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spk03: Good morning, my name is Pam and I will be your conference operator today. At this time, I'd like to welcome everyone to the Capstone Mining Q4 and year end 2021 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. Thank you. Mr. Annette, you may begin your conference.
spk02: Good morning. I'd like to welcome everyone on the call today. Please note that the news release and regulatory filings announcing Capstone's 2021 fourth quarter and full year financial and operational results are available on our website and on CDAR. If you are logged into the webcast, we will be advancing the slides of today's presentation, which is also available in the investor section of our website. I'm joined today by our CEO, Darren Pilot, our President and COO, Cashel Marr, our Chief Financial Officer, Raman Randhawa, our Senior Vice President, Risk, ESG, and General Counsel, Wendy King, and our Senior Vice President, Exploration and Strategic Projects, Brad Mercer. Following our brief remarks, there will be an opportunity for questions. Please note that comments made on the call today will contain forward-looking information within the meaning of applicable securities laws. This information, by its nature, is subject to risks and uncertainties, and actual results may differ materially from the views expressed today. For further information on the risks and uncertainties pertaining to our business, please see Capstone's most recent filings, which are available on our website and on CDAR. And finally, I'll just note that all amounts we will discuss today are in U.S. dollars unless otherwise specified. Now I'll turn the call over to Darren Pilot.
spk07: Thank you, Gerald, and good morning, everyone. On the title page, you will see a recent photo of Pinto Valley's tailings thickeners, which were just upgraded last year to improve water recycling capabilities and has lowered our overall water consumption. Turning now to slide number six, 2021 was a strong year for Capstone as we achieved the top end of copper production guidance and the C1 cash costs at the midpoint, despite the backdrop of industry-wide cost pressures. We benefited from cost controls and optimizations at both Pinto Valley and Cozumel, which will be discussed later in more detail in this presentation. In January, we announced provisional 2022 guidance for both mines of a combined 82 to 90,000 tons of copper at a C1 cash cost of $1.85 to $2 per pound. We'll update this for capstone copper following the completion of the combination with Mantos Copper. Moving on now to slide number seven, we realized record financial results on the back of high copper prices and optimized operations. Specifically here, you can see adjusted net income of $242 million, adjusted EBITDA of $432 million, and operating cash flows of $376 million, which were all record numbers. Our net cash position at year end grew by $56 million to a total of $264 million, which was a $389 million increase from a year ago. That's truly transformational and positions us to fund future growth projects that we will have throughout the capstone copper portfolio. On to slide eight. This graph shows how significant 2021 was for capstone as we generated over three and a half times more cash flow than the average of the previous 13 years, fueled by high copper prices and solid operational performance. Slide number nine. In January, we released our annual production and cost estimates and gave a preview of how we performed in Q4. Our adjusted EBITDA of $113 million met straight-up expectations, and our adjusted earnings per share of 18 cents was also a beat. It's also worth noting that Q4 EBITDA would have been $8 million stronger had it not been for the lower expected sales of 46.8 million pounds sold versus the payable production of 49.8 million pounds. And those sales were impacted by COVID-related logistics issues that caused problems with border crossings and just overall trucking availability in December. But since then, we have caught up on these deferred sales in this current quarter. Now I'll pass it over to Raman.
spk10: Thanks, Darren. We are on slide 10 now. So Darren walked through how last year was transformational. And you'll see on this slide that our liquidity is currently sitting around just under $500 million. With the Mantos copper combination complete, we will have the ability to expand our revolver credit facility and total liquidity. Our capstone copper growth profile is shown on the graph on the right, a different copper price. What excites me is to see a pathway to over a billion dollars of annual EBITDA in two years. Now onto slide 11. This slide captured just how fantastic 2021 was from my perspective. A 48% increase in copper prices coupled with well-timed 19% growth in production underpinned by our capital investments led to expansion of gross margins to 59% and a 209% percent boost EBITDA to over $430 million. And that brings me to the next slide, slide 12, to discuss cost containment strategies in the current inflationary environment. Back in 2020, we seized an opportunity to lock in lower fuel prices for Pinto Valley, which have saved $6.3 million in 2021, and we expect to save another $4.5 million in 2022 at current diesel prices. The ramp-up of the MOLLE plant in Q4 went well, and we're expecting important byproduct credits of $5 to $8 million per year. In addition, the pyrite plant is an exciting low-CAPEX quick-return project as it diverts acid-generating pyrite minerals away from our tailings storage facility and adds them onto our dump leach, where we will be able to self-generate acid over time, which as a result would save over $5 million in acid purchase a year. When I look at Pinto Valley, between contracted pricing on fuel, power, and labor, we have approximately 50% of our costs fixed. At Cozumel, FX hedges led to $2.6 million in realized gains in 2021, and during Q4, we took the opportunity to layer on a few more collar hedges to protect the FX rates for the Mexican peso and the Chilean peso. Now I'll hand it over to Brad Mercer.
spk06: Thank you, Roman, and good morning, everyone. We're now on slide 13. Pinto Valley had record quarterly mill throughput of 58,500 tons per day, benefiting from the completion of the PV3 optimization effort in Q3. Copper production of 37.1 million pounds at $2 per pound payable was the best quarter of last year. The mine generated a phenomenal $270 million US dollars in operating cash flow last year, which I believe is an indicator of the significance of the contribution of this mine to the future of capstone copper. And speaking about the future, the PV4 PFS expansion study is on track for a Q4 release. The jetty catalytic column test work is ongoing, and we are now about to commence pilot-scale leach pad testing this week, actually, at the site. The pilot test will provide additional leach data for the study, And recall, positive leach results would support a strategy of expanded dump leaching and a higher mill cutoff grade. The study is also considering some modest investments in the mill to boost further mill throughput by 5,000 to 10,000 tons per day. Specifically, upgrades to mill motors, grinding circuit hydrocyclones, flotation circuit, and concentration filtration are the key areas under review. As you just heard, Rama discussed the pirate agglomeration earlier, and I'll just add that we expect to proceed with this project in the second half of 2022, following a formal board approval. Moving on to slide 14, as announced last month, we have signed an access agreement with BHP and started an exploration and metallurgical testing program at the Copper Cities project, which is located just 10 kilometers east of Pinto Valley. Copper Cities is a geological mirror image of Pinto Valley and is exciting for me to conduct test work here as the deposit could have obvious synergies within the belt. It is a great opportunity on private patented land that could deliver responsible district scale growth, providing sustainable benefits for the globe Miami community and the surrounding area for many decades to come. We're now switching to slide 15. Cozumel also had a record year in Q4, sorry, a record year, and Q4 was the most productive quarter of that year as well, at 14.5 million pounds of copper at 99 cents per payable pound, C1 cost. Operating cash flow was an impressive $127 million, which I'm very pleased with, given it was a timely investment of the one-way ramp project in 1920 that facilitated this achievement. The dry stack tailings and paste backfill facility is advancing well on schedule for commissioning by year end. We added a few photos on this slide showing that we are now ready to drill from underground at Cozumine from the west crosscut area. This is significant because our drilling accuracy and efficiency will improve as a result of the shorter holes. as we target a zone that appears to extend the Malinoche vein. We'll provide results of this within a broader corporate exploration update later in Q2. Now, moving on to slide 16. Last quarter, we continued advancing the Santa Domingo project by commencing early infrastructure with our port partner. At the port site, a marine drill campaign will start shortly in March. At the mine site, drilling has provided over 16,000 meters of core for geometallurgical variability work and pilot testing for the cobalt feasibility study. The PFS is expected to be finalized in the first half of 2022 and FS work to be completed in the latter part of that same year, this same year. The Mount Overti-Santo Domingo strategy study commenced in Q4 and is on target for release in September of 2022. Cashel will provide some commentary on that in a later slide. Now I will turn it over to Ms. Wendy King.
spk00: Thank you, Brad. We're now on slide 17. Capstone continued the development of our company-wide ESG strategy. In Q4, our senior leadership team outlined Capstone's sustainability vision, which includes reducing our carbon footprint, focusing on water stewardship and tailings management, investing in our workforce, and integrating sustainability throughout our value chain. In 2022, we will undertake a company-wide initiative to develop our strategy to reduce greenhouse gas emissions and build target setting processes. We are also committed to enhancing our ESG disclosures. This year, we will start incorporating the TCFD recommendations into our annual sustainability report in addition to the GRI and SASB reporting standards. On the environmental front, at Cozumel, construction began in November for the new tailings filtration and paste plant, which is needed for conversion to a dry stack tailing storage facility and underground paste backfill system. This project will reduce our tailings footprint support teeling safety, and reduce water consumption. We look forward to providing updates as this project advances throughout 2022. Pinto Valley completed the purchase of new dust collector units and began the installation process in Q4. The new and more efficient units will reduce dust emissions and do not require the use of water. We are also improving our health and safety systems. We are proud to share that we've implemented our nine-pillar safety management system at our operations. In Q4, we conducted internal audits of the management system at Pinto Valley and Cozumel with peer participation from all sites. We continue investing in the development of our workforce. In Q4, we are highlighting the achievements of our sites in employee training and development. Cozumel is an accredited training and certification center by Mexico's National Industry Competency Standards Organization. In 2021, Cozumel achieved its goal of certifying or recertifying 100% of employees and on-site contractors in their job functions, most of whom were mine operators. At Pinto Valley, 178 employees participated in its Leadership Academy training program in 2021, and 100% of line leaders achieved their inspiring leader certificate. Pinto Valley's continued focus on training, development, and succession planning in 2021 resulted in a record number of promotions and personal development opportunities, many at the supervisor and superintendent levels. We're now moving to slide 18. We recently mailed out the materials for the special meeting of shareholders to approve the Mantos transaction, which will be held virtually on February 28th at 10 a.m. Pacific time. The materials, including the proxy management information circular form of proxy and instructions to register and attend the meeting, were filed on CDAR and are also available on our website. Yesterday, we announced that both ISS and Glass-Lewis have recommended that shareholders vote for the proposed business combination with Mantos. In support of their recommendation to shareholders, both independent proxy advisory firms reiterated the strategic merits of the transaction, which will create a premier copper producer with transformational near-term growth and meaningful synergies. The proxy voting cutoff is February 24th at 10 a.m. Pacific time. We encourage our shareholders to vote in advance of the meeting and remind them that there are several methods to vote, as indicated in the meeting materials. If you need assistance voting your shares, you can contact our proxy solicitation agent, Laurel Hill Advisory Group. Since the transactions announcement, Capstone Copper's integration planning has been in the works and is advancing well. I'll leave you now with Kashil Maher.
spk01: Thanks so much, Wendy. Good day. We're now on slide 19. I wanted to give my own thoughts on the Capstone-Mantos combination, as this was the driving factor that made me want to join this group. The combination offers significant growth, incredible optionality, and this backed by a cash flow foundation, recently expanded and optimized mines, plus a pristine balance sheet. No other copper company offers the immediate prospect of growth, synergy, and enthusiasm that exists between Santo Domingo and Monteverde. I visited Chile two weeks ago and I found the excitement there infectious as integration steps are in progress and the synergy studies are well underway. It's rare in mining to find opportunities where you can create a district approach with decisions made by one company. I can't think of another company that has two transformational projects within a stone's throw of one another, fully permitted with one underway and fully financed. Some of the value-added work being conducted at San Domingo, like the cobalt feasibility study, will be ultimately beneficial to Mantel Verde, unearthing their own hidden cobalt value in its resource. By-product acid from cobalt processing will open an opportunity not yet accounted for in reduced asset costs at Mantua Verde's ongoing leaching operations and the possibility of adding oxide reserves at Santa Domingo. The value of some synergy options is an output of ongoing processes, which are met and obvious. Most evident is the infrastructure sharing, be it desalinated water, power, port, or logistics. all of which will be of material benefit and quantifiable in developing Santo Domingo. In many respects, Mento Verde will pave the way for Santo Domingo project delivery, shared services, experience management team, and embedded systems and processes which can be categorized as softer synergies but greatly reduce the risk of project delivery. There will also be some synergies that require more time due to the nature of strategic integration like mine plan sequencing, process plant location, and flow sheet design. These projects will ensure organic in-house growth of copper production of over 100% over the next several years. I'll pass it back to Darren.
spk07: Thank you, Cashel. Before I open the call for questions, I just want to take the time to thank Capstone's team for their unwavering commitment to the company and the resilience they demonstrated over the course of last year. Despite the ongoing COVID pandemic and the extreme weather events affecting Arizona, we managed to produce record-breaking results by creating much more resilient operations, generating value for all of our shareholders, while assisting and contributing to the growth of the communities that host us. I would also like to welcome Kaushal Maher to our team. Cashel brings the right skill set and a wealth of experience that's required to take us to the next level of growth and project execution as we become Capstone Copper and continue to execute on our peer leading transformational growth strategy. In addition, I'm really looking forward to also welcoming John McKenzie and the entire Mantos team to Capstone very soon. And finally, I'd like to reiterate how excited we all are about the next chapter as Capstone Copper. We have the assets with long mine lives, all with exploration upside, combined with a strong balance sheet and team, which puts us in a position now to take advantage of this strong copper cycle we're currently in. As the world looks to a future with cleaner energy, we will be the go-to name for responsible copper sourcing for the future. And with that, Operator, that's the formal part of the presentation complete. We're ready to open it up for questions.
spk03: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by one on your touchtone 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 two. And if you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from Dalton Barreto with Canaccord. Please go ahead.
spk08: Thanks. Good morning, guys. I'd like to start off by wishing Cashel all the best in his new role with Capstone Copper. Hey, Cashel, it sounds like you've had a chance to visit all the assets. I'm just wondering, do you see, A, any more kind of low-hanging fruit for optimization of the existing operations, and B, what your thoughts are in terms of the brownfield projects that have been proposed at each of the assets. Thanks.
spk01: Thanks, Alden. I'll tell you what, in what we spoke about earlier, I sort of spoke about the pending transaction, but I am extremely impressed with Capstone's current assets and having a chance to sort of review some of the opportunities there. And also the track record of what they've done over the last number of years, it's truly impressive. So the management teams are super strong. They're doing great work. There are things they're working on that I wasn't aware of that I think are going to yield results. And as those things mature, there will be opportunity, right? So, like... What's going on at Cozumel with the underground mine and how they've increased, and now their concentration on the recycling water, the reinforcement of the tailings, and the pace backfill, I think will yield great results in the reserve, and they're executing on those things. And certainly at Pinto Valley, this work that they've embarked on with BHP and the prospects of Copper Cities and the expansion of PV4, I think can really move... from where it is today to a higher throughput producer, and perhaps there's some synergies there with Copper Cities where we can really lower our cash cost per pound. So I'm pretty encouraged with what I've seen so far, and I'm really encouraged with the way the teams are engaged in those ever-improving processes.
spk08: And then speaking of Copper Cities, you guys are working on PV4 as we speak. Are there some or all elements of PV4 that are waiting on the drill results from Copper Cities, or are you pushing forward on PV4 as if you don't have access to Copper Cities and you'll work that in later?
spk01: I'm going to hand this off to Brad because he's been really engaged in that process.
spk06: Okay, Dalton. So we are proceeding with PV4 as if Copper City's is not there, but we do fully expect to be shortly looking at optimization between the two sites. We just want to slow down what we're doing at PV4 and wait for Copper Cities. There are some very obvious things we need to do at Pindle Valley without Copper Cities or with Copper Cities, but certainly I think you should expect that post the PV4 study we will be declaration of that study, we will be announcing further synergies.
spk08: Okay, great. And maybe just one last one for me. Chile seems to be an ongoing overhang on your stock. I'm just wondering what's the latest you guys are hearing in terms of both the new mining fiscal regime as well as the constitutional redraft?
spk07: Hey, Dalton, it's Darren. We continue to believe Chile, what we know, Chile is a top mining jurisdiction. We produce a significant amount of copper. So we are confident that the taxes are going up, will go up in Chile. They're going up all over the world. There's no question about that. And we fully accept that. But we expect it to be done in a more conservative, meaningful way than what we're reading in the press and so on.
spk08: Okay, great. That's all from me, guys. Thanks again.
spk03: Your next question comes from Craig Hutchinson with TD Securities. Please go ahead.
spk04: Good morning, guys. With respect to the Pinto Valley, you guys had a nice spike in grades in Q4 and kind of a corresponding drop in recoveries, I guess, related to some of the soluble copper. What can we kind of expect as we move into kind of Q1? Should we expect grades to sort of remain elevated through Q1 and then taper off through the balance of the year? Or are you guys seeing more of a reversion back to kind of reserve grades in the start of the year?
spk01: Hey, Craig Cashel here. You know, there's always work towards optimization and MPV maximization of any sort of grade optimization. I think Q4 was a little bit higher grade from what we're expecting for the rest of the year, but there's always these ebbs and flows of where it goes. We'll trend more towards the reserve grade going forward, so I think you'll see more even production out of grade and expectations towards what we've already released as guidance for PV optimization.
spk10: Yeah, I think Craig will remember 2022 to like 2024 was like 0.33 to 0.34 grade.
spk02: Yeah, and that's what we're expecting for 2022. But we don't provide guidance on a quarterly basis, right? But this year, what went into the guidance was 0.33 to 0.34.
spk04: Okay. And maybe just like a follow-up question to the Valley. You know, the expansionary capital you guys are investing, part of it includes... upgrades to the mill motors and cyclones for, I think, two of the six lines. Do you guys expect that to translate into higher throughput this year, or is it more of a reliability kind of investment?
spk01: Yeah. What I think it is, is over time, as that project yields results, then the capacity of mine will increase. But this year, we're... We're forecasting sort of one of our higher throughput years. We're going to sit at in and around 58,000 tons a day is what we're sort of forecasting. It reduces the risk of delivering that because there's capacity in the system to handle it. And as we get familiar with that and as we replace the rest of the mill shells and some of the other motors, we'll look at the opportunity of expanding in the future. Okay, thanks.
spk04: And then maybe just... In terms of Santo Domingo, I know you guys have a synergy study coming out in Q3, but just maybe strategically, are you guys thinking that the investments, the major investments at Santo Domingo will likely come after Monteverde has sort of ramped up? Or is your sort of intention that once that study comes out to make investments almost right away, say end of this year or major construction to sort of start in 2023? Yeah.
spk07: Yeah, Craig, as you mentioned, it's still early days and Cash outlined a lot of the synergies that are being discussed and right now nothing's being taken off the table. But logically, you've got a construction camp that sits between Manto Verde and Santo Domingo that's right now housing all the construction workers for Manto Verde. So logically, you'd keep those workers and they would typically just go to work on the other side of the fence after ramping down on Manto Verde. So that would be the the ideal way, but of course it's early days and nothing's getting taken off the table at this point. So not exactly sure the plan as we speak, but that camp does exist and is fully housed right now with construction workers. Cash, I don't know if you have anything else to add.
spk01: No, I think with the way you said it, everything's on the table. And so with the two teams, we benefit from the addition of the Mantos Copper team being there and their view of the district. They've been there 25, 30 years. They have some very experienced people within the district, and they're looking at our assets, and they're incorporating them and those ideas into their own. I think, like you said, in Q3... near the end of this year, we'll have more information on that, but we're really excited about those prospects and some of the opportunities we're working on. It's just early days, and, of course, the merger is yet to be voted on, but we're very excited about what the opportunities and what the prospects present for Santa Domingo.
spk04: Okay, thanks, Eric. Maybe one last question for me. I don't know if you can comment on it, but the transaction hasn't closed, but can you provide any color in terms of how the ramp-up Mantis Blancos is going.
spk07: Craig, as Darren, as you mentioned, we can't, you know, we don't, until we own the assets, we really can't give a meaningful update. But just, you know, everything is, in our view, is going according to plans and what we've talked about.
spk04: Okay. Thanks, guys.
spk03: Ladies and gentlemen, as a reminder, if you do have any questions, please press star 1. Your next question comes from Stefan Iano with Cormark Securities. Please go ahead.
spk05: Thanks very much, guys. Great to see the cash costs and everything coming so low this quarter. Obviously, I'm guessing grade had helped to bolster those cash costs, but just wondering if you are seeing sort of any inflationary pressures start to creep into the profile. I mean, obviously, a lot of your peers are, and I'm just wondering if you could comment on that.
spk10: Yeah, here's Stefan. It's Robin. I mean, I think inflation is a reality when we look across the mining industry or all industries, I guess, right? And as I walked you through, when I look at our cost structure at Pinal Valley, you know, 50% is actually locked up. So we're probably seeing inflation in kind of that 4% to 6%. But when you kind of do the math on, maybe that's exposed to like 40% of your cost, really looking at maybe 3% inflation compared to what we're seeing at the mine site level and probably something similar in Mexico. So it's... It is there, but when you back out labor, power, usually it's contracted fuel sometimes, some of our costs are pretty fixed as well.
spk05: Okay, great. That's very helpful. Thanks, guys.
spk03: Your next question comes from Ralph Profit with 8 Capital. Please go ahead.
spk09: Hi there. Thanks for taking my questions. Raman, can I ask you, What the strategy could be, you know, when the two companies come together on foreign exchange hedging? Would you sort of want to maintain the same proportionality, you know, with respect to Chilean facial exposure?
spk10: Yeah, I think from a, you know, what we've historically done is when we see a rate that's disconnected, especially with copper price right now, right? And it's kind of driven by Chile politics a little bit. We do see the opportunity to put in a floor in Calder. So we've done that, as you know, on the Santo Domingo side. We've done it on the Cozumel side. It's definitely something we would do on the Mantles assets as well to protect the Chilean peso exposure on the OPEX. Okay.
spk09: The CAPEX is actually already hedged. I understood. Yeah. Okay. And I want to come back to the question on Copper Cities, and it may have been addressed in a previous question, but in an ideal scenario, what is the outcome of this strategy of potentially these two assets coming together? Is it scope? Is it scale? Exploration joint venture? Is this a consolidation opportunity? In an ideal world, what's going to become of this opportunity?
spk06: Well, I think in an ideal world, this is a consolidation opportunity. We see a lot of potential in the district. This mine was shut down a half a century ago because of the copper price value, copper paradigm, you know, dictated that we're now in a different copper price environment. We see this, you've got to remember here, we have historical data of more than 300 holes into this thing, so we're not flying blind. We have a very good idea of what this target looks like. But for disclosure purposes, we need to drill it to modern standards. So having that model in-house to guide our exploration, we already know what the price should be. We've done a lot of internal work that views this asset as standalone and also as a trade-off to view it linked physically to Pinto Valley. We see a very big resource potential, certainly with a high-grade nut essentially starting at surface here because it has been mined in the past. There's not like there's a lot of soil or anything to strip off of this. It's exposed in the pit right now. So we are not going to, to borrow a phrase, take anything off the table here. We will look at multiple models, geological and financial models, that see this as standalone and integrated with Pinto Valley. It just makes sense in the district to share resources like labor, water, tailings management, material movement, and then of course there's all the other softer stuff like shared G&A, purchasing power, and so on. I should just leave one note here that the drill program is advancing very quickly. We started with one drill, added two, a second one, and now we're looking at adding a third one. As of Friday, we have 11 of 19 holes that we consider crucial to finish our due diligence.
spk09: Got it. Very helpful. Thanks, Brad. I appreciate it. And thanks again, Raman. Thanks, Ralph.
spk03: There are no further questions at this time. Please proceed.
spk07: Well, thank you, everyone, for joining us today. And once again, just before we go, I would like to remind shareholders to vote by February 24th at the 10 a.m. Pacific time cutoff that Wendy talked about. The meeting materials are also available on CDAR and on our website. In the meantime, as always, don't hesitate to contact any of our Capstone team with any additional questions you may have. And have a good day. Thank you.
spk03: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
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