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spk03: Good morning, my name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Capstone Copper's 2022 Year-End 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 would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you, Mr. Gerald Annett. You may begin your conference.
spk02: Good morning. I'd like to welcome everyone to Capstone Copper's Q4 and year-end 2022 conference call. Please note that the news release and regulatory filings announcing Capstone Copper's 2022 fourth quarter financial and operational results are available on our website and on CDAR. Please note that the results are preliminary and subject to change based on final audited results. If you're 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 McKenzie, our President and COO, Cashel Marr, our Chief Financial Officer, Raman Randhawa, and our SVP Risk ESG and General Counsel, Wendy King. Following our brief remarks, there will be an opportunity for questions. Please note that the 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 John McKenzie.
spk07: Thank you, Gerald, and good morning, everyone. We're very pleased to present our fourth quarter and full year 2022 results and achievements, which is the strongest quarter of the year and sets us up well for an exciting 2023 as our team executes on our sector-leading growth plan. In the fourth quarter, we produced a total of 45.5,000 tons of copper at consolidated C1 cash costs of $2.50 per payable pound of copper produced. As was previously disclosed, we achieved our nine-month guidance with total copper production of 136.3,000 tons at consolidated C1 cash costs of $2.68 per payable pound of copper produced over a nine-month period ending December 31, 2022. I'm proud of what we accomplished last year, completing key milestones that are, one, continuing to improve the asset policy of our business, and two, facilitate our near-term growth. Specifically, last quarter, we completed the construction of the Cozumel Pace Backfill and Dry Stack Tailing Plant, which is currently ramping up. Our Montes Blancas Concentrated De-Bottlenecking Project achieved 85% of main take capacity in December and declared commercial production. We announced the Monteverde-Santo Domingo District Integration Plan, which lays the foundation on which we plan to create one of the most exciting copper and cobalt districts in the world. And we continue to make solid progress with respect to construction activities at the Monteverde Development Project. As at December 31st, overall project progress was 76%, and the project remains on budget and on track to start web commissioning by year-end. At the MVDP construction site, the new processing plant is taking shape. My style is, you can see the boreholes in place, flotation cells erected, and tailing signals being assembled, which CASL will provide more colour on with our operating results. I would encourage you to visit a virtual tour of the project by clicking on the verify link provided in our news release, as well as the bottom of the slide. Earlier in the year, we announced the commitments to the copper mark at our Montes Blancos and Monteverde mines, showcasing our pursuits in best practices based on international standards for responsible mining, which Wendy will provide further detail on, including our ESG strategy later on the call. We're now on slide six, which illustrates how we're proactively improving the asset quality of our portfolio through a growing proportion of higher-grade, higher-margin sulfide production. driving lower costs across our business. Over the nine month period ending December 31st, 2022, our lower cost sulfide production as a percentage of the total was approximately 65% and growing to 73% in 2023, primarily driven by the ramp up of the Montes Blancas concentrated debottling project completed last year. Looking forward over the next 12 to 24 months, we expect our lower cost sulfide business to contribute over 80% of our total copper production, further increasing with the developments of our Santo Domingo project and driving company-wide consolidated C1 costs towards $1.50 per pound. Now I'll pass over to Raman for our financial results.
spk10: Thank you, John. We are now on slide seven. From the end of Q3 to the end of Q4 last year, we saw the copper price increase more than 10%, which resulted in positive provisional pricing adjustments in the fourth quarter. Our realized copper price for the quarter was $3.74 per pound, which was 11 cents higher than the LME average of $3.63 per pound. As discussed in the prior quarter, going forward, we expect unrealized provisional pricing effects to be offset by quotational period hedges by utilizing derivative contracts to offset copper sales with the objective of achieving LME average pricing. Adjusted EBITDA in Q4 of 80.5 million included a realized provisional pricing loss of 7.8 million related to Q2, Q3 copper sales that final settled in Q4. Including the prior period provisional pricing loss, EBITDA would have been approximately 90 million. Moving on to slide eight. On the left-hand side, we summarize our available liquidity, which at year end was approximately $700 million. including $172 million of cash in short-term investments and $525 million of undrawn amounts on our $600 million corporate revolving credit facility, which was upsized during Q4 as a result of exercising the $100 million accordion to further bolster our financial liquidity. During the quarter, we drew down on the remaining amount of the $520 project debt facility as well as a $60 million cost overrun facility with our Mantua Verde partner Mitsubishi Materials Corp. As John mentioned earlier, we remain on track, on budget, for completion of the Mantua Verde development project by the end of the year. We ended last year with a consolidated net debt of $483 million. The chart on the right-hand side of the page illustrates our EBITDA sensitivity at various copper prices. You can see that 2023 is overshadowed by the EBITDA generation with Manto Verde sulfides at full run rate production. At $4 per pound copper, we expect to generate approximately $500 million of EBITDA in 2023 and over $1 billion of annual EBITDA with the benefit of Manto Verde development project online. The EBITDA generation associated with Manto Verde will enable accelerated opportunity to delever the aforementioned debt. and beat below one times net leverage at copper prices between $3.50 and $4 per pound, which provides additional liquidity to advance our future growth pipeline. Now I'll hand it over to Casual for the operations review.
spk04: Thanks, Ron. We're now on slide nine. So Valley produced 15,000 tonnes of copper at C1 cash costs of $2.48 per payable pound during Q4, which was our best quarter last year from both the production and cost perspective. Looking ahead in 2023, we are expecting similar production on an annualized basis between 56,000 and 62,000 tunnies at C1 cash costs of $2.40 a pound to $2.60 per payable pound. We continue to make good progress on engineering details for the PB4 feasibility study, which aims to tap into the 1 billion tunny resource, extending the mine life to beyond 2050. evaluating further investment opportunities in the grinding and metal recovery processes, and improved ESG performance to maximize value for all stakeholders. We are pleased to welcome Lindsay Potts, who is the new GM for Pinto Valley and is joining us after 17 plus years with leadership positions and increasing role responsibility from Newcrest Ridgeway Acadia Operations. Moving to slide 10. Cozumel Mine had a transitionary production quarter producing 5,800 tons of copper at a C1 cash cost of $1.40 per payable pound. A modification to the mining method was evaluated and implemented during the quarter to increase the realized mineral recovery from the mine. In some areas where the dip of the ore body is shallow and the width of the ore body is variable, we have determined that cut-and-fill mining will ensure a more efficient mineral recovery methodology. We are also incorporating transverse long-hold methodology in some key wide areas identified in the mineral reserve. Overall, we expect this change will maximize the mineral recovery in the mining process at a slightly higher mining rate, allowing us to use some of our excess milling and paste-filled dry stack capacity we have on surface. We anticipate this being outlined in a new technical report we will issue at the end of next month. The pay-still and dry-stack tailings facility is complete. A ramp-up is underway. Our Mantos Blancos asset is highlighted on slide 11. Total sulfide and cathode production yielded 14.2 thousand tons of copper at a blended C1 cash cost of $2.09 per payable pound. The plant achieved 85% of throughput capacity for the month of December. The key focus on ramp-up remains plant availability, and in particular on mechanical compliance on preventative maintenance and systems. Design work is underway for HT 2023 to utilize the unused capacity in the plant to increase the throughput from a current design at 20,000 tons per day to 27,000 tons per day. Now on to Manto Verde on slide 12. Q3 2022 production was 10 and a half thousand tonnies of copper in cathode at C1 cash costs of $3.65 per payable pound. Visible progress was achieved at the MVDB project. Project progress is at 76% with 580 million spent as of year end. With many of the classical major escalator risks behind us and or materially diminishing, the total expenditure for the project remains at $825 million and on schedule for year-end 2023 wet commissioning. The Mantoverde development project will deliver blended C1 costs below $2 a pound and produce 120,000 tonnes of combined cathode and copper in concentrates, with over 30,000 ounces of gold per year. Slides 13 through 17 show construction progress at several key areas of the MVDP. Slide 13 shows the primary crusher with the retaining wall and conveyances advancing well. Structural steel erection is also advancing well as evidence from the progress on the copper filtration buildings, column cells, and rougher cells. All major components are procured and onsite in preparation for final installation steps. Slide 14 shows the copper concentrate thickener and a different perspective on the copper filtration and loadout facility. The picture on the right clearly displays the advancement of the assembly of the sag and ball mills. The next slide 15 shows the overall site And the photo on the right shows the coarse ore stockpile and the reclaimed tunnels in preparation for the construction of the geodesic dome for dust control. The pre-strip for mining the sulfide ore is nearly complete, and stockpiling of sulfide ore has commenced. Assembly of the third electric shovel is in progress, and the new truck shop to accommodate the larger fleet is well underway, as seen on slide 16. An important piece of progress can be seen on slide 17, where the excavation of the core of the tailings facility has the dam now emerging from the initial cutoff trench. No major adverse geotechnical conditions were encountered, and productivities have improved to ensure that the tailings will be ready and waiting for the completion of the sulfide plant. In parallel, we continue with our studies to evaluate the methodology best suited to exploit the cobalt resource that is present at both Manto Verde and Santo Domingo. Moving to slide 18. In addition to the previously disclosed PEA on the roaster option for Santo Domingo, we are excited to be evaluating an alternative method for cobalt extraction, which would involve using our current heat leach infrastructure and adding a CCIX, counter current ion exchange circuit. The flow sheet concept is simple. We would recover cobaltiferous pyrite in our flotation circuit, which would prevent it from going to tailings. The pyrite would be agglomerated in our existing drums and placed onto the copper oxide heaps and then irrigated with sulfuric acid. There, the pyrite would oxidize and in the process would generate acid as well as releasing cobalt into the solution. The solution would contain both copper and cobalt. The copper is recovered from our existing SXEW infrastructure, while the cobalt would be recovered from a future CCIX plant. This work is PEA level, and we expect to have a study completed in 2024. I should note that the current raffinate at the Mantelverde operation already has considerable cobalt in solution, greater than 350 ppm, which has accumulated over time. We are taking this solution and evaluating its possibility of extraction at several commercial labs. Overall, the benefit of this heat leaching IX option is it will offset some of our acid requirements, but more importantly, could prove to be significantly lower capital intensity than a roaster and ultimately much simpler to execute with a faster timeline to production. Now over to Wendy King for the sustainability review.
spk00: Thank you, Cashel. We're now on slide 19. We are pleased to introduce our ESG strategy. The development of the strategy was a structured 12-month process with company-wide stakeholder participation and aligned with our purpose and values. We have a robust governance process for oversight and execution. The strategy is a reflection of our firm commitment to sustainability and sets out our priorities, actions, and targets over the next seven years focused on five initial priorities. These priorities are biodiversity, communities, tailings, climate, and water. We are also advancing diversity and inclusion targets in 2023, starting at the leadership level. We will provide more detail on our strategy in the coming weeks and regularly report on our progress. At Pinto Valley last year, we deployed mining equipment with Tier 4 engines and pumps that meet U.S. EPA Tier 4 emission standards and provide fuel efficiency improvements. We have also implemented various initiatives and practices at Pinto Valley, including a new mine dewatering system, new maintenance practices to reduce both petroleum product and solid waste generation, and new dust controls to reduce water and fuel consumption. At Mantos Blancos and Mantos Verdes, we have moved to the self-assessment stage for the copper mark assurance process. and we expect to advance to the independent review stage in Q2. Investment in efficient equipment continues at our Chilean operations, with Manto Verde now commissioning its third electric shovel.
spk06: Thank you, Wendy.
spk07: On slide 20, with our 2023 production and cost guidance announced last month, we expect to produce between 170,000 tons and 190,000 tons of copper, at C1 cash costs of $2.50 to $2.70 per payable pound. We remain focused on the execution of our near-term growth profile, increasing copper production by 45% to approximately 260,000 tons, following the ramp-up of the transformation Monteverde development project, which remains on time and on budget. After this, we have the fully permitted Santo Domingo project, which unlocks district synergies and generates an additional 45% of copper production to 380,000 tons per year with further upside and expansions across our portfolio. And finally, on slide 21, we have significant catalysts over the next two years that support our sector-leading growth plans with further upside beyond this across our portfolio. We have a talented technical team in place to execute on these studies, and we look forward to releasing the results in the timeline shown on the slide. With that, we're now ready to take 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 the one on your touchtone phone. If you are using a speakerphone, please lift the headset before pressing any keys. This question comes from Dalton Barreto at Canaccord. Please go ahead.
spk08: Thanks. Good morning, everybody. John, I wanted to start by asking you about what's going on in Chile. It's been pretty quiet lately. I'm just wondering where the whole process stands in terms of overhauling the fiscal regime. Thanks.
spk07: Yeah, thanks for the question, Dalton. I think there are two main elements that are going on in Chile right now. The first is the constitutional reform. And I must say, we're really encouraged by where that's gone. The initial version that was voted on last year was sort of rejected by a very significant majority, indicating that the majority of Chileans wanted a far more moderate constitution and one that sort of continued the current sort of economic model of the country. So right now, that process is advancing well. The new process will have three groups of people. one which is a group of constitutional experts, one is a group of people elected from the mainstream political parties, and the third is a group of people elected by the general population. They will present, I think by around October of this year, a revised constitutional proposal, and the intention is that at the end of the year that will be voted on. But it certainly is progressing in the direction that we are are certainly currently very comfortable with. With regard to the royalty discussions, as you know, there was sort of various proposals put forward over the past year. I think the latest proposal that's in play is far more reasonable than what we have seen previous to that. That has actually been approved by the Senate Mining Commission and currently sits with the Senate Finance Commission. It's unclear how long it will sit with them before they move it with whatever recommendations they have to the Senate for final approval. They have agreed that whatever is put in place will only be effective from 2024. And I think overall our view on it is that it's It's a very, very significant improvement on the previous proposals. It does represent an increase in tax rates. We would obviously prefer to see that still slightly lower just to further improve Chile's competitiveness relative to some of the jurisdictions. But it's very much in the same ballpark now as most of the competing jurisdictions.
spk08: Thanks, John. That's very helpful. And then maybe I can switch gears and ask you about the Manto Verde sulfide. There's some language in your release that talks about spare capacity, if you will, or the ability of the front end of the circuit to do more. And there's also some language in terms of potentially twinning the line as part of phase two. So presumably, on the assumption that both of those happen, does that mean that the sulfide mill will run north of 70,000 tons per day, if I have my numbers right?
spk07: Yes, that would be correct. We're obviously designing the current mill for 32,000 tons a day. What we have identified is that certain major pieces of equipment, particularly the crushers and the mills, have additional capacity. We need to fully evaluate what that additional capacity would look like. Ultimately, that would form what we would call the future optimization of the MVDP project. Once we've got that optimized throughput in place, we would then look to add an identical line to that to further fully utilize the resource base that we've got. So I think the numbers you mentioned At this stage, it's work in progress, but you're probably in the ballpark.
spk08: Great, thank you. And then just maybe if I can squeeze one last one, and this one's in PV4. Given some of these investments you're targeting in the combination circuit as well as in flotation, can you tell us what the mill could potentially do after that from a throughput and recovery perspective and whether Jetty is going to play a big part in PV4?
spk07: Thanks, Dalton. I'll ask Cashel to respond to that.
spk04: Yeah, thanks, Dalton. I think the way we're sequencing PV4 right now, one of the critical elements is to increase the capacity of additional tailings. These are old tailings facilities. So one of the real drivers is to permit design what we call TSF-5. So that's really the key focus. With that, TSF-5, we believe we'll have more return water. And so PV-4 is focused on the current infrastructure and the current mills and crushers of what we can get out of them. With an extension of some mill shells and the addition of changing the power in the motors, we believe we can get up to 70,000 tons. However, that's contingent on coming up with solutions to generate more water. And so that's what PV4 is about, is one, to permit the new tailings that we can extend the mine life at the current capacity and capability of the mill, which is around 60,000 tons a day, and then evaluate the future opportunity opportunities of increasing the capacity in the current infrastructure that we have.
spk08: And Cash, are there any upside to your recoveries there as well?
spk04: Yeah. So we believe there are some modifications, both in the Mali plants, which we're actually sort of seeing at the start of this year, and in the copper flotation circuit, where we believe there are some points available for copper flotation. And then to your question, I sort of Didn't answer with respect to Jetty. We're still in the control phase of evaluation of our test pad versus the Jetty pad. As you well know, the Jetty technology, the benefits of which happen over an extended period of time. So we're still evaluating that technology. We think if that technology proves successful, that Pinto Valley is one of the unique sites where you can take advantage of this type of technology because you already have sulfide dumps that are in place and it's truly incremental production to the current production profile. of the mine itself. And that's really where these sulfide leach technologies add benefit. We don't see that these sulfide leach technologies would be economic on a standalone basis, but certainly incremental production, we continue to evaluate and understand, or we continue to evaluate what the results of this test program would be.
spk06: That's great. Thanks, all.
spk03: Thank you. Next question comes from Orest Wakedao at Scotiabank. Please go ahead.
spk09: Hi, good morning. In previous quarters, you quoted a completion percentage for the Mano Verde project. I believe it was 67% as of Q3. I didn't see that in the disclosure today. Can you give us an update there?
spk07: Yes, certainly. So overall project completion is at 76%. And the actual construction part of the project, if I recall correctly, is 57% current completion as at the end of the year.
spk09: Okay, perfect. Thank you. And then, I mean, when I take a look at your slide here of kind of upcoming catalysts, clearly you've got a ton of growth options in the portfolio. Can you maybe walk us through your thinking on priorities here? Certainly, I can't see how you could build or develop all of these expansions and projects at once. How should we think around just the prioritization of these growth options?
spk07: It's a very good question. You know, we're obviously ramping up and completing the ramp up of Montes Blancos concentrated project. Monteverde is in construction, and that obviously is our next big sort of transformational catalyst as we bring that on at the end of this year. There are clearly a number of studies going on in parallel with that. And you're absolutely right. We have no intention of running major projects in parallel. We will take a conservative approach to our balance sheet. So our intention is we will be completing the copper-iron part of the base case feasibility for Santo Domingo at the end of this year. Our intention really is then to wait upon sort of three factors. The one is the ramp-up of Monteverde. The second is obviously sort of building up our cash position and finalizing the financing plan for the Santo Domingo project, potentially bringing in a partner for that project as well. And then finally, sort of assessing the macro environments at that point, sort of where is the common price particular sitting at that point. And that will really guide us as to the timing of pulling the trigger on Santo Domingo. So that is very clearly our next priority in terms of where we step to from there. We will be continuing during this time to, obviously we need to ramp up Monteverde to fully evaluate the capacity of the system and to understand how the, what the most capital efficient optimization of that project will be. I would comment that Montes Blancos phase two is something which potentially could be done in parallel with some of these other projects. It actually is more like a brownfield sustaining CapEx project rather than any major expansion capital project. That's just moving us from 20,000 tons a day to 27,000 tons a day. using unutilized trash in the plant. We've had quite a few days where we've achieved 25,000 tons a day already with the current plant. So it really is just seeing what pieces of the plant we need to de-bottleneck. So I think that is a project which conceivably would happen in parallel. But I would say that fundamentally, our order is, after we complete Monteverde development project, to move to Santo Domingo. Thereafter, we will optimize Monteverde, and from there, we would look to move into the full Monteverde Phase 2 project.
spk06: Thank you. That's very helpful. Sure.
spk05: Ladies and gentlemen, as a reminder, should you have any questions, please press star followed by one.
spk03: Next question comes from Ben Dickfold in Nightingale at Crookston Securities. Please go ahead.
spk01: Hey, guys. It seems like the cobalt plant is getting sort of less of a far future event with the potential of heat bleaching already in 2025. Do you have any color on sort of a dollar figure range on the difference of the capex between a roasting plant and heat bleaching?
spk07: I'll ask Kessel to just give you some comments on that.
spk04: Thanks. There's a lot of work still yet to do on pilot testing, bench scale testing, and plant design. But the way we look at it is in an order of magnitude discussion. If a roaster is in the excess of a billion dollars, a CIX plant and the required infrastructure would be in the hundreds of millions of dollars. And that's sort of where we are. It'll all be a function of the size and what modifications we need to our current agglomeration circuit. And so that's sort of what we're saying. And then there would be the associated costs specifically for Santa Domingo of what a heat bleach pad and infrastructure PLS pipeline costs. and return raffinate line would be in addition to all that process. So those are the things that will come out, you know, at a scoping level with our PEA when that cobalt study is due, and we'll have more detail there. But we believe, you know, the difference in complexity and the difference in capital, order of magnitude differences, and that's why we're pursuing this And we're pretty excited about this particular opportunity, and we look forward to the pilot scale testing results.
spk06: Yeah, cool.
spk01: And if I can squeeze in one more, just looking at the SOFA cash costs in this quarter at Mantos Blancos, how should we think about the guided range for 2023? And also, are there any timing considerations we should think about for the costs there?
spk06: Yeah, I can take that, Ben.
spk10: Our cash cost came down, as you notice, at Mentos Blankos for Q4. And then the future guidance is roughly in the same range, just kind of baking in some inflationary impacts that you're seeing currently in the market for explosives and diesel still. So that's why the sulfides are kind of in that range that we guided, 220 to 240.
spk06: Okay, yes. Thank you.
spk03: Thank you, and the next question comes from Craig Hutchison at TD Securities. Please go ahead.
spk04: All right, good morning, guys. You mentioned in your comments that Mentos Blancos Phase 2 could be done in parallel with one of the bigger projects. Could the same be said about PV4, or is that project more capital-intensive, or is it just that Mentos Blancos is a better return on investment? Hey, Craig. Yeah, I think it could be. It's, you know, the results of PV4 will come out. It'll be a function of financing and what the current macroeconomic environment is. But PV4 itself, I would say the big component of it is the construction of a new tailing stand. And of course, that sequence or that process is dependent on the permitting of the area, which is which we've achieved the expansion at TSF4 most recently with cooperation with the Forest Service, and it requires to go through that type of permitting sequencing also. So the timing right now isn't totally decided, but we see that that is something we could undertake at the same time, provided the financing scenario is correct. You mentioned just access to water. So what are some solutions around that? We believe that a new tailings dam itself would have a more efficient reclaim process, so that would increase our access to water specifically. Okay. And just my last question, just in terms of like leverage, you guys just mentioned just obviously want to be conservative on the balance sheet, but what kind of leverage metrics are you guys kind of looking for here in order to go ahead with a new project build?
spk10: Yeah, I mean, this year will be our peak leverage, I guess, when you look at our guidance and where we're at as we build this, but we would quickly de-lever that ratio. So we're, you know, trying to stay that below two times net leverage. And then that would actually come off, Craig, as mental burden comes on before we would make another financing or construction decision on one of these projects.
spk06: Okay, perfect. Thanks.
spk05: Thank you. There are no further questions. I will now turn the call back over for closing comments.
spk06: Thank you.
spk07: So we look forward to updating you again in April with our Q1 results. And until then, stay safe and feel free to reach out to Gerald or Katina if you have any further questions. Thank you for your continued support and have a good day.
spk03: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.
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