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

Good day, ladies and gentlemen, and welcome to Atalaya Mining Second Quarter and H1 2026 Results. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to the CEO of Atalaya Mining, Alberto Lavandeira, to open the presentation. Please go ahead.

Good morning, ladies and gentlemen. Thanks, everybody, for being here. We are -- today, we announced the results, the Q2 and first half results for 2026, including the financial results and I'm going to go through the highlights of this announcement. Let me first start with a review of the results during this quarter. We had a good production quarter. We had announced that already. We produced 13,500 tonnes of copper with all-in sustaining cost of [ US$2.79 ], which means we are maintaining our guidance and both for cost and production. It was a good quarter. We generated a record quarterly EBITDA of EUR 78 million, a record half of the year of EUR 126 million, record free cash flow of EUR 58 million, so that's over EUR 60 million. And of course, we benefited from high copper prices, good silver credits, low treatment charges and that was very good. And even with some higher mining costs and processing costs due to inflation and higher diesel prices, we had an excellent cash generation. This extraordinary cash generation meant that our balance sheet at the end of the quarter was excellent, and we ended up with a net cash position of EUR 318 million -- almost EUR 319 million, which is also, again, a new record. As a result of that, our Board declared a dividend, an interim dividend of EUR 0.055 per share, which is also much higher than previous interim dividend. And I will go through some of the key points in the next -- in the presentation. In Slide 7, you will see a graph that we typically show with the evolution of production. The plant continued to perform very well. The Q2 was strong. It was a very big improvement versus first quarter. As you remember, during the late January and almost all February, we had an extraordinary high rainfall in the South of Spain, and that impacted our production. But during the second quarter, things were normal. We recovered out of the lost production. We had a very strong mill performance. Grades went almost 0.4% copper, and we increased the recovery to 84%. So we produced 13,500 tonnes of copper, which is quite good. And you can see in the graph at the bottom side, a big increase, a large increase versus previous quarter. As a result of that, the financial results were quite good. EBITDA was EUR 78 million, which is again a new quarter. And of course, the revenues, you can see were a record high were a result of higher copper prices, higher silver credits and lower offsite costs. We made some investments of around EUR 20 million during the quarter, mainly in San Dionisio and capitalized stripping of Cerro Colorado. And with everything, the operating cash flow was almost EUR 60 million, and we generated EUR 58 million of free cash flow, which is again a new quarterly record. And that means that our balance sheet improved a lot, strengthened even further, and we increased our cash position to almost EUR 320 million. Of course, we had a nice increase in the capital placement that we had in late January. But even so -- after that period, we continue to strengthen our balance sheet and increase our cash position in this quarter. Going a little bit further in the financial results. I have here some interference. During the whole year, we had -- during the whole first half of the year, we had an EBITDA of EUR 126 million, which is, again, a new record. Looking at the breakdown of our cash costs and all-in sustaining costs, as you know, we always give the full detail of this. Our cash costs were around $2.40 per pound in Q2 and in the first half of '26. And they were solid and well below the guidance that we had expected for the full 2026. All-in sustaining costs were around $2.80 per pound in second quarter and around just under $3 in the whole '26. If you look at the details, you will see that mining and processing were higher than the previous quarters. And this is mainly due to the impact of diesel in the mining side and also explosives that are affected with the gas prices, which have been affected by the wars in the Middle East. Also, we had some not favorable exchange rate during the quarter, the euro and the U.S. dollar-euro strengthened a little bit during the quarter. But of course, even having this kind of bad news at the operational level, at a site level, we -- most of this increase in the costs were offset by higher silver credits and low treatment charges, as you can see in the lines of the offsite costs. We are right now enjoying low treatment charges from the benchmark, but also we are also selling some parcels and lots with negative treatment charges, which means that at the end, we have been able to have quite low freight treatment charges and all other offsite costs. Going forward, beyond '27, all our legacy offtake agreements will be disappearing. We have expired. And if the market conditions stay like that, we think we are going to be in a very good position to enjoy very low treatment charges. As you all know, the evolution of treatment charges has gone from being positive in the range of 50 to 80 to be negative even at spot sales of minus 200 with most of our offtake agreements expiring this year and all of them next year. We are fully exposed to this good conditions to the poly miners that we believe are going to persist for a while due to the lack of new projects and due to the excess smelting capacity. Of course, also the smelters are enjoying the high sulfuric acid prices, high gold prices and silver, which means that they are not losing money. So there's no specific danger for the smelters to close even with this low and negative treatment charges. When we benchmark ourselves with others, we always like to compare with other pure copper players. We continue to maintain our all-in sustaining costs quite under control. We continue to be very well positioned compared to the rest. And our all-in sustaining costs have been trending downwards even with this inflation that we have been seeing that's general all over the world. With this, how do we see the rest of the year? We have preferred that we to maintain our prior guidance. We believe we are going to be in the low end of the production, although we will be recovering some of the lost production of the first quarter, but we think we are going to be in the low end, even with a good production result of the second quarter. From the cash cost point of view, we have pressures on diesel and explosives, but we don't think they are going to be worse than this quarter. If anything, it looks like diesel is relaxing a little bit, at least from the oil point of view, oil price point of view. So we prefer to maintain also our guidance. We have made some small amendments to our operating metrics. We believe that the mill is going to be performing very well, has been doing very well. We had some -- actually, we had a record May, where the mill stopped only 3 hours in the whole month, it was fantastic. But we do have a maintenance program in the third quarter. But still, we think we are going to be mining -- processing in the high end of 16 million tonnes or more than that at the mill. The grades [indiscernible] are going to be slightly lower than we predicted, probably just slightly shy of that, but the recovery is going to be slightly better. So one will compensate the other. So then, we are maintaining our guidance. The CapEx, we have lowered the CapEx a little bit, around EUR 20 million less. And the reason is the delays in starting some of the projects, our growth projects, which I will talk a little bit later. This is the pre-stripping of San Dionisio slight -- was slightly delayed, the movement of the road and they started to ramp. So basically, it doesn't mean we are saving CapEx. We are simply pushing that to later in the year and beyond in 2027. Looking at dividends, as I said before, the policy of Atalaya is to give back between 35% and 50% of the free cash flow. We believe that we have to keep a dividend even if we know that we are going to have ahead of us a good set of investments of growth initiatives, especially in Touro and also Riotinto. But the Board decided due to the good financial position to increase the interim dividend by around 25% versus the previous year. And this is EUR 0.055 per share -- per share. This dividend is expected to be paid in September. And as I said, it's an interim dividend, and we hope that we can continue increasing that in the final dividend. Now this company is operating well, but now where is our growth? What's the situation of our growth projects? And for the rest of the year, we will continue developing this. In the slide in the corner, you see San Dionisio, we continue doing the pushbacks and they are advancing well. We had a small delay by of -- by the electric company removing the electric line that's in our way. That's the reason why there is a small delay in accessing the better grades of San Dionisio, something of months, not years. Masa Valverde, we basically we have continued doing all the works on surface, access roads, explosive magazine, which are quite big, escalation of the preparation for the portal, platforms and so on, which are almost ready and simply waiting for the final decision to decide to push ahead with the ramp, which is expected sometime in this -- later in this quarter. At Riotinto, as you know, we are going to be doing some work to be able to process polymetallic material in our mill. The engineering studies are progressing. We have engineering firms on site this month to optimize the layouts because we have -- although it looks like we have lots of space, we have to remove some of the old installations in order to install the new circuit and try to optimize and have a flexible -- a very flexible circuit that can treat both type of materials, the pure copper that we have right now and the polymetallic. In addition to that, we have been doing lots of test works to produce pyrite concentrate from our tailings due to the strong interest from the market. We have had a lot of inquiries and companies wanting to get access to our pyrite concentrates because basically, our waste is composed by silicates and a little bit of pyrite, [ it is round ], is quite clean, and it's a perfect stream to be sold into the market. As you know, the sulfuric market has -- it looks like it's coming to a point of deficit. And some of the people that produce sulfuric acid are looking to diversify and produce some of the sulfuric acid through the burning through the roasting of pyrite. Important point in our growth portfolio, as you all know, is Touro. In Touro, we are really hoping to receive the environmental impact declaration soon. We have been expecting this for weeks, if not months. We now know that all the reports have been positive. We have them. We know that the civil servants are preparing the declaration. Unfortunately, we cannot give any additional color on timing because it's out of our control. We know there's no additional steps, no additional papers, nothing simply in the hands to finalize the draft. We believe it can be soon, but we all know also the complications that the summer can bring with less people available and so on. But we are quite positive and actually, we are getting ready for that. We have already completed all the geotechnical studies at the plant site in order to push ahead the moment that we are receiving this final permits of Touro. What's the plan? The plan of Atalaya is basically that we have said before. We are quite positive in the years ahead. We have several attractive projects, good pipeline of projects in Spain. These projects will take us to around 100,000 tonnes of copper equivalent. Of course, the big contribution would come from Touro, but also higher rates from Masa Valverde and the production of lead, zinc concentrates in addition to the copper concentrates from Riotinto will also contribute to that. Right now, we are -- we have the teams, which is very important, very low rotation in our teams, experienced teams. And we have an excellent balance sheet with well over EUR 300 million net cash in our balance sheet and no debt. And we will be looking probably to raise some natural debt. And of course, the team continues to look at new things to apply their experience. They have been there in the development of mining projects in Spain in the last years. I would say our teams, some of our people have participated in the last mines that were developed in Spain and Southern Africa. And we have the ingredients to grow. So I think we're very well positioned that in less than 3 years, we'll be in this almost doubling our production of copper equivalent in all in the Spain. And we continue to look at any other opportunity that can be around. And with that, I think I will open the floor for any questions. Maybe the operator can introduce.

[Operator Instructions] Our first question comes from the line of Laura Chan with RBC Capital Markets.

My first question is just on the CapEx deferral. Just on San Dionisio, once you move to electric line, how quickly you expect to access those higher-grade zones? And what's the realistic time line for that meaningful San Dionisio ore contribution to the mill? And just on Masa Valverde, you've indicated that the Board decision is expected later this quarter. Can you just confirm what the key remaining gating items are? What's the construction and first ore time line look like once approval is given?

Yes. The electric line is something that has already been constructed out by Endesa, they are probably the big company that owns the line and is the main supplier in the South of Spain. And the time line, I suppose the only question here is the availability of maybe people or teams during the summer period. As soon as they move it, we can access that immediately. What I mean immediately is like days. After that, we have equipment that it's there. We were mining as close as we were permitted. So how this -- can this affect the production, I would say, probably late this year or earlier this year -- next year, I don't think it will be -- I don't think it will be weeks. I think it will be months, probably the third quarter -- the fourth quarter. On Masa Valverde, really not much left. We continue drilling with 2 rigs. mainly concentrating in the copper zones. the contractor has been selected. So as soon as we have that the decision to go ahead, which as I say, will likely be August, September when everything is on surface is ready, we can get there. The contractor can -- depends on the speed there and the rock conditions, which are expected to be quite good, can take from 2 years to 3 years, we say 2.5 years to complete the whole ramp. We can access ore probably earlier than that, around 2 years, but not earlier than that. We will concentrate directly in the copper zone. We will go through an area of polymetallic with very good grades, but unless we have the circuit of Riotinto ready, we would not be mining that we will go directly into the copper zone with grades between 1.5% and 2% copper. So production of copper, I would say, the best thing is 2.5 to 3 years to be conservative. That's probably the time for this new copper production.

Tailing circuit, like you mentioned, what's the kind of project sequencing look like more broadly? And how are you thinking about staggering the different projects, especially with the Touro permit potentially coming quite not far behind. How are you thinking about construction time lines and labor contractor availability? Do you see any issues there?

In our case in Spain, we don't expect any issues. We have already preselected the contractor. and the -- there is availability of equipment and people. That's for Touro. Both -- I've been talking about mining contractor in the construction teams, the project of Touro itself is not very complicated. And the key will be the availability of equipment, which we have already a permit from the Board to approve it, to purchase the key equipment like the gyro crusher, the SAG mill, the ball mill and flotation and filters, which are basically 50 weeks between 45 and 55 weeks delivery time. And we are going to be doing that immediately as soon as we get the environmental permit. So I expect the total project to take 18 months of construction. Maybe it will be 1 month less or whatever for commissioning and so on, but basically 18 months is typical. So it could be a little bit less, but not much less. We are looking at other projects in Spain and other places. And look, availability of teams is important. It -- there have been cases, where we have been offering things in South America, where really we could -- it would be a big stretch for us. So we would have to rely local -- total local contractor suppliers, and that would probably be a problem. But in Spain, Portugal, Europe, it's not a problem.

Our next question comes from the line of Jason Fairclough with Bank of America.

Just a little bit of a question about the polymetallic. Can you talk to us a little bit about the capital cost for this? And when do you actually need to have this ready to take over? Is this still 1 or 2 years away?

Well, it's a good question. It was actually if we didn't mine any of the polymetallic, we would have like 10 years ahead of us or 9 years ahead of us without needing to bring any polymetallic material. So the fact of having this polymetallic can allow us to start blending in materials from different places and have a better operation. When I mean a better operation, I mean that some of the future polymetallics are going to be underground. And as you know, going underground for a very large plant is very difficult if you don't have an open pit to be blending the large chunk of the material. That's the reason why we want to bring this ahead as soon as possible. And when is as soon as possible. I would say 1.5 years is also from now. The sign is very advanced. And what does it include in capital cost? In the first pass, we had EUR 88 million, and that included installing finer grinding lines plus all the zinc -- so additional grinding lines, all the zinc and lead and filters in addition -- basically to recover in addition to the copper, the lead, zinc. Now we are looking -- and of course, it also required fine grinding with vertical mills or similar ceramic ball mills. One of some of -- we are trying to optimize that a little bit, probably reduce a little bit the CapEx, and that's -- we are in the final stages to try to use the excess capacity that we will have in the grinding side because we have excess capacity and maybe try to reduce that EUR 88 million. That's -- the way it would work is that when we are processing only polymetallic, we will be processing higher rate of copper and of course, lead and zinc, but we will be reducing the tonnage through the mill. Instead of going at 2,200 tonnes an hour to the site, we will be going, I think it was [indiscernible] or something like that. So now we're looking how this excess grinding capacity can be optimized and still be producing the same material. So first pass is EUR 88 million, trying to reduce that a little bit. And when -- the sooner, the better. It's not essential. So if it's delayed 3 years, it wouldn't matter, but it doesn't make any sense. The sooner we can make it, the more flexible it will be for us in the future.

And just -- I assume this has got differential flotation to separate the lead zinc from the copper. Does that mean that you're now giving up on E-LIX?

Actually, it's a very good question because we are not. I mean, actually, we are going to go like we are doing differential flotation. That's absolutely to go for a safe bet. But in E-LIX, we have been working now for 100 days continuously without stopping the plant really without stopping. The problem is that it's only running 3, 4 tonnes an hour. So basically, it's running, let's say, 90 tonnes per day of concentrate and it's processing right now. We made some bulk flotation of several zones specifically to feed this -- the plant, which had good copper grade, but also contain lots of zinc. So we are feeding with material that has around 13% copper and around 15% zinc. And E-LIX is removing the zinc very well and leaving it in around 2% or even less. and then the copper grade goes to around 16%, which we blend with our normal material. It also recovers silver and both the silver precipitate and the zinc precipitate, which is a [ coverage ] of zinc with around 45% to 47% zinc is blended with zinc precipitates to -- with a trader, and we get paid for it like a concentrate. So right now, this is working already, but I would call it a big pilot plant, like an industrial scale pilot plant. So are we giving back -- giving up, we will go with a safe bet. And if we can debottleneck, which we have seen what is the -- what are the bottlenecks to be able to treat more tonnes. We know it works. So what's the bottleneck to treat more tonnes. We see energy is one of the things, filtering capacity, settling capacity of the precipitates, things that can be sorted out very well. So that's what we are studying. But right now, we are keeping with the safe bet. And the other one is running to make sure it doesn't cost us money.

The -- in terms of the polymetallic ores, those are mainly coming then from San Dionisio and Masa Valverde?

San Dionisio, San Antonio and Masa Valverde. Yes. San Antonio, it's -- we have almost completed the drilling. It's just east of Riotinto. San Dionisio is most of it is open pit, and we are looking at how we can increase the open pit and struck much more open pit and underground. And Masa Valverde, in addition to the copper zone, there are areas around good lead, zinc and copper grades. We have a few other deposits called Mojarra, Campanario, whatever, which are not even in the resource, let's say, blocks kind of drill that we're still evaluating, which are also polymetallic. Main material, which is the only one we are accounting for this project is San Dionisio open pit and underground, San Antonio underground and Valverde underground. Combined with the leftover of the copper stock work at Cerro Colorado.

[Operator Instructions] Our next question comes from the line of Jasper Mainwaring with Berenberg.