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.
spk01: Next time, I would like to welcome everyone to the Copper Mountain Mining Corporation First Quarter 2023 Earnings Conference Call. All lines have been placed on mute to avoid any background noise. After the speaker's 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 1 on your telephone keypad. If you would like to withdraw your question, press star 2. Please note that comments made today that are not of a historical or factual nature may contain forelooking statements. This information by its nature is subject to risks and uncertainties that may cause a stated outcome to differ materially from actual outcomes. Please refer to slide 2 of today's presentation and Copper Mountains First Quarter 2023 Management's discussion and analysis for more information. I will now turn the call over to Gil Cawson, President and CEO of Copper Mountains.
spk06: Good morning, everyone, and thanks for joining us. Starting on slide three, presenting with me today are Don Strickland, our Chief Operating Officer, and Letitia Wong, our Chief Financial Officer. I'll kick off with a summary of our first quarter. Don will provide a more detailed discussion on our operating results, and Letitia will then present an overview of our financial performance and also give a recap on our recent announcement regarding our transaction with HUD-BAY. Turning to slide four, we are very encouraged to see our operating performance this last quarter. We started the year on our back foot, actually, withstanding a ransomware attack, but we still ended up having a strong operational performance over the quarter with about 16 million pounds of copper produced at cash costs of 311. and all-in costs of 366 US per pound. This was our highest production and lowest all-in cost quarter since 2021, which was a record year for our company. Turning to slide five, with our first quarter performance in line with our plan, we remain on track to achieve our 2023 production guidance of between 88 to 98 million pounds of copper at all-in costs between $2.45 U.S. to $2.95 U.S. per pound. As we said on our last call, we see production increasing sequentially through the first three quarters of the year with improving grade and throughput. Recovery is expected to improve markedly as the mill and concentrator have been operating without on-stream analysis of the process flows. without the expert system and the full utilization of the rougher expansion. And that was due to impacts from the ransomware attack, which prompted us to have to rebuild those systems. And that's all now been resolved. We also completed our bond buyback during the quarter, meaningfully reducing the company's outstanding debt. Earlier this month, we announced an exciting and transformative combination with HudBay. We believe the strategic rationale is very compelling. The combined company will have a strong, diversified portfolio of three long-life assets and a leading organic growth pipeline. We see exceptional upside and potential for significant value to be unlocked with this transaction, and Letitia will continue speak more about this in just a moment, but before that, I'll hand the call over now to Don to review our operational results in more detail.
spk05: Thanks, Gil.
spk07: Starting with slide 6, we continue with our plan of mining the main pit and the north pit during the quarter. Phase 4 of the main pit contributed approximately 55% of the total high-grade ore mined and an average grade of 0.32% copper. This was higher than planned, resulting in the mill head grade being ahead of budget for the quarter. We expect the mill head grade to continue to improve in both the second and third quarters as more high grade ore is mined from phase four. The mine also performed better than planned on tonnage during the quarter. We mined 176,000 ton per day, which is a 21% increase over our 2022 annual average tonnage rate. Trolley assist haulage was heavily utilized during the quarter, with haulage from phase four to the primary crusher. We continue to work closely with our partners and utilize our experience to evolve the trilogy. We continue to demonstrate productivity gains and cost savings associated with trolley assist. Turning to slide seven, the mill processed a total of 3.4 million tons of ore during the quarter. Mill operating time was higher than in Q4 but still below our target as a result of the ransomware attack which impacted early January and a mechanical failure of the reclaimed barge in March. The reclaimed barge failure restricted water supply to the mill and mill tonnage for 10 days. However, throughput continued to increase during the quarter and averaged approximately 43,000 tons per day outside of the ransomware and reclaimed barge events. achieving our planned mill tonnage rate and our focus on consistency and optimization. Copper recovery was 78.7% for the quarter, and as Gil mentioned, was impacted by the ransomware attack. The ransomware attack resulted in the plant operating without the downstream analysis of the process flows, without the expert system control, and without full utilization of the rougher expansion for most of the quarter. These systems are now now restored to full operation, and recoveries are being achieved in line with our plan. We continue to focus on our 2023 optimization plan to improve recovery throughout the year. I now hand the call over to Leticia to go over our financial performance.
spk03: Thanks, Don. Turning to slide eight. As previously mentioned, we had a stronger first quarter. Revenue and EBITDA increased both quarter over quarter and year over year. We also recorded adjusted net earnings of $867,000 compared to an adjusted net loss of Q1 last year of $8.8 million. The adjustments to net income this quarter were primarily due to one-time items, including higher finance expenditures due to the bond buyback of about $5 million and a non-cash deferred tax expense of $7.7 million that was related to the increase in the decommissioning liability. The increase in the decommissioning liability is a result of recently amended BC government policies and regulations that changed reclamation-related costs and extended the post-mine closure period to 100 years. We were also cash flow positive this quarter, with cash flow from operating activities before changes in working capital of $21 million, or $9.1 million after non-cash working capital items. We finished the quarter with cash, cash equivalents, and restricted cash of $71.2 million, This is following the bond buyback we completed in January when we repurchased $87 million of our bonds and reduced our bonds outstanding to $148 million. We are continuing our focus on strengthening our balance sheet and maintaining a solid cash balance. We have kept our capital costs at minimal levels as we had guided. Development capital was just $1.1 million in Q1, and sustaining capital was actually a credit of $0.4 million because we received $3.6 million in funding through the BC Industry Fund for the replacement of a diesel shovel and drill with equipment that is electric-powered. We are pleased to see the BC government's support of our GHG reduction plan. Now moving on to slide nine. Earlier this month, we announced a business combination with HUD-BAY, which will create a premier Americas-focused copper producer. Summarizing a key few points from the transaction on the slide, HUD-Bay will acquire 100% of the issued and outstanding common shares of Copper Mountain. Copper Mountain shareholders will receive 0.381 of a HUD-Bay share for each Copper Mountain share. On April 12th, the last trading day before announcement, the transaction represents a 23% premium based on the 10-day DWEB. After the combination, Copper Mountain shareholders will own 24% and HUD-Bay shareholders will own 76% of the combined entities. Post-transaction, two directors will be appointed from Copper Mountain, and certain members of the Copper Mountain management team will join the Hyde Bay management team. The transaction is subject to shareholder and customary approvals. We have set the shareholder meeting for June 13th with a record date of April 25th. We expect the transaction to close later in the second quarter or early in the third quarter of 2023. Now turning to slide 10 to discuss the strategic rationale. The business combination is strategically aligned for both Copper Mountain and Hud Bay. The combined company offers significant scale with a portfolio of three long life operating assets, a leading organic copper growth pipeline, and one of the largest copper mineral resource bases in the peer group. All assets are in mining friendly jurisdictions, Peru, Canada, and the United States. The portfolio of assets will offer greater diversification while still maintaining significant exposure to copper. The combined company is expected to produce over 150,000 tons of copper with meaningful gold production and will be positioned in the second quartile in the copper cost curve. Copper Mountain shareholders will benefit from being part of a larger company with greater efficiencies and financial flexibility. The free cash flow generation and strengthened balance sheet of the combined company will allow for capital to be allocated across the portfolio on the projects with the highest return on invested capital. Further, we believe the pro forma company will fill a unique place within mid-sized copper companies. This transaction will create an enhanced company that we believe will be well-positioned to re-rate towards our larger peers with the enhanced production, trading liquidity, and scale. Also of note, Copper Mountain and Hud Bay share a strong commitment to operate with the highest ESG principles. We have aligned our GHG reduction targets with global net zero emission goals and our operations are in the lower half of the global GHG emissions curve for copper lines. Through the shared experience in carbon reduction initiatives and innovation, the combined company is well positioned to become a leader in ESG. In summary, we are very excited about the combined company and believe this combination will deliver considerable value for all stakeholders. Without operator, we can open the call for questions.
spk01: Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the 1 on your touch-tone phone. If you'd like to withdraw your question, please press the star followed by the 2. Again, to ask a question, press star 1.
spk00: One moment please for your first question. Your first question comes from Craig Hutchinson from TD Securities.
spk01: Please go ahead.
spk04: Hi, good morning, guys. Thanks for taking my questions. Just my question with regards to guidance, just based on what you guys have done in Q1 and some of your commentary in the last call a few weeks back with respect to grades being somewhere around 0.31% for the year, can you just kind of remind me, kind of what you're thinking in terms of grades for the remainder of the year. I'm struggling to kind of get to the low end of the production guidance at this point, but maybe I'm missing something with respect to how you guys view the material increase in grades or recoveries. Thanks.
spk06: Hey Craig, it's Gil, and I'll let Don follow up with any comments. No, we're going to see some material increases in grade. not too dissimilar to what we had the year before last, so 2021. We're mining phase four, which is essentially into the same part of the ore zone that we were in in 2020 when we had basically mining out the bottom of the pit in phase three. So you should expect that the phase four material will be an improvement over what we've seen in the last couple of quarters, which is why we're saying you're going to see an increasing profile of production through the third quarter. It moderates a little bit in the fourth quarter, but it's still better than Q1 grades. So I think we're in solid shape to meet our guidance here. And The mill's been operating very well now. We're getting tonnage rates through the mill. Recoveries have really been performing well. So we're quite comfortable with the guidance.
spk05: Okay. Anyone want to add?
spk04: Go ahead, Craig. Sorry. Yeah, I was just saying, is there any color you can provide just through kind of the month of April with respect to recoveries at this point?
spk05: Don, you want to comment?
spk07: Yeah, certainly in April, as I noted, we're achieving our 45,000 ton a day target, and those recoveries we're seeing with the rougher expansion running and the control systems running again, that they're in line with our stepped-up plan throughout the year for increasing recoveries. So I think, as Gil said, things are setting up well, and just to add a little note, the to what Gill had said earlier, Q1 was meant to be certainly a transition quarter and the grades really max out in Q3 as we stated previously. But Q2 and Q4 are good solid high production quarters for us with good grades.
spk06: Craig, I think if you want a little bit more granular on that recovery, we've been seeing recovers in the 84, 85, 86 recovery range. Okay, that's helpful. Not to say we'll see that day in and day out, but we're comfortable with the circuit as designed now running properly that we'll be able to achieve our targets for the year on recovery.
spk05: Okay. That's a lot. Thanks.
spk02: Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one.
spk00: Gil, there are no further questions at this time.
spk01: Please proceed with your closing remarks.
spk06: All right. Listen, thanks very much, everybody, for joining us on the call today. As Letitia mentioned, we're very excited about the combination with HudBay Minerals, and we look forward to talking with our shareholders more about this great opportunity, and we'll talk to you all again soon. Stay safe.
spk01: Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines.
Disclaimer