Atalaya Mining Copper, S.A. (ATYM) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Atalaya Mining Plc Q2 results presentation. [Operator Instructions] I'd also like to remind you this presentation is being recorded. Before we begin, we'd like to submit the following poll. I'd now like to hand you over to Alberto Lavandeira, CEO; and Cesar Sanchez, CFO, of Atalaya Mining. Good afternoon.

Okay. Thank you very much. Welcome everybody to this presentation. This is the first time we do. Thanks to this team and all of you. With me, I have Cesar Sanchez, our CFO, who is somewhere down south of the mine; and Mike Rechsteiner, who is somewhere in London, and then [indiscernible] in the north part of Spain close to the Touro project at this stage. So I am going to make a brief presentation of the company, assuming that some people who are maybe interested in this company are not shareholders and do not know the company. Sorry for those that know the company, but at least I would like to have this short introduction. And after that, we'll have some time for questions. So I suppose everybody has the presentation in front of them or can access through the Internet. So in the first page, you will see what we are mining right now. It's in Spain, that is called Cerro Colorado. It's an open pit producing copper in the north part of Spain. And we are located -- in Slide 5, we are located in -- very close to Seville, about 1 hour from Seville. We have another project about 20 minutes from Santiago, the capital of Galicia, in the north part of Spain. You won't find mines assets so close to places where you can fly in from London and be there at the mine in less than one hour. We are a copper producer in a fantastic country with consistency, and I would try to emphasize that. Always -- we always perform our targets. Some people say we are boring. Well, we like to be boring. Boring in investment is quite a good thing, always no surprises, especially no bad surprises. We have a long life, strong pipeline of growth, and we have delivered the core. So trust me, we will continue to be delivered. And we will do that because we have a fantastic team, people that have built several mines in Spain and in Africa and have done it before. And this has been the key to the success of this company. And just in the same page 5, I'm going to ask me to point to the figure of market cap of the company, enterprise value is around $550 million. That figure is important because we will see what is the type of cash that we are generating compared to this figure. So turning into the next page, which is 6, we will see what are our assets. We have a producing mine with 700,000 tonnes of copper. We have another deposit besides it, which has around 800,000 tonnes of copper plus over 1 million tonnes of zinc. And then about 25 kilometers from mine, we have have another 400,000 tonnes of copper and a similar amount of zinc. So in our reserves, in our valuation, in our mine life, we always have the first 700,000 tonnes of copper enough for 12 years. Trust me that this rest of these resources are not going to stay in the ground. So mine life is not going to be 12 years, it's going to be much more than that. In the north, it's around 700,000 tonnes of copper when you consider the copper prices will stay as we are right now. So if I pass to Page 7, briefly, it just shows a picture of what the installation of Riotinto looks like. There was nothing there 4 years ago. All that has been constructed from scratch. That shows you the capability. In that picture, you will see timeline. Timeline was, in 2015, we started with first production. I joined the company with my team in mid-2014. After, I would say, ages of permitting, we got that up and running in less than 1 year. One year later, we expanded the first time. And 2 years later, we expanded the second time and we tripled the production from that asset. If I turn to Page 8, you will see how the growth of production of ore tonnes treated through our installations have grown from '15, '16 at the different stages of expansion. You will see there, 2 important things. One is the consistency. We always deliver going upwards. And second, a figure that for some of you that are not familiar with it, which is a capital intensity, that the capital cost investment divided by the copper production. And that is very important because it tells you how efficient you are with your capital. It may be low because you are in a fantastic location with a very good infrastructure like we are. It may be low because you care about the money because you look at the best offers, because you don't give it to a turnkey contractor to do everything by themselves. Our cost of less than $5,000 per tonne is 1/3, at least, awarded costs to replace production. In other words, somebody could pay double by our share price and say, look, I would like to pay for this company x million and it will still be cheaper than building new production. This is like the price of, let's say, a house or an apartment in the center of London. When you see that it costs less than the bricks that's there, it's a good thing. These people are doing a good job. I think that picture of how we care of the CapEx and how consistent we are is essential to be able to invest in our company. And what do we have besides Riotinto? Well, if you look at Page 9, we will see a map. In that map, you will see some red stain in the center, which is called Proyecto Riotinto, that's where we are; left, south, which is west-south, is Masa Valverde, 29 kilometers; and to the right, Aguas Teñidas with green. Those are our mine rights. In red, the stars, arrows are existing deposits. That's the Pyrite Belt. It's full of deposits. West of us, that's left in the picture, you will see Aguas Teñidas, Magdalena, Sotiel. Those are mines being managed and operated by Mubadala and Trafigura, which, right now, they are on sale, by the way, for a price tag of $1.5 billion to $2 billion. They have a center hub for they transport the ore from the 2 other mines, south and west, to a central mine in Aguas Teñidas. We are going to do exactly the same thing. So our future expansion does not need the new installations. We already have set the foundations for that further expansion of whatever we find in the concessions that are shown in green. That's the key of our pipeline. Why I insist so much in a pipeline, that's in Page 10. I insist so much because investing in a mining company requires long life because that means optionality. It means you will have lots of years where you would still enjoy some good prices. Remember, for those of you that are not familiar with our company, when we came here in 2015, the mine life was 12 years. We have been producing 6 years and the mine life of Riotinto is still 12 years. By doing that, by extending the mine life and spending in exploration like we did, we now are enjoying still lots of years of good prices. It's very important that the mine life is low because that's the essential sustainability of a mining company. And that's what we show in Page 10. We have Riotinto producing, right side. We have Touro getting permits, with the facility study completed. Something called E-LIX, which is basically a system to add value to the other assets. Then further to the left, we have permitted and PEA, what we call Masa Valverde, San Dionisio, which are additional deposits which are going to pass through the same stages that we went through with Riotinto. And then further to the left, we have Masa Valverde, Majadales, which are new discovery, and the whole concessions of what we call Riotinto East. It's essential that the mine life goes beyond 15 years, 20 years, the maximum possible. That will give you time to find more and to create value to the shareholders. We love copper, and all these concessions contain mainly copper. If we go to Page 11, you will see why we love copper. I'm not sure how familiar you are with copper, and that's -- excuse me if I state the obvious. But copper has only one way to go: up. And the reason is look at where supply coming from: Peru, political problems; Chile, they're going to implement a huge tax; Zambia, Congo, I lived there 7 years, one of the most unstable places of the world. Permitting is getting more difficult all over the place, not only in Spain, in the U.S. and in Chile. There are no new discoveries because companies have not invested in the last year when the prices were low. So then, what that means that bringing new mines in production is very difficult. It just takes time. But on the other hand, we have politicians saying, hey, we need to have more copper because we want clean energy, we want green energies. So then, we want more copper. We need to get the stimulus. We need to do something to fight COVID. We need to do investments. If you do investments, you need electricity. If you need electricity, you need copper. If you need -- everybody likes to live in towns. So towns require more copper. Electric vehicles, where the hell are we going to get the copper for the motors and the grids to load them? So then we have a lower supply, higher demand globally, and that means that the copper price will have to go up significantly in order to maintain production and also to incentivize new projects coming on stream. And before getting into the results itself, which is the main purpose of this call, and before getting into questions, let me show you on Page 12 where we are versus others. First, I'll show you in Page 12, how we are in size but especially what's the -- what the market is telling us or the consensus of what the data should be in this year. They are saying that we are going to have, based on consensus, USD 200 million. Remember that figure I told you in the first slide, our enterprise value is $550 million. So we're going to have an EBITDA of just shy of less than 2x -- well, a little bit more than 2x EBITDA. And the free cash flow, they are saying we are going to have around EUR 93 million. Well, that means the ratios, if we go to next page, 13. The ratios of enterprise value versus EBITDA is 2.7x and free cash flow yield is 17%. And compared to what other peers have in our universe, like Copper -- Turks and Caicos and Tunisia, Copper Mountain, all of them much higher than us. But that's based on consensus. The reality is that the results have been much better than that. So if I summarize what has what we have been doing in the first part of 2001 before letting Cesar go through the results, I will say that during the first quarter -- first half of the year, we continued performing consistent, consistent, consistent in good copper price and with very good controls of costs. If you look at our expenditures, they have been very consistent and similar to the previous quarter. As a result of that, we have higher copper price, more cash flow. And of course, our position of net cash position continues to grow. We continue to delivery, delivery, delivery. That's an important thing. We have additional reserves. We highlighted what we have in San Dionisio. We are already reducing their costs by installing water thickeners, by installing solar plant. And what are we doing in the future? Well, finalizing all these reports that are needed to give full value to the reserves and resources at San Dionisio, Planes and San Antonio. So we have started 43-101 technical reports in all of them, which as soon as they are available, it will be given to the market. And of course, we continue to like what we have in Touro and we are doing -- make effort in Touro. And I'm a strong believer that we will get the permits of Touro at this time. And now I may pass it to Cesar to speak a little bit about the financial results and economic results that are shown in Page 16 and 17. Cesar, do you want to go?

Yes. Thank you, Alberto. Hello, everyone. So on Page 16, we have a summary of the H1 2021 production result. We also have some historical production metrics since we've started the operation in Q1 2016 for the ore throughput, for the copper recovery and for the copper production. As you will see, we have been -- since we started consistent in our production, as you can see in the trends in the metrics on the graph on the right-hand side, we have been producing steadily since the beginning of 2015. Growth, we have done 2 planned expansion from 5 million tonnes per annum in 2016 to 9.5 million tonnes per annum and then to 15 million tonnes per annum to get to the 28,300 tonnes of copper production in H1 2021. And we also deliver copper production. So we have delivered since we are beginning with no assumptions, not even when we were in the transactions when we were funding the plan. So as Alberto mentioned, it's almost boring to keep the production levels very -- quite steady. In terms of guidance, you have on the bottom the guidance that we have released at the beginning of the year, which remain unchanged. But given the production level during H1 2021 we expect to be towards the end of the production, and therefore, towards the lower end of cost. But again, we are being conservative. We'll still keep an eye on COVID, for example. On Slide 17, that's on the next slide, we have, if someone can just click for the next slide, please. Thank you. On the next slide, we have a summary of the financial results of Atalaya for H1 2021. So we have 2 continuous quarter delivering production, as I mentioned. So good production levels, together with high copper prices, means higher revenues, which amounted to EUR 197.1 million. Atalaya has a high leverage to copper price. So if you're a polished on copper price as we are in the future, revenues level will continue or even increase the level that we have in the first half of 2021. So good revenues followed by good cost control policy means better EBITDA, which amounted to EUR 99.4 million for the 6 months and a net profit of EUR 66 million. On the cash flows, we have generated EUR 71 million in operating cash flow. And as we don't have to invest much and really to run the plants, we have a good level of free cash flow, amounted to EUR 53.1 million. So representation -- so you have representation of a good level of cash generating, a great year for EBITDA. As you can see, the impact of the cash generated for Atalaya, at the bottom right graph, where we have the net cash debt position of the company since Q1 2016 showing a negative working capital of around EUR 40 million, which increased to a negative working capital of about EUR 50 million in Q4 2016 and Q2 2017. You can also see the improvement due to the equity raise that we did in December 2017, where we raised GBP 51 million and then progressively improving all the way through to get to a positive net cash position of EUR 37.8 million as of 30 of June 2021. Now if you see the cash generated by Atalaya in Q1 and Q2, you will easily get to the expected cash balance at the end of the year as we're building up cash at a very high speed. So in summary, the main metrics for the balance sheet are on the bottom left where we have cash of EUR 92.8 million and continue growing. We have EUR 55 million in borrowings that will be repaid over the next 3 years up to December 2024. By the way, these borrowings are unsecured and have an average rate of 2%. This gives us a net cash position of EUR 37.8 million and a working capital surplus of EUR 90.9 million, as I already noted. In Slide 18, we have...

Let me -- Cesar, let me -- in Slide 18, I think most of the question -- most of the targets here, where we mentioned our priorities, are related to questions that have come. And I think it may be better that we answer them because people are asking of E-LIX, are asking about redomiciling to the U.K. and all these things. So maybe I can summarize here and get to the questions directly so that -- because we have some very interesting questions and we may get much more. But in summary, in 2001, let me summarize one thing. I forgot to say that if you look at the, as Cesar has mentioned, the cash generation of EUR 53 million in one half, which means annualized of EUR 100 million, which is roughly $120 million, is 20% higher, the reality, than what the consensus is believing. So those numbers based on consensus, actually, the reality for the first 6 months are low. So what are our plans for 2021? Now to continue production and probably go to the high end of the guidance, to continue to get growth options. Capital returns, and we are going to get to that because lot of questions about dividends and capital returns. And I'm sure this will be decided this year. Near term, continue growing, continue growing, continue delivering as a corporate level to get to the U.K., to pass to the main board if possible and also to improve liquidity. We have been working on that for a long time, and we slowly, slowly we are improving that liquidity. And long term, we would like to have a couple of assets. Of course, the best one would be in Spain with Touro. But if not, we'll find it in any other place. So that's more or less in a nutshell, without getting into details, because I would love to get much more time to reply to the very interesting questions that we have received.

That sounds fantastic. We'll move on to those. Alberto, Cesar, thank you very much indeed presentation. [Operator Instructions] Alberto and Cesar, as Alberto, you said, we did receive a number of pre-submitted questions along with having questions submitted during today's event. So perhaps we can start with the pre-submitted. If I may, I'll just read out the first one and we can work through them. The first one reads as follows: What are the criteria around paying a dividend to shareholders? And what time frames are you considering?

Okay. Yes, we have discussed this at the Board level the last time, yesterday, actually. And of course, the common sense tells us that without having a formal decision done so I cannot announce the formal decision, obviously, in this platform. But just saying that we will end up will end up the year with over $150 million, if things go correctly. We have 2 shareholders sitting at the Board with hold 44% of shares. They are not going to leave that money there sitting down just for the sake of sitting down. We don't have any special need even if we got permits for Touro. You have seen, all of you, how frugal we are with construction, with capital expenditures. We do not overspend and we have not issued a lot of shares to dilute. So this attitude is not going to change. The money will be returned to the shareholders starting, I would say, this year. I cannot say specifically when because it would be insider information. But certainly, the common sense tells you that we are not going to visit in there. Remember, that's only the second quarter that we have cash in our balance sheet, but things are growing extremely fast as we have seen in Slide 17. I suspected sometime this year. As about amount, also not a specific number approved, but the logic tells you that looking at what the market is doing between 30% and 50% of the free cash flow available normally is returned to the shareholders. What I mean available is that's not going to be needed next year, and if there is some -- that's the normal dividend. We believe that dividends should be sustainable, not stronger dividends. And if the year continues as it's going or things go up or even copper price continues to go up, there's no reason why a stronger uptick of the dividends could be given as a stronger dividend at the end of the year or starting of the next year.

Alberto, thank you very much, indeed. The next question we have here is what are the expansion plans Atalaya currently considering for its existing assets around Riotinto? And is there anything you can do to improve the grade?

Look, I think both are linked to these because we are limited. We are limited by water and power as Riotinto itself. Remember, this project is going to be 9 million tonnes per year. We are 16 million tonnes per year. It's not much more than we can do with our existing installations. So how can we expand? Well, we expand by bringing in higher-value materials, higher grade. So if you look at the grades of San Dionisio deposit, they contain around 0.7% copper and around similar rates, slightly higher, about 1%, I think. By substituting some of the tonnes that go into the mill from Cerro Colorado by a few tonnes coming from San Dionisio will improve the grade by producing more copper and produce a byproduct of zinc, which means it will be a byproduct. So basically it's like copper content will be higher. That means with the same installation, we are going to be producing more. We're not creating more tonnes, but creating more tonnes with quality. That's the closest expansion that we see in Riotinto, bringing in San Dionisio. San Dionisio open pit is around 150 million tonnes -- sorry, 52 million tonnes. San Antonio is around 9. So we have like 50% more tonnes with higher grade around existing pit. So the logical thing to be mining this at the same time and improve the grade.

Fantastic. Thank you, Alberto. Next question we have here is what are your plans for the E-LIX system? How will this technology benefit Atalaya?

E-LIX is, I think, is a fantastic system that I think it will be almost a change in the world. And we have the luxury of being able to be participating in the development. I would tell you first what I want. It doesn't mean it's going to happen because we have to agree with the owners and also agree with our Board to do it. But I would love to build a demonstration plant, not a pilot plant line we have right now, which is quite big, but a real plant to treat some tonnes with -- basically to take out the teething problems because this is a new system. And I would like to have this up and running next year, with a very modest investment like we do things and to demonstrate that we can do it. We have looked at the numbers, the numbers look good. What is the benefit that can bring to Atalaya? The benefit is that this is a system that leaches copper and zinc very well very fast and produces -- and is able to produce metal directly. This has the potential, especially, to be able to treat complex sulfides with copper, zinc and lead that are combined into a new mold, they are combined, and in this way, you get better recovery. So the benefit comes from better recoveries and lower costs. And what we assisted out when we financed the owner of this technology was to have the exclusivity in the Pyrite Belt because this can be applied for lots of the deposits that are available in the Pyrite Belt that always have a combination of copper, lead, zinc in the ores. Which often, if you want to separate them with differential rotation, you lose some of them. For example, just to give you an idea. If you do differential flotation to recover copper and zinc, you get 75% copper and another 75% zinc. If you produce a global flotation and you treat with the system, you can get 90% of each. So you get, from the same tonnes to the mill, you get more metal. That's the beauty of the system, basically dissolves out the copper and the zinc.

Fantastic, Alberto. Next one we've got here is around Touro. What is the current situation at Touro? Can you describe the new development plans you're submitting?

Look, Touro got stopped due to a negative environmental pact declaration, although the main reason was political. There were some anti-mining groups making a lot of noise and in a moment where there were local elections. And the government decided to say, look, there is a risk of lots of noise. Everybody has seen this disaster of Brumadinho tailings in Brazil, with the videos of that wall of mud going down and killing 200 people. And this was sent all over the nets. So again, they said, look, there's too much risk. We don't want to approve this in the middle of election. What things have changed? Well, there's no election until the 3 years, first thing. Second thing, the party that was opposed on the project, which was the very left-wing party called Podemos in Spain disappeared from the local parliament. They have 15 seats, from 75, and now they have zero. The third thing is that we have now a group, kind of very large group promoting the mining. So if I went to the page of Touro where this is shown, you will see that there is a group of demonstrators that actually, they are not opposing the mine. They are saying, yes, we want to mine. That's shown in Slide 31. So that's people making the same noise that in the past, the anti-mining groups did. Now they are making the noise, we want the mine. We have polls say we want the mine. They are asking us to push ahead the mine. So that's from the demand side. And from our side, what we have done to change the mind of the local government is if you think the water on top of the tailings was a problem if it breaks, because if it breaks it can create a disaster, what we will do is remove the water on top of the tailings. So our tailings will be plastic lined. It will not be without water because it rains a lot, but we'll have a system of pumping where the water will be pumped out to a mined out pit under the level of the rock, which means the level of the ground, which means if there is no water on top of the tailings, it's impossible you create a mad rush in the event of failure. Although it's impossible to fail because this is constructed with a rock wall, same like you construct a water dam. So what we have done is change the project, make it more safer and have now a proactive people saying that they want the project. And the people that are anti-project, they have basically disappeared. So we are quite hopeful, although you never know with politicians. But technically, this project has no issue at all to be permitted. But they did start with the project.

Thank you, Alberto. The next question we've got here, which I remember on your final slide there, the company has been considering a main market listing for a while. What's your current thinking? Would you consider a dual listing in Spain?