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Edited Transcript of CMMC.TO earnings conference call or presentation 15-Feb-19 3:30pm GMT

Q4 2018 Copper Mountain Mining Corp Earnings Call

Vancouver Feb 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Copper Mountain Mining Corp earnings conference call or presentation Friday, February 15, 2019 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Donald Strickland

Copper Mountain Mining Corporation - COO

* Gilmour Clausen

Copper Mountain Mining Corporation - President, CEO & Director

* Rodney A. Shier

Copper Mountain Mining Corporation - CFO & Corporate Secretary

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Conference Call Participants

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* Craig Hutchison

TD Securities Equity Research - Research Analyst

* Stefan Ioannou

Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research

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Presentation

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Operator [1]

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Good morning. My name is Julie, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Copper Mountain Mining Corporation Fourth Quarter and Full Year 2018 Earnings Conference Call. (Operator Instructions)

Please note that comments made today that are not of a historical factual nature may contain forward-looking statements. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from actual outcomes. Please refer to Slide 2 of today's presentation and Copper Mountain's fourth quarter 2018 management's discussions and analysis for more information.

I will now turn over the call to Gil Clausen, President and CEO of Copper Mountain Mining.

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Gilmour Clausen, Copper Mountain Mining Corporation - President, CEO & Director [2]

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Good morning, everyone, and thank you for joining us.

As you can see on Slide 3, I have with me Rod Shier, Copper Mountain's Chief Financial Officer; and Don Strickland, our Chief Operating Officer.

I'll begin by providing some brief highlights on the quarter. Rod will provide a more detailed discussion on our financial results, followed by Don, who will speak to our operations. Then we'll wrap up and open up the call to questions.

Starting on Slide 4. We finished the year very strong. As forecast, the fourth quarter was our strongest quarter of the year. We saw quarterly and annual production increases and quarterly and annual unit cost reductions year-over-year.

Copper equivalent production for the quarter was 24.5 million pounds comprised of nearly 21 million pounds of copper, about 8,100 ounces of gold and 63,000 ounces of silver.

As for the full year, production was 92.4 million pounds of copper equivalent, which includes 78.8 million pounds of copper, 28,250 ounces of gold and about 274,000 ounces of silver.

Our C1 cash costs improved 14% in the quarter to USD 1.60 per pound of copper produced, and for the year, cost per pound of copper produced decreased 4% to USD 1.77. I should note that we have updated our unit cash cost definition to be in line with industry-recognized definition of total operating costs or C1 cash costs. So the full definition and details behind our C1 cash cost calculation could be found in our MD&A.

Turning to Slide 5. 2018 highlights. As mentioned, a strong year for Copper Mountain. We achieved guidance across all metrics. We also increased reserves at the mine to 210 million tonnes.

Earlier in 2018, we completed the acquisition of Altona, which brought us the Eva Copper Project and a huge and very prospective land package in the Mount Isa region of Queensland, Australia.

Subsequently, we completed a feasibility study on Eva in October that demonstrated an after-tax NPV of about $260 million and annual production of about 90 million pounds of copper or 100 million pounds on a copper equivalent basis.

Also last year, we completed a large drill program at New Ingerbelle, which resulted in an updated resource and a new base case for a PEA for mining the New Ingerbelle pit. The PEA showed very robust after-tax NPV of almost $400 million and more importantly, demonstrated the significant value New Ingerbelle has to offer through low risk, low-cost production with minimal capital investment.

We're now evaluating the full integration of Ingerbelle into the Copper Mountain Mine production plan and concurrently evaluating a modest expansion to the existing Copper Mountain mill to improve grinding capacity. The expanded mill would allow for an increased throughput and recovery within our current operating and environmental permits.

Work is well advanced on the integrated plan and an updated reserve statement for the Copper Mountain operation. We expect to publish the study results along with our concurrent filing of a 43-101 technical report this month.

I'll now turn the call over to Rod, who will review our financial results in more detail.

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Rodney A. Shier, Copper Mountain Mining Corporation - CFO & Corporate Secretary [3]

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Thank you, Gil.

As noted on Slide 7, revenue for the fourth quarter of 2018 was $73 million on the sale of 19.4 million pounds of copper, approximately 7,500 ounces of gold and 70,000 ounces of silver.

Revenue was down as compared to Q4 2017, despite higher sales in the fourth quarter of 2018, and this is a result of a 10% lower realized copper price during the quarter as well as a negative $2.4 million mark-to-market adjustment in the fourth quarter of 2018. This compares to a positive $10.7 million adjustment in the fourth quarter of 2017. Mark-to-market adjustments are a requirement under IFRS for shipments outstanding and not settled at the end of the quarter or year.

Revenue for the full year of 2018 was $296 million on the sale of 79 million pounds of copper, approximately 27,000 ounces of gold and 284,000 ounces of silver.

2018 revenue included a negative mark-to-market adjustment of just under $1 million for unsettled shipments at year-end as compared to a positive mark-to-market adjustment of $10.7 million for the 2017 year.

As noted on Slide 7, cost of sales for the fourth quarter of 2018 decreased by less than 1% to $65.2 million year-over-year, even though more concentrate was sold in the fourth quarter of 2018 as compared to the fourth quarter of 2017. This was because Q4 2017 included a reduction of about $7.6 million in expenses to cost of sales associated with ore mined and sent to the ore stockpiles and not sold in Q4 2017 as compared to a charge of $2.8 million in expense to cost of sales in Q4 2018 for stock held or processed and sold during the last quarter of 2018.

Cost of sales for the year increased by about $25 million compared to 2017, due in part to a $13.1 million charge that was included in the cost of sales figure in 2018 as a result of processing a portion of ore stockpiles and a small part due to the increased cost experienced during the year for diesel fuel, maintenance and power. This compares to a $14 million deduction from the 2017 cost of sales figure for ore that was mined and stockpiled during 2017.

The drawdown of ore stockpiles in the year is the result of increased development stripping, as the mine focused on exposing higher-grade areas of the pit for future years. As required under IFRS, some of these additional costs of stripping are capitalized when the period stripping ratio exceeds the life of mine stripping ratio.

Turning to Slide 8. All this resulted in a gross profit of about $8 million and a net loss of $19 million in the fourth quarter of 2018 as compared to a gross profit of $20 million and net income of $23.5 million in Q4 2017.

This change to a net loss position for the 2018 quarter from a net income position in the fourth quarter of 2017 was mainly a result of the expenses charged to cost of sales for some of the ore stockpile that was processed through the mill during the quarter as noted earlier, and due to a noncash unrealized foreign exchange loss of nearly $15 million compared to a loss of about $2 million in Q4 2017. This is a change of approximately $13 million from quarter-to-quarter for a noncash foreign exchange movement. These noncash unrealized foreign exchange adjustments are mainly related to our debt that is denominated in U.S. dollars.

The net loss of $27 million for the year ended 2018 included a noncash, unrealized foreign exchange loss of $24 million as compared to 2017's net income of $67 million, which included a noncash, unrealized foreign exchange gain of $21 million. This is a noncash change of approximately $45 million between the 2 years, again, all mostly related to the treatment under IFRS of our U.S.-denominated debt.

On an adjusted basis, the net loss for the quarter was $1 million or about $0.01 per share, and for the 2018 year, we reported an adjustment -- adjusted net income of $3 million or about $0.02 per share. Adjusted EBITDA was $17 million for the fourth quarter of 2018 and $71 million for the full year of 2018.

Cash flow from operations was about $29 million for the quarter and $51 million for the year, which allowed us to end the year with about $46 million in cash on hand.

And now, Don will provide an operational update.

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Donald Strickland, Copper Mountain Mining Corporation - COO [4]

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Thank you, Rod. Starting on Slide 10. The mine team continues to deliver high performance, exceeding our 2018 guidance. Mining activities continued in the Pit west area with a focus on the next pushback.

A total of 19.7 million tonnes were mined in Q4, which included 4.4 million tonnes of ore and 15.3 million tonnes of waste.

Mining in 2018 was predominantly in the Pit west area, mining a record 74 million tonnes, which included 21 million tonnes of ore and 54 million tonnes of waste.

The strip ratio was higher both in Q4 and 2018 when compared to the respective periods in 2017, as a result of accelerated stripping. We accelerated stripping with the objective of exposing higher-grade ore for 2020 production, the benefits of which you can see in our 3-year production guidance.

Turning to Slide 11. The mill team also continued to deliver high performance, achieving new annual production records for tonnage rate, operating time and total tonnes milled.

During the quarter, the mill processed a total of 3.9 million tonnes, averaging over 42,000 tonnes per day. For the year, the mill processed 14.5 million tonnes, averaging nearly 40,000 tonnes per day. Mill operating time averaged 96% for the quarter and 92.6% for the year. The mill feed grade averaged 0.3% copper, improving from Q3, as expected, for an average of 0.31% copper for the year. Copper recovery averaged 81% for the quarter and 80% for the year.

Flash flotation circuit that was installed in the third quarter of 2018 had supported higher gold and copper recoveries.

Overall, the full mine team continued to deliver high performance, based on strong culture of implementing improvements.

And with that, I will turn the call back to Gil to conclude.

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Gilmour Clausen, Copper Mountain Mining Corporation - President, CEO & Director [5]

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Thanks, Don and Rod.

Slide 12. We announced our 3-year guidance last month, and we expect production in 2019 to be slightly lower than 2018 at 72 million to 80 million pounds of copper. That's due to some lower rate that we're seeing in the plan this year, but with the benefit of the new flash flotation circuit, as Don just discussed, and we installed last year, our gold production is expected to be a little higher at 29,500 to 32,500 ounces. On a copper equivalent basis, production this year is expected to be 86 million to 95 million pounds.

As we move forward beyond 2019, production levels are expected to increase materially. As Don mentioned, we did a lot of development work this year to expose higher-grade ore, and we expect to see the benefits of that in 2020, with higher production levels.

But, and it's important to highlight, these production estimates do not include any benefits from further mill expansion or any contribution of production from New Ingerbelle, both of which provide the potential for increased production levels.

Slide 13. When we complete the integrated life of mine study, which will include a new production plan, we'll update our production guidance with the integration of New Ingerbelle. Work for the integrated plan is well advanced, and we expect to announce the results and file the reserve update and life of mine plan technical report shortly.

To conclude, turning to Slide 14. This quarter, Q1, there will be some very important value-driving catalysts. The integrated plan I just mentioned, and also we'll update the market on our development projects in Australia and our exploration plans on our highly prospective mineral holdings in Queensland. So stay tuned, a lot coming up this quarter. And that wraps up our comments. Operator, if we could open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Stefan Ioannou with Cormark.

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Stefan Ioannou, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [2]

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Just out of curiosity, when we see the New Ingerbelle study or integration plan in the coming weeks or late into the quarter, you mentioned the mill expansion. Will that be sort of just predicated on the sort of the modest mill expansion or will there be any discussion in there of a more meaningful mill expansion in time?

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Gilmour Clausen, Copper Mountain Mining Corporation - President, CEO & Director [3]

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We're -- this will be the modest mill expansion. It's a study that's going to look at adding an additional ball mill into the Copper Mountain mill. And the impact of that can be meaningful and significant, but we're still looking at a potentially larger expansion. But the beautiful thing about this expansion is that not only do we improve the productive capacity of the plant, but we also do that completely within our current operating licenses and environmental permits. So there's really -- it's really a pretty straightforward expansion case for us to evaluate, and it's something that we can deploy and execute fairly quickly. So that study, which will again include an integrated Ingerbelle into the plan, you're going to expect to see in the near term.

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Stefan Ioannou, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [4]

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Okay, great. And just conceptually, I mean, I guess, you're pretty far down the road. I mean, roughly speaking, how long would it take to sort of see first ore from New Ingerbelle get -- make its way over to the plant?

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Gilmour Clausen, Copper Mountain Mining Corporation - President, CEO & Director [5]

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Well, I can tell you that that'll be pretty clear to see when we put out the technical report. So stay tuned. I don't want to steal any thunder from the report.

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Stefan Ioannou, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [6]

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Fair enough. I understand. And maybe just one other question, flipping gears over to Australia. I mean, obviously, there's some financing initiatives going. Can you comment any further on sort of where you're at with that and from a time line and sort of progress point of view?

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Gilmour Clausen, Copper Mountain Mining Corporation - President, CEO & Director [7]

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I would suggest that we're very far down the road here, but I'll let Rod take that one.

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Rodney A. Shier, Copper Mountain Mining Corporation - CFO & Corporate Secretary [8]

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Sure. Stefan, you earmarked it specifically for Australia, and I don't know if I'd characterize it that way. I would -- in light of the new study that Gil has mentioned, I think we're looking at priorities of projects and allocation of capital. And so we are looking at a refinancing of the existing debt. And again, that will be in the very near future, we think, and that will provide the capital for both advancing our projects down in Australia and our plans for Copper Mountain.

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Gilmour Clausen, Copper Mountain Mining Corporation - President, CEO & Director [9]

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And the way to look at it is that, that restructuring of our existing project at Copper Mountain enables us to be able to free up a lot of cash flow from the Copper Mountain line, which can then be used to advance the development of our project activities. But there'll be more discussions on that again in more detail in the near future. So I would suggest again that we'll provide good clarity and guidance to the market as news rolls forward.

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Operator [10]

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(Operator Instructions) Your next question comes from Craig Hutchison with TD Bank.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [11]

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Maybe just a follow-up question on the financing. Can you give us a sense of what your comfort level is in terms of maybe net debt-to-EBITDA for a large financing package? I think right now, you're sitting at around 3.4x. Is it realistic to be able to raise enough cash to New Ingerbelle and your Australian project at the same time?

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Gilmour Clausen, Copper Mountain Mining Corporation - President, CEO & Director [12]

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First of all, Craig, I just want to mention we're not planning to do anything at the same time, as we've mentioned before. So we take a very, very phased and deliberate approach, and we're not going to stress our balance sheet. Ultimately, when we look at our activities for the company, we're -- we target over the long term -- the near to long term of having a net debt-to-EBITDA ratio at 2 or lower. And that's really where we feel comfortable from a balance sheet perspective. So given that, we can free up some cash from our -- and improve our operating performance. We're going to prudently advance these projects, and we're going to obviously do the best projects first. And I will say something else on our Australian projects. We have so much exploration potential down there in Australia that we have to get after as well. We've got a good amount of solid development activity in front of us in Australia that's highly prospective. So we tend to move our project team from one project to the next in a deliberate manner, and we're always thinking about cash flow generation and not stressing our balance sheet.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [13]

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Would you consider a joint venture for your Australian assets?

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Gilmour Clausen, Copper Mountain Mining Corporation - President, CEO & Director [14]

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We have no consideration for a joint venture on our Australian assets right as of this moment. We're doing a lot of evaluation on project financing and other mechanisms, but those are somewhat down the road. So we'll talk about those when the time is appropriate and when we feel we have something concrete to talk about.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [15]

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Okay. And maybe just on New Ingerbelle. Are there any permit amendments you required to have in place before you start feeding the mill with the New Ingerbelle ore?

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Gilmour Clausen, Copper Mountain Mining Corporation - President, CEO & Director [16]

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Well, New Ingerbelle, as you know, kind of falls within our existing disturbance and operating license area. We will have to put a mine plan like we do all the time. We have to develop this life of mine plan, and we have to get the life of mine plan through the approval process. But that's sort of a normal course thing that we do at Copper Mountain. And when we develop a new mine plan, we have to get that plan approved by the province.

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Operator [17]

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We have no further questions at this time.

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Gilmour Clausen, Copper Mountain Mining Corporation - President, CEO & Director [18]

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Well, I just want to thank everybody for listening to our conference call today. This is a very exciting time for Copper Mountain. We have a lot of value-driving catalysts, as we just discussed, in the near term and an incredible amount of growth opportunities for the company. We intend to attack that growth in a very prudent manner. And with that note, we will conclude this conference call. Thanks for listening.

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Operator [19]

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This concludes today's conference call. Thank you for your participation, and you may now disconnect.