Amerigo Resources Ltd. (ARG.TO) Q3 FY2025 Earnings Call Transcript & Summary

Good afternoon. My name is Natasha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amerigo Resources Q3 2025 Earnings Call. [Operator Instructions] Mr. Graham Farrell of North Star Investor Relations, you may begin your conference.

Thank you, operator. Good afternoon, and welcome, everyone, to Amerigo's quarterly conference call to discuss the company's financial results for the third quarter of 2025. We appreciate you joining us today. This call will cover Amerigo's financial and operating results for the third quarter ended September 30, 2025. Following our prepared remarks, we will open the conference call to a question-and-answer session. Our call today will be led by Amerigo's President and Chief Executive Officer, Aurora Davidson; along with the company's Chief Financial Officer, Carmen Amezquita. Before we begin with our formal remarks, I would like to remind everyone that some of the statements on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations or intentions. These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested by any forward-looking statements due to a variety of factors, which are discussed in detail in our SEDAR filings. I will now hand the call over to Aurora Davidson. Please go ahead, Aurora.

Welcome to Amerigo's earnings call for the third quarter of 2025. Q3 2025 was a quarter of strong execution and resilience for Amerigo and our MVC operation in Chile. On July 31, El Teniente faced a tragic accident resulting in MVC ceasing to receive fresh tailings for 10 days. Since the accident, MVC has received lower throughput from fresh tailings than normal under the original annual budget. This condition led to a decline in monthly production in August, followed by a production recovery in September. The timely adjustments made by MVC to reduce the impact of lower fresh tailings throughput included increased historic tailings processing and fine-tuning of the concentrator plant. The lower August production forced us to adjust our copper production guidance from 62.9 million pounds to a range of 60 million to 61.5 million pounds. Our production results in October have been strong, and we remain confident in the revised guidance. Despite the impact of El Teniente's accident, during the third quarter, MVC maintained a high plant availability of 98% and continued to operate without lost time accidents or environmental incidents. These metrics reflect the strength of our operational planning and the dedication of our underground team. Stable copper prices and strong moly contributions supported total revenue of $52.5 million in the third quarter. The LME copper prices rose from an average of $4.32 per pound in the second quarter to an average price of $4.44 per pound in Q3, peaking at a monthly average price of $4.51 per pound in September. I will provide my comments on the copper market later in the call. Net income for the quarter was $6.7 million with earnings per share of $0.04. The company generated operating cash flow of $12.4 million, excluding changes in working capital and free cash flow to equity of $11.1 million. In line with the company's capital return strategy, or CRS, a quarterly dividend of CAD 0.03 per share of $3.5 million was paid. Amerigo's quarter end position was $28 million. Moly production was 350,000 pounds and moly prices averaged $24.11 per pound during the quarter. When looking at the cash cost metric, this resulted in a credit of $0.57 per pound, enabling MVC to post a cash cost of $1.80 per pound, which was lower than the $1.82 per pound of the second quarter and the $2.22 per pound of the first quarter. Based on the strong cash cost results, we have maintained our original annual cash cost guidance of $1.93 per pound. This guidance excludes MVC's collective bargaining costs. Amerigo's financial performance continues to reflect the strength of our business model and the resilience of our operations. Carmen will walk you through the detailed financials shortly. I want to discuss 3 important events that occurred in October subsequent to the end of the third quarter. On October 27, MVC fully repaid its outstanding debt. At the end of September, this debt totaled $7.5 million. Eliminating outstanding debt was one of the objectives for this year and marks the conclusion of a transformational 10-year period for Amerigo. When the company took on $100 million in debt, it was part of a strategic decision to invest in Chile and MVC's growth. This decision laid the foundation for a long-term copper producing operation that could navigate market cycles without diluting shareholder ownership. But from the beginning, we were clear, debt should not be a permanent fixture. It was a tool and like any good tool, it had a purpose and time line. Every debt repayment was a step towards greater financial strength and flexibility. Our final debt repayment affirmed the correctness of that strategic decision. It also reflects the company's resilience and commitment to shareholders. Also on October 27, Amerigo's Board of Directors increased the quarterly dividend paid to shareholders to CAD 0.04 per share. This is a 33% increase from the prior dividend and double the initial dividend under the current CRS. This dividend increase will allocate roughly 50% of the annual additional free cash flow that will become available from not carrying debt. It is an important signal of the Board's vision for the future because, as we mentioned from day 1 of the CRS, the quarterly dividend is set at a rate that is sustainable in the foreseeable future, irrespective of short-term copper price cyclicality. This is a new floor for shareholders. And as has been the case in the last 4 years, additional distributions will continue to be made through share buybacks and performance dividends. The final significant event I want to comment on occurred on October 22. On that day, MVC signed a 3-year collective agreement with its main union, the operators' union, which has 210 members. Collective agreements play a crucial role in Chile's mining industry. These agreements maintain labor peace and provide a structured framework for negotiating wages, working hours, benefits and bonuses. The agreements must balance the strength or weakness of copper prices at the time of negotiation while ensuring access to a skilled workforce and the specific economics of the operation. We had a constructive negotiation with our workers and reached a fair agreement for both parties. Now I will move on to our commentary on the copper market. The long-term themes of surging demand and supply constraints remain significant. A third important element that cannot be ignored is geopolitical interference in the marketplace. Let's start with the obvious supply constraints and disruptions. A copper supply deficit between 300,000 and 500,000 tonnes is now forecast for this year. This has already pushed copper prices upwards as evidenced by October's average LME price over $4.84 per pound. In addition to the trend of declining ore grades, specific mine disruptions at Grasberg, Kamoa-Kakula and El Teniente have resulted in the loss of around [ 518,000 ] tonnes of copper this year. Looking beyond 2025, companies such as Antofagasta Minerals and Teck have already downgraded their 2026 copper guidance. Freeport and Ivanhoe mines will likely do the same following physical inspections of their impacted mines. As I mentioned a minute ago, the current global copper supply has tightened, resulting in a deficit. This bottleneck is driven by copper concentrate availability, which has been affected by production shortfalls at the mines. At the same time, due to overinvestment, the world now has too many smelters to refine copper concentrates. The situation is reflected by the size and the movement of treatment and refinery charges or TCRCs. These are the fees that smelters charge miners to process copper concentrates into refined copper. Treatment charge or TC is the cost to process the concentrate at the smelter. Refining charge or RC is the cost to refine the metal from the concentrate. TCRCs are subtracted from the copper price to determine how much miners actually earn per tonne of concentrate. When TCRCs are low, miners earn more and when they're high, smelters take a larger share. Until 2025, TCRCs were negotiated annually between major copper miners and smelters. The agreed terms known as the TCRC annual benchmark governed long-term contracts. There is also a spot TCRC market for short-term or one-off deals, which reflects real-time market conditions and is volatile. Smelters are currently struggling to secure feedstock, which has pushed spot TCRCs into negative territory. Despite the negative spot TCRCs, smelters have been able to survive, thanks to byproduct credits from other metals in the concentrates they process such as gold or silver. However, negative TCRCs clearly put significant financial pressure on smelters whose business models depend on virtually continuous operation. In recognition of the financial stress imposed on smelters, Freeport, which is one of the traditional benchmark sellers has just abandoned the global TCRC benchmark model and has proposed a new floor cap contract model to protect the smelter margins. This model sets minimum and maximum TCRC levels, providing greater stability in volatile market conditions such as the recent negative TCRC spot terms. So in 2026, we may see a different landscape moving from the traditional stable benchmark-based system to floor cap models. However, we could also continue to see negative TCRCs under which instead of miners paying smelters, smelters will pay miners. We may also see multi-year contracts instead of annual or shorter-term contracts and a shift from TCRCs being the primary revenue source for smelters to a reliance on byproducts. In other words, one of the longest-term features of the copper market is currently under review. And this is all because of long-term stresses in copper supply, which we do not anticipate will change anytime soon. On the demand side, the global need for copper is expected to rise year-on-year, at least until 2035. Demand may be shifting regionally, but global total demand is not slowing. The main drivers of growth fall into 2 big buckets: electrification and digitalization. A few years ago, digitalization was not even discussed seriously, it announces the future copper demand. Tariffs such as a 50% U.S. tariff on most finished and semi-finished copper products are also affecting trade flows and regional inventory balances. Speculative trading continues, and we know it was very pronounced earlier this year as shown by the differences between LME and Comex copper prices. Geopolitical conflicts or the resolutions can also strengthen or weaken the U.S. dollar, which affects copper prices. Governments are now actively investing in mining companies and in some cases, prioritizing certain projects. Political intervention, resource nationalism and regulatory shifts will impact market behavior. All of these factors could lead to a copper market in 2026 that remains volatile but elevated. To end my macro comments, I will mention that Chile will now -- will hold general elections shortly. The first round will be on November 16, followed by a runoff, which is usually the case on December 14, 2025. The presidential inauguration will be on March 11, 2026. Current polls suggest that none of the candidates will get 50% or more of the votes on the first round, and that will be the contenders to our runoff with Jeannette Jara of the center-left coalition Unidad por Chile and Jose Antonio Kast of the Republican Party, who have a part right stance being the most likely candidates. In this run-off scenario, Jose Antonio Kast, a pro-business, pro-mining candidate would likely win the election. I will conclude my remarks with a few comments about the continued success of our capital return strategy. Only a month ago, we reached the fourth anniversary of the CRS, which, as you know, comprises quarterly dividends, performance dividends and share buybacks. Over the past 4 years, we have used the 3 components to return $93.7 million to shareholders. 60% of the return has come from dividends, paying a cumulative dividend of CAD 0.51 per share and 33% from buybacks, retiring 25.6 million shares or 14% of the shares outstanding at the start of the CRS. We recently published a video that illustrates the benefits of the CRS for shareholders. The video is on our website and in it, we noted that on a total return to shareholders basis, Amerigo has outperformed mid-tier copper producers, copper ETFs and copper futures since October of 2021. Total returns measure share appreciation and dividends, but they cannot capture the benefit of share buybacks, which ultimately benefits shareholders by reducing the number of shares in which dividends are paid. To better capture the effect of buybacks, we undertook another analysis. That analysis identified another powerful aspect of investing in Amerigo. Buying Amerigo shares is a very cost-effective way to own copper. We have shown that over the last 4 years, it has been cheaper to buy a pound of copper by buying Amerigo shares than to buy it at the LME. In relation to a pound of copper produced by Amerigo in each CRS year, we have shown that it was extremely inexpensive to purchase a pound of copper through owning Amerigo shares. In other words, in relation to the underlying commodity, there was a clear undervaluation of Amerigo's share price, especially before the CRS was introduced. The other avenues of return provided by Amerigo, share appreciation, dividends and buybacks were all magnified by the positive impact of that discount on a per pound of copper produced basis. Since the CRS was launched, Amerigo's share price and therefore, the cost of its shares per pound of copper produced has increased. This is what we wanted, and that is what investors wanted as well. Consequently, that original discount to LME copper has become smaller over time. However, even if the discount has decreased, buying Amerigo shares still remains the most cost-effective way to own a pound of copper compared to a basket of benchmarks. Our analysis also showed that in all cases except Amerigo, investors in the benchmark companies have been purchasing 1 pound of copper at a premium to LME copper prices. In other words, controlling a pound of copper through holding other shares in the benchmark has a higher cost than the LME copper price. For investors seeking maximum exposure to copper per investment dollar, this outcome is crucial. It shows that Amerigo is a here and now copper play. In Amerigo, you are not paying for future growth or for investing in other metals. When buying shares of Amerigo, you have not been paying the high earnings multiple that is expected for growth stocks. You are controlling amount of copper as cheaply as possible and more effectively than peers in copper itself. So to conclude, Amerigo's returns over the 4 years of the CRS have come in 4 flavors: share appreciation, dividends, buybacks and the discount to the LME copper price. As share appreciation has increased, the discount has decreased. Dividends and buybacks have fueled this performance. Amerigo CRS has been a game changer for shareholders, outperforming other copper investments. This has occurred on a total return per share and on a per pound of copper basis. Amerigo rewards shareholders with predictable, consistent dividends, performance dividends when copper prices rise, no dilution and the most efficient way to control a pound of copper. And now we are debt-free. We look forward to many more years of success for the company and its shareholders. Amerigo's CFO, Carmen Amezquita, will now discuss the company's financial results. Carmen, please go ahead.

Thanks, Aurora. I'm pleased to present the financial report for the third quarter of 2025 from Amerigo and its MVC operation in Chile. During the 3 months ended September 30, 2025, the company posted a net income of $6.7 million, earnings per share of CAD 0.04 or CAD 0.06 and EBITDA of $18.7 million. The increase in net income to $6.7 million compared to $2.8 million in Q3 2024 was a result of stronger fair value adjustments to copper revenue receivables and lower smelting and refining charges in response to the 2025 annual benchmark terms. Specifically, in the third quarter, there were $1.3 million in positive fair value adjustments compared to $2.7 million in negative fair value adjustments in Q3 2024 and smelting and refining charges decreased by $3 million. Revenue in Q3 was $52.5 million compared to $45.4 million in Q3 2024. This included copper tolling revenue of $44.1 million and molybdenum revenue of $8.3 million. In Q3 2025, the gross value of copper sold on behalf of DET was $67.2 million. From this gross revenue, we deducted notional items, including DET royalties of $20.6 million, smelting and refining of $3.4 million and transportation of $0.4 million and then added positive fair value adjustments to settlement receivables of $1.3 million. Revenue also included molybdenum revenue of $8.3 million. We reported a provisional copper price of $4.54 per pound on our Q3 2025 sales. This provisional price includes mark-to-market adjustments based on the LME price curve as of September 30. The final settlement prices for July, August and September 2025 sales will be the average LME prices for October, November and December 2025, respectively. A 10% increase or decrease from the $4.54 per pound provisional price used on September 30, 2025, would result in a $6.8 million change in revenue in Q4 2025 regarding Q3 2025 production. Tolling and production costs increased 4% from $38.1 million in Q3 2024 to $39.5 million in Q3 2025. The most significant cost variances between the 2 quarters included an increase in lime costs of $0.8 million as more lime consumption is in line with more historic tailing processing, increased inventory adjustments of $0.5 million for more copper delivered than produced during the quarter and an increase in DET moly royalties of $1.3 million as the result of stronger prices and production during the quarter. The gross profit after revenue and production costs was $13 million compared to $7.4 million in Q3 2024, a $5.6 million increase. General and administrative expenses were $1.2 million compared to $0.9 million in the prior year quarter. These expenses include salaries, management and professional fees of $0.6 million, office and general expenses of $0.4 million and share-based payments of $0.2 million. Other losses were $0.6 million compared to other gains of $0.6 million in the third quarter of 2024, which were driven mainly by foreign exchange fluctuations. And finance expense was $0.3 million, down from $0.9 million with the difference driven by lower interest expense from a lower loan balance in Q3 2025 as well as a $0.3 million expense in Q3 2024 related to the fair value of interest rate swaps. Income tax expense was $4.5 million compared to $3.3 million in Q3 2024. Included in the income tax expense in Q3 2025 is $4.9 million in current tax expense and $0.4 million in deferred income tax recovery. Deferred income tax is an accounting figure used to reconcile timing differences and in Amerigo's case, primarily arises from the differences in timing of financial and tax depreciation. Current tax expense in Q3 2025 was $4.9 million compared to $4.4 million in Q3 2024. Before moving on to the statement of financial position, I want to mention some non-IFRS measures used by the company, cash costs, total costs and all-in sustaining costs. In Q3 2025, Amerigo's cash cost was $1.80 per pound, decreasing from $1.93 per pound in Q3 2024, with the reduction primarily coming from a $0.16 per pound decrease in smelting and refining charges and an increase of $0.25 per pound in moly byproduct credits, offset by increases of $0.07 per pound in power costs, $0.07 per pound in lime costs, $0.04 per pound in maintenance and $0.03 per pound in other direct costs. Total costs increased to $3.71 per pound, up $0.17 from Q3 2024's $3.54 per pound. This was the result of an increase of $0.27 per pound in DET notional royalties as a result of higher copper prices and $0.03 per pound in depreciation, offset by a decrease of $0.13 per pound in cash costs. All-in sustaining costs increased to $3.85 per pound from $3.72 per pound in Q3 2024 due to increases of $0.17 per pound in total costs and $0.02 per pound in corporate G&A expenses, offset by a decrease of $0.06 in sustaining CapEx. Moving on to the statement of financial position. On September 30, 2025, the company held cash and cash equivalents of $28 million and restricted cash of $3.1 million with a working capital of $0.9 million, up from a working capital deficiency of $6.5 million on December 31, 2024. Trade and accounts payable decreased from $24.6 million as of December 31, 2024, to $20.2 million at the end of September 2025. Current income tax liabilities decreased from $8.5 million at the end of December to $0.1 million at September 30, 2025, due mostly to the $8 million in taxes related to 2024 that were paid at the end of April when MVC's annual tax declaration was filed in Chile. For 2025, MVC's income tax at the end of September is almost fully offset by the $5.1 million in monthly tax installment payments made by MVC during the year. You will notice that the company's debt was shown as $7.3 million net of transaction fees. This debt was fully paid in October. This puts Amerigo in a 0 debt position, providing additional free cash flow capacity. Regarding cash flows during the quarter, Amerigo generated $12.4 million in cash flow from operations. Net operating cash flow, which includes the changes in noncash working capital was $11.8 million. In terms of cash during the quarter, $1.3 million was used for investing activities, in other words, for CapEx payments and $5.7 million was used in financing activities. These financing activities included Amerigo's quarterly dividend payment of $3.5 million and a transfer of $2.2 million to restricted cash, which was used to pay the debt in October, leaving the company with a no balance in restricted cash going forward. Briefly touching on the results for the first 3 quarters of the year. Our cash cost for the 9 months ended September 30, 2025, was $1.93 per pound and was in line with guidance. Our forecast indicates that we're on track to meet the company's 2025 guidance of an annual normalized cash cost of $1.93 per pound. Our normalized cash cost guidance excludes the signing bonus paid in Q4 in connection with MVC's 3-year collective labor agreement with the operators' union. The agreement will be effective until October 29, 2028, and MVC will pay $4 million to its operators in Q4 2025 as a signing bonus. In 2025, MVC is expected to incur CapEx of $13 million, of which $4.4 million is optimization CapEx, $4.4 million is sustaining CapEx and $4.2 million is CapEx associated with the annual plant maintenance shutdown and strategic spares. In the first 3 quarters of 2025, CapEx additions were $7.8 million and CapEx payments were $9.5 million. We currently expect actual CapEx to trend slightly below our annual CapEx guidance. We will report Amerigo's full year 2025 financial results in February 2026 and want to thank you for your continued interest in the company. We will now take questions from call participants.

Operator, can you start on the Q&A?

Sorry. I must have been on mute. Sorry about that. [Operator Instructions] And your first question will be coming from Dale Miller, an investor.

Aurora, I think you and your team have done an outstanding job, both from the miners all the way through your organization. However, I do have one minor question. I am surprised that the Board of Directors has been selling actively stocks as opposed to buying stocks. Now I know you can't explain why they're selling in particular, but the picture ahead seems very rosy with the debt being paid down to 0, a 3-year agreement and copper prices on a trend upward. I don't understand the lack of interest in buying your stock from the Board of Directors. Thank you. Again, thank you for your total organization and your efforts.

Dale, thank you for your question. It is a good question. There -- you mentioned that there are directors selling. There we have indications of 2 of 7 directors with sale transactions this year. So just to complete the picture here, 5 directors have not sold anything. And in fact, most of the directors when we exercise -- acquire additional options through the exercise of in-the-money -- excuse me, when we acquire additional shares through the exercise of in-the-money options, we are holders of those shares, and we keep them. If there are individual sale events from independent directors, they have their own personal reasons to do so. And you would be -- it would be probably fair to see them in the context of their total holdings and the time that they have held shares of the company. There was one significant transaction by a long-time director that has been a thorough supporter of the company to do a [indiscernible], and he had some sales to make for personal reasons. And in the process of being a decade or longer director, there may be times when you have to sell shares. So I wouldn't take it out of context. I wouldn't misinterpret it as a sign of a misalignment or lack of interest in the company. There are personal requirements for either tax planning or estate planning or diversification that come through from time to time, and we have to acknowledge them. But in overall terms, when you're looking at the overall picture, there is obviously a keen interest in directors, including myself and including the founder of a company, Dr. Zeitler, to hold on to our shares for the long term. We are happy recipients of the CRS benefits as well. I hope that answers the question.

Your next question comes from Terry Fisher with CIBC.

Yes. Well, congratulations again, another terrific quarter, particularly given the problems at El Teniente. But I guess we're getting used to that now. It's almost boring these wonderful quarters that keep coming out. I hope you're not building expectations too high, but we're very happy. Anyway, I only have 2 quick ones for you. Number one, moly is becoming even more important these days, and it's been notoriously volatile over the years. I'm wondering if you could give us a little bit of color on the moly -- outlook for the moly market. And my other question, I'm just going to table both questions, is that -- I heard, and I can't remember the source that Codelco is looking at maybe under some pressure perhaps from the government or to get a bit more active with CapEx and adopting more modern technology in order to expand production and also to reduce the risk of accidents and so on. And I'm wondering if that is true. And if so, would it open up any further opportunities for Amerigo?

Terry, on the moly market commentary, it has been quite stable for the last years. We saw a price spike in moly prices 2.5 years ago around the range of $30 per pound. If you look at our numbers for the Q3, it was -- we had an average price of $24 per pound, which is really good. we had budgeted a lower number than that. So we're happy with the results. The moly market has -- it's a volatile market. No one seems to understand it a bit of a black box. We don't consider ourselves experts on moly. You will see that I don't waste any of the shareholders' time with my commentary in the moly market because there is really nothing I can contribute to it. We try to dig for as much information as we can. And even from our clients, we don't get very clear responses. So we'll take it as positive when we see the -- sorry, the price appreciation that we saw in Q3. It's a good additional layer to have in the business. But that's about it. I think that we have to remain focused on the copper operation on the copper outlook and consider moly a good addition that we really don't have a lot of control on. With respect to your second question, the only thing I can comment on was a recent press article where the Chair of Codelco was explaining different initiatives that they're following up in terms of automation, specifically for more -- for the deeper levels of their underground mines, which, of course, is making a reference to El Teniente. That's good. That's good news. The fact that they are looking actively and investing as they have done in the past. This is not something new. I think they're just expanding or magnifying their efforts, but they're not initiating their efforts in terms of automation. So that's all good news that the strength of Codelco could represent additional opportunities for us in the future. So that's all I can say about it.

[Operator Instructions] Your next question comes from Ben Pirie with Atrium Research.

Congrats on another strong quarter considering the shutdown and certainly great to see the debt being fully paid down and the dividend increase. Just on the shutdown quickly, and I think I can speak for most investors that we're pleased with how you managed and minimize the production loss or at least the loss in tailings flow. So can you actually just touch on what initiatives the company took to minimize that impact and just where we're at in terms of that fresh tailings flow coming back online?

Yes. Thanks for the question, Ben. It was a challenge that the team at MVC faced quite well. So our production impact was twofold. One was the immediate one for 10 days of not receiving fresh tailings at MVC. Immediately, we ramped up on the ground the processing of historic tailings to minimize the impact. So to the extent that, that was done quickly and continues in place to that to date, that is one of the significant aspects that we did. In addition to that, we have taken advantage of having more plant capacity. The most volume-centric part of our operation are the fresh tailings, and that's where we get most of the volume. And it is the feed that takes up most of the real estate in our concentrator plant. So to the extent that we have had some of that freed up, we've been able to tweak part of the operation in terms of improving classification. We have less material to classify. We have a very good dilution at the moment that further increases the classification. We are redirecting some of the flows within the concentrator, and that has also allowed for increased residency times during the -- which have a positive impact on recovery. We also have 2 projects that have come online, which were part of our optimization projects for this year, which included improvements to the cascade operation, and that has also contributed to increased recovery. So we have lower volume of fresh. We are compensating for that with more processing of historic tailings, but we have been able to increase recoveries of fresh, and that is one of the drivers that has helped us mitigate production losses in fact. The only -- I think it's fair to state that we only had a production impact during the month of August. September was back to normal, and we have strong results as well for October.

Great. And certainly impressive considering the small drop in your guidance for the annual guidance there. Just sort of reflecting on Q1 and Q2 in terms of share buybacks, we saw a lot of action on the NCIB in the first half of the year, but little to none in Q3. Was this primarily because of the shutdown and you just wanted to sort of hold back a little cash in the till? Or can you provide a little bit of color into that Q3 drop on the buybacks?

I think it's difficult to try to revise the activity on buybacks on a quarter-on-quarter basis. There are a series of factors that go into play as to how to allocate the surplus cash to additional distributions. So as you know, one of our key commitments, the minimal commitment we have with respect to buying back shares is not to have dilution for shareholders year-on-year. So it makes sense to get your commitments out of the way as soon as you can in the year. And so there was significantly more activity. In fact, in the second quarter, we had completed our sort of weaker quarter of the year in terms of production associated with maintenance shutdowns. Copper prices were doing good. We were committed to buying back at least the amount of shares that were being issued on exercise of options. And we still had 6 months ahead of us to continue with the key objective of reducing debt. So we were not in a hurry to repay the debt in the second quarter. Come the third quarter, we had this interruption in the month of August, which always makes us more careful about managing the capital. We're always careful but even more careful. And we also saw the opportunity as copper prices started to strengthen in September of basically taking care of the debt first in the third quarter. So there are a series of annual objectives. How you organize them throughout the year depends on a number of circumstances. A lot of management judgment and Board decisions get -- also have to be considered in terms of the intra-quarter allocation of the funds. But I think what's important to consider here is not so much the comparison of activity of one quarter to the preceding one, but just a general annual path of continuing to return cash to shareholders. We know our timing. So we have a good view on what's happening around us and ahead of us. So we try to organize it as best as we can. But the general objective is the important one, that is do what you said you're going to do, produce what you said you were going to produce and keep returning that additional cash to shareholders.

Absolutely. I think you made the right call with paying down the debt as shareholders clearly liked that news yesterday with the stock being up so much. Just staying on this line of question, and I'll be quick here, so other people can get in the mix. Just around the conservative approach you just mentioned with allocating some of your cash flow. Obviously, with paying down this debt, now you have additional cash flow. And in the press release yesterday, you mentioned roughly 50% of that new cash flow will go to the increased dividend. Can you just touch on what you guys plan to do with that remaining 50% and that sort of goes with the conservative approach, I think you're taking your time with that decision.

Yes. Thanks for the question, Ben. So just to give some numbers and provide the context here, we were amortizing our debt at the tune of $7 million in principal payments per year. And last year, our debt expense was $2 million. So we have in front of us a figure of $9 million that is being freed up. And the decision of allocating essentially 50% of that, the additional CAD 0.04 in dividends will have a cost of $4.7 million this year -- not this year on an annual basis. So give or take, 50% of the cash that has been freed up now has a placeholder and that placeholder is the increased quarterly dividend. And the cash that remains as cash that is available to the company. The company does not have intensive capital requirements. That has been the stable position and one of the premises of having the CRS. So the obvious avenue of allocation would be additional distributions, which, as you know, are performance dividends and buybacks. So I hope that answers the question. We wanted to have a clear path of showing the shareholders how that cash was going to be allocated. And now 50% of it has been already committed in what we think is a structural change through the quarterly dividend increase and the rest remains to be allocated in the normal course of business, let's call it that.

Your next question comes from John Polcari with Mutual of America Capital Management.

Congratulations on achieving key strategic objectives. And I really only have one question, and that is what are your thoughts regarding royalty payments as the price escalates -- price of copper escalates perhaps into the mid- to [ high-$50 ] $5 a pound range or maybe even higher. I think the agreement on the royalties when it was originally constructed had limits on the upside. Can you just address that or give your thoughts on where that would go and maybe any changes to the agreement as prices escalate?

John, that's a good question. Let me pack up a little bit here to give you a well-rounded answer. So the royalty is essentially the compensation that we give El Teniente for letting us work with our tailings. And it is a significant driver of the success of the long-term relationship between MVC and El Teniente because it basically provides a mechanism for sharing of the economic benefits of the business between the purveyor of the tailings and the processor of the tailings. Our agreement has both lower and higher copper limits, which are separate for the fresh tailings and for the historic tailings. The limit for the fresh tailings is $4.80 per pound and the limit for the historic tailings is $5.50 per pound. So -- when we are outside of these ranges for 2 consecutive months, and there is also an indication that these prices will continue, then we basically have to do one thing and one thing only, and that is to discuss the continuation of the royalty scale. It is a sliding scale. So the higher the copper price, the higher the royalty factor with El Teniente. So it is not a full renegotiation of anything else other than the royalty scale. And we expect that should these conditions arise, in fact, we have -- we're almost completing October, and October is the first time in history where we've seen an average LME copper price over $4.80. So if this condition were to continue in November, then starting in December, but not before then, we have to discuss with El Teniente the continuation of the royalty factor only. I hope that answers your question.

Yes. And just once again, I'm sure I speak for everyone on [ my job. ]

There are no further questions at this time. I will now turn the call over to Aurora Davidson for closing remarks. Please continue.

Thank you, and thank you for attending today's call. The recording and the script will be available on the Amerigo website in the next few days. This is our last earnings call of the year. So we wish you all the best as we wrap up 2025 and look forward to our next earnings call in February of 2026. Please visit our website regularly for updates and feel free to contact us with any questions at our convenience, Graham, Carmen and myself, we're always there on the other side of the e-mail or the phone to answer any questions. Thank you for your continued interest in Amerigo.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.