Atalaya Mining Plc

Good afternoon and welcome to the Atalaya Mining PLC 2022 Annual Results Investor Presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged and can be submitted at any time using the Q&A tab situated on the right-hand corner of your screen. 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 would like to submit the following poll. I would now like to hand you over to CEO Alberto Lavandera. Good afternoon, sir.

Good afternoon. Thanks, everybody, for taking the time to be with us. I'm going to go through the presentation, just reviewing the results of last year, especially the last quarter. It's been a quite challenging year, but we look forward to have a much better year this year. With me, while you read this forward-looking statements, I have Tessa Sanchez that can probably answer some questions if they come in relation to numbers that are not shown in the presentation. And I'll go directly to the presentation itself, trying to follow what we have been doing. and if possible i will and we have time i will i will reply to as usual to any and all of the questions to summarize and i don't want to to be reading the whole thing but and you have it you have probably seen the presentation but we produce around 52 000 tons of copper with cash costs all in 337. remember that we we always post We always post all-in costs to give a realistic view of the reality of the company. These costs were higher due to high inflation, as you all know, lower production during Q1, and higher electricity prices. Q4 was much better. Production itself was quite good all over the year, quite normal, except this small hiccup in the third quarter, in the first quarter, which was due to a strike in the Spanish transport system. Company, despite the challenges generated and a bid of 55 million euros, this is substantially lower than previous year. and a big amount of that was due to to 64 million extra costs of the electricity and of course lower copper prices in relation to in relation to the previous year we did invest in elix we started investing in elix we started investing in a solar plant using loans from local banks But we ended up having a quite neat balance sheet with a net cash position of 53 million for our second consecutive year. And we were ready to pay, we paid a small dividend even difficulties in September, and we plan to pay a small dividend also that has been decided by the board. Well, it needs to be approved by the shareholders later this year. Liquidity has improved. The company is in a much better position. We've completed the ASTOR litigation and we streamlined the shareholder register with additional shareholders, having only one large shareholder right now in our year register. So it has been quite a good year overall. Besides that, we have been continuing to work with our expansion projects, our growth projects, both in Rio Tinto and our satellites. Actually, we announced the results of the PA, and I will speak about that later last month, in the satellites around Rio Tinto. And of course, we changed a little bit our board, which is now composed by only one shareholder representing a large shareholder one board member i mean and the rest including me are independent board members of course i'm part of the management but other than that it's i would say it's one of the most independent board that you can find in industry Looking at what we did the last quarter. Last quarter finally was a good quarter, non-event. Production-wise, the plant treated the tons as per design, which meant that we treated around 4 million tons during the quarter, which is equivalent to around 16 million tons per year, which is higher than the the design rate of 15 million tons per year with good recoveries, 86.2, which is slightly lower than our previous year, but very well within the last few quarters. And the only small weak point was, as I said, the first quarter where we didn't produce as much as we wanted due to a strike in the Spanish system. Looking at the financials, sales were back to normal with more production and slightly better corporate rates. And since the electricity prices went lower, were better, not as bad as the previous three quarters. We generated a positive EBITDA back from a negative EBITDA position in the third quarter. And our net cash position remained strong besides the fact that we were investing in lots of initiatives as the Helix and the solar plant and few other things at Rio Tinto. um the balance sheet as i said remained uh strong and uh i think the the key point here to highlight is at the end of the year we had a working capital of 84 million euros slightly lower than previous year but still very strong very strong in spite of the high energy prices higher cost in general higher inflation and the investments that we've been doing, which are counted to around 53 million during the year. Inflation was the key point. I've spoke about this several times. Inflation was the key point. And you can see that the key components of our operating costs are explosives, diesel tires, electricity, steel bolts, and lime. And compared to what we had in 2020 and 2021, which is referenced with 100, you will see that explosives basically doubled, diesel more than doubled, tires 50% higher, steel balls 50% higher, lime almost doubled, but electricity in the first part of the year was multiplied basically by four and by five. Anyway, the good news here is the future. The future is that electricity, we have seen electricity going down, as it's shown in the bottom part of the graph, steadily. And the first January has been almost as normal as previous years. And we have also seen, not really reflected yet, a decrease in steel balls and lime in diesel and in explosives. And it looks like this decrease is going to continue because the prices of explosives and lime are linked with the price of gas. And the price of gas, I'm going to speak about it a little bit later. is has been going down substantially one of the things we have started to do this this quarter and we will continue doing so is start to break down a little bit our operating cost of to give more clarity to the market you will see that we divide our operating costs in site operating costs and in off-site operating costs site operating costs are normally linked to the cost per ton i mean the amount of material that you treat regardless of the grade while off-site cost is basically what you have produced, the concentrates, what you have to send outside. Those are the prices there, the costs there are related to the prices of treatment charges, transport charges, freight. And what you can observe from the graph that's shown is that the, actually the inflation was not that high in mining in spite of the doubling of the explosives and uh and 50 higher in diesel but where most of the increase came from basically doubling our costs came from from processing This is due to the high price of lime and especially the price of electricity. Other than that, other things like health, safety, insurance, manpower, et cetera, et cetera. You can see that really the changes from, from, 21 to 22 are nil. And actually only in the last part of the year of 22 was slightly higher. But basically the cost of 0.54 dollars per pound payable have remained the same. The same thing I would say in general with the oil in sustaining cost when you start considering capitalized stripping, which has been quite constant, and sustaining capital, which has been quite constant in the year. Normally it relates to, of course, ongoing capex that we require at the plant, but also basically the maintenance of the tailing facilities. As I said before, the key component of the cost here has been electricity, and it's important that we explain how it was, how it has been historically, and how it looks like it's going to be. In the upper part of the slide that you have on the screen, you will see some green columns which show what was the electricity market in Spain in the last few years. You will see in the left part, it has been stable around 50, 70 euros per megawatt hour, which is 5.7 cents per kilowatt hour. In 21, we had a crisis, started with the city crisis, but we had a fixed price coming from 20, so we didn't have any issue. But in 22, we were exposed to the market and that shows that we went from an electrical price of around 6 cents per pound, which is 60 euros, to very high numbers. Very high numbers that are shown in the lower part of the graphs, where you will see that our electricity prices have been all around 250 to 300 euros per megawatt hour. That means five times higher than it used to be. Okay, that's thanks to, thanks God, situation in Q4 was a little bit better, as you can see in the lower graph. And in January and February, and so far in March, slightly better even than in Q4. Still not high, not as low as it used to be, but I would say much better due to the high intensity of the wind, solar, and in some cases, hydraulic. But the most important thing here is that, as some of you know, we signed a long term agreement for 10 years that kicked off in 2023 in January at a long term price of around 54 euros per megawatt hour flat for around one third of our consumption. So this has an incredible effect of lowering our future electrical costs. And together with a solar plant that will kick in next year, basically we'll have covered about half of our electricity costs. What about the other half? Well, the other half is related to the price of gas. Spain has a distribution of electricity with a mix of nuclear, hydraulic, water, But the marginal cost producer is the gas system, the combined cycles. And the price of electricity is normally like two times multiplied by the price of gas plus some CO2 adjustment. And one of the things you can see in this graph shown in the screen right now is that the price of gas that we are enjoying now around a little bit less than 50 euros per hour is roughly the same price that we had in summer last year. Sorry, in summer 21, which is almost six times less than what we had in the peak of August 2020. August 22. If you remember what happened in August is that there was the war of Ukraine, the blowing of the pipes coming from Russia and the Baltic, plus the extraordinary heat wave all over Europe and specifically in Spain that pushed the prices of gas quite a lot. Two things are different this year. First is that we have this power purchase agreements and some fixed rates. So we will not be so much affected to the changes. Second is that Europe is prepared with LNG. Spain consumes LNG. And it looks like this year, those big sparks are not going to happen this year so far. Going to what happened last year and why it's not going to be repeated, you can see in the upper part of the graph that the increase in prices of electricity created a huge increase of almost 250% on the cost of electricity. So it went from having less than 0.2% dollars per pound cost of electricity to going to almost $1 per pound. What's the future? That's past. The future is that in the lower graph, you will see that in orange, orange will be the average price that we will be getting with our PPA and our solar compared to the price of electricity in the market. What does it mean? That if we didn't have this agreement, we would be having at let's say 150 euros per megawatt hour, we would be having 0.5 dollars per pound copper. The reality is we'll have a little bit, about half of that. So in summary, I think we are quite well prepared for this year, and especially for future years. What are we looking for in 2023? Well, we hope to have a year of production similar to previous years. We thought this is total we had in March. Cash costs and all-in costs, we have guided between 3 and 320, which is slightly lower than previous year, but higher than the other years. And the only reason here is that don't know what's the electricity price going to be so we have assumed i would say higher prices but lower than previous years so we will be spending around 10 million euros in inspiration if needed this is com this is something that we can always reduce if needed and we will be treating around 15.5 million tons of ore through the plant with a recovery we expect in range of 84, 86. Basically we expect it to be a non-event year. Several important initiatives that we have to do this year is finally construct this 50 megawatt solar plant. which will start seeing activities in the ground in April and should be ready by the end of the year. We have had some delays with symbols, with supply of materials, but finally things are moving. And we're also moving, as you can see in the slides, in the screen now with the construction of the ELEX installation, which is progressing well, and we believe that we will be able to start commissioning at least partially by mid-year. Also, again, this installation has suffered some setbacks, some delays due to the supply chain and due to being something that's quite new, and engineering in these things is never something off the shelf. We will continue exploring in Massa Valverde, in Osa Morena, which is just north of Rio Tinto and Rio Tinto East. We have a budget of 10 million, which is a significant budget for a company of our size. And right now, as we speak, we have three rigs going on in the area around Massa Valverde, one rig in the area of Osa Morena, and we are waiting to start drilling there. just after Easter in Rio Tinto East with a new rig, just testing some anomalies. So it's going to be quite a busy year. I would say that the most important development this quarter has been the growth plan of this company. This company is not only Rio Tinto. We have been working now for eight years at Rio Tinto, but we have a huge exploration ground just around Rio Tinto and also in the north called Osa Morena and in Tauro in Galicia in the north, all copper. So looking at Rio Tinto, we believe we have quite a different advantage, I would say, compared to others, other new projects. You all know that the new copper is needed, new copper is needed in the world. And one of the things that we have versus other projects is that we have this huge infrastructure advantage. Most of these projects that are going to be needed the decarbonization of the world will require labor camps, fly-in fly-out, desalination, water pipelines, smelters. Well, we have our own smelter, we have ports, we have transmission lines, we don't need camps because we have villages around our installations. This is an incredibly huge advantage. What we plan to do with this installation? We were doing the same business model that MATSA is doing, and it's quite common in other places, in other districts, where you have a centralized installation, where we have our plant, and where we track the ore from the existing deposits to the single plant. This is what MATSA is doing with three deposits on the ground feeding a single plant. In yellow, you will see the volcanic rocks that form bms systems at the pirate belt further to the west you have the nevis corvo and almina mine and then in the page we have we have other mines like las cruces darcy's all these dots are known sulfide deposits so very prolific area but Looking at what we have specifically, you will see in the background of the picture a big pit. That pit, shown in white and black, is the existing current pit. With that one, we would have a life of around 10 years. So we said, well, we have all the resources drilled. It's called San Antonio Underground, higher grade, yes, continuing in the far end of the picture, which is east. And in the front part of the picture, which is west, we have the San Dionisio, which is the remnant of an old deposit that was mined in the past by Rio Tinto, where mining started over 150 years ago. And at the left, we have the plant. with a huge capacity. So we thought to, we decided to put a plan together. We had announced already these resources with the 43-101, but we decided to put a plan together where we could mine three of these deposits simultaneously and see how we can benefit from this. So we asked our company, Tetra Tech, to put picture together, which if you look at the slide is shown in light green is basically the current pit and shown in dark colors and in gray would be the additional other deposits. So as you can see in the bottom part of the slide, the first four years, we only mine copper only. Very simple. And it started in 27, so it's the fifth column in the lower part of the graph. We start adding sync also, which means that we'll have to, by that time in 26, we'll have to have a sync circuit or something to treat that sync, which is higher rate. Well, with that plan, our equivalent production profile will be around the 55,000 to 60,000 tons of copper in the next four years. And this is an external plan. Of course, we will try to put this normalized so that in 2024, you don't see a slight reduction, so have it pretty normal. And in 2027, as soon as we start getting on the sink, we start seeing higher production profiles, which takes us well over 100,000 tons of copper equivalents. These numbers give exceptional high returns. And the simple reason of this is that we have a plant already, and so our investments are minimal. If we use the current copper price, which is around $4 per pound, the cash flows undiscounted after tax would be around $3 billion. Remember, our market cap right now is around not even $600 million. discounted at 8%, which is a kind of a standard, we will get a net present value discounted 1.5 billion. Again, about three times our current market cap. And I would like to highlight that this does not include any addition of the satellites of Valverde or Rio Tinto East or Tauro. It means, assuming that we didn't find any single tone in the whole next 15 years, this would be a model of our production profile and cash flow generation after tax. Very significant and comparable with this large portfolio deposits around the world. This comes with some capex, which we highlight in lots of detail, which is really back-ended. And most of this capex comes from the development of the underground deposits and also from adding a plant expansion or sink line in three years time. Other than that is basically more space for tailings, which is something that we'll do anyway. Of course, these numbers of capex are included in the, they will be financed from the cash flow and they are included in the numbers I just mentioned before. So this will also come with two consequences of reduction of costs. Since you start putting in higher grade costs, higher grade material, their costs are reduced. So the cash costs will go down substantially around 80 cents once we get into this polymetallic area, which means two things. One is higher, production and lower operating costs, which means higher cash flow. So a very promising PA, which even at $3.50 per pound copper seen in the screen, it still has a net present value of 1.3 billion discounted, 8% after tax, without discounting over $2 billion uh two billion cash flows of course using that four dollars per pound this these numbers increase as the to the prices to the to the to the numbers i gave before we have to say that of course we believe in the next 15 years we will have years where we will see much higher copper prices on four dollars because the industry and the whole demand of copper requires this is higher it's higher metal prices so very encouraging A total not much to say that we continue to permit and to progress the permitting of this installation. For those of you who are new, this is a brownfield project that has a current quarry on site where we had already a negative environment impact declaration. But this negative environmental impact permit three years ago was not due to any environmental grounds that the project has. It was due to the former legacy water issues of the project. This project had a stop in 87, back in 87, 88. So one of the things we agreed with the and the government of Galicia was to install a water treatment plant that you can see in the pictures where water comes in brown with some acid formation with iron and comes out clean in the bottom part. As a result of that, now the rivers are clean and so nobody can accuse us that not being able to fix the installation, to fix this current situation. We have had lots of visitors and people demonstrating the one to mine training courses for operators being publicized in newspapers. So we believe we are in the right track and permitting takes time, but we believe it's right now is the moment. With all this, where do we see Atalaya? If we were to stay as we are, we will be in the range of 55,000 tons of copper, which is, by the way, it's four times more than we had, three times more than we had when we started. We will be adding over to 90,000 tons of copper with the, and that's only copper, with the PA numbers that we just mentioned before, that's without zinc. And when we add total, we will be well over 120,000 tons of copper, which is a very significant growth for a company power size. And this can happen in as soon as three years from now, if we get the permits of total this year. So in summary, lots of things going on, very busy as usual, solar plant going on, ELEX going on, San Dionisio, we'll be doing lots of work after the pa total we continue permitting massive albert is still early days exploration but we continue with the permitting and we believe we are going to get be getting the permits to mind very soon also wearing us a whole new ground where we will be every inspiration at this stage although we already have some resources So I think that's a summary. And I would like to leave about half an hour for questions. And we have lots of questions.

Alberto, thank you very much indeed for your presentation this afternoon. Ladies and gentlemen, please continue to submit your questions using the Q&A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would 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 our investor dashboard. Alberto Cesar, as you can see, we have received a number of questions throughout today's presentation, and thank you to all investors for submitting their questions. Alberto, if I may hand back to you for the Q&A and ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end.