February 19, 2021
Q4 2020 Investor Conference Call (Text)
Amerigo Resources Q4 2020 Investor Call
Friday, February 19, 2021 – 2:00 PM ET
CORPORATE PARTICIPANTS Before we begin the presentation, let me caution you that our comments and discussions will include forward-
Graham Farrell looking information within the meaning of applicable
Harbor Access Investor Relations Advisors securities legislation. Forward-looking information will include, among other things, forecasts and projections
Aurora Davidson about our copper production for the year, which involves
President and Chief Executive Officer known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or
Carmen Hernandez achievements to be materially different from such
Chief Financial Officer forecasts and projections. Therefore, although we believe that anticipated future results, performance, or achievements expressed or implied by the forward-
CONFERENCE CALL PARTICIPANTS looking information are based on reasonable assumptions and expectations, you should not place
Terry Fisher undue reliance on such forward-looking information. We
CIBC direct you to our press release issued on February 18,
2021, and our other documents filed with the securities
Nick Toor authorities in Canada, including our annual information
BlackRoot Capital form under the heading Description of the Business, Risk
Factors. These documents describe the material factors
Stephen Ottridge and assumptions that were applied in drawing the
Private Investor conclusions and making the forecasts and projections as reflected in the forward-looking information and the
Jason Lee material factors that could cause actual results,
Private Investor performance, or achievements to differ materially. Except as required by law, we undertake no obligation to update
Peter Antico or revise any forward-looking information made in this presentation.
PRESENTATION Thank you, and I will now hand the call over to Aurora
Davidson, CEO of Amerigo Resources. Please go ahead,
Aurora.
Operator
Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Amerigo Resources Aurora Davidson, President and Chief Executive conference call to discuss the financial results for Q4 and Officer year end 2020.
Thank you, Graham. I will start our presentation with a
I would like now to turn the conference call over to review of operations at Amerigo’s MVC operation in Chile
Graham Farrell of Harbor Access Investor Relations and our vision for 2021, and then Carmen will provide
Advisors for Amerigo Resources. Please go ahead, sir. comments on the annual financial results.
MVC’s operational performance in Q4 2020 was very good and stable. MVC was slightly below quarterly
Graham Farrell, Harbor Access Investor Relations production guidance, but Q4 2020 was still the strongest
Advisors production quarter of the year with 16.5 million pounds of copper produced. Annual production of 56.2 million
Thank you, Operator. Good afternoon, everyone, and pounds of copper was within 1 percent of our annual welcome to Amerigo Resources Q4 and year end 2020 copper production guidance. conference call. We are delighted to have you join us today.
Moly production in Q4 was 35 percent stronger than in
Q3, resulting in annual production of 1.4 million pounds of
This call will cover Amerigo’s financial and operating moly, which was 6 percent over annual moly production results for the fourth quarter ended December 31, 2020, guidance. as well as full year 2020 results. Following our prepared remarks, we will open the conference call to a question-
Cash cost in Q4 2020 was $1.65 per pound, within and-answer session. quarterly guidance, and annual cash cost was $1.76 per
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Amerigo Resources Q4 2020 Investor Call
Friday, February 19, 2021 – 2:00 PM ET pound and was only $0.02 below the Company's latest Cash balance increased to $14 million on December 31, cash cost guidance. and today's cash balance is at $30 million. We continue to have a working capital deficiency but expect to be out
Operations in MVC continued uninterrupted due to of it and into positive working capital by the end of
COVID-19 in the quarter, and to date MVC has February. completed optimization work expected to be carried out in We met three of our four bank covenants at year end.
Q4. This was led by our MVC technical consultants at The only covenant which was not met was the current
911Metallurgy Corp. ratio, which we expect to meet from June 30 on, and for which we received, from MVC’s lenders, a compliance
In Q4 2020, we completed the change of all the waiver. We also expect to meet obligations as they come remaining small hydrocyclones which was started earlier due, and we are reviewing our options with respect to in 2020. We changed 28 of the 40 hydrocyclones in fresh deleveraging MVC or refinancing the existing debt tailings, and all of the 42 cyclones in Cauquenes were beyond the current maturity date of September 2023 with changed to the smaller units. We continue to work on less restrictive covenants. plant optimization on a low Capex basis and without hindering production capacity at MVC. We expect to Moving on from the historical review of 2020 into our complete most of this work by the end of Q2 2021, working plan for this year, I will start with our production together with laboratory work that has the objective of guidance. providing us with actionable data as to how to improve recovery of the Fine Fraction of Cauquenes, which In 2021 we expect to produce 61 million pounds of remains one of the challenges at hand. Projected step- copper and 1.5 million pounds of moly at a cash cost of ups and recovery from this work were not factored in our $1.79 per pound. I would like to provide you with some
2021 production guidance. more information on why we cannot simply replicate the good results we had in Q4 2020 times four to arrive to a
MVC had full operational continuity in Q4 2020 with 92 production guidance for the year, which would result in an out of 92 days of operations in fresh tailings and 91 out of annual production of close to 66 million pounds.
92 days of operation in Cauquenes, with only one day allocated to maintenance. Amerigo’s operation in Chile, The first item to note are the numbers of operating days
MVC, continues to have healthy water reserves of 8.5 over the available days in a period, or in other words, million cubic metres of water, which are sufficient to plant availability. As I mentioned earlier, in Q4 2020, we maintain projected Cauquenes tonnage processing had an almost perfect plant availability, or number of through 2021. operating days, a hundred percent for fresh and 99 percent for Cauquenes. This was the best availability
To conclude, MVC’s Q4 2020 operating results were MVC had in the year, as there was little plant or stable with no surprises and within guidance. Coupled corrective maintenance and no operations driven time off. with stronger copper prices, this translated to strong The plant availability in Q4 2020 of essentially a hundred financial results in the quarter. percent was way better than 2020’s annual availability of
96 percent for fresh and 89 percent for Cauquenes.
MVC’s copper price in Q4 2020 was $3.52 per pound.
Today's copper price is—and you're going to laugh at this In 2021 we currently expect to have better annual here—$3.99456 per pound. I guess it's safe for me to call availability than in 2020 and achieved 95 percent for it $4 a pound. fresh and 94 percent for Cauquenes. But for us to assume we can operate a concentrator with no
In Q4 2020, Amerigo’s net income was $8.3 million with maintenance time through a full-year, as essentially earnings per share of $0.05, EBITDA of $20.1 million, occurred in Q4 2020, is just not realistic, advisable, or and quarterly operating cash flow before changes in safe. If you annualize a Q4 2020 production corrector for working capital of $19.8 million. For the full year 2020, the plant availability factor, you arrive at an annualized
Amerigo posted net income of $6.1 million, earnings per production projection for 2021 of 62 million pounds. share of $0.03, EBITDA of $33.1 million, and operating cash flow before changes in working capital of $29.1 Another factor to consider is tonnage. In Q4 2020, we million. The strong financial results in Q4 2020 reversed processed a substantial amount of fresh tailings from El the financial losses posted during a challenging first Teniente, averaging 136 tonnes per day. In 2021 the semester and represented 61 percent of annual EBITDA. information we have received from El Teniente in respect
Amerigo’s liquidity and financial position were of this variable is slightly lower. With lower tonnage and substantially improved in the fourth quarter, positioning the same plant, we can do better recoveries. With less us for a sound start in 2021. fresh, we can process more Cauquenes, and so the story goes.
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What I'm trying to say is that our operation is subject to expect to be $2.4 million. The most significant 2021 numerous variables. We have made very good progress sustaining Capex project will be to further optimize the in 2020 to own up to these variables better and to MVC water thickeners with a target increase in water modulate daily operations with as little disruption to the recovery from 1,600 litres per second to 2,100 litres per process as possible. We have more data to understand second. This will have a cost of $3.6 million. what our results should be, and our guidance is therefore a more educated and achievable guidance. Other Capex includes $700,000 on miscellaneous plant improvements, $500,000 on environmental safety and
Putting together what we know about plant, fresh tailings, compliance projects and $0.5 million on information tonnage, grade, and scheduled and projected plant technology improvements at MVC. maintenance, we expect production to be higher in the first half of the year. MVC and El Teniente's annual plant With respect to MVC's financial obligations, we currently shutdown will take place this year in September and expect the following to occur in 2021.
October instead of in Q1, as has been the case historically. This change of schedule was made in order MVC will be repaying a $7.2 million loan due to El to reduce COVID-19 risk, as Chile expects to have most Teniente, which originated in 2020 in connection with of its population vaccinated by September and October. settlement adjustments due to the rapid fall of the price of copper during the first months of the year. The loan is
MVC has identified additional plant optimization being repaid monthly in equal installments of $600,000, initiatives, together with our technical consultants, and plus interest. most of them, as I mentioned before, are expected to be completed by the end of Q2 2021, with part of the work MVC also has two scheduled semi-annual bank loan perhaps continuing into the early part of Q3. The payments of $4.7 million each, plus interest, in March and
Company's 2021 production targets, as I also mentioned September. After these payments are made, MVC's bank before, do not include any impact from the optimization debt would be $37.5 million, which is currently due by work underway. September 2023. Under the terms of the loan agreement,
MVC can make additional loan prepayments.
To prepare our cash cost guidance for 2021, we assumed a market copper price of $3.50 per pound, Finally, MVC will be making payments of approximately which was close to the market price at the time of that $1.3 million in connection with its leases. disclosure, a moly market price of $9.30 per pound, and an exchange rate of the Chilean peso to the U.S. dollar of My comments so far have addressed the insights of our
$715. As copper prices improve, so does the Chilean operation. I also want to address external factors that can peso strengthen. Our 2021 projected cash cost is affect us, given that, as John Lennon said, "Life is what expected to be higher than in 2020, precisely because of happens to you while you were busy making other plans". the effect of the stronger projected Chilean peso. We These factors include labour, environmental compliance, estimate that each 10 percent of the Chilean peso critical inputs, and political environment. appreciation to the U.S. dollar could have an impact of
$0.06 per pound on cash cost. Let me start with labour matters. A three-year collective agreement with MVC's Supervisors' Union comprised of
Another factor that affects cash cost is the moly 49 members was signed on January 8, with the same byproduct credit, which is driven by moly production and signing bonus per worker that was paid to MVC's union of moly prices. We estimate that each 10 percent change in 206 workers in October 2019 when copper prices were moly price could have a $0.02 per pound impact on lower. The total cost of the bonus to MVC was $510,000,
MVC's cash cost. Our guidance and the assumed copper which was already factored into our 2021 cost guidance. price of $3.50 per pound, the El Teniente royalty would We do not have any remaining union negotiations this be $0.90 per pound during this year. The royalty is year, given that the collective agreement with the MVC calculated on a sliding scale based on copper prices. plant workers goes to October 2022 under collective agreement with the supervisors goes to January 2024.
Amerigo’s projected 2021 EBITDA, considering these combined variables, is expected to be US$50 million. Our Environmental compliance is a big topic worldwide, operational results in January are within guidance, and including in Chile. To provide some context on the financial results exceeded this guidance. complexities of this subject, MVC has seven different environmental permits with a total of 776 environmental
Annual sustaining Capex in 2021 are expected to be $5.3 commitments. We are focusing our attention to this huge million, and we also will be working with capitalizable commitment and working on a very granular basis to maintenance and strategic spares (phon), which we minimize any risks of non-compliance. This is one of the
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Amerigo Resources Q4 2020 Investor Call
Friday, February 19, 2021 – 2:00 PM ET building blocks of our newly-defined organizational area Chile’s process to draft a new constitution advances as of operational continuity at MVC. planned. The new constitution will be drafted by a convention of elected citizens, which is going to be voted
In terms of critical input, we have a long-term power in on April of this year, and this convention will have up to supply agreement that currently runs the full extent of one year to produce a draft text of a new constitution,
MVC's contract to 2037. The contract calls for a step which Chileans will either approve or reject in mid-2022. down in power supply rates from $62.5 per megawatt hour in 2020 to $58 per megawatt hour this year, $53.5 in With respect to copper, we remain bullish on copper
2022, and $49 from 2023 on. MVC also has to pay pass- price. Copper prices reached this week their highest level through charges, which are the general grid and in nine years, despite the Chinese New Year, driven by transmission costs passed on to major power consumers expectations of stronger demand and tight supply. in Chile. Worldwide green policies are expected to support higher demand through a focus on electric vehicles and non-
One of our other major inputs are grinding balls. Despite conventional renewable energy generation, which require rising fuel prices, we recently closed an MVC supply a lot of more copper, coupled with the challenges mining agreement for grinding balls into mid-2022 at very similar companies face to maintain or improve their production prices to what we had in place early in 2020. supply given decreasing grades in existing deposits, and, of course, the new challenges to bring new deposits into
With respect to water supply, we continue to have healthy production. China’s and the LME copper inventories have water reserves stored in Colihues, and as we mentioned dropped to near decade lows, and production guidance earlier, we will be working on further optimizing MVC's from the top 25 copper producers indicate the market water recovery thickeners to increase the rate of water may be in a sizeable deficit this year, assuming a recirculated at the plant from 1,600 litres per second to scenario of 5 percent demand growth, such as what is
2,100 litres per second. This project will be undertaken at being projected by certain analysts. the time of the annual plant maintenance shutdown in
September and October. As we mentioned throughout our disclosure, MVC’s financial performance is very sensitive to the price of
In terms of providing an update on Chile’s political and copper. The copper price we had on the books at social environment, I will start with very positive news December 31 was $3.53 per pound, and the average regarding Chile’s phenomenal success to date in respect price in January was $3.62. Today's price, as I mentioned of COVID-19 vaccinations. at the start of the call, is $4 per pound.
Chile, with a population of 19.2 million people, closed We mentioned as well that each 10 percent increase in very early during the COVID crisis on building a highly copper price from the $3.53 price we used in the financial diverse portfolio of vaccines. They were also very keen in statements would result in $5.6 million in positive revenue negotiating vaccine prices, and as a result, to date they adjustments in respect of Q4 2020 production during this have inoculation rate of 12.4 percent, which is quarter. This, of course, is excellent news in terms of substantially better to what we have in Canada of 3.5 actual cash generation during a period of rising copper percent. Chile is advancing rapidly to vaccinate at no cost prices, which provides us with the opportunity and the to individuals its population against COVID-19, with a mandate, really, to pursue the best option available to goal to have 15 million people vaccinated by the end of Amerigo of refinancing bank debt to have additional the first semester. flexibility in respect of term, in respect of less restrictive covenants, from which we can return to a sustainable
In Chile the appreciation of the price of copper goes dividend payment capacity on the back of a solid hand-in-hand with the positive outlook for consumption operation and strong copper prices. and investment. Chile’s Budget Office forecasts that
Treasury income will grow over 21 percent in real terms As usual, I will finish by stating Amerigo’s value this year. proposition. We own a solid asset in MVC. MVC is a proven operation that has operated continually for 28
Copper production in Chile is getting close to the 6 million years and has a long-term contract and a solid tonnes per year mark, way over other top copper relationship with Codelco, the world's biggest copper producers, like Peru, with annual production of over 2 producer. We are a low Capex operation with million tonnes, and China and the U.S., with about 1.6 manageable debt. million tonnes each. Chile is ranked again in various indexes, such as the Milken Global Opportunity Index, as I will now turn the call to Carmen, who will provide the Latin American country with the greatest potential to comments on financial results. After Carmen's attract foreign investment in 2021. presentation, we can take questions.
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Amerigo Resources Q4 2020 Investor Call
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Carmen Hernandez, Chief Financial Officer were higher in 2019 due to a stronger molybdenum price and production and from slag processing.
Thank you, Aurora. I am pleased to present the 2020 annual financial results from MVC in Chile. In 2020 there were lower general and administrative costs of $2.8 million compared to $4.4 million in 2019.
The fourth quarter marked improvements in production The $1.6 million decrease in general and administrative and financial results when compared to the first three expenses relates mostly to $1.4 million decrease in quarters of the year due to higher copper prices and share-based payment compensation. higher production than the previous quarters in 2020.
This resulted in a net income of $6.1 million, $8.3 million Other losses were $800,000 compared to other gains of of this income coming from Q4. Both basic and diluted $1.1 million in the prior year. The change of $1.9 million earnings per share for the year were $0.03. At December is mostly due to $2.4 million loss on inventory
31, 2020, the Company's cash balance was $14.1 million, adjustments related to the physical settlement and the Company's working capital deficiency was down adjustments included in the DET deferred settlement to $6.1 million from $15.1 million at December 31, 2019. loan, offset by an increase in foreign exchange gains of
$500,000.
As shareholders that have been following us for some time know, Amerigo's financial performance is highly The derivative to related parties during the quarter had a sensitive to copper prices. Amerigo's average copper nil expense in 2020 compared to an expense of $2 million price for 2020 was $2.94 per pound, an increase from the in 2019. average copper price of $2.73 per pound in 2019. In Q4
2020, our average copper price was $3.52 per pound, Finance expenses were $5.2 million in 2020 compared to and today's LME copper price is up to $3.99 per pound. $7.8 million in 2019. Most of this difference is due to the
$1.6 million loss on modification of debt that was included
Another factor affecting earnings are the changes in in the finance expense in the prior year. copper price from one quarter to the next. This is so because of our M+3 price convention for copper sales, In 2020 the Company recognized an income tax expense where the final settlement price is the average LME price of $500,000 and net income of $6.1 million compared to for the third month following production of copper an income tax recovery of $3.3 million and a net loss of concentrates. At December 31, 2020, MVC's provisional $9.4 million in 2019. copper price was $3.53 per pound, and final prices for
October, November, and December 2020 sales will be In respect of cash flows in the year, cash generated from the average LME prices for January, February, and operations in 2020 was $29.1 million from operating
March 2021, respectively. A 10 percent increase or activities before working capital changes and $19.8 decrease from the $3.53 per pound provisional price million after compared to $9.8 million generated from would result in a $5.6 million change in copper revenue in operating activities before working capital changes and
2021 in respect to the 2020 production. $7.9 million after in 2019.
Revenue in 2020 was $126.4 million, up from a revenue Uses of cash in the year included $2.8 million used to of $119.8 million in 2019. Revenue is made up of net purchase of property, plant ,and equipment, repayment of copper revenue of $116.3 million, molybdenum revenue borrowings of $9.4 million, and lease repayments of $1.4 of $9.5 million, and slag processing revenue of $700,000. million. Ending cash at December 31, 2020 was $14.1
Within the net copper revenue of $116.3 million, the million. gross copper sales were $156.6 million, plus positive settlement adjustments of $11.6 million, and then The Company's debt balance at year end was $53.8 deducted from revenue, we had $33.5 million in royalties million. In 2020 MVC made debt repayments of $9.4 to DET, smelting and refinery costs of $16.7 million, and million and obtained a $7.3 million loan from Codelco to transportation costs of $1.8 million. finance settlement adjustments. The scheduled debt payments on bank loans are $4.7 million, plus interest
Total production and tolling costs, including depreciation, semi-annually in March and September, up to March were $111 million. This represents a decrease in costs of 2023, and a final payment currently scheduled for
$8.4 million from 2019. Cash costs decreased in 2020 to September 2023 of $23 million, plus interest.
$1.76 per pound compared to $1.82 per pound in 2019, mainly due to a decrease in power costs, smelting and In January 2021, we also began repaying the $7.3 million refining, and other direct costs, offset by a decrease in loan to Codelco, which is a deferral of revenue settlement
$0.09 per pound in byproduct credits. Byproduct credits adjustments. Payments of $600,000 per month, plus interest, are to continue to be made monthly through
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Amerigo Resources Q4 2020 Investor Call
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2021. Under the current variables of production, costs provider, and Kim (phon) will be looking at it right away. and copper prices, we project to meet debt obligations We normally have all of the financial statements, and with banks and with Codelco as they come due. they should be available on the website without you having to go through the form. There obviously was some
We will report Q1 2021 financial results in mid-May 2021 sort of programming error. and want to thank you for your continued interest in the
Company during this year. When I was referring to a qualification on results, Q4
2020 versus annualizing them, I was referring to the
We will now take questions from call participants. production part of the equation. I was not referring to the financial results as such. I was just making a point of why we couldn't just multiply the production in Q4 2020 times
QUESTION AND ANSWER SESSION four to achieve a given production for this year.
Your commentary about the effect on prices is absolutely
Operator true. With strong copper prices, we get the double benefit of settlement adjustments, which as the market indicates
Thank you. Our first question is from Terry Fisher. Please right now, would be sizable in Q1, should conditions state your city. Your line is open. Go ahead. continue to be where they are, or continue to improve, and we also get the benefit of basically selling at the high copper price.
Terry Fisher, CIBC
With stronger cash flow, of course, there is the ability to
Yes, it's Toronto. Good afternoon—I guess good allocate capital in a way that makes sense, whether it is a morning, to you guys. Congratulations on a great quarter. full debt repayment. I don't know if that is the right answer, probably not. I think that what we're looking to do
I have a few questions. The first thing though, I’d just like here is refinance our debt facility, such that we have to make a comment that while the website is excellent in additional flexibility to do what the Board determines that almost all respects, I couldn't find the financials, the is best in terms of a return of value to shareholders via
MD&A, and all that sort of thing on the website. There's a either a sustainable dividend or a share buyback. form you have to fill out apparently there in order to get them. I had to go to SEDAR to get them, which was easy to do, but I just think it would be good if you could just go
Terry Fisher, CIBC to the website and click on something and they would be there.
Okay. That was great, thanks. Could I ask again about the fourth quarter, if—and I know this is highly
Anyway, first question is that I understand why, from your theoretical—but if you were able to realize $4 for copper comments, why the fourth quarter was so strong and that in the fourth quarter instead of $3.52, what the earnings it won't repeat, according to your forecast for this year. and EBITDA might've been?
However, we also had $3.52 copper in the quarter, and I see the May copper today got up to $4.08. I'm thinking that if we annualize on the basis of 61 million pounds, but with a higher copper price, you still might be able to Aurora Davidson, President and Chief Executive achieve EBITDA in that $20 million range per quarter. If Officer so, if we're looking at $80 million for the year, my quick calculation shows that you could pretty much pay off I will work out those numbers and send them to you. I almost all your debt, as well as deal with Capex, have your email address. depending, of course, on what the tax rate is, and the tax rate was pretty minimal for the last year. That was my You also had a question with respect to taxes. We have a second question, is what the tax rate is likely to be given series of tax losses in Chile, which are essentially shielding us on a current cash tax basis. At these current that you should be profitable each quarter in 2021. prices, probably would be used by the end of Q3 at a projection of $3.50, which is what we used in our 2021
EBITDA guidance. We would have been essentially tax
Aurora Davidson, President and Chief Executive shielded in Chile for the whole year.
Officer
Terry, sorry about the financial statements not showing up on the website. That is an error from our website Terry Fisher, CIBC
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Amerigo Resources Q4 2020 Investor Call
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Okay. Another question, just quickly, the receivables well. You mentioned all these dynamic factors. But just in seemed pretty high at the end of the year, certainly terms of what the plant can do more with all of this relative to the previous years. Again, I wouldn't think that completed versus what it's doing now? you've got any bad debt problems, so I guess that's just what you get back…
Aurora Davidson, President and Chief Executive
Officer
Aurora Davidson, President and Chief Executive
Officer Yes. We expect to have—with the work that we're currently doing, again, it's low Capex modifications. We
No, absolutely not. There were three reasons for the high expect to have probably on average 3 percent, 4 percent receivables. One, higher copper prices in the period. The increase in recovery. I'm not going to put it in writing and mark-to-market on three months of outstanding sales, I'm not going to hold ourselves against that because it's because you mark to the price that you have at the work in progress, and until we don't have it confirmed and quarter end, but you don't go in and collect and receive fully validated in front of us, it's an expectation, but it's not the cash right away. Also, because of year-end a commitment. calendars, two of the payments—weekly payments that we should have received from Codelco by the end of
December were actually paid on the first business day of Terry Fisher, CIBC
January. There were a little bit of timing issues, but also with higher copper prices, it is absolutely normal to have Okay, that's great. That's all my questions for now. I'll turn that additional quantum of receivables from the higher it over. sales that you're generating and from your mark-to- market.
Operator
Terry Fisher, CIBC Thank you. The next question is from Nick Toor from Las
Vegas. Your line is open. Go ahead.
Okay, that's great. Final question. If we go to the guidance and we're looking at your comments about the additional Capex and the work that should continue, most
Nick Toor, BlackRoot Capital of it done by the end of the second quarter and some into the third quarter, I’m wondering if you could give us just a
Hi. Thanks, Aurora. I'm just wondering, what is the plan little bit of more colour on what sort of work that involves. for this Company? Copper is about $4, (inaudible) today,
You mentioned $5.3 million in Capex. I don't know and less than 10 people want 80 percent of the whether that's the total number for Capex or…
Company. Nobody cares about you guys reinstating dividends. At least, I don't think that really matters.
What's the strategy here?
Aurora Davidson, President and Chief Executive
Officer
Aurora Davidson, President and Chief Executive
That is the total number for Capex, $5.3 million, and the
Officer single most significant project within that Capex budget are the optimization of the water thickeners, which will
Nick, I think the strategy is to continue to operate the have a cost of $3.6 million. For the rest of the guidance, plant, generating as much cash as we can, focusing on it's fairly lower. what we can control and delivering on strong results. The higher-level strategy of reinstating a dividend, I think that people care about that. I think that our shareholders care
Terry Fisher, CIBC about that, and I think it's part of the visibility and part of the step-up that we need in order to get the interest in the
Okay, so just a final—related to this final question is, story that we used to have in the past, and which is totally assuming that that work was all completed going into the replicatable under these market conditions. year, how much more might that give you in terms of production from your assumption of 61 million pounds? I realize there's also issues of recovery rates and so on
Nick Toor, BlackRoot Capital and how much—the variability in the fresh tailings, as
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Amerigo Resources Q4 2020 Investor Call
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If you think that that's the case, why is the stock where Operator it’s at?
Thank you. The next question is from Stephen Ottridge
(phon) from Vancouver. Your line is open. Go ahead.
Aurora Davidson, President and Chief Executive
Officer
Steven Aldridge, Private Investor
I have no way of responding to that directly. We're doing our best efforts in communicating our story the best way Yes. Good morning, everybody. Let me comment as well we can. I think that one of the issues that you mentioned on the last caller. I think if and when the dividend gets before is we're a tightly-held Company with a significant reinstated in it and Amerigo becomes a confident, solid amount of ownership in a few hands. Maybe that's one of annual or semi-annual dividend payer, it will get much the things that has to change. I don't know. I think that more respect from the market. You are saying you're what I have to focus on here is to continue to deliver on going to be studying the situation with the bankers for creating a value that is sustainable and that is available coming around to do something this year. I hope it is this to the shareholders in the form of an operation that is year, and it's probably done with the March meetings with healthy in producing the operating cash flow it needs to the bankers and such that by the middle of the year, we produce. will have a dividend policy in place that’s effective. That would get publicity in the financial papers and also, from your new Investor Relations guy that you’ve got on. So,
Nick Toor, BlackRoot Capital get that dividend coming. That's what I'm looking for. I'm a retired investor. I don't need tonnes of capital gains, but
I mean, I think I'll give you my sense. I'm a large I'd like to have a good, solid dividend-paying stock in my shareholder. I control almost, I don't know, 10 million portfolio. shares, plus. There are a few things that need to happen.
One, this Company has no reason to be a public Aurora Davidson, President and Chief Executive company. I think the Board has been derelict in its duties. Officer
You’ve got an Executive Chairman who’s been collecting a lot of money over the last 15, 20 years, and I'm not For sure, Stephen. I appreciate that, and that's what even sure what he does. You've got a Board that's we're working for. packed with his friends, and there is no real strategy on how shareholders who’ve been suffering for 15 years.
Stock used to be at $3 and now it's at $0.90. Copper is at Stephen Ottridge, Private Investor
$4, and there is no articulated strategy on how shareholders will get any value out of this thing. I think Okay. That was all my comment. that is a major issue.
Then secondly, when you guys launched into the
Operator expansion project, the expectation for cash costs and for production levels was a lot higher. You've said in the past
Thank you. The next question is from Jason Lee (phon) that that was because of issues with water. Those issues from New York. Your line is open. Go ahead. have been resolved. But your guidance now is still for flat production next year and you’re—I think you've been working with these consultants for over a year, and now it's like six months from now you will have something that Jason Lee, Private Investor might be, if we cross our fingers, maybe a 3 percent increase in production. Hi. Thank you for taking my question and congrats on the strong quarter. Just wanted to dive in a little bit more on
All of those things are the reason the stock is trading at the capital allocation side. You mentioned, in terms of two times EBITDA. I mean, it doesn't—this is not an issue refinancing your debt, is there a leverage ratio that you a company that doesn't have tailwinds now, great copper can look for to maintain, and also, in terms of the prices, generating cash flow. I think there's a complete dividend versus buyback, I'll echo the kind of earlier caller lack of confidence in the Board and its ability to actually about you guys trading at a substantial discount to your care about shareholders. Take it from where it is, but peers, whether it's two times or three times your EBITDA. that's the reason your stock is very flat. What would you presume—if copper prices stay at current level and your shared price stays at current level,
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Friday, February 19, 2021 – 2:00 PM ET what would your kind of preference be between kind of Last year we got an award from the Mining Ministry in dividend versus buyback? Thank you. Chile to that effect, so we have no effect in our operation.
We do have a budget for COVID response within the cash cost. It's not a significant amount of money, but it's
Aurora Davidson, President and Chief Executive all refactored into our guidance.
Officer
Yes, thank you for the call and for the question. In the Jason Lee, Private Investor past, we saw much more appetite for the dividend. The stock did better when we had a sustainable dividend. We Okay, perfect. Thank you. didn't see the same appreciation or the same positive reaction with the share buyback. Some people liked them, but not all of them, and we definitely got a better Operator response from the dividend. In fact, our share price was heavily punished when we took the dividend away. I think Thank you. The next question is from Terry Fisher from that there seems to be more of a (inaudible) with a Toronto. Your line is open. sustainable dividend reinstatement than with share buybacks.
Terry Fisher, CIBC
Having said that, share buybacks also have their value and perhaps as an adjuvant would also be interesting to
Yes, I just wanted to comment on what Nick in Las Vegas look at. Again, it's a question of doing that analysis at the had to say, and I certainly sympathize with him and with time when we're ready to pull the trigger on the his comments. But I think—and just on what the last distribution (inaudible). caller said, I would certainly put share buybacks ahead of dividends in order—if the objective is to try to get the stock price up, because I think it would have a much
Jason Lee, Private Investor greater effect, even though I hear what you're saying,
Aurora, about the way things used to be when you had a
Okay, and is there a target leverage ratio you would dividend. But I think there may be a new set of maintain in the Company? shareholders now. This stock, I hate to buy stock back and reduce the float, but the float is so low that a small amount of buyback, besides the statement it would make,
Aurora Davidson, President and Chief Executive would also have a big impact on the market price of the
Officer stock.
I think we are fairly under levered. I mean, we don't have But the comment I would make about why it's where it a high leverage ratio right now. What we would be is—and keep in mind, we were down at like $0.15 a few looking at is essentially perhaps maintaining a debt months ago. We're now at over $0.90. That's a pretty big between $30 million, $40 million of debt would be more move. If you look at Lundin (phon), which is a $10 billion palatable and more in tune with the rest of our balance company, right now, it's up over $15 a share. Less than a sheet components. year ago, you could have got it at $4.08 and you could have got it for under $7 back in, I think, October,
September/October. These things can have very sharp
Jason Lee, Private Investor moves, commodity producers. I would think if we're patient, we're going to see much, much higher share
Got it, okay. My other question is with regards to kind of prices. That's one comment.
COVID. What's the COVID impact like onsite at this point, and is any of that kind of baked into your cash cost The other comment would be that having been through guidance for this year? the whole expansion, Phase I and Phase II, that was a fairly significant change in the operations and an increase in the operations, the extension of the contract with
Codelco. These are major events that took time. There’s
Aurora Davidson, President and Chief Executive always problems when you run in a new plant. I think
Officer they were greater than anticipated, but again, look at the steps that the Company has taken that speak volumes to
No, we have had no impact from COVID. We basically me, one being we have a new CEO who seems to be have had a very strong response to it from the inception.
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Friday, February 19, 2021 – 2:00 PM ET well on top of things, but that was a big change to make. If you look at Western Copper, it was trading at $0.39 in
Secondly, bringing in these outside consultants, making a March, and now it's trading at a $1.57. It's up a 11 lot of changes in the plant (phon). It's a process we need percent today, and it reflects the price of copper. I mean, to see through to the end of. this stock should be trading at a dollar with the copper price at $4. That’s an all-time high. You're not even at
I do take the comment, though, earlier that the projected $0.85 with copper price was at $2.50, when it was that tonnages when we entered into the expansion project way before. were going to be higher than you're now indicating. I think some of that may have to do with once you got into the So, I respectfully think that as a shareholder, obviously, I new pit, it just wasn't maybe the grades that were able to want a higher stock price because I have a lot of shares, get out of there, the type of material, it wasn't what you but it doesn't make any sense for me to stay in this had expected. But one would hope that maybe over time Company. I have a good profit because I'm in, talking in production could be higher, because I had in mind a American dollars. If I'm in the stock at about $0.20 with a figure maybe 80 million pounds. lot of shares and I'm watching all my other copper companies on the board go up with the price of copper
But anyway, those are my comments. I'm staying with it, and you're not doing it—and your quarter was excellent. and I think we should just keep plugging and see what Your guidance is on $2.84 (phon) for the next year, so the market does for us as the performance numbers get your limited free cash flow won't be—your liquidity won’t demonstrated. We're going to need—this is a show me be damaged. But the price of copper is $4. With $4, situation. We’re going to need another couple of quarters, which I assume being in the car market, the electronics, really good results, before the market's going to pay everything's going electronics globally, the copper price attention. will be underpinned and most likely go towards $5 a share.
Operator Me saying that, for this price to be so low to me it’s a failure by the Board. It's a failure by management. You're
Thank you. The next question is from Peter Antico (phon) not doing marketing. I'm telling you, I'm looking at from Los Angeles. Your line is open. Go ahead. Amerigo today. With that quarter reported yesterday, you're trading at $0.72 American. You're not even up on the day. In fact, you're down on the day. That makes absolutely no sense. I don't know why it's down. In the
Peter Antico
American market, you're trading 68,000 shares. I'm sure there's more than that. There's a bunch more on the
Hi, can you hear me?
Toronto exchange. But theres’ no visibility for this to be trading 68,000 shares. That makes no sense. Western
Copper, 2.479 million shares today already. It's got no
Aurora Davidson, President and Chief Executive liquidity and it's really a failure to this point.
Officer
I appreciate the higher price. But as an investor, I want
We do. market share for my money, and I'm not getting it here. I may give your Company—in a week, if I don't see this
Company up $0.10, I'm out. I'll just trade it to another
Peter Antico company, because I never see any press. You're never on any shows. You're not on Kitco. You're not on
Sorry. Okay, great. I’ve been a holder of your Company ThemeWorld (phon). You're not on any—you're not several different times. I bought it again about eight promoting the Company. Not a lot of people know about months ago. First time, I rode it from about $0.08 to you. I put a lot of investors in your Company. They made
$0.95, and then I got out of the copper, went into a bear a profit. I'm grateful, but you're not getting the market market. But when it was at $0.90, the copper price was share. So, if it doesn't turn around quickly, I'll liquidate a much lower than it is today. For us to get a $0.20 move in lot of shares in this Company. You’ve got to do better, the last two weeks, and the stock price basically moves because it's not making any sense with the price of
$0.05 when it used to move on a penny move a couple of copper now. cents, the stock is performing horribly. There’s no marketing to speak of that I think has been promoting the Your Company should be up $0.10 today; it’s doing stock. nothing. It's down. I'm losing money on your Company today. Like, who's selling your shares? Let me ask you a question. Are the insiders—what are the insiders doing?
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In the last six months, have you sold your shares, bought As I said before, we will continue to be focused on our your shares? Because that's one thing I have not operational results, and we will do a better effort with our checked. I'd like to know—I’d like you to respond to my seasoned Investor Relations professionals to improve on questions. I want to know what the insiders are doing. I our marketing. But the focus is not the marketing of a want to know what you're doing to solicit institutional business that has no sound business. The focus is to money, and I want to know what you're going to do going have a sound business and then have a sound marketing forward in the market (inaudible), because your Company of the sound business. is basically nonexistent. The only people that hear about the Company is what I tell them. That's it. Thank you.
Peter Antico
Aurora Davidson, President and Chief Executive No, no, I understand that. As you know, the market—you
Officer have a sound business, you’ve had a sound business.
(Inaudible) is one of the biggest producers in the world,
Yes, no. Insiders, you can check the activity of insiders. and your share price doesn’t reflect that. The fact that
All of our insiders have held positions or have increased that—you know, I can read it because I do research, but their positions in the last year. Your comment on our lack that's not publicized—that’s really not publicized because of visibility, we'll take that. We'll work with that. The focus you have a mine feeding you with tailings that is of the Company is to make money, to generate cash, to respectfully extremely strong, and outside of marketing, have a sound operation. Yes, we maybe lagging behind the fundamentals since the copper price rose from $2.50 in the marketing efforts, but we're not lagging behind in to $3 was astronomical. Now it's a dollar higher than that. the business fundamentals of the Company, which is to I still (inaudible) marketing. I mean, respectfully, you— produce as much as we can and as cheaply as we can. I and I actually do think 50 percent of this issue, or more, is think that we've made very good progress operationally, marketing and perception, and maybe you ought to think and we hope to translate that same strength that we have about applying for a bigger exchange with more on the operational basis to the marketing of the exposure, because there's not value here.
Company.
I don't want to sit around while I can go into other companies that if the price goes up, I'm going to realize
Peter Antico market share. I agree, like, there's no dividend, but obviously, I'd rather have the stock share go up. But you
Why is your Company down today with the strong really shouldn't have to buy back shares for this quarterly report that I read yesterday? I don't think there's Company to go up. With the price of copper. I mean, another copper company in the sector that’s down today. you're not realizing it. You could see in the volume that
I'm really shocked. I don't know who is selling your there's nobody trading the stock. It's very thinly traded, shares. Have you had institutional money move out of the and it's certainly thinly traded in the U.S., and it's not that stock recently? Did you have big blocks of institutional great in Canada, either or on the TSX. This is an issue. If investors leave the Company? What is the reason that you don't have volatility, if you don't have volume, you your share price is trading down today, so abhorrently don't have awareness. Unless you get awareness, this low with not very much volume? stock is going to stay a couple of pennies here and a couple pennies there. I don't see—you're not giving me a
I just would caution and tell all the educated shareholders reason to feel comfortable to be here much longer. to look at the volume. If the copper price is this and you have no volume, that means you've got no exposure. You may try to get additional exposure on better exchanges, Graham Farrell, Harbor Access Investor Relations but I haven't heard anything going forward that gives me Advisors any confidence that your Company will generate more market share for the customers. Everybody has done Aurora, if I may. Peter, Graham Farrell here, from Harbor reasonably well because of the copper price rise, Access Investor Relations, fairly new to the Company. because in a rising tide, all ships move up. I tell you, We just got our feet out of the desk, and we hear you there's got to be a plan. I haven't heard it yet from you. I'd loud and clear. We do have a robust plan to get the story like a response for that. Thank you. out there. We do agree it's a great story. It should be told to a wider audience, and that’s part of our plan.
Aurora Davidson, President and Chief Executive
Officer Peter Antico
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Well, great. I hope—I wish you luck. You might consider It's my other major copper holding. I think dividends do looking at buying the Los Azules mine or making an offer work, with a little bit of publicity. on that, but Rob McEwen has it in McEwen Mining as a part of the gold and silver play. I think that's a target in I do like the comment about Amerigo not being a miner,
Argentina that you might want to look at, because it's a as such, but being almost like a copper factory, just pure play and I think—I just have an inclining—knowing producing copper. I think the working on tailings and the business model, that might be a possibility for the cleaning up tailings and taking more money out of right price. It’s a $30 billion play. But, I mean, you've got something that's already being produced would be a to do something, brother, and I appreciate your great idea in this is so-called green world. comments.
So, I'm sticking with it. I ain’t going to go just because the
I know everybody is trying to use their best efforts. But in stock doesn't move up for a couple of weeks or so. So, this marketplace, where everything is going electric, you there you go. That's my comment. see the silver market’s going to be underpinned because of all the electric vehicles and the entire electric grids that they're trying to put up globally, which means that the Aurora Davidson, President and Chief Executive base metals, copper and silver, are going to be widely Officer used. These two prices should be underpinned greatly.
The prospects for these two metals going forward in the Thank you, Stephen. next 36 months is astronomical. The shareholders, me being one of them, would certainly want these kinds of things to be publicized because there is a great case for
Operator copper.
Thank you. The next question is from Nick Toor from Las
The other thing that I would kindly recommend is to call
Vegas. Your line is open.
David—call Kitco and get an interview on their show. It'll give your Company awareness, and you can tell your story, because that opens up a wide audience. Certainly, your Marketing Department should do that. I would Nick Toor, BlackRoot Capital suggest you do that, because that's one of the mainstream places where a lot of people, either savvy Aurora, I think that the Board needs to consider to sell investors or amateur investors—sometimes in the this Company. That's really what makes sense. This interviews they have some really good people, and you dividend stuff is not for a Company who has 20 percent of can listen to them and make up your mind what you its float outstanding and 80 percent of the Company is choose to do. But if you—I would appreciate if you would held by a few hands. That's not what needs to be done. reach out to Kitco and get some press out, because I This is the time to sell the Company, and that's the way think you'd be certainly better off and you would raise the shareholders will finally get value out of the Company. awareness of this Company. It’s cheap now. People would want to buy it, because it's certainly had a discount I mean, I haven't been an investment banker for a long for the market. Thank you. time, but I can sell this company for $3 a share tomorrow.
It's a layout. I just don't think that continuing to operate this Company as a public entity makes any sense, and if the Board does not see that, then they are doing what
Operator they have been doing for the last 15 years, which is nothing.
Thank you. Our next question is from Stephen Ottridge from Vancouver. Your line is open. Go ahead.
Hopefully, they'll listen to this call and get the message that this stock has not performed. This has not created value for its shareholders, and it's time for them to exit
Stephen Ottridge this Company and let the shareholders realize the value that is inherent in this operation.
I just want to follow up a comment for Terry Lee there, I think out of Toronto, and he mentioned Lundin. We’ve got By the way, you're doing a great job. I mean, it's nothing to realize Lundin today increased their dividend by 50 against you. You've finally gotten the operations right. percent, and a year ago Lundin increased their dividend You’ve right-sided (phon) the expectations, and you're by one-third. Lundin has done remarkably well as a stock. doing a fantastic job. But the Board, in my opinion, is completely derelict in figuring out an overall strategy for
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Friday, February 19, 2021 – 2:00 PM ET how the shareholders realize value, and reinstating the The other point I would make on somebody buying it is dividend and continuing to operate this Company for that this whole Company revolves around the contract another 20 years is not the way to do it. You have the with Codelco, and I'm sure there's event language in opportunity right now. You could sell this Company for a there, and there's no way in the world they're going to very large price and actually work for the shareholders. allow things to change ownership if they're not happy with who it is that’s going to come in and take it over. So, that
That's my comment, and hopefully the Board hears it. limits the range of potential buyers as well.
Thanks.
Anyway, those are my comments.
Operator
Operator
Thank you. The next question is from Terry Fisher from
Toronto. Your line is open. Thank you. The next question is from Jason Lee from
New York. Your line is open. Go ahead.
Terry Fisher, CIBC
Jason Lee, Private Investor
Yes. Sorry to drag this out, but just two quick things.
From the fellow from Los Angeles, I didn't get his name, Yes, hi. Just a quick follow-up question. I don't mean to but I certainly appreciate his frustrations. He made some you kind of put more gasoline on the fire here, but can good comments. But I'm a CFA. I've run research you just please talk a little bit about management and departments. I've written research reports on companies kind of compensation? How much is kind of an index to my whole career, and you have periods where you get a share price performance versus peers? I don't know if I business that's in a show-me mode, especially when we can just kind of find that in the management information had, going back to a year ago, the water shortage issues circular, but just want to—I hope you can just talk a little on top of running in the new expanded plant. People want bit about it. to see it in the results. Well, we now have results.
They've only been out for a day. I think we've got to give it time and maybe a bit more than a week, but I do Aurora Davidson, President and Chief Executive appreciate the frustrations. Officer
But I think that over time, this is going to prove out, Yes. You will find information about that in the because the results are there. Aurora is right. I mean, she management information circular. Our compensation—a should be focused on continuing to produce those results significant portion of our compensation is in the term of a and the rest will eventually happen, but with a lag stock option incentive, and we're aligned with share price because this is just a small cap stock. There's not much that way. It represents a substantial reward mechanism research coverage. for us. That is the composition or the extent of the noncash portion of compensation. We don’t have any
The other point I would make as to what Nick Toor just share performance units, pretty simple that way, and said, I actually tried to find a buyer for this Company basically tied up to stock performance through the option some years ago, okay? I was that frustrated with it. One mechanism. of the reasons is I knew somebody who I thought—a corporation, a public company—that the business would fit. They wouldn't even look at it, because they were only
Jason Lee, Private Investor in Canada and partly in the U.S. They didn't want to get into South America. But there are very, very few
Okay, thanks. businesses where there would be a synergy or a strategic fit. I just don't think that you can’t—the Board just can't say, let's go out and hire Goldman Sachs and go and find a buyer. I don't think there is one, unless it's a private Graham Farrell, Harbor Access Investor Relations equity type firm that just does it as an investment. Well, Advisors we're doing that ourselves. We don't need them to come in and take us out at half of what the thing is worth and Operator, Graham Farrell here. I think we can wrap it up. then take it back public at a higher price. If there’s any other further questions, we're happy to answer via email or phone call and continue to communicate to our shareholders that way.
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Operator
Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.
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