Canada Markets open in 6 hrs 45 mins

Edited Transcript of CMMC.TO earnings conference call or presentation 1-Aug-19 2:30pm GMT

Q2 2019 Copper Mountain Mining Corp Earnings Call

Vancouver Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Copper Mountain Mining Corp earnings conference call or presentation Thursday, August 1, 2019 at 2:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Donald Strickland

Copper Mountain Mining Corporation - COO & VP

* Gilmour Clausen

Copper Mountain Mining Corporation - President, CEO & Director

* Rodney A. Shier

Copper Mountain Mining Corporation - CFO & Corporate Secretary

================================================================================

Conference Call Participants

================================================================================

* Craig Hutchison

TD Securities Equity Research - Research Analyst

* Stefan Ioannou

Cormark Securities Inc., Research Division - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Copper Mountain Mining Corporation Second Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note that comments made today are not of historical factual in nature and may contain forward-looking statements. This information is -- 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 Second Quarter 2019 management discussion and analysis for more information.

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

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, operator. Good morning, everyone, and thank you for joining us. Turning to Slide 3. As you can see, I have with me Rod Shier, Copper Mountain's Chief Financial Officer; and Don Strickland, our Chief Operating Officer. I'm going to begin by providing some brief comments and highlights on the quarter. Rod will provide a more detailed discussion on our financial results, followed by Don who will speak to our operation. Then we'll wrap up and we'll open the call for questions.

Starting on Slide 4. We had another consistent quarter, with production unit cost in line with the first quarter. We produced over 22 million pounds of copper equivalent, which includes 18.4 million pounds of copper, nearly 7,000 ounces of gold and over 65,000 ounces of silver.

We expect production to be stronger in the second half of the year, and we are maintaining our production guidance for 2019. Our C1 cash cost per pound was USD 1.74 with all-in sustaining costs per pound at USD 1.85. Cost per pound was higher when compared to the second quarter of last year, largely as a result of the lower pounds produced as well as costs incurred associated with planned maintenance on our shovels and haul trucks.

Revenue for the second quarter was $65 million, which is lower than Q2 2018 primarily driven by a 13% lower realized copper price as well as fewer pounds sold in the quarter. Earnings per share was $0.01 and on an adjusted basis was $0. We generated nearly $24 million of cash flow from operations this quarter and in Q2 with $44 million in cash after making our June 15 senior loan payment of $12.7 million.

Our operations are solid, and we are continuing to pay down our debt. Of note in the quarter, we continued to advance work on the Copper Mountain Mine mill expansion project. We've made some good progress, and I'll provide more details on this later during the call. I'll now turn the call over to Rod to go over our quarterly financial results.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Gil. As noted on Slide 6, revenue for the second quarter was $65 million on the sale of nearly 18 million pounds of copper, approximately 7,000 ounces of gold and a little over 55,000 ounces of silver. Lower revenue in Q2 was a result of lower pounds of copper being sold and lower metal prices. The realized copper price is 13% lower in Q2 2019 when compared to Q2 2018. Revenue also included a negative mark-to-market adjustment of about $3.2 million compared to a negative mark-to-market adjustment of about $1.3 million in Q2 2018. Cost of sales for the second quarter of 2019 was $63.5 million, which was identical to the second quarter of 2018. Cost of sales was unchanged during the quarter despite lower pounds being sold and increased costs associated with the planned maintenance on our shovels and haul trucks, as noted by Gil. It was really mainly due to the lower depreciation in Q2 2019 as compared to Q2 2018. Lower depreciation in the quarter was due to the increased reserve base announced late in 2018, which we are now depreciating our costs over. This all results in a gross profit of $1.4 million (sic) [$1.6 million]for the second quarter of 2019.

Turning to Slide 7. Net income was $2.5 million in Q2 2019 or $0.01 per share as compared to $3.6 million or $0.01 per share in Q2 2018. Net income included an noncash unrealized foreign exchange gain of about $6.7 million as compared to a noncash unrealized foreign exchange loss of about $6.4 million in Q2 2018, a differential of approximately $13 million, which was primarily related to the company's debt that is denominated in U.S. dollars.

On an adjusted basis, net earnings in Q2 2019 was just shy of $1 million or $0 per share. In the second quarter of 2019, EBITDA was about $10 million and adjusted EBITDA was $6.8 million. Cash flow from operations was $23.7 million after working capital changes, which allowed us to end the quarter with approximately $44 million in cash on hand. As noted by Gil, this ending cash position is after we made the June 15 payment on the senior credit facility of about $12.7 million. And now Don will provide an operational update.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Rod. Starting on Slide 9. The mine team continued to deliver on our plan during the quarter. A total of 16.1 million tonnes were mined in the second quarter, which included 3 million tonnes of ore and 13.1 million tonnes of waste. 1.5 million tonnes of stockpile ore was fed to the mill in Q2. Looking at the photo on this slide, you can see the location of the present mining activity. The right side of the photo shows the mining advancement in the pit blast area, with ore supply coming from the western side of the pit and the waste pushback on the northwest side. The center of the photo shows the waste pushback on the southwest wall, which will open up high-grade ore for 2020. These waste pushbacks are resulting in a planned short-term higher strip ratio. The strip ratio will continue to reduce throughout this year as the year is transitioned from waste to ore.

I'd would also like to highlight the grass growth on the resloped waste dumps on the left side of the photo. This is an initial reclamation test area that was resloped, covered with soil and seeded late last year. We have developed the progressive reclamation plan and are presently resloping final waste dumps for reclamation. We will be using reclamation results to inform and advance our reclamation plan. We will be reclaiming approximately 25 hectares per year going forward.

Turning to Slide 10. During the quarter, the mill processed a total of 3.8 million tonnes of ore, averaging 41,400 tonnes per day. The mill feed grade averaged 0.28% copper and was lower when compared to Q2 of last year due to the lower grades stockpile ore fed to the mill. Copper recovery averaged 78.2% and was lower than Q2 2018 largely as a result of mining some oxidized ore. This is more than offset by the increased mill availability, which averaged 95% compared to 89% in Q2 2018.

In the photo on this slide, you can see our 2 existing ball mills in the center and the SAG mill to the right. The third ball mill for the mill expansion to 45,000 tonnes per day will be installed within the existing mill building at the far left side of the photo. And with that, I'll turn the call back to Gil to conclude.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Don and Rod. Slide 12. Earlier this year, we announced a new Integrated Production Plan for the Copper Mountain Mine. The new plan takes a 2-phased approach, with the first phase being the modest mill expansion, which requires the installation of a third ball mill and improvements to the cleaners circuit. This increases mill throughput to 45,000 tonnes per day from about 40,000 tonnes per day and improves the overall copper recovery from approximately 80% to about 85%.

The second phase is the integration of the New Ingerbelle pit, which we expect to come into the mine plan in a few years. We made really good progress in advancing the mill expansion project in the second quarter and into the third. We've completed the foundation design -- or we're completing the foundation design for the new ball mill as well as test work and detailed design for the cleaners circuit. We finished the engineering for the new mill maintenance shop, and we've installed the new higher-capacity SAG mill screen as well as tie-ins for the new ball mill. We were able to do the mill tie-ins during a planned maintenance down early in the third quarter. So there was no unplanned disruption, and we moved 3 air compressors to make way for the new mill, and a section of the process waterline was relocated during that down. The third ball mill, which we have already purchased, is currently being stored in Antwerp. We plan on shipping it to the mine this quarter, and we expect it to arrive before year-end, on schedule for completion. Our plan is to commission the expansion by midyear next year.

Our other growth project on Slide 13 is, of course, the Eva Copper Project in Australia. We announced a robust feasibility study last year, and in that mine plan, we included only 5 deposits in current reserves. As you can see on the map of the image, those deposits that are in the feasibility study are in red. The other deposits located near the deposits have historic resources which are not included in the 2018 feasibility study. One of them, Blackard deposit, has great potential to add to the reserves as it has an historical resource of about 1 billion pounds of copper. We started additional drilling at Blackard this year with the intention of bringing the historic resources into reserves and into the Eva Copper mine plan. We expect to complete the required drilling and metallurgical test work this quarter, and we will incorporate all of the results into an updated feasibility study for publication the first quarter of 2020.

We see Blackard as having the potential to contribute a considerable amount of high-grade copper material to the Eva mill with the potential of extending the mine life and enhancing the production and cost profile of Eva. So you can see there is a lot of low-risk growth and upside in our portfolio of projects, not to mention our large greenfield exploration pipeline. That concludes the formal part of the presentation. Operator, if you could please open the call for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Craig Hutchison, TD Securities Equity Research - Research Analyst [2]

--------------------------------------------------------------------------------

Could you provide an update on your sort of financing plans for Phase 1 at the Copper Mountain Mine and possibly the longer-term financing for integration of New Ingerbelle?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Well, there's not really any financing required for New Ingerbelle. It's just -- it's baked into our production plan, and it's just normal capital expenditures for stripping, et cetera. So it's more generation from cash flows -- existing cash flow of the mine. With respect to financing in general, our goal for financing was quite simply to restructure our existing debt such that we didn't have the restrictive cash waterfalls in place that we have on our senior debt facility. It's low-cost debt, but it's very restrictive in the fact that all the or most of the free cash flow generated by the project can be swept to repay the senior debt. So the debt repayment schedule over the next 3 years is significant and doesn't allow the company to accumulate cash during that period to do additional construction activities like in Eva. So what we're proposing, Craig, with the restructuring was to put in a facility that would allow us to replace that debt with debt that we would have at the parent level so that we can replace the existing debt on the mine with new debt from the parent to the sub and then we could take and sweep the cash from and generate free cash flow for the company to use in its growth plans -- organic growth plans.

We've been making some really good progress on our financing opportunities. We had a -- we tested the waters on a high-yield debt because we put out a public announcement on this in June of this year. We got very strong -- very, very strong interest from potential investors. But due to where the copper pricing went at that time, we were a bit pushed on pricing. We weren't satisfied with the pricing that we were seeing at that time, and then we're up against the normal summer season now. But we were with that also assessing several other debt funding options that we've been running in parallel. And there are some very viable alternatives that we'd been discussing with our Board that would satisfy what I just described to you. And we're working these options now, and we believe that in the not-too-distant future, this quarter for sure, that we'd be looking at a solution to unlock that free cash flow that we have coming out of our operations.

So we do though have very inexpensive debt in place, and we will work to the best transaction, and we really are in no real rush so -- given especially where copper prices are today. You can very easily sense that we're not going to rush forward with construction on a project like Eva. We've got time. We're going to do this effectively and manage our business, make sure that we're very prudent in our approach. But I do have to say we're very pleased with some of the options that are shaping up in front of us now. But we'll have more to say on that later.

--------------------------------------------------------------------------------

Craig Hutchison, TD Securities Equity Research - Research Analyst [4]

--------------------------------------------------------------------------------

Okay. And just -- I mean the amounts payable to Mitsubishi has sort of crept up in the last 12 months or so. Is there any risk in terms of that? Do you need requirements to sign off to Mitsubishi on kind of annual basis? I know obviously it sits in the current liabilities, but is there any risk associated with that?

--------------------------------------------------------------------------------

Rodney A. Shier, Copper Mountain Mining Corporation - CFO & Corporate Secretary [5]

--------------------------------------------------------------------------------

Craig, it's Rod speaking. And no, there's not. We put them in. And we have some notes in there as well we put in as 1-year note payables, and we're just continuing to roll them. And as we noted earlier, under IFRS we have to show that as a short-term liability. I really take that out of current liabilities when you're looking at a working capital ratio to get a true picture. And as noted by Gil, the [JPEG] facility is just ramping up in payments a little bit now, and that's why there is an increase in the payments due to Mitsubishi because we've always taken the position and -- with Mitsubishi is that, that restrictive cash flow waterfall of the mine does not let you get money to pay the JPEG . So we both jointly lent money into the -- some local finance vehicle to make those payments over the years, and now Mitsubishi is just doing that on their own.

--------------------------------------------------------------------------------

Craig Hutchison, TD Securities Equity Research - Research Analyst [6]

--------------------------------------------------------------------------------

Okay. And maybe just one last question for me. I know sustaining the stripping -- deferred stripping is also tapered off for the back half of this year. Can you give us sort of a dollar amount or range for the back half of this year for deferred stripping?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Well, I would say if you just took the -- if you took what we've done in the first half of the year and you look at what we might do in the second half of the year, the overall ratio is going to be somewhere around 3:1 for the year, something like that.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from Stefan Ioannou from Cormark Securities.

--------------------------------------------------------------------------------

Stefan Ioannou, Cormark Securities Inc., Research Division - Analyst [9]

--------------------------------------------------------------------------------

I think you've already answered my question but -- with sort of Craig's first question there on the financing. But maybe just to sort of rehash it. Just with the additional drilling and sort of maybe potentially larger scope you're thinking about at Eva, would it be fair or -- to say the strategy may have shifted from a financing point of view to sort of figure that out before you really start to tackle sort of the big financing nut going forward? Or are we -- are you still looking for a solution to your existing debt sooner than later?

--------------------------------------------------------------------------------

Gilmour Clausen, Copper Mountain Mining Corporation - President, CEO & Director [10]

--------------------------------------------------------------------------------

Well, you know we're looking at a solution to the existing debt. But like I said, we're not pushed we're not panicked about it. We're going to make sure that we get the best deal, and we've been out there testing it, and we've done some -- a lot of work to bring some term sheets in front of our Board. But I think when it comes to Eva though, I want to stress a couple of things. We put out the feasibility study last year. We knew that we had some additional deposits that needed more work, some metallurgical test work on it. Our objective or our goal with Eva was to try and smooth the production out and also add mine life to Eve. If you think about doing a project financing for a project like Eva, it's a really nice project. And it has almost a 30% IRR and it's a small CapEx, it's about USD 350 million relative to the production. So it's a financeable and doable project in a good jurisdiction. But we felt that if you're going to go and do a project finance, we'd like longer tenure debt in their. And when you have a 12-year mine life, it's harder to do. So we thought it's going to pay for us to, I think, keep the capital in line where we have it now and look for supplemental material where we can extend the mine life and maybe smooth the production profile out. We have a very fast payback on Eva because we have a lot of production in the first 2 years, and the production tends to taper off if you look at that project plan. And what we'd like to do is we'd like to maintain that production level with some additional higher grade, and these deposits that I just mentioned are higher-grade deposits than the Eva deposit. And if we can get those into the resource, we can smooth that production out and maintain a higher level and extend the mine life, which is really our goal. We'd like to see this project more like a 15-year or 16-year mine life as opposed to a 12, which it currently is with the existing reserves. So as we add these reserves in and their associated grade, we hope to be able to enhance the ability for us to put long-tenured project financing debt in place. And so although there's a lot of interest from project finance banks now on Eva and that would be our goal, something in the range of a 70-30 equity debt project financing or maybe a 75-25. That I think will be enhanced, and our ability to get good financing in place will be enhanced with some more reserve life in the asset. So we've been working on that, doing the met work. We've had a solid -- we've had solid results. Things are looking quite positive on these historic resources, and we've been doing a lot of drilling to get fresh metallurgical results in place and also to extend these deposits. So we'll be coming out with some announcements and results, and then we'll put out a full technical study on this Blackard deposit and the other potential satellites with an updated Eva feasibility study in a few months.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

(Operator Instructions) I have no further questions at this time. I'll turn the call back over to the presenters for closing remarks.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, operator. I just want to thank everybody for listening to our conference call today. This is an exciting time for Copper Mountain. We have a lot of value-driving catalysts that we're looking to in the near term and a tremendous amount of organic growth that we've got embedded in this company. With that, I'm going to conclude the call and wish everybody a good remainder of the summer. Cheers.

--------------------------------------------------------------------------------

Operator [13]

--------------------------------------------------------------------------------

Thank you, everyone. This will conclude today's conference call. You may now disconnect.