ACG Metals Limited (ACG) Earnings Call Transcript & Summary

Coming to the financials, we also announced the H1 '26 financials, I think beating market expectations because, obviously, we were blessed with higher gold prices in the first half, but we also were really disciplined on our cost side. So $90 million revenue and EBITDA of about $50 million and the cash flow of $30 million, which is even a bit understated due to some adjustments, but ultimately, still very cash-generative business. We still had like about $60 million on the balance sheet in cash by the end of the first half. Obviously, we have finalized construction since then. We are now in a ramp-up phase. So the net debt is obviously now increased. But as soon as the sulphide starts producing, the cash will flow and the net debt will get very, very healthy in no time. A few items on the balance sheet that worth discussing. Again, the operating cash performance is still very strong. As I said, very strict cost control. I still sign off every invoice that we are sending. We have a very good efficient tax rate in Türkiye. The government announced just 2 months ago that they will reduce the corporate income tax from 25% to 12.5% starting in '27. So that will even further reduce our cash tax burden from next year. And the noncash IFRS adjustments you've seen similar to what we had in the last year, it's basically noncash items, and it's purely because copper prices increased and our share price increased so for a good reason. The last point on the financial side, maybe to mention is our bond. We have a $200 million bond outstanding in the Nordic bond market. We started this journey with a 14.7% coupon. The yield has been much, much trading up. So we have now a yield above 9% roughly. Everybody is expecting us to refinance, and that's why we kind of hit a plateau. There's not much more upside from here in the trading. But obviously, we know that we can refinance this cheaper now, and we intend to do this either in January where the first call date is or even before.

So what does this mean in terms of value? I think the numbers are staggering. I would challenge anyone to find another copper producer globally that's able to put copper production facilities at below $9,000 per tonne of copper. You see the biggest and apparently the best mining company in the world doing 16,000 to 30,000 on their brownfield projects. So with this type of attractive capital intensity, it's obviously much better for us to focus on getting value from our existing assets than try to buy something more expensively. We certainly will continue to grow organically and through M&A, but this is our benchmark. And the fact that we have revised the guidance, the average production forward going is really value accretive for Gediktepe. The production here, as I mentioned, doesn't include the processing of the new oxide ore from the deposit we acquired. That would add roughly 3,000 copper equivalent tonnes to what we have. The cash flow on the bottom of the slide is at consensus at spot, obviously, that will be considerably higher. In terms of valuation, given $1.2 billion NPV and our market cap today, we are trading at a very, very significant discount to other copper companies on the London Stock Exchange. So that gap we believe will be gradually closed as we announce commercial production, shipments of concentrate and as we get to the full installed capacity early next year. Finally, that kind of 0.6x P/NAV that we see in the previous page is very, very much below any similar sized company, whether in London or globally. But other multiples point to the same discrepancy in -- versus peers, especially striking is free -- price to free cash flow multiple given our very high cash flow generation. In terms of what is coming for the shares in the next 6 to 12 months, number one, obviously, is operational delivery. That is first and foremost, ramping up the sulphide plant to full commercial production by the end of the year. Full commercial production is typically defined as 70% of nameplate capacity and then ramping it up to the nameplate capacity next year. Second, building the SART plant, which we aim to put into production in Q3 next year. And then starting processing of the new oxide feed from the new license we acquired in the middle of next year. On the capital balance sheet optimization, we're likely to refinance the bonds even end of this year that will further reduce our interest. And on the capital markets, we have -- 2 years ago, we struggled with low liquidity. That has improved dramatically, but we do expect further improvements going forward, especially as we get included in indexes. The next one for us would be FTSE 250, which is approximately when we will have approximately USD 750 million in the market cap. We are on the main board so we will be included in that index as we move forward. So the net asset value per share at spot is GBP 34 -- sorry, at consensus is GBP 34. At spot, that is considerably higher over GBP 40, and that is the direction for travel in the next 6 to 12 months. That is a brief presentation. It's all we wanted to say. Let us move to Q&A.

Patrick, perhaps I'll take the first one and you take the second one. So the first question we have is guidance now is 36,000 tonnes of copper equivalent for the next 5 years. Does this envisage more or less equal annual production or it's going to be lower in '27? And what is the guidance for '27? So obviously, 36,000 is average. Next year, it's likely to be less than that because we will start production from the SART only in Q3 and the flotation facility will be ramping up to the full nameplate capacity in Q1 next year or so. We will publish our guidance for 2027 in the beginning of the year as a customary.

Yes. The second question is regarding the cost increases from many other companies in the mining sector. And as a result of the warfare in the Gulf, if there's a chance that we also have to increase the AISC projections. Ultimately, there is obviously about $2.44 we have as a dollar per pound copper projection in the CPR. Obviously, today's prices are closer to $6 per pound of copper and so there's a very significant margin we have. Important to know is that in this $2.44, the oxide production that we have on top is not included. So this byproduct revenue will further decrease our AISC actually. On the other side, you obviously have a bit of inflation. You have a bit of increased prices there. But this is pretty temporary and it's also offset by the lira depreciation we see in Türkiye. So we don't see that there is a significant jump in our AISC because we have some benefits that are not included in those. But we also see the lira depreciation kind of offsets the inflation we see in country. And therefore, it's been pretty stable over the last 3 years of the operation already.

Patrick, maybe you can do the next question as well.

Yes, sure. So the question is about the accounting adjustments that resulted in the earnings loss during H1. So again, this is something that we've seen already in the end of the year. So we have 2 adjustments that we do. One is for the warrants, we have a couple of warrants outstanding. And it's a pretty good issue to have because our warrants increased about 800%, 900% since we actually started the company. But given in IFRS, you have to do fair value adjustments. We have to basically fair value the price of the warrants each time we report our financials, which means that we had to do, again, like a negative effect in the P&L. The most important thing, this is a noncash adjustment. So okay, it's decreasing our earnings per share on an accounting basis, but actually, the cash flow per share is still the same as it was before. And the same is for the copper price bonus that we have. We have like a deferred potential payment to Lidya, which is due in '28 and '29, and that is based on a copper price. So given copper prices increased significantly, we again had to do a fair value adjustment, noncash item for now, only relevant in '28 and '29 by when we will obviously produce significantly higher cash flows than we're doing today. So it's really a nonissue for me personally.

The next question is, how are you thinking about acquisitions in a high copper price environment, also considering our P/NAV is 0.57. Very simply, we are not going to do the deals for the glory. We're only going to do the deals that create shareholder value. Over the last 2 years since we acquired Gediktepe, we worked on about 5 transactions. Worked, I mean, we spent like 6, 9, 12 months on each one of them. One or 2 may come back, but we said no to all of them for value reasons. We are not going to pay. I'm a shareholder, Patrick is a shareholder. We are not going to do something that destroys shareholder value. So especially when we have such a massive value creation at Gediktepe, it doesn't make sense for us to pay 1x or more NAV if we see further upside in the current asset. So what we'd like to do is to acquire an asset or a company that will give us the same or similar type of opportunity to improve the operations as we have just shown we can do at Gediktepe. It takes time to find such an opportunity. But once we do and we are working at any given moment in time, we're working on 3 or so, you see kind of the direction of travel. This is what we're good at by spending $320 million and getting a net asset value of $1.2 billion, $1.4 billion. That's what we're good at, and we want to repeat that at the next deal.

I think that addresses the next question. Maybe I'll take the last one, and then we conclude. So the last question that we've seen here is like, is the falling lira helping ACG? We obviously earn in U.S. dollar. We get our commodities sold at market prices based on the LME in London or the COMEX in Chicago. So that is basically U.S. dollar income. Our operating costs are about 80%, 85% in lira, which means that the lira depreciation depreciates our cost. It more than offsets inflation because inflation you usually see mostly in the salaries, which is part of the operating cost. And that's obviously a benefit to us, yes. The biggest validation for this is that companies like Eldorado, Centerra, First Quantum, they've been operating in Türkiye for decades. And you can see basically the C1 cost, the real operating costs are pretty stable because of that offsetting factor.

We don't see any further questions. Thank you very much for your attention. I guess that will -- one more question. A colleague writing to us that we should go to the investor conferences. We will be presenting at Denver Mining Conference at the end of September in Colorado Springs. So if anybody of you are there, look forward to meeting you. Thank you very much.

Fantastic, Artem and Patrick, thank you very much indeed for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback, which helps the company better understand your views and expectations. On behalf of the management team, we would like to thank you for attending today's presentation, and good afternoon to you all.