This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk06: Good morning and welcome everyone to TASECO's 2022 year-end earnings conference call. All lights have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Instructions will be provided at that time. I would like to turn the conference over to Mr. Bercot. You may begin your conference.
spk03: Thank you, Sergio. Welcome everyone and thank you for joining TASECO's fourth quarter and full year 2022 conference call. The news release and regulatory filing announcing our financial and operational results was issued yesterday after market close and is available on our website at TesecoMines.com and on CDAR. I am joined today in Vancouver by Teseco's President and CEO, Stuart MacDonald, Teseco's Chief Financial Officer, Bryce Hamming, and our Senior VP Operations, Richard Tremblay. As usual, before we get into opening remarks by management, I would like to remind our listeners that our comments and answers to your questions will contain forward-looking information. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. For further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our fourth quarter MP&A and the related news release, as well as the risk factors particular to our company. I would also like to point out We will use various non-GAAP measures during the call. You can find explanations and reconciliations regarding these measures in the related news release. Following opening remarks, we'll open the phone lines to analysts and investors for questions. I'll now turn the call over to Stuart. Okay, thank you, Brian, and good morning, everyone.
spk04: Thanks for joining our fourth quarter earnings call. I'll start with some high-level comments about the quarter and a project update, and then I'll turn it over to Bryce for some specifics on our recent financials. In the fourth quarter, we continued to benefit from a strong copper price environment, the price averaging about $3.65 per pound, modestly higher than the average price for Q3, but the trend was upwards, ending the year at $3.80 and today sitting right around $4. The molybdenum prices have also risen dramatically over the last six months and today are sitting at around $37 a pound. That's double the price of a year ago. and Molly continues to represent an important byproduct credit at Gibraltar, about 40 cents a pound in Q4. We generated adjusted EBITDA of 35 million in the fourth quarter, and for the full year, 110 million. The fourth quarter was a slight improvement over the third quarter, and the majority of our EBITDA for the year was generated in the second half, as head grade and production in the first half of the year were unusually low. Operating cash flows for the year were 82 million, and Bryce will provide some further details on the cash flows and earnings in a minute. In terms of Gibraltar operations, we had a strong start to the quarter, but were hit with mill availability issues in December. The main issue resulted from a site-wide power outage that we press released in January. This was caused by extreme weather conditions, and although the actual power outage only lasted 24 hours, temperatures at minus 35 Celsius caused frozen lines in the mill and nearly a week of downtimes. The impact of that and mining dilution resulted in fourth quarter copper production of 27 million pounds, which was lower than we expected. For the year, Gibraltar's production was 97 million pounds on a 100% basis. In terms of production, it was definitely a tough year from start to finish. But I do think in terms of the mine plan, we're in a much better position today than we were last year at this time. Mining operations have advanced deeper into the Gibraltar pit and we're now well situated in the ore body, which is the sole source of ore for 2023. We've made recent progress on addressing the higher than normal mining dilution. A number of operating initiatives have been identified and we're in the process of implementing and expect improvements to increase mill head grades going forward. As we've spoken about previously, as we mine deeper into the Gibraltar pit, this issue naturally improves. with the larger and more continuous ore zones. So we expect higher grades in 2023. We've already seen the benefits of the softer ore in Gibraltar Pit. Prior to December, we ran for five months at about 89,000 tons per day, and that level should be achievable going forward. Also in Q4, we saw improved copper recoveries over 83%, which was a bright spot for the quarter and continues to be a focus for further improvement going forward. So for the year ahead, we're expecting to benefit from higher grades and milling opportunities. One offset will be a two week shutdown of mill number one in the third quarter when the input crusher is relocated. That needs to happen to allow stripping activity to advance in the connector pit. But taking that into account, we expect 2023 copper production to improve to 115 million pounds plus or minus 5%. On the cost side, our C1 costs in 2022 were impacted by a number of factors, including low copper production, lower capital strip allocation, and higher diesel costs and TCRCs. Bryce will provide more details on that in a minute. But as production improves in 2023, we should naturally see a significant reduction in unit operating costs per pound. In addition to the expected production improvements at the mine level this year, we're also going to get immediate production growth from our acquisition of a further 12.5% interest in the mine. This week we signed an agreement with SOGIS to acquire their 50% interest in Caribou Copper, which is a holding company that owns 25% of the joint venture interest in Gibraltar. This is a great deal for Tesico. It's immediately accretive, and the deferred payment structure allows us to protect our cash balance. Consideration is a minimum amount of $60 million Canadian, payable over five years. We're bullish on copper prices over that period and expect there will be additional contingent amounts paid but those should be covered by cash flows from the acquired 12.5% interest, and the total cost is capped at $117 million Canadian. Shifting over to Florence now to highlight another important transaction that we announced in December, we entered into a strategic partnership with Mitsui for that project, and under the terms of the deal, they will provide an initial $50 million U.S. investment to fund construction of the commercial facility They also have the option to invest an additional $50 million for a total of $100 million, which would convert into a 10% JV interest in Florence. Mitsui is a global leader in technology innovation with a focus on sustainability and the energy transition, and their existing U.S. cathode trading business is another reason why the partnership is a great fit for this project. The deal implies a future valuation for Florence of $1 billion U.S., which shows the potential opportunity for shareholders as we continue to advance the project towards production. Most of the major components for the SXEW plant have been acquired and are now on site. Detailed engineering is complete and discussions with construction and drilling contractors are well advanced. We're planning to file an updated technical report and capital cost estimate later in March, and we'll be ready to go when the final underground injection control permit is issued. Based on our discussions with the EPA, we know they are actively moving their process forward. We're not aware of any new issues arising and expect the thorough process to conclude in the next few months. On the financing front, in addition to the Mitsui news, we also announced a $25 million equipment lease commitment from Bank of America and an extension of our corporate revolver that now includes an accordion for potential upsize to $80 million U.S. Teseco currently has 190 million Canadian of available liquidity, and we're in a strong position to fund the development of Florence. We remain optimistic on copper prices going forward, but we'll continue to protect the downside, and our price protection strategy is a key piece of the Florence funding plan. We have a floor price of $3.75 in place for most of Gibraltar production through the end of this year. Before I hand the call over to Bryce, I want to make a few quick comments about our longer-term development pipeline. We spend most of our time on these calls talking about Gibraltar and Florence, but I really think what makes our company unique is that we also have longer-dated growth options in our portfolio, almost 15 billion pounds of copper in reserves. That's more than any of our peers in the mid-cap copper space and all of it located in North America. At Yellowhead, we're advancing into an EA process this year and focused on community engagement. At New Prosperity, the facilitated dialogue has made progress over the last 12 months but isn't completed. The standstill agreement with the Chilcotin National Government has been extended again and we see a future opportunity to resolve that conflict with a positive outcome. And at our Alley Niobium project, we've initiated a study to look at niobium oxide production which could supply the fast-growing market for niobium-based battery materials. So there's a lot happening in the background in those projects. It takes time to develop them, but each of them has the potential to create significant value for shareholders in the future. And with that, I'll turn the call over to Bryce.
spk02: Thank you, Stuart. Good morning, everyone. I will now provide some additional color on our fourth quarter in annual financial results. Copper sales for the fourth quarter were £26 million on a 100% basis at an average realized price of £366 per pound. For the year, Gibraltar sold £101 million at an average realized price of £396 per pound. Our proportionate share of sales generated revenue of £392 million for the year. In fact, it is the second highest revenue we have had as a company after a record year last year. It's actually very comparable to 2021 revenues when you account for the fact that this reported revenue for 2022 didn't include proceeds from our copper puts, which were $23 million in 2022. 2022 was a tale of two years in one, with the first half benefiting from record copper prices that peaked at over $5 in March, followed by a sharp drop in mid-June, with prices holding in the mid $3 range in the second half of 2022. This volatility we saw underpins our long-term strategy of purchasing copper price protection. We don't try to time it perfectly, but instead be consistent in our purchases and aim to execute trades when the copper price is recovering, like we did in June of last year and in February of this year. This consistency protects if and when copper pulls back, even as it is today. We have 72 million pounds of copper protected for 2023 at a put price of 3.75 per pound. And we will look to add to this as we prepare for further capital programs at Florence. The story in 22 was all about costs and the impact of inflation on our business. We saw total site spending, which includes capitalized strip for Toseco's 75% share, increase 40 million or 15% in 22 years. from $262 million to $301 million. Diesel costs alone accounted for $23 million of that increase, as we saw prices rise more than $0.70 per litre, higher than historical levels. Pre-COVID, they were typically around $1 per litre, and we consume around 40 million litres per year at Gibraltar. We also saw other input costs increase, like steel in our grinding media. Today, site-landed diesel costs are down to about $1.35 per litre, So we expect if that continues, that would save to CECO $12 million alone in 2023. With our share of total site spending at $302 million per year, that results in a quarterly average of $75 million a quarter, which is the run rate we expect into 2023 for quarterly total site spend. Total site spending in the fourth quarter was $80 million and was higher than the quarterly average by $5 million due to elevated diesel costs, the timing of repairs on our equipment, and some wage-related costs. To protect against diesel price risks, we did purchase diesel call options for 2023 for the full year, providing a ceiling for diesel costs at Gibraltar, effectively at around $1.75 per litre. As always, just as important as having downside copper price protection in place, locking in or capping costs where we can provide certainty for our cost structure. With the lower production in 2022, our C1 cost per pound also increased from $1.90 to $2.98 per pound, Our MD&A includes a bridge graph which provides a good breakdown of how this dollar per pound increase is explained. In addition to the 15 million fewer pounds produced at Gibraltar, we also capitalized noticeably less mining costs in 2022 as mining was focused in the Gibraltar pit. This was 28 million less than 2021. For 2023, we expect significantly more of our site costs to be allocated to capitalized strip as stripping begins in the new connector zone. C1 costs in the fourth quarter were in line with the third quarter at $2.75 per pound. Unit costs were lower by 17% in the second half of the year compared to the first half due to the higher production. We expect C1 costs per pound to decrease further into 2023 with further improvements in production as more stripping costs are capitalized and with some inflation relief seen in diesel and other inputs. Also of note is that the recent move in MOLLE price, which is currently 37 per pound, has been quite significant, and in the fourth quarter generated a positive provisional price adjustment of $4 million. Earnings for mine operations before depreciation in the fourth quarter was $38 million, $19 million higher than the third quarter. For the year, earnings for mine operations before depreciation for Tsitsikou's share was $106 million, or about $1.5 In 2022, we had gap net loss of $26 million, or $0.09 per share. This included an unrealized $30 million foreign exchange loss associated with our U.S. dollar denominated notes. On an adjusted basis, we had net earnings of $2 million for the year, or a penny per share. For the fourth quarter, we reported adjusted net income of $7 million, or $0.02 per share. Cash flow from operating activities in the year were $81 million, and nominal in the fourth quarter. Fourth quarter cash flow was impacted by a number of working capital adjustments totaling $32 million. They related to increased inventories for finished goods, but most notably our stockpiles, as well as a paydown of our accounts payable in the quarter. In the fourth quarter, a total of $42 million was spent on capital programs, with $13 million at Gibraltar and $29 million for development costs at Florence. For the full year, we invested $181 million into CapEx, including $100 million of that that was spent at Florence, most of which was related to the purchase of equipment for the commercial facility. This spend on Florence caused our overall cash balance to decrease since December of last year. During the fourth quarter, we refinanced some of our mining equipment at Gibraltar, as we have been paying this down over the last four years. Net proceeds from this financing was $25 million to SICO's account. Cash on hand at December 31st was $121 million, and including our undrawn $50 million U.S. credit facility, the company has about $190 million of available liquidity. In January, we extended the maturity date of our revolving credit facility by an additional year to July of 2026. In addition to the extension of the facility, we added an accordion feature, which will allow the amount of the facility to increase to by an additional $30 million for a total of $80 million as allowed under our bond indenture. We will be reaching out to banks in the coming months for credit to upsize the facility to this larger size. We are beginning 2023 in a good place financially, especially with the growth that has come from the acquisition of 17% more Gibraltar production. As we get closer to starting construction at Florence, we may add additional sources of funding at the Florence level, like a small debt facility or royalty to supplement the the investment from Mitsui and the facility commitment from the Bank of America. We continue to keep options open. With that, we are ready to take questions, operator.
spk06: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you want to ask a question, please press start followed by the number one. If you want to withdraw your question, please press start and then the number two. Your questions will be pulled in the order they are received. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from, sorry, Greg Hutchison from TD Securities. Please go ahead.
spk07: Hi, good morning, guys. Good morning, Greg. And just a question on the SOGIS transaction. Is that retroactive to the start of the year?
spk02: That will be, like, we signed the agreement, but we still have to close. It'll be effective as of the close, is how I view it.
spk07: Do you expect it to close this quarter?
spk02: Yes, we do.
spk07: Okay. And then maybe a second question on that. Will that trigger any change to the accounting that you guys have right now? You, I think, use proportional accounting. Would that make any change given your increased interest?
spk02: Yeah, Craig, this is Bryce. Yeah, the accounting, we're still reviewing that. I think what our expectation is at this stage is that it's going to be proportionate consolidation as we're only acquiring 50% of Caribou and therefore not control. So we expect to be proportionately consolidating 87.5% going forward.
spk07: Okay, perfect. And then just at Gibraltar, in terms of, you mentioned there'll be a higher degree of capitalized stripping this year, so C1 costs will go down, but just in terms of overall costs, can you give us a sense of maybe just what you're thinking in terms of total capital, including stripping, sustaining, and other capital projects at Gibraltar?
spk02: Yeah, so it's Bryce again. So I think for this upcoming year, when we look at total capital, I think what first and foremost is the crusher work that we're doing. That was a program we started last year. In our capex, you see there that we incurred about just shy of $25 million on a 100% basis, and we have about that amount to go for the crusher move and some ancillary projects there. So that's, again, on a 100% basis, Canadian. for this upcoming year. That's a project we're committed to. I think sustaining capital will be a similar level as last year, as what we saw in 2022. And then I think, as we said, the capitalized strip will be a bit higher. Last year was a bit lower, so I think we're going to be another, call it 15 cents per pound or 20 cents a pound there in capitalized strip.
spk01: All right, perfect. Thanks, guys. Thank you. Your next question comes from Alex, thank you, from Spisal.
spk06: Please go ahead.
spk05: Yeah, good morning, guys. Just a follow-up question similar to Craig's there on the cost. At the beginning of the call, you mentioned a bunch of on-site operating costs, different allocation between operating and capitalized trip. Can you just remind me kind of what you said there about those numbers? I just wanted to Just given that Florence is hopefully around the corner and you have your additional stake in Gibraltar, I just wanted to take a look at my numbers and make sure I got a good handle on cash flow expectations for this year.
spk04: Alex, I'll take that one. It's Stuart speaking. Generally, when we look at our site spending, we think about it in terms of the total of site operating costs, and capitalized strip. And that number is going to continue at basically around the same level that you've seen in recent months that you saw in Q4 in our MD&A. Now, as we noted, there is an allocation issue there between what's capitalized and what's operating. We think a higher proportion of that will be capitalized this year, but if you're just thinking about cash flow, that's the way you should be thinking about it at the Gibraltar level.
spk06: Okay, makes sense.
spk05: Okay, and then Florence, I think you said you spent about $100 million last year. Is that money that was actually spent, or is it just kind of orders placed for that amount?
spk02: Yeah, first of all, that was in Canadian funds, but that was the total spend last year. We don't have a lot left from that program, just a little bit of equipment here and there, but nothing significant. Most of it's been spent, so that was $100 million. Canadian, and most of that was for the equipment. There was some site costs in there as well.
spk05: Okay, great. Thanks, guys.
spk01: Thanks.
spk06: Thank you.
spk01: Ladies and gentlemen, as a reminder, if you have a question, please press star 1.
spk04: Okay, sounds like there's not any other questions at this time, so I think we'll wrap it up there, and yeah, look forward to talking to you all again next quarter. Thanks, everyone. Bye now.
spk06: This concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Disclaimer