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

Good morning, and welcome to the Atalaya Mining Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to your CEO, Alberto Lavandeira. Good morning to you.

Good morning. Thank you very much. Good morning to everybody. Thanks for being here once again this quarter. I will have with me Cesar Sanchez, CFO of the company, that will be able to reply any detailed questions in relation to financials. With that, I will go directly to the presentation that has been submitted, and I hope you can see in the screen. Without going through all the lines that are in the presentation, now we are very pleased to report a good quarter, another good quarter, which leaves us on track to achieve what we set about guidance for the year. The production was solid. We had already resubmitted the production. And our costs have been quite good so far this year. And combined with copper price, our financial performance has been quite good. Even with our capital investments, we have generated strong free cash flow and our net cash position continues to grow. Also, we have an excellent working capital position. I'll cover a little bit more on that on the -- about the operating and financial details in the rest of the presentation. Some corporate activities, initiatives that we are highlighting there, I think, are relevant to mention. We know that we had some old shareholders, some shareholders who are coming from the old unit days that had some challenges with their physical certificates. So we have now implemented a system where this -- in order to convert those certificates into CDIs. Also important to mention is that we had the Fernando Araúz, General Manager of Rio Tinto being appointed this quarter. He follows -- Enrique Delgado has been with us 6 years, which he will continue as a consultant and working with the company. Fernando Araúz is a mine engineer that has been with us as Deputy General Manager, and he was also instrumental in achieving the permits back in 2013 in the old unit mining days. This is part of the preparation for a long term in our company. We have had also some internal changes in order to prepare ourselves to be a multi-mining company. We have made a lot of progress in our different assets, and I will go with that through the presentation. In terms of ESG sustainability, our Board renewal continues. We have had some additions that I will go through later, but basically substituting some of our former directors that have been with us over 10 years. So we welcome Hennie Faul with a huge background in Anglo American Copper and Cori Gonzalez, which is a Spanish executive also in several boards in Spain. And we saw Hussein Barma retiring after over 10 years in the company, where he couldn't be independent nonexecutive anymore due to the kind of rules or indications of the occupancy. With that, I would like to go directly into the presentation in relation to production results. Copper production, we have released that. There were -- was 12,123 tonnes of copper, consistent with our guidance, we had already released that. Remember that we had said that the second half was going to be lower grades than the first half, and that's consistent with that. But the mill itself performed very well. In the upper graph, you will see that the vertical bar showing how production, it's intermittently going up and down. Basically, the quarters that we have a maintenance in the large mill, the production of the mill goes down a little bit. And it wasn't the case in Q3. So we've gone 3 quarters with good production, but we will have a lower production or treatment rate during Q4 as a result of this planned maintenance that happened in the first days of October. The copper grades were solid at 0.38% copper and recoveries were slightly lower, around 74.5% copper due to the complex metallurgy of this transition of ores that we have been experiencing when we are blending the upper areas of San Dionisio, which is slightly oxidized. As we move forward, our metallurgy is going to improve both in San Dionisio because we will be getting access to the fresh ore. So that thing should be changing in the near future. With all that, we had a good gold -- good copper price and low offsite costs. And due to the better sales, we had a very good performance in the third quarter. The cost performance also was quite good, even if we have included there a EUR 4.5 million provision for a potential tax reassessment disputes with the municipalities in relation to the tailings pond. So we prefer to put this as a provision. Otherwise, our cost performance itself, absolute performance would have been very good. Regardless of this, we had a good EBITDA for the quarter of around EUR 31 million. And the operating cash flow was almost EUR 42 million. And after investing EUR 18 million, we would still have a strong free cash flow of around EUR 24 million. The main investments that we had this year -- this quarter really were all related to mining. So basically, we were moving waste at San Dionisio in order to get to the better grades. We have capitalized stripping that we account for later in the all-in sustaining cost at Cerro Colorado. And also, we have some investments in -- of maintenance investments in our tailings pond. In the future, this stage we are going also to be going down these tailings investments because we plan to construct a new tailings pond, which will require less capital investments during the years. So all in, this left us with a very good balance sheet where we ended the quarter with EUR 93 million of working capital position. So that's over -- or about EUR 50 million, so a little bit almost like $100 million of surplus from the beginning of the year, which is excellent. Looking at the results to date, it's a little bit of the same. The EBITDA was around EUR 140 million, and the free cash flow was around half of that EUR 60 million. This figure are placing us extremely well to basically get very good results at the end of the year. Profits of around EUR 71 million, much better than last year also year-to-date, which were only about EUR 18 million. Looking at the details of all these costs, I mean, how we came -- or how we got to these figures that I just mentioned are shown in the next slide. As usual, we provide a good breakdown of mining, processing and other costs, what we call the site operating cost, that's the production on site. Costs are lower -- substantially lower than previous year. But on-site costs where -- they are very similar in a quarter-by-quarter than previous years because we have inflation, which is very similar. But year-to-date, they are lower than previous year due to basically the higher production. Overall, the cost itself for mining, for processing 1 tonne or constructing 1 tonne of rock are very similar. We are fighting very well with the inflation. But of course, depending if you produce more or less, your cash per pound is higher or lower. In the off-site costs is where you see a big improvement due to several factors. The main factors, as you can see is a further increase in byproduct grades. This is a result of maintaining our silver production, but having better prices for silver. So this means negative payments of $0.43 per pound in copper, which is higher than the average of the year. But at the same time and following the tendency that's happening in the world, the treatment charges of smelters continue to be low and as well as freight and other offsite costs. So our -- these are only dependent on the material produced so they are not dependent on the grade. And we have seen this also be substantially lower, almost half of what we had in '24. And this tendency is very likely going to continue and probably improve during this last quarter because we will have some spot sales that we very likely will sell at negative treatment charges. The rest, what's not the spot sales, which is most of our production is sold under long-term contracts based on benchmarks, which are lower than previous year, but not as low as the spot sales. All in with this, our cash costs were around $2.55 per pound, which is also substantially lower than previous year and accumulated an excellent $2.33 per pound for the year-to-date. Mainly the -- as I said before, the big improvement from previous year is basically, as I said, better production, better production and higher silver credits and lower offsite cost of treatment charges. And as I said before, this -- especially these last 2 elements are likely going to improve or increase during the fourth quarter. We have also seen in the negative side the strengthening of the euro. So we have been able to keep this good costs in spite of the fact that we had the euro going from around $1.05 to $1.15, $1.16 per euro along the year. And obviously, most of our costs on site are in euros. And all-in sustaining costs are also lower than previous year, around a little bit less than $3 per pound in Q3 and year-to-date, around $2.84 per pound, which is around $0.50 lower than previous year. When we compare this with our peers, we always like to show how the industry is trading to see if it's us or else. I mean we see that we are keeping ourselves under the $3.50 line, which we believe it's going to be the future tendency of the world. It's true that other peers are benefiting from the gold credits, which are excellent with the gold price, especially those mines in Chile and Peru which have lots of gold byproducts, but also have to be fair that we have benefit from the silver credit. So overall, the -- we are at least as the industry or better, and we will be it's going to be like that in the future. Going forward, what are we looking at as a guidance? Well, it's not much to change in the last, let's say, 1.5 months. So we have -- I think we'll be very well positioned to be in production guidance, which we kept in 49,000, 52,000. Remember, we had upped a little bit, very likely midrange and slightly higher, which means we will have a modest quarter Q4 due to the due to the lower production, due to the stop of the maintenance of the plant, but still in a good range. Looking at the cash costs, we will be in the low end or lower than the $2.60, so probably $2.60 or lower in that sense. And in the all-in sustaining cost will be also in the low end or even lower than that. So we expect to have a good result. In the -- for accounting reasons, the non-sustaining CapEx guidance is now in the high end. Basically, we are passing some cost to pre stripping. So we will be in the high end in the non-sustaining capital, which is basically pre stripping at San Dionisio. Exploration overall, we keep it, but probably will not also not reach the high end simply because we have started already the exploration campaign in Sweden, in the winter campaign, but there's not much time to finalize. So we will not go overboard. So with that, we expect to have a quite decent quarter. Going a little bit now moving into our projects in general. We are concentrating on San Dionisio, which is the picture you are seeing. You can see in the left part of the picture, the -- taking that hill down as fast as possible, slowly disappearing. We still have to move an electric line somewhere there. And that will be our focus. We will also want to spend a little bit Cerro Colorado pit to have better access in the future for high-grade material. But overall, this thing is tracking well. The important thing here is that during '26, we will already start hitting the fresh ore at San Dionisio, which will allow us better recoveries and better production in the years to come. Another project where we are making some advances, although have not been so many advances during this quarter is Masa Valverde, where we continue to drill with a couple of rigs. And basically, we are waiting for the access to the surface rights where the portal is going to be located. Everything is ready, but we need to have access to a force exploitation that has to be finalized by the administration, which the paperwork is ongoing. And subject to Board approval, we will start to ramp very likely now in the first part of the next year. In the meantime, as I said before, we continue to have 2 rigs drilling, drilling in that green area in the side of the main deposit of Masa Valverde. And we also do some exploration in some other anomalies. But basically, we will be concentrating in the high-grade zones, and we announced -- or remember that we announced the results of this high-grade zone sometime in July, if I remember well. I think an important step here is what you see in this picture. In November, we had a panel, a forum of critical minerals in Andalusia. And the 3 persons that are in the picture are María Jesús Lorenzana, which is the conselleira, which is basically the Minister of Industry of Galicia, where the total project is located. Mercedes Morán is the same equivalent position of Extremadura just north of the Pyrite Belt where we have this satellite deposit of Ossa Morena in Alconchel. And the person on the right Cristóbal Sánchez is the Head -- General Director of Mines and Industry of Andalusia, where we have our operations. This was something very interesting where everybody expressed their interest on Andalusia in Spain and specifically these regions as a friendly countries. There are some projects, not only base metals, but lithium and other critical minerals going and being approved. And this was a huge endorsement. As part of this opportunity, this lady that was at the left, visited our operation in Rio Tinto. She was extremely impressed to see the automatization, the safety and really assure that the project of Touro was going ahead without any question, really, it's a matter of time. It's not a matter if it will happen or not. It's true that they have had some -- we heard that they had some delays in the water department due to the change of people there of civil servants. We only have 2 reports missing. One is the water department. The other one is natural heritage, which we have already seen a draft. So that's ongoing. And hopefully, we will be receiving the final papers for the environmental declaration soon. The way things with these delays are accumulating, I really think that our hope to have this in this year is not so easy. And I don't know if we will have to push it to the first quarter of next year. But we got the full assurance that this project is going to go ahead. And as such, we continue to work already with the engineering work that has been contracted already, all the detail engineering to engineering company in South Africa to get ready for the construction of Touro. And the reason why we won Touro is I have mentioned this slide before, it's a project that's going to have a very good economics. It has a value driver for Atalaya. I think already the people are seeing that really imminent. It's a project with a very low capital intensity of less than $10,000 per tonne of copper, which is extremely low compared to other projects. And main reason for this is the very good infrastructure, capable of producing over 30,000 tonnes of copper over 20 years life at least with better grades and better recoveries, better concentrate grades and better payability than Rio Tinto. It's easy to judge that with all these better terms, the cash cost and all-in sustaining costs are going to be lower than what we have at Rio Tinto. And without saying any specific number, you can judge that easily you will get over $0.50 per pound lower -- dollars per pound lower than what we have in Rio Tinto, which means that this 30,000 tonnes of copper produced are going to make a significant -- be a significant contributor for the cash flow of the company. '25 has been a very busy year, and we will continue with it. Right now, we are working in Masa Valverde drilling. We continue the permitting in Touro. But at the same time, we are drilling already there, some open pits that have been left open and that will -- the influence in the early mining stages. We continue working with E-LIX to debottleneck and to finalize that -- to make sure that the plant becomes a contributor of cash flow. We're already drilling with a couple of rigs at San Antonio deposit, which is located east of Cerro Colorado. And we have our exploration activities mainly focused, as I said before, in Masa Valverde but we also initiated the exploration drilling with some anomalies discovered during summer in the 2 belts that we are exploring in Sweden. And as you know, all this has to be carried out in winter due to the normal conditions on the ground there. And we have already started and we will be giving the results later in the year. I will conclude a couple of things before I finalize. I mean, at the end, people ask us how is the market? Well, the market, as you can see, is very active. We are showing in Slide 21, all the deals that have happened a lot in the recent years. The pace is accelerating during '24 and '25 and -- because there's a clear lack of copper projects, and we see, I mean, market very competitive. We are also looking at some things ourselves, and we will continue being very active. Main reason of this is the market. The market is excellent. Since the last time we spoke, one extra thing happened, which is the big accident in Grasberg, very unfortunate because 7 persons died, but really has created a deficit in the copper market that is likely going to stay 1 year, 1.5 years at least. And in a market that's already very tight and with other companies like also a couple of rock accidents in Kamoa and El Teniente. Again, 3 mines of the 5 largest mines of the world affected by these things, plus the largest mine of the world is Escondida being affected by basically a pushback that in -- from '27 onwards, they have to reduce the production or have a huge investment in order to stay still, which means we are getting into years that were predicted even with the slowdown in some of the in some of the consumers, we are getting to a huge problem of production. From the consumption side, there is maybe a word that there have been lots of talks about the influence of the AI in the world, which is accelerating. As you know, data centers and infrastructure are being built all over the world. I've seen all kinds of numbers, the last from international agency, electrical agency, it's Energy Agency was almost 1 million tonnes of extra demand a year. It's like having a couple of the 2 big mines just every year needed for -- yes, for the supply of this extra electricity. So we are getting into very interesting times, and we are very well positioned. How are we going to try to contribute to that? Well, with our growth. I think in 3 years, 2 to 3 years, we are going to be basically getting the stock work of San Dionisio. We're going to have the copper zone of Masa Valverde and especially we're going to have Touro. In addition to that, that's the fourth column. In addition to that, we have the polymetallic area, which is basically an area that has copper, but also has zinc where we have to build a zinc circuit in order to recover that. So yes, it's an illustrative basis, our pipeline will show production growth to basically be able to double our capacity in the next 2 to 3 years. So with that, I would like to conclude. At the end, our company, it's -- basically by the way, we have reached almost GBP 1 billion market cap -- EUR 1 billion, which is also quite an important feature. We have increased liquidity due to being in the index. We have a company with a very good balance sheet with no -- nothing hidden in the balance sheet in the form of streams or royalties. We are paying dividends. We will continue paying dividends. We are continue paying dividends because we believe that we can grow and pay dividends at the same time because there are people that require at least this minimum dividends. And we have paid continuously even in the downturns of 2022 up to EUR 84 million when we had only raised around EUR 100 million back in 2017. In a very good location with modern jurisdiction and I would say another important thing. Besides being a pure copper play, which is important, I think the very important point here is that we have a very good team. We have good operators that are very consistent. We -- and this is one of the issues with -- big issues that's happening in the world. The lack of people, the mines are located in remote places. This is located -- our mines are located in excellent jurisdiction in places where you can get good people to stay there and have a very stable workforce with minimal rotation, which at end it's always good for the shareholders. So with that, I think I will pass it to the operator and look at the Q&A.

Perfect. That's great, Alberto. [Operator Instructions] I would like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed via investor dashboard. Alberto, if I may now hand over to you to go through the Q&A, and I'll pick up from you at the end.

Okay. I will try to respond as usual to all of them, even briefly. Is there an advantage to you -- for you to being a European source of copper? Actually, I don't think so. We have no specific advantage or get any special benefit from this. When do you expect to get full permits of Touro? Well, I wish I knew, but it's out of our control. We expect to have an environmental permit either end of this year, the [indiscernible] migration or very beginning of the next year. With that, which for us is almost enough to get ahead because the final blessing is basically only the financial backing and technical capability, which is we already have ready, all the financing. So basically, we will be able to press the bottom almost immediately as soon as we get the environmental permit, which is I expect to be end of this year or early part of next year. There's a question about EUR 4.4 million provision for potential local tax. Where does this come from? Is this the authorities though trying to change or take advantage? Can you -- are we challenging this? Do you want to give the details, Cesar, on this thing?

Yes, very happy to. Yes. So this is in relation to a local tax in the tailings pond. So over the years, we've done some investment which from the point of view of the authority does increase the value of the TSF. Now we obviously have a completely different view and that has actually a liability that need to be maintained in the future. So yes, of course, we will challenge that number. And for the time being, because it was received with a very short notice to close the books, it was fully booked as a provision. So the maximum amount is EUR 4.4 million. But obviously, we expect to significantly reduce that number below EUR 1 million, and that's the expectation. But again, we need to do a little bit more work to work together with the lawyers and the tax authorities in the region.

Thank you. Another question is land ownership and the old Rio Tinto was basically sold in small parcels to land or business associates. Anyway, does Atalaya own all this land? Yes, we own all this land, 100% of it, and we don't have any land or anything liabilities. And we have not heard from our friend, Carlos for years. Unfortunately, he's not in jail as far as I know, but anyway, we don't care too much. We have continue working with that. No problem at all from that point of view. When do you anticipate the third-party view of the E-LIX plant will be available to yourself in the market, please? Well, we have already received a draft report from the consultants showing that the plant is as it is. Remember, this is a small plant. It's breaking even or very close to breaking even, really what -- so the process works. It's working extracting zinc from mixed copper zinc concentrates. So there is -- this is only the first draft that has been received a few days ago. We still have to go around to see what we do if we debottleneck a little bit more or we find the right feed to get a better use for this plant. I would say that 2026, the plant would operate normally, even with whatever bottlenecks it has. They have been doing some work to extract the silver and gold contained in the concentrates to get better payabilities, and this is being constructed right now. So I would say this next year is going to -- I hope it can operate kind of normally. We are still discussing ourselves how we can finance or we find a third party to finance those expansions because one of the clear things we have said to technologies is that we have to make sure that this thing doesn't consume cash. I mean it's something that's good to have, but we have already invested in form of loans, a substantial amount of money from the shareholders and taking the risk. But anyway, it's -- we'll look at it very prudently. But now the reports are there and the reports are very positive and really encouraging. Atalaya has reached an intraday EUR 1 billion market cap. Congratulations. With expansion of current footprint in Touro, Nordics, what's the next target? Well, as I said before, we are always looking at opportunities. We have been looking at opportunities, and we continue to do so in South America. We continue to do so in Spain and Portugal in the Pyrite Belt. And yes, right now, we have some things in our books, and we will continue looking at that. And if they are finalized, we'll announce it. But those are the places. Something to be -- to get ready after Touro. So we need to keep a little bit busy after Touro because we think we can grow. We have good basis for growth. When such small changes in head grade have such significant effect on copper production, what checks and balances do you have or not accounting? Well, this is actually a small change is not such a small change because you have low copper grade and you have a 0.4% and you get only 0.38%, basically, it's a 5%. So it's not that small. We are very efficient. Everything is automatic, but you need to adjust the plans to make sure you don't put too much sulfur in, you don't put too much hard material in order to optimize the plant. I mean, right now, it's planned monthly, weekly, daily in the plans. And yes, it's really -- is really automatic and the people are very professional. And by the way, they are doing an excellent job. If you had time to look at what was filed in SEDAR in 2013, you will see that the plans for this mine was to have recoveries of 75% to 79% of copper. So historically, we have always been much better than what was the plan back in 2013. Fairfax exit, was this expected? Any dialogue with them? Reading their investment strategies based on value and our long-term holders, I guess they missed recent [ 830 ] broker target price. You're right. For us, it was a surprise. I suppose they made a good return in a short period of time, and that was the reason they had come in at [ 3 ], they sold at [ 6 ]. They doubled the money in 2 years. So I suppose that was the reason. So yes, maybe they miss the long-term value, but it's fine. I used to say that for each happy seller, there's a happy buyer. So that has helped us a lot to get these blocks into the market, which were absorbed very fast. You mentioned silver, any plans for gold? Not in this project. We have very low levels of gold, but there is some recovery of gold in the concentrates, we're using the E-LIX system, which we will be investigating. We do have a gold project is called Guijarro in the Ossa Morena Belt with around 300,000 ounces of gold open pitable, which we are drilling, and we expect to -- we will try to get to at least 0.5 million ounces of gold, and then we will decide what we do with this. This is a basic gold-only deposit located north of the Pyrite Belt. Looking forward to '26, what's the estimated copper production for '26 based on additional satellite projects for '26? I think for '26, it will be a little bit better than '25, but we will not have the satellite deposits yet. We'll only have some blending from San Dionisio, which we don't have the guidance yet. Use of land post mining for additional land data centers. You have the land, water and power, cloud central growth, the active ingredient. Any plans to explore that? We have been exploring this. We have an issue. Refrigeration is a problem. It's a big consumer of electricity and water. And in summer, this is not a good place to have this systems. They are looking for something -- summer is a problem here because it's very hot. We do have the land and there are some things that we are planning to do with the land, but it's data centers, it's not really -- so far from what they have told us it's probably not the best place. Talk about shortage of power given growing AI demand. Would it make sense to continue to expand solar capacity before it becomes more expensive? Well, one of the issues with the solar -- expanding the solar demand is you have to do it for self- demand. So there's a lot of electricity already in solar in Spain. There's actually excess of electricity. So whatever you build is what you can use. And then -- and the problem we have is that we have a use of 50 megawatts, and that's what we have installed. So if we installed more, we could not use it because we don't have capacity to use it. And there is -- at the same time, to export it to the network, it will be a little bit difficult because there's also lots of other producers that we will be willing to get into that. Having said that, we have been exploring the possibility of installing some batteries in order to with excess solar capacity, be able to charge that batteries to try to offset the peaks of cost of high cost of energy in the Sunrise and the sunset. But again, this is something a little bit marginal, not a huge thing. The spot price has been around $5 over the last quarter. Atalaya's was around -- sales price was $4.40. Why was this the case? And why do you expect to be closer to spot in Q4? Well, actually, no. Actually, the price of copper in the market was around $4.50, $4.60 in the LME. And that's why we benchmark. What normally, what you see is futures in the Chicago and basically in [indiscernible] in United States and there is a differential of around $500 per ton on arbitrage of copper in the U.S., which shows higher copper prices. That's what's shown in most of the screens versus the LME. But what marks the transactions is LME, and we have been always very, very close to that.