HBM Q3 2021 Earnings Call
Operator: 00:04 Good morning. My name is Kelsey, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Copper Mountain Mining Corporation Third Quarter twenty twenty one Earnings Conference Call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] 00:37 Please note that comments made today that are not of a historical of actual nature may contain forward-looking statements. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from actual outcomes. Please refer to slide two of today's presentation and Copper Mountain's third quarter twenty twenty one Management's Discussion and Analysis for more information. 01:03 I would now like to turn the call over to Mr. Gil Clausen, President and CEO of Copper Mountain. Please go ahead.
Gil Clausen: 01:11 Good morning, everyone and thanks for joining us. We are starting on slide three. With me presenting are Rod Shier, our Chief Financial Officer; and Eric Dell, our Senior Vice President of Operations. Also joining us today is Don Strickland, Executive Vice President of Sustainability. I'll begin by providing a brief summary of the quarter, Eric will give a more detailed discussion on our operation, and Rod will speak to our financial results. I'll conclude with an exploration update and our outlook, then we'll open up the call to questions. 01:49 Turning to slide four. We continue to have a solid quarter with production increased relative to the third quarter of last year. Production was marginally lower than the second quarter of twenty twenty one, due to lower grade ore coming from Phase 2 of the main pit. We expect a higher proportion of Phase 2 ore in Q4 with the commissioning ramp-up of Ball Mill number three. Eric will get into more details on the mine sequencing plan. Year-to-date, we've had a strong production year, and we're on track to achieve our production guidance of ninety million to one hundred million pounds of copper, which was revised upward last quarter. 02:32 C1 cash costs increased this quarter due to higher haulage costs. Last year's mining costs were lower as we revised our mine plan in response to the lower metal prices associated with the COVID-19 pandemic. This quarter, sustaining capital was higher due to new contact water management systems being installed. In addition, we advanced the development of the Phase 4 pushback of the main pit, which increased some deferred stripping in the quarter. As a result, all-in cost per pound was slightly higher in the quarter at two point seventeen dollars U.S. Year to date, all-in cost is one point ninety seven dollars U.S., due to the inflationary impacts basically of fuel and steel grinding media. 03:25 And for the year, we expect to be at the very top of our twenty twenty one AIC guidance range of one point eighty dollars U.S. to two dollars U.S. a pound. Notably, in the quarter, we successfully installed and commissioned -- and commenced commissioning of Ball Mill number three rather. We will now begin to increase throughput to forty five thousand tons per day and improve grind size and recovery. We also continued exploration drilling and announced some significant results at New Ingerbelle and Cameron Copper in Australia. I'll go into that a little later in the call. 04:06 And I'll now turn the call over to Eric, who will detail our operating results and development plan.
Eric Dell: 04:12 Thanks, Gil. I want to first start with an update on safety. To begin, we had no lost-time injuries in the third quarter. Our total injury frequency rate this year continues to trend lower and our leading indicators are trending positively. 04:27 I'll now move on to production. Turning to slide five. The mine continued to perform in line with expectations. Production remains strong and with more moderate compared to the first half of the year, as ore supply transitioned out of the higher grade portion of the main pit. 04:43 The mill feed grade in Q3 was zero point three seven percent copper. Phase 2 ore supply will increase in this quarter. This will result in a lower mill feed grade and production in Q4, while we continue to commission and ramp up production on Ball Mill three. 04:59 Seven million tons of waste was moved from Phase 4 during the quarter, accounting for sixty two percent of the total waste movement. Phase 4 mining is continuing to progress and it will be the primary source of higher-grade ore for twenty twenty two and twenty twenty three. 05:17 The one-kilometer trolley ramp construction is complete, with zero point four million tons of material moved during the quarter. The installation of trolley power poles and electrical power supply lines continued in the quarter, with completion expected in early twenty twenty two. The project is on schedule for commissioning in the first half of twenty twenty two. 05:41 Turning to slide six. The mill maintained high operating time during the third quarter, with copper recovery within expectations. The mill throughput was similar to the second quarter and continued to be restricted at times while processing very high grade ore to manage copper recovery and filter capacity. 06:04 As mentioned in the last quarter, we are advancing the installation of a second concentrate filter press and an additional cleaner column to remove the restrictions to mill throughput one in very high grade ore. I will discuss this in more detail shortly. 06:21 Turning to slide seven. We achieved a significant milestone as the installation of Ball Mill three was completed in the end commissioning in September. The new mill will increase throughput to forty five thousand tons per day and achieve a finer grind to improve overall metal recovery by three percent to five percent. Wet commissioning will commence shortly, and we expect to add slurry to the mill early this month. Full ramp-up is expected to be completed by the end of this year. 06:56 Turning to slide eight. After installing Ball Mill three, our longer term mill plan as outlined in our sixty five thousand ton a day life of mine study, includes installing another concentrate filter press and increasing cleaner circuit flotation capacity. Both projects have been advanced and are currently in construction, with commissioning planned for the first half of twenty twenty two. 07:23 This new filter press will be installed in an extension to the existing concentrate storage building as shown in the schematic on the right side of this slide, allowing the mill to maintain maximum tonnage rates while processing higher grade ore for extended periods. 07:41 A single new large flotation columns cell will be installed inside the existing mill building, as shown in the schematic on the left side of the slide. This cleaner cell will support maximum cleaner circuit recovery on all ore types, eliminating a production bottleneck at high grade and tonnage. These projects are part of our longer term growth plan and degenerate significant value by increasing our overall return on invested capital in the mill. 8:10 I will now turn the call over to Rod to go over our financial results.
Rod Shier: 08:17 Thank you, Eric. Turning to slide nine. The company had a solid third quarter that included sales of twenty four point four million tons of copper, a little over eighty three hundred ounces of gold, and one hundred and forty two thousand ounces of silver. 08:33 Revenue for the third quarter was one hundred and thirty seven million CAD, net of pricing adjustments and treatment charges. This was based on an average copper price of four point twenty seven dollars U.S. per pound of copper, as compared to two point ninety seven dollars U.S. per pound of copper for Q3 twenty twenty. This was a forty four percent increase in revenue for Q3 twenty twenty one compared to Q3 twenty twenty, resulting from higher sales volume and metal prices realized in Q3 twenty twenty one. 09:05 Cost of sales for the third quarter of twenty twenty one was seventy point five million CAD, compared to fifty two point nine million CAD for the third quarter of twenty twenty. Q3 twenty twenty one cost of sales was net of eleven point three million CAD of deferred stripping costs compared to six point four million CAD of deferred stripping costs in Q3 twenty twenty. This resulted in a gross profit of around sixty seven million CAD for the third quarter of twenty twenty one compared to forty two million CAD for the same period in twenty twenty. 09:38 Turning to slide ten. Net income for the quarter was twenty five point eight million CAD in Q3, twenty twenty one, or zero point zero eight dollars CAD per share compared to thirty three point two million CAD, or zero point thirteen CAD per share in Q3 twenty twenty. 09:54 Net income included a non-cash unrealized foreign exchange loss of about seven point six million CAD compared to a non-cash unrealized foreign exchange gain of six point nine million CAD in Q3 twenty twenty, a difference of approximately fourteen point five million CAD, which is primarily related to the company's debt that is denominated in U.S. dollars. 10:18 In the third quarter of twenty twenty one, EBITDA was about sixty one point five million CAD, and adjusted EBITDA was seventy seven point one million CAD. Cash flow from operations was ninety one million CAD in the third quarter of twenty twenty one compared to thirty nine million CAD for Q3 twenty twenty. 10:37 We made investments of twenty eight million CAD during the quarter into capital projects, of which the majority was for the Ball Mill three expansion project, which commenced commissioning right before the end of the quarter. Other projects included additional expenditures on the cleaner circuit column addition, filter press expansion, the trolley assist project and contact water management systems at the mine site. 11:02 In Q2, the company successfully completed the two hundred and fifty million U.S. bond issue. We used the proceeds from the bond issue to retire the mine senior credit facility, and in Q3 we retired the remaining balance of the term loan due to JBIC significantly, simplifying the company's debt structure and allowing the company to access one hundred percent of the cash flow from the mine. 11:29 Our total long-term debt at the end of Q3 twenty twenty one was three hundred and forty two million CAD, of which a majority is due in April twenty twenty six, almost five years out. Based on our Q3 twenty twenty one results, including the ending cash position of one hundred ninety nine million CAD, which includes sixteen million CAD of restricted cash, the net debt to twelve months trailing EBITDA was zero point six. This is a significant improvement over the comparative period last year. The company is now very well positioned financially for organic growth. 12:06 I will now turn the call back to Gil.
Gil Clausen: 12:09 Hey. Thanks, Rod. Turning to slide eleven, in addition to the development projects we're advancing, we continued to invest in exploration drilling in BC at the Copper Mountain Mine, and the Cameron project area in Queensland, Australia. 12:25 In BC, drill results announced in September at New Ingerbelle doubled the depth of the mineralization and extended it along strike and still the deposit remains open. We currently have four active drills at the Copper Mountain Mine with a fifth to be added this month. 12:45 You can see on this slide, the existing New Ingerbelle pit outline. It's shown as a dashed black line in the inset and on the long section. The current reserve outline is defined by the red dash line in the inset and the gray shaded area in the long section. 13:05 And you can see how deep we've drilled; of note, there are intersections of two hundred sixty one meters of zero point six one percent copper equivalent, and one hundred fifty three meters of zero point four three percent, copper equivalent that are below the existing reserve pit. 13:22 There is also a very long three hundred and fifty nine meter intercept of zero point four one percent copper equivalent drilled in that deposit center. This is just some of the continued strong results that bode well for potential significant increases in mineral resources and reserves at New Ingerbelle. 13:42 The company will continue to drill into twenty twenty two, and produce a new life of mine plan for publication mid-next year. We'll be introducing or we'd, sorry, we will be including analysis and trade-offs to contemplate a higher milling rate beyond the sixty five thousand tons per day expansion study released last year. 14:05 We're also drilling at the Copper Mountain North and main pits, and these deposits have significant inferred resources beyond our current pit limits. We're going to extend and upgrade these resources into the reserve categories. 14:25 Turning to slide twelve. In Australia, we have a regional exploration program currently underway, focused on the Cameron Copper Project. Cameron is located about forty kilometers South of our Eva Copper Project Development and consists of high potential copper and copper-gold targets. 14:44 Results to-date are very encouraging. We've identified three large mineralized zones, and the drilling indicates the potential for a more extensive mineralized system. The initial drill program tested the geophysical and geochemistry work that we've done so far, and these mineralized zones show more continuity with increased drilling, so they also remain open to expansion. There are numerous targets yet to be drill tested, more drilling is required and we plan to develop these targets in a systematic program for next year. 15:25 The current results confirm our belief that there is good potential for the discovery of material copper resources and we're cautiously optimistic about Cameron's potential to meet our goal of finding our next mine project development, and that would be after Eva on our existing land position in the Mount Isa region. 15:47 To wrap up, our formal portion of the presentation, twenty twenty two and twenty twenty three will be exciting years for Copper Mountain, as we continue to invest and advance our organic growth plans. We continue to have strong financial and operating results and we're focused on de-risking and reaching our growth objectives. The company is now well-positioned to achieve our vision to triple copper production from twenty twenty production levels within five years and do it the right way. 16:22 With that operator, we can open up the call for questions.
Operator: 16:27 Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question does come from Stefan Ioannou from Cormark Securities. Please go ahead.
Stefan Ioannou: 17:04 Yeah. Thanks very much, guys. Just maybe first and just like a quick housekeeping question. Just on the deferred stripping given where you're at year-to-date and Q4. Should we anticipate a similar level going into Q4 as Q3? Or will it revert back towards sort of some of the guidance you gave previously for the year?
Eric Dell: 17:23 I think -- this is Eric Dell, here. I think our stripping rates will remain similar to Q3, and so that would really apply to the deferred stripping as well.
Stefan Ioannou: 17:35 Okay. Got it. And then I guess on a more exciting note. Just looking at this current quarter, I guess on Eva itself, can you just sort of remind us of some of the key milestones here coming up in short order that might give the market a bit more clarity on exactly what's happening there?
Gil Clausen: 17:51 Yeah. Thanks, Stefan. It's Gil. We're completing our capital estimate, as a matter of fact, we're just going through the details of it now and we're updating our OpEx for a Board review in December, and we expect to make some project announcement at that time after the Board had a chance to review our updated financial models for the project. And -- so I would expect that we will have market disclosure sometime in December or in fact, at the latest, early January. But we are on track for December.
Stefan Ioannou: 18:26 Okay, great. Thanks very much, guys.
Operator: 18:29 Your next question comes from Orest Wowkodaw from Scotiabank. Please go ahead.
Orest Wowkodaw: 18:37 Hi. Good morning. Gil, could we get may be an update on how you're thinking about the sequencing and timing of the Copper Mountain expansion? Like, is the technical report that came out, I guess, in twenty twenty indicated that you'd be building that expansion in twenty two and twenty three, with production hitting in twenty four. Should we think about that is more now being pushed out in the sense of coming sequencing after Eva, assuming you move forward with that?
Gil Clausen: 19:13 So, Orest, it's -- we've had a long time to or we've had the opportunity to significantly review our operating plans since that sixty five thousand ton per day technical report has come out. We've had some additional exploration drilling obviously with New Ingerbelle. We have to refine that work on New Ingerbelle in terms of the design and sequencing. 19:41 But more importantly, we've done a huge amount of drilling in Copper Mountain North and the main pit and we're finishing up a lot of reserve work on the main pit this year. And to be cautiously optimistic about this, we are experiencing some very positive results in the drilling program, which is causing us to revise our sequencing targets just a bit. And that's the whole premise of this updated study for, we plan to put out at the end of Q2. 20:15 So when we look at the sequencing, we have actually a lot of mine sequencing on the Copper Mountain side of good grade production over the next four to five years. And I would say that from a cash flow perspective over the next five years, the best cash flow actually can come from the Copper Mountain side of the operation. So it gives us the time to look at the new information on New Ingerbelle and redevelop a phase plan. 20:44 So I would suggest that, we've got a good solid five, even seven years of really good production coming out of the Copper Mountain side, but we're going to probably phase in New Ingerbelle somewhere in the three, four, five-year period on an outlook basis, just depends on what the sequencing looks like when we're finished our work in the first quarter.
Orest Wowkodaw: 21:09 Would you still do the expansion to sixty five thousand tons a day without New Ingerbelle? Like, is that a scenario effectively or just feeding it from the main pit?
Gil Clausen: 21:18 Well, we have -- let's say, we expect to be significantly updating our reserves on that -- on the main pit or the Copper Mountain side as well. So when we're complete that study, I don't think we necessarily have to wait for investments on expansion for let's say, New Ingerbelle coming in right away if we don't -- if -- it may not be necessary to do that, I guess, is what I'm saying. So -- but that will all come to light here as we do the expansion studies. 21:57 So the question now is in our mind if we scale up, if you look at our resource and including the inferred, we have currently on our books over about fifty years roughly of resource. And our whole effort and goal here is to continue to expand and grow the reserves and then look at the appropriate scale of the plant to match that reserve and give us a productive output that allows us to accelerate some of the cash flows that we have – a potential cash flows that we have. 22:35 On a -- if you look out a number of years, that's -- I guess it's a bit of an enviable position for us to be in right now as we start to look at all this invested capital that we have at Copper Mountain, and making some incremental investments in capacity and scale to be able to affect an even greater return on that capital.
Orest Wowkodaw: 22:59 Okay. And just finally, if I could, I mean, we're hearing, quite a bit about capital operating inflation all across the mining industry, but especially Australia. At this stage, do you have any sense of what the impact could be to your outlook for Eva?
Gil Clausen: 23:19 I think you're right, I mean there is inflationary increases across the board, even Australia is still a little bit -- it's obviously closed and it's a little bit of a closed economy, a little bit right now with tightness in supply. Generally, across the board, everybody is experiencing higher steel costs and some fuel cost escalations, as we mentioned in the presentation. That's obviously the same case in Australia. They have an added issue there with respect to reinforced concrete, so cement costs are higher as well right now. 24:01 So there's a little bit of a -- in some of those commodities, there's a little bit of a hyperinflationary environment, and it's not to be expected given where we are currently. We think that that's just -- it's going to dissipate, but it is having an impact on our capital updates. We'll provide more color on that as we move into December here. But that's going to be part of the conversation we have with the Board and the disclosure we do at that time. 24:39 Operating costs, we see on the other hand are actually coming down over what we had in the feasibility study. So net-net, we think we have -- absolutely a solid project herein, and we'll provide some guidance as to do at that time. One of the issues and concerns that we have is making sure that the vaccination rates are up to the point where they can open up the state again to travel without significant quarantine and they're still in that phase right now, so we'll just have a little bit what we can see. 25:17 And we're in no rush or panic here, Orest. I mean, we've got all the hold with back to this project in our hand and we'll continue to advance detailed engineering and just be ready for a go decision at this project once gives us the green light.
Orest Wowkodaw: 25:36 Thanks, Gil.
Operator: 25:42 [Operator Instructions] Your next question does come from Pierre Vaillancourt from Haywood. Please go ahead.
Pierre Vaillancourt: 25:54 Hi, guys. Gil, could you just clarify for us what the nature of the announcement is going to be like the December announcement or early twenty two? Does this have to do with financing or a decision to go ahead? I'm just trying to get a sense of what to expect in the coming months on Eva.
Gil Clausen: 26:24 Well, as I said, we -- previously, Pierre, we've been working on finishing off the capital estimate, and I think that's really well in hand right now. As I said, we're just doing a little bit of nits on that. We've updated our OpEx rather, got our labor rates defined. We've got things like nailing down our costs and other things that are actually key cost drivers, so that will be updated in this study. 26:54 And the project financing is coming together. We've always said that we'll have all those three elements in hand to discuss with our Board in December. So without jumping to a conclusion here, all those elements will be in hand, we'll have our conversation with the Board in December. And we will discuss, Eva with the market, whether there is a development decision made at that time or a deferral made at that time or whatever, we will have some disclosure for the capital market. 27:31 So from our perspective, the project economics will be ready to be updated for discussion with the Board in December and this is a great project. It's got extremely low capital. Its capital intensity is low. The operating costs are very strong. We have a good long reserve life. It's a great project. The only element that we have that we see from a real risk perspective here right now is just whether or not we're going to have Queensland and the rest of Australia opening up as a result of their COVID restrictions because, in that environment, there is the potential for some hyperinflation to happen because it is tight close markets, so we're going to have to just address timing, et cetera, and risk associated with that.
Pierre Vaillancourt: 28:32 So as things stand now, when would you make a go or no-go decision on this?
Gil Clausen: 28:43 I'll -- we'll let you know in December.
Pierre Vaillancourt: 28:45 Okay. Can you elaborate a little bit, just update us on financing? I know, Rod, you've mentioned you want to not do equity, maybe just update us a little bit on your thinking there held out evolved.
Rod Shier: 29:10 Sure, Pierre. One of the things that we did, as you know, as part of that bond financing is a lot of this access to cash flow from the Copper Mountain Mine, one hundred percent and so we view that as our equity source for Eva project and combining that with standalone project financing, we believe we can finance this project without further dilution to the company.
Pierre Vaillancourt: 29:38 Okay. So does that, for example, involves streaming is that still on the table?
Rod Shier: 29:47 I mean we keep all options open and you're done at the very end, but we certainly are looking at more traditional project financing.
Pierre Vaillancourt: 30:01 Got it. Okay. Thanks a lot.
Operator: 30:04 There are no further questions at this time, Mr. Clausen. You may proceed.
Gil Clausen: 30:08 Hey, thanks everybody for joining us today. I just want to wish everybody a safe and happy holiday season and certainly have a productive day. Thanks.
Operator: 30:26 Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.