Atalaya Mining Plc

Good afternoon and welcome to the Atalaya Mining PLC Q2 2022 and interim results investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time by the Q&A tab situated in the right-hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Alberto Lavandiera, CEO. Good afternoon to you, sir.

Good afternoon. Thank you, Alessandro. Thank you. Welcome, everybody. Sorry, you cannot see my face. I have a very bad connection. So, just for clarity of the voice, I have taken the camera off. We'll try later to see if you can see my face directly. In any case, we are here to... to go through the presentation of the last quarter. I have with me also disconnected the camera, Cesar Sánchez, our CFO, which is in the main. We're going to go through the second quarter results and as a summary of the first half results. We have their numbers in the presentation. It has been a tough quarter from the cost point of view. From the operation point of view, the company really worked quite well. We continued with productions as guided and we recovered from the small slump in the first quarter of 2001. But the cash costs were much higher. oil and sustainable costs were much higher. And we can go through that a little bit later. And I will focus the presentation actually going through those numbers. As a result of that, the bid was also lower than before. And our cash flow is also quite tight, but we continue to have a fantastic balance sheet because we continue to invest in the solar plant and in the electric system through the quarter. Few other things that are shown in the slide five of the presentation are completion of the astral litigation and so on. I will not bother to go through all of those. You can read them. And I would prefer to concentrate directly into the key points of the quarter. and also to leave some time, make it brief and leave some time for questions. So in slide six, you can see the evolution of the last quarters. And first graph, you would see the production was of the ore through the mill was close to 16 million tons, 15 million tons. So basically very much steady rate, except the smallest lump that we had in the first quarter due to a national strike. Copper recovery, steady. and copper production recovering from first quarter and going into the range of around 55,000, 54,000 tons of copper at the end of the year. So slightly the lower guidance, our first guidance, but still very much what we have planned. So if we go to slide seven is when you start comparing what happened in the first quarter and first half of this year compared to the previous quarter. Revenues have been lower. due to slightly lower production, slightly lower copper price, and due to a provisional adjustment, which is an accounting number of sales that were produced during first quarter, or sorry, excuse me, during the second quarter, but are going to be sold in the third quarter, paid in the third quarter. So accounting rules ask you to make a provision That means that if these sales are sold at a lower price, you have to take a hit in your revenue, and that's accounted for for that. The big increase is in operating costs. There's almost a 30 million euros increase from equivalent quarter of 2021 to 2022. This is almost all of it due to the high electricity prices prevailing in Spain and Portugal, and I would say the whole Europe. And we can go to that a little bit later. As a result of that higher operating costs, almost in the same amount, our EBITDA goes down from 52 to around 15 million euros, and our profits go down from 30 to 11 million euros. Still a decent result, but would say quite a disappointment although expected due to the high electricity prices and high inflation in general the operating cash flow is is lower remember that we include everything in this operating cash flows including our all our heads and everything but and also we invested around 20 million euros in the solar plant and in helix and in other things ongoing working capital going construction we financed part of this investment with loans basically dedicated to the solar plant and our free cash flow during the during the period was reduced by 26 million Going to that same slide, slide seven, you will see in the lower part our net cash position. Still, after all these results, we maintain a very solid balance sheet with a net cash cash of around 67 million euros 68 million euros which is a big difference from our past quarters where we were even having almost 30 million euros negative working capital uh In summary, for the whole half year, it's more or less joining what we have already reported during first quarter and during second quarter. The operating costs go up as a result mainly of electricity, the profits going down to 30 million euros, and more or less the same thing that I just mentioned about the second quarter. The important point is that at the end of the year, at the end of this quarter, at the end of mid-2022, we had 127 million euros in cash, a fantastic working capital surplus of 130 million euros, which is higher than what we had in 2021, 102. So for a company of our size, it's a fantastic balance sheet to take us to 2023. Let me go and explain a little bit in slide nine, which deserves a bit of talk, of what's the reason of the higher costs. The main one that accounts to almost 70% of all the inflation is electricity prices. In slide 9 you will see that historic prices in the last, I would say 10 years, have been hovering around 50-60 euros per megawatt hour. The first part of this year they went up to 300 euros per megawatt hour. and in actually in august they were around 150 euros per megawatt hour in that slide you will see in a third point second point last part of this second point uncertainty remains in relation to realize rates and market rates it means that the spanish government and portuguese government have disconnected or have been allowed to disconnect the prices of electricity from the gas prices in comparison to Europe. Until mid June, the prices of electricity were set by the higher cost producer, by the marginal cost producer. And there has been a regulation that has allowed Spain and Portugal to set a maximum cap for the gas prices in order to calculate that, because actually we are not getting the gas from Europe. We are getting it from LNG stations around Spain and Portugal. But because this has a cost for the gas producers that have to start their combined cycles, the gas generation, the power gas generation generated by gas anyway, This extra cost is still not clear who is going to pay, obviously the consumers. And the prices that are being mentioned in the public notes are around 240, the global prices, which means in addition to these market prices, there will be a compensation to the gas companies, to the gas producers of X kilowatts per hour, still unknown, depending on who are the payers, who are the consumers, which will increase the final electricity prices to, I would guess, around 200 euros per megawatt hour. Actually, we believe around 250 euros per megawatt hour. This is 400% higher, 400% higher than what we had in 2021 and has a huge influence in our costs. Just to give you an idea, normally in our operation we were paying around 2 million euros per month invoices and recently we were paying 7, even 8 million euros per month. There you can see where is the problems of EBITDA going. There are other sources of inflation that take us to the next slide, which are explosives, which are linked to gas, who have gone from basically 50% higher or more. Diesel. Diesel seems to be starting to go down already. Steel bolts going up, although starting to go down. Lime is still high due to the use of gas, but we are using less lime, so it's not affecting us too much. So the other two key drivers of inflation are diesel and explosives, which are key for our mining costs, where we have been going from around five and a half million euros normally in 21 per month to 6.8 which means 1.4 million euros more every month still very far away from the extra cost of electricity prices of steel reagents and so on are not that inflated and we have been able to control them by buying all over the world to maintain our cost down because some in some places the steel was not as bad as us as in spain other other things were transport costs the baltic baltic index reached a peak in around may but has been going down quite a lot for sea freight so we went that also affects another 10 cents per pound with all those numbers we come to the the results of first quarter, first half, and our expectations and views for the remaining of this year. We expect to have copper production of around 52 to 54. Right now, as we speak, July has been quite good. August is going quite well in rates. The rates are being higher than we had in the first half. So it seems that we are going to be around 54,000 tons of copper. with good recoveries of around 86% and throughput expected to be around 15.5 million tonnes per year. With those numbers, our cash costs are going to be around between 3 and 3.25 and all-in costs including investments and so on between 3.25 and 3.45. Of course, this depends on assumptions of electricity and this can make a big swing depending on what happens in Ukraine or specifically in the gas of Europe. We are prepared for the worst, but we know that we have quite a tough year ahead. This prices of electricity, extra 100 euros per per megawatt hour means directly that extra costs around 0.4 dollars per pound extra costs. So that's what we are guiding. In addition to that, we just announced a small dividend. Obviously, people would have expected probably more because we had an excellent dividend. We were questioning at the board if we should give a dividend or not, considering the uncertainties in copper prices and in inflation and so on. But we believe we have a good balance sheet and we are prepared for the future. We know that this situation of high cost is temporary because I will speak a little bit later about the measures we're having to reduce these costs in 2023. So the board decided to give an interim dividend of around three pence per share. And the details are shown in the slide and in the press release. and we will review a final dividend at the end of the year or beginning of next year, depends on the results. The reason for even if this dividend is symbolic is that it's our policy that the moment we had the cash that was ready to be returned to the shareholders We did that last year and we want to be consistent with this policy. And even with this hard situation that we experienced in this first part of the year, we still are giving out 30 to 50% of our free cash flow to our shareholders. So is this all or is it just a bad quarter? Let's look how we advance what we have in our department of a 50 megawatt solar plant that would take care of around 22% of our electricity already three years ago. So we didn't do this in an opportunistic way. Simply we did it because we thought it was a good thing. We also are construction of the which we will value. We are permitting and doing all the work to which just besides continue to forage the ...contains... ...continue with the... ...we are very confident that this... ...and we continue with... ...so, what... ...first... ...will... ...footprint... ...a recovery... ...and extend my life, increase the optionality. with diversification, with trading, higher trading liquidity, higher production, we believe we have a good future. Going to the details, what's the effect of this 50 megawatts power plant? It takes care of around 20% of our needs in more or less second quarter of next year. just waiting for the delivery of panels and transformers. So starting, let's say, next year, 22% of electricity will have a cash cost of zero. In addition to that, for instance, with this situation of hire, We signed a power purchase agreement, a PPA with Endesa, starting in January 2023 at 52. I remind you that we're running right now at 245 euros megawatts, so we have signed something that's almost five times lower for 33% of our needs. That means that the starting... next year, even if the situation stays as bad as it is right now, which we hope will not. Our cost of electricity will reduce more than half. Basically, we'll reduce at least 30 or 40 million euros less per year, which is a very significant amount. That's forever because this PPA is for 10 years life. not that only we have started already the permitting of four windmills in total they're around 90 gigawatts per year basically another 25 percent of our needs they will be located they are 100 meters high they are located besides corto talaya behind san dionisio the preliminary studies have been positive we we are with the permitting in parallel of detailed measurements during a couple of months while the permitting is ongoing. But looking at the numbers, this one seems that it's going to be positive and it's going to go ahead. Capital cost of this is around 15 to 20 million euros. It's a slightly higher cost per kilowatt hour, per megawatt hour than the solar, but still quite economic and even more economic with the situation of energy that we have right now. We have also been starting pumping hydro, but those studies have not been as successful as those related to wind we continue with with elix we have already started the construction of the building and the civil is ongoing so by the end of this year we hope we will be able to to show some significant progress in this place we believe that the big addition of high grade material will come from the extension of Corte Atalaya, which is called San Dinizio. You can see in the picture 18 how the higher copper grade goes all the way to surface. The past miners, the past operators mined just the core of the central of the pit. And now we are looking at the expanded pit and we are permitting this one. and we hope we can start sooner rather than later in 2023. At Masa Valverde, we are still in the permitting stage, it's a longer shot and will not affect the short-term cash flow, it's just growth. And I would like to mention a small but significant progress in TAURO. As you know, it was a project that was delayed. It was stopped due to a negative Environment Pact declaration by the Galician government. One of the issues of the anti-mining was that there were some acid water historic operations that left some acid waters. One of the things we did is to advance a water treatment plant that was going to be involved anyway. in the in the future project and we have started and finished the construction the plant is already working you can see some some of the pictures in picture 20 of the results of the first tests the water is coming in as expected of course perfectly clean and the authorities are extremely happy of our commitment This is an endorsement that we believe that this time we will get the permits because all the excuses of the acid generation of the mines can be avoided. So with that, I will probably go to the questions.

Yeah, Alberto, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated in the right-hand corner of your screen. But just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. As you can see, we've received a number of questions throughout today's presentation, and thank you to all the investors for submitting those. Alberta, could I just ask you to read out those questions and give responses where it's appropriate to do so, and then I'll pick up from you at the end.