference call. You may now disconnect.