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

Good morning, and welcome to the Atalaya Mining Plc Investor Presentation. [Operator Instructions]. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all questions submitted today and publish responses where appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you to back to Alberto Lavandeira, CEO. Good morning to you sir.

Hello. Thank you very much. Welcome, everybody. Thanks for being here and taking the time to be with us. I'm going to go quite fast through the results. I think you have seen -- try not to repeat all the numbers, I think that you can read them carefully. And I think the important thing here to focus is what's happening and what's going to be the future. We had already pre-released the results, the production results, so it was not very difficult to conclude the economic results from there. So with me, I have Cesar Sanchez, which can answer anything that is from his specialty, if needed, although I will try to reply to most of the questions. In the slide, just like you are seeing the opening of our company trading in the main market in the London Stock Exchange. I think this has been one of the good achievements of this year. And it has been an incredible journey. I mean, right now, we have been working for this with for -- I would say, 1 year with lots of ups and downs and lots of difficulties and lots of changes, but finally, we are here. And since then, we have seen lots of interest. We have seen lots of good volumes -- in volumes of shares traded. And I think this is just a start of a good journey. And still not finished because right now, this just opens the door to the trading in one of the index of the U.K. We have to go -- we have some delays in this because we have to go through a new procedure that was implemented in Cyprus in the first quarter of this year, which took us halfway, which means they changed some laws, and we have to go again to obtain the shareholder approval, which is going in an AGM or EGM. And we are going to be doing this at the same time that we have our AGM in the 27th of June. So after that, hoping that this is approved, we will continue with the procedures and hope to get everything ready by October, November, which is basically a 6-month delay since our plan because -- basically, this is the delay that this has -- we went through since our approval on December '23. We believe this is going to be creating additional liquidity to our stock, and this is something that's going to be quite interesting for the company like being in the main market. Of course, the reason why we are quite optimistic, first of all, the copper market is excellent. And the second is that we are one of the few companies in the -- that are pure players in the copper Stock Exchange. Obviously, Antofagasta is one, Ivanhoe in some ways. But the other companies that are present in the London Market are global markets where they are not exposed to compare as much as we are. We are 100% exposed and I think this is excellent for investors that want to participate in the copper market. And why we believe there is interest for our company because we are a growth company. Yes, we are providing some dividends, and we continue with our dividend policy. But the reality is that in the next 3 years, we want to see our company doubling or more than doubling production from our existing operations at Cerro Colorado and San Dionisia, which is basically the Riotinto district, plus the permitting of the total project in the north part of Spain, which is advancing quite well. With that, we will be over 100,000 tonnes of copper or 120,000 tonnes of copper equivalent. And we couldn't do this in a better time. I think since the last time we spoke or I spoke here, the copper was basically GBP 1 less than today. Today, it's close to $5 per pound, $1 per pound more. $1 per pound is quite easy to make the calculations. If we had GBP 100 million payable, it's basically $100 million more without doing anything else. So that's to the bottom line. So you can see that we are quite leveraged to the copper price. Why this is happening? I think we have been saying that this thing was going to happen. I think it had to come because there is a steady demand. There's a steady demand, especially coming from the energy transition. It's coming from installation of wind and solar, which China continued to build up, but also Europe and U.S. going hard. But at the same time, we also have drivers like electrification of vehicles, but -- and also recently, we have heard about the artificial intelligence, data centers that are going to be also net consumers of copper. And the problem we have is that the supply is simply not there. I mean, we have seen all this bad news of Cobre Panama and others, but especially the large mines need to either make expansions or just need higher incentive prices because the capital intensity, the cost per tonne produced is getting higher and higher, and the mines are not in the places where they're easy to build. So what's happening is that really the miners, and we have seen it with the approach of BHP trying to buy Anglo American, specifically for the copper price. The approach of these big companies is better to buy than to build simply because buying, you can do it in 1 year and while building is not less than 4 or 5 years assuming you have the cash and you have the permits and you have no local opposition and you have water and surprisingly, if you have people, which is something very important. So I think we are just starting to see this high leg of the copper price, which I don't know who is going to take us, but certainly higher than we are right now in the longer term. So we couldn't be in a better position. So coming back to our results of the quarter, we had already released the production results, which were around a little bit less than 11,000 tonnes of copper, which were basically low grades. As a result of low grades, we have better -- lower recoveries. Actually, the recoveries are quite good compared to when you consider the low grades fed to the plant. And also considering that we have some couple of shutdowns at the plant, which were planned originally. So in spite of all this, we were able to control our costs. So I think it's probably the best achievement of this month. Bad grades had still been able to -- consistent cash costs are under $3 and all-in sustaining cost of $3.02. Just think -- that's within our guidance. Of course, we had a higher copper price, this would have meant basically another EUR 10 million of extra EBITDA. EBITDA still was around EUR 10.3 million at an average price of EUR 3.90. Imagine that we right now with much higher copper prices, of course, with copper price of, let's say, EUR 0.60 higher, of course, we only need to multiply by GBP 25 million or GBP 20 million. And obviously, we'll be much, much better. Working capital was decreased temporarily this month. It's not something that's worrying us too much simply because we repaid part of our short-term loans. And we continue investing in the waste stripping in San Dionisio, which is moving very fast and finalizing the plant of E-LIX. So -- but still continue to have a net cash position just counting net cash minus debt, but not all the debt is short term. So actually, our working capital is much better than the net cash position. So I think overall, although it was a bad quarter from a production point of view as we had already flagged, it wasn't a bad -- particularly bad quarter from the financial point of view or at least not more than what we should have been expected from the low production figures. As I said before, it was lots of -- there were lots of activities in the corporate side with all the paperwork needed to move to the main market and redomicile to Spain. So that was a very, very, very intense month from that side. Right now, at asset levels, we continue moving fast some initiatives to get to the better high rates. We continue moving in Touro, with things moving along quite well, and we believe we are in the last leg of getting our project to be declared strategic. And we are already doing some work for our next growth projects like San Dionisio or other places like Masa Valverde. One -- another disappointment -- let's say, another couple of disappointments were slightly -- slight delay in E-LIX construction and start-up. I mean, construction is very well advanced, and it has been producing a thick precipitate from copper concentrate very successfully, but they still have -- are in the final stages of commissioning. It's quite complex. And we also have some delay from our supplier of the solar plant, which they said at fully, fully completed by the end of the year, although they will likely give us some electricity by midyear in June. That will give us -- part of it will be operational. It looks like there were some delays in ordering some equipment. There were some delays in their own internal permits. This was a kind of turnkey contract, and we are not very happy, and we're looking at how we can compensate -- get some compensation for this. Having said that, we don't expect this to affect too much our financials because of the -- due to the low electricity prices prevailing during the sunny hours, which means the difference between having our plant or having a new plant is not that big. So going with -- within production, I have already mentioned what I said. I mean, even with all the stops of the plant, we processed 3.7 million tonnes. So with quite long stop, so this should be better in this next quarter. The grade is also -- was quite low. It should be slightly better in this year -- in this quarter and especially much better in the second half of the year when we hit some of the better ores at San Dionisio. The recovery, as I said, close to 85%, slightly lower than previous year, but not that bad compared to when you think on the grade of the feed. Of course, this comes into lower revenues due to lower realized prices, lower operating cash flows. We gave back EUR 17 million from investment, which is more than previous year -- sorry, EUR 17 million which is more than previous year. And we had a slightly negative operating cash flow. But we continue to have a working capital surplus of around EUR 60 million, around $70 million, which when you compare to what's seen in the slides of our history, remember, we are -- at a certain time, we were negative EUR 60 million to certain times. So it's quite a big difference. The costs are broken down in Slide 15 in detail. When you make the calculation and see what's -- why the mining costs are slightly higher and some other costs like G&A, it's simply because we have lower production levels. So the cost per tonne has been quite constant and even lower than previous quarters due to the electricity going down as shown in the second line where processing cost is lower than previous year, simply because electricity is lower in spite of having lower production. But one interesting surprise and things that were good -- was good is that we had lower freight costs and treatment charges, which is helping, of course, the market is helping. And also we had a much higher silver byproducts because we are producing from an area that's higher silver or those lower copper. So we -- in some way, it compensated for other things. So then we had our operating cost, all-in cost very similar to what we had last year in spite of having much lower production. All in, when you compare with our peers, we continue to keep under control our cost within compared with other companies that -- based on public information. So I would say we are keeping competitive with other people and actually much better. As you can see in the Slide 16, which shows that in the last column in each of the -- the left column, in each of the groups, in the last quarter, you can see lots of companies having higher operating costs in the first quarter than previous quarters. So we are more or less satisfied. But anyway, we cannot be very satisfied. Our goal is to get to the higher grade of San Dionisio as soon as possible. Slide 18, you see that we have already started moving there. And actually, this slide is 1 month old, but this excavation here is moving very fast. There, we have a grade, which is almost double what we have in the main pit and it's essential that we can blend some of this material, although limited, so we can get better grades in the second half of the year. Seen from the top, you can see the recent picture, how this commission is going. I mean it's a kind of a small pit close to the existing [ final ] Atalaya pit. And also in this picture, you can see in some way the water level going down in Atalaya pit as we are pumping out already to get in preparation for the future expansion of the pit. Also, big advances in E-LIX -- just for those who are not familiar with E-LIX is something to be able to leach concentrates and get better recoveries from copper-zinc concentrates. And that difference of recovery, it makes a big difference. It still is a very normal thing and still in commissioning. This is old picture that we had in early January how we produced first cathodes. Now this quarter, we have been producing zinc precipitate extracted from copper concentrate. So in other words, we have a concentrate having 18% of copper and 8% of zinc. After cleaning it, you end up having a concentrate of around 22% of copper and 1% of zinc. This thing goes into a precipitate, which is shown in the picture left, which basically only contains zinc, and this is really sold and you can produce cathodes or ingots of zinc or sell it directly as precipitate and the copper does not lose anything because we maintain the recovery, and we don't touch the copper barely. So we know this thing -- this production has been obtained during the commissioning, but they still have things to finalize in the construction because this was while they are commissioned -- with complex plant. And I'm sorry that we cannot show pictures because due to the -- picture from what's looking inside because it's essential from the security point of view. But for those of you that have the possibility of coming into a visit that we organize later in June or you'll probably be able to see it on -- personally and you will appreciate the size and the complexity of the material. Another thing that, as I say, is a little bit delayed, but it's advancing, as you can see. I mean, most of it is finished, still some holes left, but the main delays are coming from the moving -- crossing the road with electric line and substation that have not been ordered and had delays. But other than that, the plant is quite ready, and they will be able to likely give us some electricity by June, not full, but maybe half of what is already -- based on what they have already installed. And we don't have too much to show as pictures in relation to Touro. But I have to say that the new government has been formed. There, we continue receiving lot of support in the public media, also by the local authorities. And we believe we are going to be named or getting the status of a strategic project either at the end of this month or the beginning of June. This is -- so this is what we have been told. So we believe this is going to be permitted after that in the fast track route, which is never fast enough for companies, but -- so that's in a nutshell what we are doing. In addition to that, we continue exploring the belt -- the Ossa Morena belt. We have some rigs working in gold prospect in the north part of the Riotinto belt. We have a -- north is called Ossa Morena. We have also -- we are also in filling and doing some geochemical work at Masa Valverde in order to be able to start the ramp there in order to access the copper ore sooner rather than later. So we continue working very hard. As you know, we already have all the permits for Masa Valverde. So as soon as we start to ramp and drive fast as soon as possible to the deposit, we will be able to ship that ore directly to our plant at Riotinto. So we are moving in that direction because we believe that the copper prices are going to be much better in the next years. So with that, I think we will go into the questions, which are always very interesting.

[Operator Instructions]. I'd like to remind you the recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via our investor dashboard. [Operator Instructions].

Excellent. Thank you. Look, we have a lot of questions. I'm going to go quite fast, and some of them are very interesting. The first one is what do you think is the incentive price for big copper miners? This is extremely interesting question. I attended the conference of Bank of America last week in Miami. And I heard the CEO of Glencore saying that we are not building any mines at $10,000 per ton. I mean, simply, they are not economic. I also heard Richard Adkerson, the former CEO and still Chairman of Freeport, saying these prices, it's very hard to justify a return. First and second, we had some projects that we could expand, but simply, we don't have people. So in conclusion, we have seen that the mayors are needing much higher price. And it's very simple. The reason is that the big deposits are in Latin America, Africa, Indonesia, very remote places that are really infrastructure projects, projects that require desalination plants, pipes. The CapEx are huge. The amount of people are huge and simply at less than $10,000, they don't provide additional return when you think that the construction is going to take 5 or 6 years. And that's one of the reasons why you can see and you will continue to see a fancy of buying versus building, like the example of BHP trying to buy the assets basically due to the copper of Anglo American in South America. Next question is when -- so the price, I would say, is probably $12,000 consistent, so in the range of $5 to $6 per pound consistent and steady. Just as a reminder, we didn't have any decision of project being built during -- few years ago when the copper was higher after the pandemic was higher than $4 during 1.5 years. And at that time, no decision was taken in these big projects. That shows you and things have not got better. I suppose the price will have to increase enough in order to incentivize some substitution or some lower consumption. Why do you think you will make the decision on building Masa Valverde later this year? We are doing all the work for the ramp. We have all the permits. We are working with offers for contractors, very likely at the end of this year, we'll start driving the ramp so -- very likely. Some peers have announced offtake deals with negative treatment charges. Are you achieving the same? No. We -- our contracts are based on benchmark and benchmarks are lower than it used to be previous year, but they're not negative. This negative treatment charges are obtained normally in the spot sales, very small sales for some smelter that's desperate to fill some void, but that's not a normal situation. The next thing is what are the plans for utilizing land assets once mining operations are reduced overseas? Also a very nice question. Look, in the [indiscernible] point, we have the plan, the plan is to -- about 500 hectares -- plan was to basically reclaim it covering with grass and shale. Right now, we have been looking at several things. One is to put some farmland with greenhouses and other one was to use a system -- new generation solar because it will be collected directly with a grid, which is very close -- substation is very low. So we are looking at several alternatives around the plant, which I hope it happens in more than 20 years from now, very likely this will be industrial area because there's access to electricity and a pool of good workers. The pits itself, the restoration plan are basically going to be flooded and we are allowed to do that. And very likely, this will become a very touristic attraction because it's already now a huge touristic attraction. So I think this will be the final use of the pits. Other questions, would you consider feasibility study establishing data centers [ Atalaya Islands ] given the massive future demand for -- driven for -- by Atalaya has all the resources and use land, cleaner resources, water supply, road infrastructure, distance from population centers to mitigate noise concerns? Well, to be honest, we have never thought on that. It's a good thing to think. As I said, this thing will only happen probably between 15 and 20 years from now. So it's very difficult to make any prediction of what's going to be the need right now. Right now, we are full of -- we are using the full capacity of the network and actually would like to have more to be able to expand E-LIX. And right now, it's a [ problem ]. Atalaya has started strippings in San Dionisio. Is there any restriction on processing the material? Or is the permitting or related to the final pit? The -- what we are waiting is for the final pit right now. If there is some material being mined in the future, we will treat it because there's really no sense to stockpile it because we'll stockpile it. It wouldn't make any sense to stockpile it to treat it later. The permits in Spain are not related to treating material. Once you have the permit, you can treat whatever you can through the plant, even external material. The permits are related to the footprint of your land, of your size, of your volume. So tailings, for example, is the amount of tailings you can hold by -- in that space, if you could packet and put more, it will be better. The footprint of the pit is basically how many hectares you cover, I mean is it too big. And so what we are permitting is the expanded pit, which basically goes to the main road, which, by the way, we got the permits already to move the road and [ environment ] footprint and we also got the permits to use the tailings to process that material. Another question is, will you continue your clean energy policy on new sites such as Touro, especially you plan to develop clean energy project in this location? Yes. As part of the new project, it includes a solar plant, I believe it was 25 megawatts. So it's not as productive as the sun in the South. But yes, we are also putting that solar plant on top of the old tailings of the old Touro mine. Next question, are you considering hedging percent of your production to lock current price, given the Chinese NAV slowdown? Well, look, we have been asked this when the price was $4 and now it's $5. So locking in some hedging, maybe we will, you never know, but in an opportunistic matter, but very short term, basically to cover short contracts, but it's a very dangerous situation because, yes, the slowdown of China electric vehicles is probably there, but not so much the infrastructure. And also, it's a very dangerous game because at any moment, you can have a disruption in any mine and the market is so tight that the prices could shoot up. So I think hedging at this moment is a risky business that I don't think we would be doing it unless we went in a very short basis, like 3 months to close or 2 months to close a QP in a shipment. Was the cash cost guidance for '24, $2.80 to $3, based on solar plant coming online in mid '24? What has been done to mitigate the impact of high electricity prices? Could you give... Okay, first question. Yes, it was based on coming online midyear. In order to mitigate, we have been hedging and covering some short-term contracts at good prices. So that's why we had good prices during the second quarter. First quarter and also, we will have them in the second quarter. And the moment we get some decent prices, especially in the day time, we try to close them because right now, the moment where you have a good solar prices are also at the same time where you can get better prices in Spain. So that's what we are doing, trying to cover in short-term contracts. Another question from the same person is, could you give an update on permitting process in Touro? Sometime in April and May, is that still the time line is still on track? Well, not -- certainly not April. The time for elections took almost 2 months to create a new government. So -- and changed some -- no big person in charge has changed in the Environmental Department or Industrial Department, not the equivalent to the [indiscernible], which is ministers. But they did change some of the general managers of the Environmental Department. And this has created some small delay in producing the papers for a strategic process. But as I said, we believe we are in the -- we have been told that we are on the right track to do it -- to obtain this in late May and/or early June. So no big slide. Could you give more color or impact on lower TC/RCs in Q1? How should we think in the rest of the '24? Well, as I said before, lower TC/RCs -- yes, we had lower TC/RCs due to the benchmark being $10 lower. Also, we had some slightly lower shipment rates. And how I think in the rest of the year? Well, it looks is going to be good. Looks like the treatment charges benchmark are going to be going down with the spot, but not like the spot market. The spot market is something for, let's say, the marginal producer, but most of it is done based on benchmark, based on the concentrates provided by Freeport, Antofagasta or the other people. Another question, what are the key requirements for Touro to be [ declared ] under the EU regulation? When do you expect to have a final decision on the project? Well, actually, the strategic project is declared under regulation of the regional government. That doesn't take into consideration EU. Well, EU is pushing and all the laws are coming, and it will be very difficult for them not to save. The key requirements are you have to make a change in the area where you are. You have to have -- which we do. We have to have a minimum of 100 employees, we have. We have to have a minimum x investment, which we have well more than enough, and we have to show basically a significant change -- economical change in the area where it's implemented. So all of these things are -- we comply with those. And when do we have the decision? Well, first of all, it has to be declared [ PA ], which is project of strategic interest by the regional government, which is, as I said, expected to be, let's say, in less than 1 month. And after that, it goes through an accelerated permitting process, which, by law, it cannot take more than 1 year. So that's the maximum you can take. We believe since we have gone through all this, it will take less than that. And so the decision will be taken probably are approved -- the product will be approved likely at the end of the year or maybe the first month of 2025. We are always planning for construction already starting by second quarter or so of '25. The next question is, do you anticipate that the real team for copper mine recently operating out of the production in Mongolia will significantly affect the supply of copper overall? Well, this thing is already included in the [ preparations ]. We are not a specialist. We just read what the people say. And the mine of [ Proyecto Touro ], yes, it's expanding, it's expanding as the cake gets larger, but it's already planned. I mean -- one of the things I should say is that mines cannot go over 100% of the plan. I mean no mine can go more than what they say they are going to be doing. So the only thing -- the only news can be bad news. So if suddenly it happens like the caving that happened in Chuquicamata in Codelco, where for some reasons that I -- I'm not a specialist, that wouldn't -- that did not came as expected -- it simply is delayed and it produces less. If things take longer to commission, it loses less. So it's very difficult to get someone producing more than someone expected. So all this thing of [ Proyecto Touro ] is already in, but there are other things that -- this one is increasing, but the other ones that are very important -- that are depleting, like you would see with Escondida, which is the largest mine in the world, which, according to the plans published by BHP a few years ago, would have to undergo a huge capital investment to maintain production. Otherwise, they will lose 0.5 million tonnes of copper per year, which is more than this mine of Riotinto, Mongolia, [ Proyecto Touro ] producing. So just to give you an idea, if in 3 or 4 years, a huge investment is not done in Escondida, that loses production equivalent to the second or third largest mine in the world. That tells you how severe is -- that's how severe is the situation in the world of supply. What's the estimate of known -- all sustaining CapEx for the full '24? I think we had given the guidance. I don't have the figures right now for the full year. Do you have them here, Cesar, or -- I think you will have to connect your microphone. Do you have it? No. Well, I will jump and see if we can get the -- we will get this or later. Are you still looking for corporate acquisitions, given copper assets will now be much more expensive to consider risks too high? Why do we not make acquisition '2023? Or can you move forward without acquisition without... Look, we can state how we are. But yes, we are looking at things. And if they are -- if they do not make sense, we are not buying. We are quite tight when we make this acquisition. We always look at things that makes sense. But we are looking at things that are not that developed and they are still not that expensive and certainly not in public companies. All we are looking is in private companies out of the radar.

Sorry, Alberto, can you hear me now?

Yes, perfectly.