Amerigo Resources Ltd.

Good afternoon. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Marigold Resources Q1 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the formal remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telestad. If you would like to withdraw your question, please press star, two. Thank you, Mr. Graham Farrow of Harbor Access Investor Relations. You may begin your conference.

Thank you, operator.

Good afternoon and welcome everyone to Ameriglo's quarterly conference call to discuss the company's financial results for the first quarter of 2024. We appreciate you joining us today. This call will cover Ameriglo's financial and operating results for the first quarter ended March 31st, 2024. Following our prepared remarks, we will open the conference call to a question and answer session. Our call today will be led by Amerigo's Chief Executive Officer, Aurora Davidson, along with the company's Chief Financial Officer, Carmen Emezquita. Before we begin with our formal remarks, I would like to remind everyone that some of the statements on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objective expectations or intentions. These matters involve certain risks or uncertainties. The company's actual results may differ significantly from those projected or suggested by any forward-looking statements due to a variety of factors which are discussed in detail in our CEDAR filings. I will now hand the call over to Eleanor Davidson.

Please go ahead, Aurora. Thank you Grant.

Welcome to America's earnings call for the first quarter of 2024. All the low figures reported in the call are US dollars except where we specifically refer to Canadian dollars. America's first quarter results were operationally and financially solid. Copper production with specific guidance and cash costs outperformed guidance by 9%. Our average copper price during the first quarter was $3.95 per pound. That is not a bad price, but it is nowhere near what we have today. At this $3.95 copper price, America's financial results included net income of $4.3 million, EBITDA of $13.6 million, and free cash flow to equity of $7.3 million. After my remarks, Carmen will provide a full recap of the quarterly financial results. During the quarter, Amerigo's quarterly dividend to shareholders was $3.7 million, representing a 7.7% yield against our quarter-end share price. The investment yield remains best in class at today's higher Amerigo share price, and as you know, this secure quarterly dividend yield is only one of the ways in which we return capital to shareholders. As I mentioned, Our copper price in the first quarter was $3.95 per pound. In April, the average price increased to $4.30, and today's spot price is $4.41. This sharp increase in copper prices did not surprise us, as it confirms our analysis of copper supply and demand dynamics. For several quarters, we have described the driving factors behind strong global copper demand and the factors enduring meaningful secular growth in global copper supplies. Demand is now outstripping supply. Global PMIs are coming in strong and improvement in manufacturing activity is expected to continue. Historically, recoveries in global manufacturing cycles positively correlate with copper prices. In particular, recent Chinese PMIs have been strong and there continues to be robust demand for green projects in China, as was the case in 2023. India's manufacturing activity is also very robust, recording the strongest TMI of all countries in March. India's copper demand grew 16% in 2023. Aval digit growth is again expected this year. One study quotes that for each $1 million growth in Indian GDP, we will have a 300% kilogram growth in copper demand. Simply put, global copper demand continues to grow, and as demand continues to grow, there are clear risks to copper supply. Last year, global copper consumption was 25.4 million tons, while global copper mine production was 22 million tons. Consumption grew, but copper mine supply remained flat last year. For 2024, copper consumption is expected to grow by 3.5%, And refined copper production is expected to grow by 3.1%. However, global mine production, which is the life of refined copper production, is stalling. So consumption is outpacing refined copper supply and mine production, which means the smelters that produce refined copper cannot be turned on like a light switch. So what needs to happen to get additional copper mine supply going? The old assumption that $4 per pound is the incentive price is no longer valid. This is clearly shown by the lack of recently sanctioned copper projects. The last time a batch of large copper projects was approved due to higher copper prices was in 2017 and 2018 with projects such as Gallerico and QB2. However, the stronger copper prices we started to see in 2021 still have not incentivized miners to invest in new projects, although our copper is insufficient to justify the risk of approving new copper projects. New capacity is coming primarily from expansion projects, not from greenfields, as used to be the case. Copper miners have slowed expansion for over a decade due to higher capital costs, higher projected operational costs, and more regulations. The permitting costs are complex, and they are lengthening, with increased risk of resource nationalism. We also cannot ignore the declining quality of new projects. Copper prices were lower when copper was mined from higher-grade mines or mine sectors. A company cannot mine its highest-grade sections indefinitely, and if copper grades decrease, a higher price is required for profitability and, most certainly, to invest in new projects. Earlier this year, $11,000 a ton, essentially $5 a pound, was floated as the new incentive price. But that is just one price point to consider. Robert Frigren, perhaps the most vocal copper supporter on long-term industries program, says that an incentive price of $15,000 is necessary to bring on the project. If short-lived, a price spike to this level cannot incentivize substantial new projects. Proper miners would need a sustained period of higher prices to sanction new projects. Of course, to say that America would flourish in this pricing environment would be quite an understatement. Our capital return strategy has been designed to quickly maximize our returns to investors under the pricing circumstances I have just described. Industry analysts estimate that at least $200 billion of investment is required in the next decade to fix a 10 million ton copper deficit. That massive investment figure is based on current capital intensity estimates and does not reflect inflationary pressures that are occurring in the industry. In a moment, I will tell you another example of America's competitive advantage in this area. To sum up my comments on the macro situation, we know that, for the rest of this decade, there will be limited new copper supply coming online. We also know that a higher incentive price is required to bring additional capacity online and that there are long lead times to add supply. In our opinion, this market dynamic will establish a new floor price for copper. just as occurred in 2003 with the industrialization and urbanization of China. So this is where we are now in a miracle. Strong copper prices, stable operations, controlled costs, low capex, declining debt levels, and a proven capital return policy. The quarterly dividend of 3 cents Canadian per share is our live or die cash obligation to shareholders, and it is very safe under these conditions. We are building up our cash decisions to the desired target of $25 million, which happens very quickly under current copper prices. Additional cash will be distributed to shareholders via performance dividends, share buybacks, or a combination of both. As a reflection of the increasingly positive market sentiment, the question for every different shareholder has changed from at what copper prices a quarterly dividend pays to whether we will be buying back shares or paying a performance dividend. The Board of Directors analyzes multiple elements to determine how best to allocate surplus cash for the benefit of shareholders. For example, we know that the timing of our cash generation cycle is inverse to the timing of buyback. At higher copper prices, ample cash is generated to buy back shares, but this would typically occur at a higher share price because an area of share price is so responsive to true missing copper price. Of course, in a perfect world, we prefer to buy back shares at lower prices. And in fact, that is what we have done. In 2021, Amerible shares have been repurchased at an average price of Canadian $1.50. We are currently trading at Canadian $1.76, which is 17% above that average purchase price. However, the real strength of the capital return strategy we have is having multiple tools to return excess cash to shareholders quickly. We can use the quarterly dividends. a performance dividend based on elevated copper prices and such higher cash balances, or shared buybacks. These different tools emphasize the effect of a shareholder's long-term return on invested capital. It is also emphasized because of how quickly the tangible effects of this strategy can be felt, particularly for the dividend components of the strategy. Now I will provide a brief operational update. During the first quarter, we had another excellent safety record at NBC with no loss time accidents. In fact, on January 29th of this year, we celebrated two years without lost plants at NBC. This is significant to all of us. This week, we're not producing copper at NBC as we're doing the annual plant maintenance shutdown. This is a planned event that would factor into our annual production guidance. It is a monumental endeavor as we bring in 667 additional workers to ensure we can complete more than 500 necessary projects when all the equipment is shut down. This shutdown is a crucial part of our operational planning as it allows us to maintain and upgrade our equipment, ensuring optional production in the long run. This shutdown period is also perfect for bringing any new production-related projects online. NBC's Standby Power Transformer, a significant risk mitigation project, is coming online this week. As you may recall, when we issued our 2024 guidance news release, we informed the market that we were evaluating two practice projects that would contribute to increasing production. We also indicated that the projects could be initiated this year subject to further technical analysis and higher copper prices. I am pleased to report that we are proceeding with this project and want to tell you more about them. Together, they will generate an additional 345 tons or around 760,000 pounds of copper per year once they are completed. The project will cost approximately $2.3 million, representing a very low package intensity of $6,600 per tonne. which is significantly lower than the $30,000 to $40,000 per ton capital intensity, which is typically required today for new copper projects. This is a perfect example of the benefits of America's low capital needs and operational excellence. The first project involves installing more uniform battery to improve the pumping equipment in that process stage. This should increase the production. The second project involves installing new operational control equipment in the cleaning stage to better control water, air, and level variables, further increasing efficiency. This CAPEX should be seen as, quote-unquote, growth CAPEX, and it makes sense to initiate them now with higher proper prices. The fact that the cost of the merry-go-growth is so much less than the rest of the industry is compounded by how quickly shareholders will feel the benefits. For example, at a $3.80 copper price, the payback of the project is 15 months, with the subsequent cash flows available to shareholders using any of our capital return strategy tools. To end my remarks, I will tell you that we performed strongly in April, and so did copper. The potential to return additional capital to shareholders this year should be very apparent, whether through the payment of our first performance dividend, the retirement of shares, or a combination of both. As a shareholder, I believe this is a great place to be. Last week, on April 30th, we had Amerigo's Annual General Meeting of Shareholders. I want to thank our shareholders for their patience and support as they voted in favor of old business items before the ATM. Our next earnings call will be on August 1st, 2024 to discuss the Q2 financial results. As usual, if you have further questions about Amerigo, Carmen, Graham, or I are available anytime. I will now ask Carmen Amesquita, Amerigo's chief financial officer, to discuss the company's financial results. Carmen, please go ahead.

Thank you, Aurora. We are pleased to present the Q1 2024 quarterly financial report from Amerigo and its MBC operation in Chile. As Aurora mentioned, we are pleased to report strong financial results in the first quarter of 2024. We posted net income of $4.3 million, earnings per share of $0.03, and operating cash flow before changes in non-cash working capital of 10.2 million. The comments on quarterly financial performance and quarter-on-quarter variances with Q1 2023 are as follows. Copper production in Q1 2024 was 500,000 pounds lower quarter-on-quarter due to MDC's production plan sequence. This decrease in production and the fact that Amerigo's financial performance is sensitive to copper prices impacted our top line copper revenue. The company's Q1 2024 average copper price was $3.95 per pound, which was lower than the $4.02 per pound price we had in Q1 2023. Top line copper revenue was $61.3 million in Q1 2024, compared to $66.8 million in the comparative quarter. The notional items deducted from top-line copper revenue were all lower quarter-on-quarter. These include DET loyalties of $16.7 million, smelting and refining of $6.2 million, and transportation of $0.4 million. In Q1 2024, we had positive fair value adjustments to prior quarter sales of $1.5 million, which were lower than the $3.4 million in positive adjustments posted in Q1 2023. After these revenue deductions, copper tolling revenue in Q1 2024 was $39.5 million compared to $44.6 million quarter-on-quarter. Our molybdenum revenue was lower this quarter at $5.5 million compared to $8 million, primarily due to the decrease in MOLLE prices. In Q1 2023, MOLLE prices were exceptionally strong, surpassing $30 per pound. Therefore, America's final revenue numbers in Q1 2024 were $44.9 million, down from $52.6 million in Q1 2023, driven fundamentally by lower copper and moly prices. However, our tolling and production costs also decreased 5% quarter-on-quarter to $37.1 million, compared to $39.2 million in Q1 2023. Reasons for reduced tolling and production costs included decreases in direct costs of $1.6 million, which I will address shortly, and lower MOLLE royalties to DEP of $800,000 due to lower MOLLE prices, and lower plant administration costs of $500,000. Offsetting these lower costs was an increase in depreciation of $800,000 quarter-on-quarter from CapEx projects put into use at the end of 2023 that began to be depreciated during the quarter. Regarding the performance of direct tolling and production costs, in Q1 2024, we faced lower power costs due to lower power consumption and lower pasture charges, lower grinding media costs due to less consumption and lower input costs, and lower costs overall due to 17% weaker to land peso quarter-on-quarter. However, we did have higher line costs of $400,000 due to higher consumption associated with higher processing of calcaneus tailings and increased barn costs. Our head office general and administration expenses were $1.3 million, consistent quarter-on-quarter. Other losses gains included a loss of $41,000 compared to a gain of $1.5 million in Q1 2023. mainly an unrealized foreign exchange gain coming from an intercompany loan balance that was cleared out at the end of 2023. The company's finance expense in Q1 2024 was $0.5 million compared to $0.8 million in the prior quarter. The difference mostly came from changes in the mark-to-market position of interest rate swaps. The company recognized an income tax expense of $1.7 million with a current tax expense of $3.1 million offset by deferred income tax recovery of $1.4 million. As a side note, most of the current tax expense occurs at the MBC level, and under Chilean tax provisions, MBC is required to pay monthly installments on current year tax. This means that most of the actual tax expense for the year is being paid on the go, minimizing taxes payable and filing tax returns for the preceding year. All of the above items resulted in a quarterly net income of $4.3 million compared to $9.1 million quarter-on-quarter. Before moving to the statement of financial position, I should mention two non-IFRS measures, cash cost and all-in sustaining cost, which we started reporting this quarter. America's cash cost in Q1 2024 was $1.96 per pound. increasing from $1.91 per pound quarter on quarter. However, this includes $0.07 per pound paid to NBC supervisors as the signing bonus of a three-year collective labor agreement. The normalized cash cost, excluding the effect of the signing bonus, was $1.89 per pound. While this may look like only a $0.01 per pound reduction quarter on quarter, it's important to note that MOLLE by-product credits to cash costs were $0.15 per pound lower in Q1 2024 due to lower MOLLE prices. We started supporting all-in sustaining costs this quarter to include cash costs plus DE2 royalties and depreciation, in other words, total costs, plus sustaining topics and corporate GMA. In Q1 2024, our all-in sustaining costs was $3.57 per pound compared to $3.79 per pound in Q1 2023. Moving on to the statement of financial position, on March 31, 2024, the company had cash and cash equivalents of $13.8 million, restrictive cash of $6.2 million, and a working capital deficiency of $4.2 million, which was a significant reduction from the working capital deficiency of $12.3 million on December 31, 2023. A significant change in working capital items was in accounts receivable, which increased by $7.2 million. In our receivable cycle, NBC received payments for most of these receivables during the first week of April. The totality of NBC's restricted cash is also now a current asset, as $3.5 million will be released per the terms of the finance agreement on January 1, 2025. Short-term debt came down as a $1.8 million payment was made during the first banking day of 2024. All other working capital items remain comparable to the December 31, 2023 balances. Regarding cash flow during the quarter, Amerigo generated cash flow from operations of $10.2 million, and the net cash flow generated in the quarter, including the changes in working capital, was $4.5 million. In terms of uses of cash, $1.1 million was used in investing activities for topics, and $5.3 million was used in financing activities, which included $3.7 million in dividends paid to shareholders, a Canadian $0.03 per share, as well as $1.8 million in the repayment of borrowings. As a final comment, our Q1 2024 copper sales were booked at a provisional copper price of $3.97 per pound. The final settlement prices for January, February, and March 2024 sales will be the average LME prices for April, May, and June 2024, respectively. Each 10% change from the $3.97 per pound provisional price would result in a $6.3 million change in revenue in Q1 2024 regarding Q1 2024 production. We now know the April price, which was $4.30 per pound. Therefore, the adjustment for Q1 2024 sales in April will be roughly $5.3 million. And today's spot price is $4.41 per pound. We will report Amerigo's Q2 2024 financial results in August 2024, and thank you for your continued interest in this company. We will now take questions from call participants.

Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the pulling process, please press star, followed by the two. If you are using a speakerphone, please lift the hands up before pressing any keys. Your first question comes from Steve Farazani with Sedoti. Your line is now open. Thanks for the afternoon, Aurora Carmen.

Appreciate all the detail on the call. I wanted to ask about cash costs because I know you were comparing it year over year, but if we look at it, it's a significant decline sequentially and also well below your guidance just given a couple months ago. Anything run off in the quarter? I know you cited the weaker peso, but anything to say that this lower level of cash cost is bigger than normalized cash costs, which we'll see.

is more sustainable now? Steve, thank you for the call.

The Chilean peso has an impact, obviously, and we have provided all of the variability that one could expect on our guidance this release. In practice, we saw lower pass-through charges as well. We don't know what the level of the charges is going to be from month to month, so we basically project in our budgeting processed the most recent information, but any other changes that have been communicated to industrial consumers. So far in Q1, they were lower than what they were in the last quarter of 2023, so that's another source of impact. We used less grinding bolts than we thought we would need. That has... That varies... depending on the mix of fresh and we are putting through the grinding circuit. On the other side, we did have, as Carmen mentioned, higher line costs. In general terms, we monitor the operation constantly. We're always looking for opportunities of cost containment. So, I would say our guidance remains valid for the rest of the year, depending considerably on how the Chilean peso behaves. It's surprising to see what has happened with the Chilean peso. There is a significant decoupling between CLP performance compared to copper prices, normally what you used to see. years ago was a stronger tarantula in response to stronger copper prices. We haven't seen that yet this year. So it may be lagging or it may be more of a structural problem.

Perfect. Thank you. In terms of the production optimization equipment, it sounds like you're installing them right now during the shutdown. Is that accurate? Are we going to see the benefits really as early as 3Q, or what's your timing on that?

I wish it happens like that. It doesn't happen like that. The projects have just been approved essentially this week when we presented the capital allocation proposal to the board of directors, and we supported it with the technical analysis and with our projections for copper prices for the rest of the year. We are starting to work on them. Basically, once we finish the current shutdown, which is taking place this week, it will take approximately seven months for works to be completed. And then we have to wait for... to put that in place. That's one of the reasons why we wanted to accelerate that deployment and those early works now so that they will be ready for the next plant shutdown to come online. Trans-checkdowns have been occurring in May for the last year. They used to occur in January in prior years. So, we have to be ready for that in case that's when El Camino will be having their 2025 shutdown. So, don't adjust the projections for this year. This is basically getting ready for 2025 with that project, with those two projects.

Understood. Perfect. It sounded like Carmen indicated that she had the receivables bill, but it sounds like that reversed rates at the beginning of April. If it did, then you're back up to, you should have been back up to about $20 million plus in cash, you know, last month. So you're closing in on that target area where you might start considering a buyback again. Is that fair? And given where copper prices are now, you're probably closing in.

We're getting close.

Okay, and last one for me. On second straight quarter, Calcane was a larger percentage of the mix than it historically has been over the last couple of years. Any reason for that, or is that just quarter-to-quarter shift?

That is in response to the feed or in response to the throughput that we get from El Teniente. And it is one of the advantages that we have spoken about in prior quarters. We have that flexibility if we get lower throughput from El Teniente for their own mind sequence in our operational reasons. We can always go in and chunk up a little bit more of token to keep up our production guidance line.

Any reason to think that could extend into this year?

So, to me, to have a real-time incident like during May, it is factored into our plan for this year that this will be resolved in the second half of the year, and we would then be able to revert back to our normal schedule. parameters, Q2, Q1, 2023 are good comparison points there. But if that doesn't happen and if they need some more time to get back to their normal operational parameters, it's not of concern to us. We can continue doing what we've done in Q1.

Yep. Perfect. Thanks, Laura. Thanks, Tommy. Your next question comes from Don Pocari with Mutual of America Capital Management. Your line is open. Thank you, Laura. Thank you for taking the call. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one.

Your next question comes from John Tomaso with John Tomaso's Independent Research. Your line is open.

Thank you. I was a ton of Aurora to how optimistic you are about the future of the copper market. Do you plan... to make larger capital investments to expand your milling complex because of the good outlook for copper, or will you acquire other assets beyond your tie-up with El Teniente to increase your exposure to the copper market?

John, our investments at NBC are at the optimal stage. We have done our expansion to increase our plant capacity. We worked that in conjunction with the mining plant from El Pinante, so we're fine at NBC. Obviously, the outlook for copper is very strong, in our opinion, and we know how to operate very well with copper tailings. We look for these opportunities, but they have to be the right opportunities. We're not just going to go and seek operations that don't make economic sense. Obviously, with the stronger copper prices, I think that tailings will be an area of focus for other miners. They will see them as an area of opportunity rather than just an environmental liability. And when that is the case, we're in a better position than anyone else to work with other partners in recovering copper from copper tailings.

Thank you.

Your next question comes from John Pocari with Mutual of America.

Thanks.

Your line is now open.

Thank you. Sorry about that. I'm not sure what happened. I wrote just four quick questions. First, is there any possibility or discussion as copper prices, if copper prices continue to ramp up, that you would move maybe to some partial hedging from the zero hedging strategy or at the moment and for the immediate future, is that the continued strategy just to stay completely unhedged?

We have no immediate plans of hedging. We are not looking at hedging right away, but we always analyze the cost and the potential benefits of doing that, but there's nothing –

Okay. Secondly, the recently approved optimization projects, I think you might have answered this already. I was wondering what the estimated payback period was. I think you said something like seven months to complete, and then after that it would start to have an impact. Is that what I heard earlier?

It is seven months of preliminary work to get them in hookup mode, and then we will be waiting for – we need at least eight days of equipment shutdown to bring them online. So they're happening in 2025.

Got it. Thanks, Edma. Third question, what would be the level of – sustainable cash balances that you would be comfortable with for the company, maybe $25 million? It is $25 million. I'm sorry?

$25 million is a sweet number.

$25, nice. And then lastly, any possibility, I know there's been some talk over the years of possibly expanding the talent relationship with Codelco. Any possible further discussions on that where they would be willing to allow Amerigo to expand its existing facilities.

I think I answered that in the prior question.

Okay. Sorry.

Sorry about that. We remain interested for the right opportunities. I think there is no one else out there that has experienced recovering copper from copper tailings that are already done. So as copper prices continue to be robust, copper tailings will be of interest in a different way for the tailings. And I think we're the first candidate they should look at there on this.

Do you think, has there been an expression of interest maybe to expand their cell-based processing arrangements or not at this time?

Well, with El Caminito, that's where we're at now. We are producing basically their fresh and soaked anesthetics. So that relationship has expanded over time and has led us to where we are now at our stage with NBC and El Caminito. They have six other lines. Eventually, they will probably be interested in doing something similar and will be a prime candidate for them to consider. But there's nothing in front of us immediately to report back to you.

Great. Thanks again, and look forward to continuing excellent management.

There are no further questions at this time. I will now turn the call over to Aurora for closing remarks.

Thank you. Thank you for joining us today. The recording and the script will be available on our website as soon as we come back from our providers. And as I mentioned earlier, we will talk again on August 1st to discuss future financial results. And in the meantime, you can always reach out to myself, to Carmen, or to Graham. Thank you very much for being with us today.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.