Atalaya Mining Plc

Good afternoon, ladies and gentlemen, and welcome to the Atalaya Mining PLC investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged. They can be submitted at any time via the Q&A tab that's just situated on the right-hand corner of your screen. Please 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 of the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll, and if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CEO Alberto Lavandera. Good afternoon, sir.

Good afternoon. Thank you very much. And thank you very much to everybody that's taking the time to be with us today. I'm going to go through a presentation highlighting and summarizing the results of the Q3 of this year. And also, what's more important, how are we addressing the future in the near term and in the long term? You have a copy of this presentation in the webpage and I'm going to be following up the slides as we speak. And after the presentation, I will be responding to lots of questions that have been coming through and I believe we will be responding to each and all of them. In general, I believe that the company is well known for most of the investors. So I will not go into any detail. And if there is any question required by somebody because he's not so familiar, please feel free to ask anything at the end of the presentation. In summary, we are going to be looking at the results of Q3 and year to date. And I won't read everything, but I will go directly to the main points. The main points are that from the operational point of view, the production of copper up to 38,000, a bit more than 38,000 tons accumulated every year is taking us to the high end of our last guidance, which will be around 54,000 tons of copper. This production level is consistent with good performance in the operations from the production point of view. And we likely will be able to recover part of the lost production that we had in the first quarter of this year due to our national wide strike in Spain. All-in costs were high. All-in costs were very high at 3.47 due to extreme conditions in Spain, mainly high electricity prices and other inflation, but specifically high electricity prices, which has a lot of influence, as I will speak later. in other costs besides electricity. These were specifically high due to the high demand of gas and electricity during the summer period in Spain. We're looking very positively to Q4, and especially to 2023, because we are getting a new power agreement, which is going to be at a much reduced rate. And also we are building a solar plant for self-consumption, which will reduce our electricity bill. Still, even with all these difficulties of this extremely complicated year, we still have a 37 million euros positive EBITDA through the year, although the results during the quarter have been negative. We have continued to invest heavily in the ELIX, and in the solar plant, but still we are maintaining a very decent balance sheet with a net cash position of 55 million euros and over 100 million in cash and with some additional liquidity through loans that we have not been borrowing. Another important thing that we have seen in these last few months following the decrease in our share price due to the decrease of the copper price is that our liquidity, the liquidity of the shares have increased a lot and this is something that we are very happy for because that was one of the problems in the past. And besides that, the rest, as we have already announced in the past, increases in resources in San Dionisio, San Antonio, Maza Valverde, Cerro Colorado. So basically additional resources for the future of this company. All of them have been submitted in a technical report that has been filed in October. And we are in the process of doing additional work, preliminary studies for these properties that will be published in the first part of 2023. We also published during this year the first sustainability report of the company. So this is a summary. Now going directly to the points. How was the quarter in production? Well, it was back to normal. Slightly lower production, 13,400 tons of copper, slightly lower than one year ago. Similar throughput, similar recovery, a few points lower, but slightly higher rate, similar concentrate rate. So basically a production level which is basically back to normal since our last four years, three years. but the financial results were poor and you can see very clearly and this will respond some of the questions that we have received the first in the revenue having produced the same copper we had lower sales of 82 million versus 107 which means basically around 25 million which is also dollars, lower revenues having produced less. That is as a result of lower copper price. So one of the questions people say, well, your lower results, how much is due to operating costs? How much higher operating costs and how much is of lower revenue? The first part is around 25 million euros less revenue. in a quarter, which is equivalent to 100 million if you think annualized basis, it's a big amount, comes from lower copper price. And operating costs last year, treating the same tons as we said, 3.9 million tons, those tons were treated at 55 million euros, and this year we had 84. That means 30 million euros. 30 million euros extra in a quarter is a huge number. It's equivalent to 120 a year, although the first two quarters were not that bad, and the last quarter is not going to be that bad. Basically, that's adding up those 25 million in lower revenue and higher 30 million, roughly, slightly less than 30 million in revenue. higher operating cost results in a difference of a bit from 40 almost 49 million positive in last year to negative for 4.3 in this year very simple maths as a result of that same thing happens with profits and the same thing happened with with cash flow so in summary The lower results of this quarter are due to lower metal prices and higher operating costs. Being higher operating costs, roughly 60% of the effect and 40% would be related to metal prices. Does this worry us long-term? No. Short-term? Yes, of course. If you look at the lower part of the graph in this slide 8, you will see that we have shown this graph in the past. We have been working seven years with negative working capital, so we are used to tough times. and right now is the opposite we are in a very good position from our cash flow point of view and for our working capital point of view we know this is a hiccup of one quarter and we only have one and a half months to go to get in 2023. looking at the balance sheet i mean and looking at specifically uh what's shown in the lower part of the slide, nine, you will see that we still have a working capital surplus of 106 million. So it gets us in a very good position. Similar debt that we had last year, similar cash and similar net cash position. So although a very difficult year due to lower operating, lower copper prices and much higher operating costs we're still having a very decent balance sheets when you look at year to date you will see exactly the same things that i mentioned when i was speaking in the quarter in the upper part of the slide nine you would see that the revenue this year has been 262 so far three quarters which is roughly 40 million less than previous year and the operating costs are 224 versus 156 so roughly 70 million dollars more and as a result of that last year we had an extraordinary year where we had 104 million profits by this time of the year versus this year we only have 23 which is still a very decent number in spite of the difficulties but uh roughly uh 75 million more or less or less than last year, 80 million less than last year. So why was this? Are we doing something wrong? Well, probably not preventing not having seen this in the past because in 2020, if we consider what's shown in slide 10, the cost of the main inputs, you will see explosives, diesel, tires, electricity, steel, and lime. All starting in basically at the end of 2020 with a level of 100. Explosives basically have doubled the price. So from 100 to 200 in relative terms. Steel balls, same thing, a little bit worse from 100, 200, sorry, diesel, going from 100 to a little bit less than 250, although we are seeing a descent. Tires 50% higher, steel balls 100 to 170, and light from 100 to a little bit less than 200. I left on purpose the case of electricity, which is in the bottom left corner of the slide, which has gone from 100 to basically 400. So we're talking about four times. From all the cost increases that we have experienced this year, and specifically this quarter, 80% of this is due to electricity. And I want to go through a little bit more in detail of the electricity and what we are seeing in the future. Electricity is higher due to the gas prices. The gas prices are higher and they set the marginal cost of production in Spain and they set the marginal price for Spain. And I believe this is the same case in Europe. But also higher gas prices have an influence on the price of explosives because explosives are fabricated from ammonium nitrate, ammonia, which is produced from natural gas. And also high gas prices have an influence in the production of lime as well as electricity because lime is produced by burning with gas stones of limestone. And also has an influence in steel balls because not only is the price of the steel, but the price of hardening the steel balls is done with induction furnaces, electricity, or with gas. So you can see what's the big influence of the gas in our company. So what are we seeing for, before we get into the markets, what are we seeing for this last quarter and beyond? We believe we are going to end the year, as I said before, in the high end of 54,000 tons of copper. We believe that the electricity prices are going to be going down, substantially down from 290 that were the average in the quarter three. We have seen the prices of electricity being less than half of this during the last four weeks. And going beyond that, in 2023, we are kicking in with a new power purchase agreement, the PPA, and building a solar plant, which we are starting to get the materials now. So in the future, no matter what happens with electricity prices and the gas prices, this high peaks of this year are not going to be there. We are seeing for the whole year, all in sustaining costs between 325 and 345 due to the high influence of this quarter, hopefully in the low end of that. So let's look at the big influence of our high costs and how do we see it in the future. In the lower part of slide 13, you will see the evolution of the year in detail, each quarter. There's a big spike at the left, which is the invasion of Ukraine by Russia. And there's another spike in September, August, which was the moment where the gas pipes in Ukraine in the northern, in the Baltic, were blown in addition to coincident with the August season, holiday season in Spain with lots of people and a huge heat wave that you may also remember because it also was felt all over Europe. In those moments, the prices, the average prices in Spain were 450 euros per megawatt hour. Remember that what we had last year was 60. you will also see in that graph in the bottom part of the graph that we have been around 100 to 120 in the last four weeks so we are looking with optimism the remaining of the quarter if you look the upper part of the of the slide, you will see some shaded areas where you can see the average prices that have been experienced in Spain since 2016. Always between 50, 70, 60, that has been the tendency, with a lower spot in 2020 due to the recession. And in 2021, we had a long-term agreement of 60, which was well below what was experienced in the market. In 2022, we were exposed to the market, But the most important thing is what you see in the right part of that graph. You will see two lines there, two lines there in reddish and orange that go between 50 and 70, which means that we have a power purchase agreement with our supplier for 10 years for one third roughly of our consumption at 54. The rest will come from the market. And in addition to that, starting in 23, we'll have a solar plant, which will give us another 20% of our needs, basically at zero price, which means that no matter what happens in the rest of the year, of our hours, it means we'll have a much lower average electricity price than we had these years. Even if the electricity price stayed as it was in 21, 22, we will still have enjoy a very low average of sub 100 euros per mega hour, which is a huge reduction in costs. of our company. Looking at the gas, I told you, I just said that the gas has a big influence in the price of electricity for Europe, for Spain specifically, but also has a big influence in lime, cost of lime and explosives. The prices, evolution of prices since 2020 are shown in the graph. In orange is the prices in Spain, In black, the prices in Europe. You can see that in the last part of 2022, the last six months, the prices in Spain have been substantially lower than the rest. And this is due to the fact that Spain has lots of availability of LNG tankers that are coming from every place. We are not connected. almost not connected at all or influenced at all by the gas coming from eastern europe and from russia specifically so with those conditions actually the prices of gas have even reached very low levels almost back to to normal levels that were experienced in in mid 21. We see this going like this during this winter and let's hope that the situation in Russia and Ukraine is sorted out before the next winter. So this will have a positive effect in other consumers like explosives and lime and a little bit in steel balls. Although we are taking actions by importing balls from other places like Canada and Australia where the prices of gas and steel are not as high as in spain why we believe that the prices in the long term in spain are going to be much better electricity well you can see in the lower part of graph slide 15 how since 2018 the compounded growth of installation of of solar and wind has been growing at very high levels in the last five years and it continues to do that in Spain so you understand this graph or you understand the importance of this graph this is means that almost this is equivalent to building almost a nuclear plant every year so in two or three years Spain in theory should be a very good position due to the strong prevalence of solar and wind in spain actually if you look at the upper graph you will see that actually the influence of of the the influence of of gas is not that important uh the import is has been around 33 percent in 21 and year to date 38 but has been going down so i think spain is a unique position to experience low electricity prices in the future which would have an influence in the 50 percent of the hours that we have not already agreed to with our part power purchase agreement and with the solar plant what's the influence of this electricity well you can see it in slide 16. the influence of electricity alone was an increase of 280 percent and basically itself alone meant almost one dollar per pound in our cash costs, all in cash costs, which means that you are telling you here the huge potential of reduction of costs and cash generation, of course, as soon as we have this wind, sorry, as soon as we have this solar and the power purchase agreement in place. So what are we doing? I just mentioned. We are advancing fast track, our solar plant. We are also evaluating other alternatives, which are, I will show you a little bit, like wind. We are also building the helix phase one, doing some studies for longer term deposits of growth in San Dionisio, Maza Valverde, and Tauru, we continue with the permitting. Those measures from their cost reduction are going to lower cost structure besides lower lowering our carbon footprint put into production the sandinista satellite will mean high rate high grade means lower costs means higher production higher capital and extend by total production will get a multi-asset producer with higher production and more which will result in reduced cash costs, all-in costs, and of course, profits.

Look at this slide.