Capstone Copper Corp.

Good morning everyone. Thank you for standing by. I would like to welcome you all to the Capstone Copper Q2 2022 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. Instructions will be provided at that time on how to queue up. I'd like to remind everybody that today's call is being recorded. And I would now like to turn it over to Mr. Gerald Ennett, Senior Vice President of Strategy and Capital Markets. Please go ahead, sir.

Good morning. I'd like to welcome everyone to Capstone Copper's Q2 2022 conference call. Please note that the news release and regulatory filings announcing Capstone Copper's 2022 second quarter financial and operational results are available on our website and on CDAR. If you are logged into the webcast, we will advance the slides of today's presentation, which is also available in the Investors section of our website. I'm joined today by our CEO, John MacKenzie, our President and COO, Cashel Marr, our Chief Financial Officer, Raman Randhawa, and our Senior Vice President, Risk ESG and General Counsel, Wendy King. 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 the actual results may differ materially from the view 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 John McKenzie.

Thank you, Gerald, and good morning, everyone. Before I speak to our Q2 results, I wanted to touch briefly on a few key themes in what has been a rather volatile macro environment in the first half of the year. Q2 was a more challenging period for copper miners. with inflationary pressures both across the industry and a sharp decline in copper prices, together with concerns about global economic growth. Despite this backdrop, Capstone Copper is well positioned to deliver on our strategy with stable operations, a strong balance sheet, and good liquidity as we near completion of the ramp-up of Montes Blancos and the delivery of our transformational Monteverde development projects. Our growth pipeline driven by permitted projects and brownfield expansions, is unique. It lines up well with robust medium and long-term fundamentals for copper, fueled by both supply-side constraints and growing demand from the energy transition towards carbon neutrality. Moving to slide five, we produced just over 45,000 tons of copper at a C1 cash cost of $2.78 per pound in the second quarter. Q2 represents our first full quarter of operating results as capstone copper, following the combination with mantis copper, which closed towards the end of Q1. Our operating costs this quarter were primarily impacted by elevated input costs, particularly sulfuric acid in our capper business, and seasonal lower throughput at Pinsir Valley. We've already started to see signs that key input prices are trending lower. And with the Montes Blancas continued ramp-up progressing well, we expect improved operating performance in the second half of the year. As such, we reiterate the nine-month production and cost guidance that we provided in May. We also took proactive measures during the quarter to further protect our oxide business, which currently has higher costs due to the elevated sulfuric acid prices. As a result, 100% of our capo production in H2 2022 is now hedged at a weighted average price of approximately $3.70 per pound. On the right-hand side of the slide, it gives me great pleasure to highlight our 2021 sustainability reports, showing our firm commitment to excellence in ESG and to maintaining the trust of our stakeholders, including employees, investors, communities, and the governments where we operate. And I'd encourage you to read our reports at your leisure. On slide six, we illustrate our 2022 operating cost drivers and cash cost sensitivities to key input costs. In particular, our near-term exposure to sulfuric acid. This exposure will decline as we transition our trillion operations to the higher grade, higher margin sulfides in the coming years. You may recall our nine-month guidance issued back in May assumed sulfuric acid prices of $280 per ton. And as you can see on the right-hand side of the page, a 10% change in pricing drives around a 17 cents per pound change in our capital cash costs. In recent weeks, we've seen sulfuric acid quotes for Q4 delivery trend in the lower $200 range with similar downward trends in freight rates, diesel prices, and also a weaker Chilean peso. Turning to slide seven, can we illustrate our key catalysts over the next 24 months? I'd like to emphasize that our primary focus is on the finalization of the Montes Blancos ramp up during this quarter and the completion of the Monteverde development project, which I'm pleased to report remains on time and on budget. We're also advancing the studies to develop an optimized plan for the integration of the Monteverde-Santo Domingo district. We've implemented a highly disciplined approach to the evaluation and development of our future growth pipeline. Sanctioning of these projects will be subject to completion of technical studies, compelling economics, balance sheet strength, and an assessment of the broader macro environments. Following a detailed review, approximately six months more time is needed to study and engineer those key areas where we expect to surface incredible value by linking Monteverde and Santo Domingo. We now expect to deliver the updated Santo Domingo feasibility study that will include our district integration plan in H2 of 2023, the feasibility study for the Santo Domingo copper oxides in H1 of 2024, and the Monteverde-Santo Domingo cobalt feasibility also in the first half of 2024. We're excited about releasing our Monteverde-Santo Domingo District Integration Plan in November, which will be a first look at how we intend to create a world-class copper, iron, and cobalt mining district in the Atacama region of Chile that will be anchored by two large-scale, low-cost mines at Monteverde and Santo Domingo. As you can see, we also have a great pipeline of high-quality brownfields projects that have the potential for high returns and further driving down our unit costs.