Copper Mountain Mining Corporation (OTCPK:CPPMF) Q3 2022 Results Conference Call November 9, 2022 10:30 AM ET
Company Participants
Gilmour Clausen – President and Chief Executive Officer
Donald Strickland – Chief Operating Officer
Letitia Wong – Chief Financial Officer
Conference Call Participants
Orest Wowkodaw – Scotia Capital
Craig Hutchison – TD Securities
CJ Baldoni – Principal Global Investors
Operator
Good morning. My name is Annas, and I will be your conference operator today. At this time, I would like to welcome everyone to the Copper Mountain Mining Corporation Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to avoid any background noise. After the speakers remarks there will be a question-and-answer session. [Operator Instructions]
Please note that comments made today that are not of historical fact or nature may contain forward-looking statements. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from actual outcomes. Please refer to slide two of today’s presentation and Copper Mountain’s Third Quarter 2022 Management’s Discussion and Analysis for more information.
I will now turn over the call to Gil Clausen, President and CEO of Copper Mountain.
Gilmour Clausen
Good morning, everyone, and thanks for joining us. Starting on slide three. Presenting with me today are Don Strickland, our Chief Operating Officer; and Letitia Wong, our Chief Financial Officer. We also have Brad Bolger, our Senior Vice President of Finance, joining us today.
I’ll speak briefly on our third quarter results, our 65,000 tonne per day expansion plan and our capital projects. Don will present our operating results and Letitia will conclude with a summary of the sales agreement for the Eva copper project plus our expectations for the rest of the year.
Turning to slide four. Before getting into results for the quarter, I want to make a few comments. Our third quarter clearly did not meet our expectations, lower grade and lower mill throughput impacted our copper output. We experienced a grade reduction as most of the ore processed in the third quarter came from the lower grade north pit as opposed to the planned Phase 4 of the main pit. Our high-grade main pit Phase 4 ore release lagged due to some spotty or continuity in the upper benches of that pushback. But in the second half of September we advanced mining into largely continuous zones of higher-grade copper ore in Phase 4, and we’re clearly into the meat of the ore zones in that pushback now. We expect that result to continue through the fourth quarter and solidify into that higher grade ore production through 2023.
The North pit ore impacted our recoveries due to some higher oxide content in the upper benches of pioneering that pit. We also had a very unfortunate SAG mill steel grinding ball quality issue in the quarter. It forced us to reduce milling rates for about a month. Don will get into that a little bit more.
With the operational challenges we faced in the quarter, we produced 13.2 million pounds of copper, 6,000 ounces of gold and 64,000 ounces of silver with an all-in cost of $4.95 per pound. This translated into a net loss of $0.15 per share or 11% on an adjusted basis. Cash flow was negative $7.5 million, $0.04 per share. Overall, a disappointing quarter results and a disappointing nine months. We are now past an inflection point in the operation, however, with the upper bench development at Phase 4 of the main pit completed, ore grades are higher, recoveries are up and the new North pit development is advanced beyond the higher oxide transition zone.
Our project team has also completed all of our plant optimization projects. The mill has been operating at the designed 45,000 tonnes per day throughput rate and has recently achieved daily rates of up to 53,000 tonnes per day with all-in costs materially reduced. In the fourth quarter, we expect to deliver an operational turnaround with copper grade improving as the main ore source will be from the higher-grade Phase 4 area, increasing production and decreasing all-in cost to be in about $2.90 to $3.10 per pound range.
Although we experienced our fair share of challenges at the mine during the year, we completed several primary corporate objectives. We delivered further growth to our reserves and resources at the Copper Mountain Mine, including a 70% increase in measured and indicated resources. We published a new life of mine plan with a 65,000 tonne per day mill expansion. We announced a sale agreement for the Eva Copper Project and we published the company’s inaugural ESG report.
Before I turn the call over to Don, I do want to take a moment to address our announcement that we’re commencing a CEO succession planning process. I have been engaged with our Board over the past year on my plans for contemplated retirement. Of course, until a new successor is in place, I will remain in my position to ensure a seamless transition for the company.
I’ll now turn the call over to Don, who will provide further details on our operating results.
Donald Strickland
Thanks, Gill. Starting on slide five, as Gil mentioned, third quarter production was lower than we had initially forecasted, with the production levels similar to the first and second quarters of this year at 13.2 million pounds of copper. This is largely attributed to lowered rates, throughput and copper recoveries. I will discuss the mine and mill production over the next two slides, providing details on the mine grade, mill throughput and copper recovery and why we believe we are past the inflection point in our operational turnaround.
Turning to slide six, I will discuss the mine performance. As shown on the slide, we mine from Phase 4 located on the East side of our main pit and the North pit, which is located beside the primary crusher. The South half of the main pit has large tonnages of higher grade ore as mined in Phase 3 in 2020 and 2021. The upper levels of each phase has a high strip ratio until the top of the ore deposit is reached. We have been mining the top of Phase 4, which delivered higher grade tonnes during the quarter, averaging 0.28% copper, but lower tonnages of the higher-grade ore was present at the top of the deposit. Phase 4 ore provided approximately 40% of the mill feed, we therefore used more North pit ore averaging 0.21% copper to make up the mill feed, resulting in the lower overall 0.24% mill feed grade during the quarter.
We are now mining larger tonnages of high grade from Phase 4, indicating we are in the main ore deposit. Phase 4 contains approximately 20 million tonnes of higher-grade ore, averaging 0.33% copper. We will continue to mine this phase down vertically for more than 200 meters or approximately 15 benches, providing the primary ore supply for the remainder of 2022 and 2023.
Turning to slide seven, I’ll discuss the mill performance. During the first half of the quarter, we successfully completed work to optimize the crushing circuit to process 45,000 tonnes per day. During the second half of the quarter, crushing circuit production consistently achieved the design tonnage rate, producing a large ore stockpile for the mill. Mill throughput then improved with availability of feed from the crushing plant. However, as Gil stated, our SAG ball quality issue was encountered in mid-August when ball shattered in the SAG mill, which restricted mill throughput until the SAG ball charge was fully replaced in mid-September. Following the resolution of the SAG ball quality issue, the mill demonstrated the ability to process the targeted 45,000 tonne per day, achieving daily tonnage rates as high as 50,000 tonne per day during the quarter. The ball mill three feed modification is completed in Q2 continued to perform well, supporting that stable mill production.
Moving to recovery. Copper recovery during the quarter was negatively impacted by higher oxide material from the North pit. Higher oxide levels did project further than expected in North pit, but have consistently reduced to normal levels in the latter part of the quarter in both mill feed and blast ore samples. The North pit is on a hill, which drops an elevation to the east and the south. As we mine deeper and expand the pit to the east and south, we continue to expose higher oxide material that is closer to surface. During the quarter, we milled some of this hydroxide material due to a shortage of mill feed. However, we now have developed a high-grade stockpile, which has further increased our operational flexibility and our ability to maintain higher quality mill feed. Copper recovery is expected to improve with lower oxides, the successful operation of rougher flotation expansion and optimization of the grinding circuit to achieve consistent fine grinds.
Moving next to mill operating time. The mill averaged 89% operating time during the quarter. The largest scheduled annual mill shutdown was completed during the quarter, replacing SAG mill liners, including the pulp lifters and upgrading the site supply power lines. Following the end of the quarter, a large annual primary process circuit shutdown was scheduled to replace the primary mantle at Concaves. Following the shutdown, additional work was required to replace the lower bushings in the primary crusher, which also required in-place machining. This significantly extended the primary crusher down for a total of 13 days, resulting in mill operating at reduced throughput for seven days until the mill feed stockpile was consumed and then the mill was shut down for two days.
The crushing circuit has since been performing very well and with a continued focus on optimization, the mill has achieved daily tonnage rates up to 53,000 tonne per day post quarter end. This demonstrates the completed capital investments that provided a new level of performance and flexibility to achieve the designed 45,000 tonne per day target.
Transitioning from the quarter to what we expect longer term. I will now hand the call back to Gil to present our updated life of mine plan and 65,000 tonne per day expansion we announced during the quarter.
Gilmour Clausen
Thanks, Don. Could you turn to slide eight, please. The new life of mine plan incorporates our updated reserves with — which did increase 57% to 5.5 billion pounds of copper. We extended the mine life to 32 years with an average annual production of about 138 million pounds of copper equivalent, and we project low all-in cost averaging $1.76 per pound. This analysis reflects current commodity prices and rates. The new study online does have as outlined in this table has compelling economics. We see an after-tax NPV of about $1.24 billion, and we’re putting our attention on our asset at Copper Mountain fully and maximizing that asset’s potential and that’s reflected in this plan. And it’s also reflected in our strategy to focus our activities in British Columbia.
Importantly, this expansion to 65,000 tonnes per day is low risk. We expect to have it fully on board by 2029 and will require only modest initial capital of $237 million fully funded from free cash flow generation from the mine. Last year or two at Copper Mountain has been a much heavier capital spend period for us, but I’m pleased to announce that all of our projects are complete and successfully commissioned. All of the spend is now done and behind us, and we have a three year profile ahead of very low capital and strong free cash flow.
Turning to slide nine. I’ll now review these capital projects that will improve efficiencies and increase production from higher throughput and recoveries. Ball mill number three was installed at the end of 2021 to permit the increased capacity of 45,000 tonnes per day, which we’re now achieving. The cleaner flotation column in the new filter press was completed during the second quarter and provides additional cleaner capacity and recovery during extended periods of high mill feed grade, so that we can maintain our design throughput rates and even through very hot periods of high-grade ore delivery.
As of last month, we commissioned our final capital improvement project, which is the rougher flotation circuit, and that will increase recovery for all ore types, especially bornite ores, which are prevalent in Stage 4 and subsequent development of the main pit, which is slower floating ore. We’re looking forward to releasing and realizing these performance gains that these projects will deliver.
Turning to slide 10. Here’s a summary of our projects along with their budget and completed cost. I thought it is important to do an accounting of these projects so you can see our performance. Many of our projects did experience the inflationary pressures that are ramping globally, but we managed through this and overall, our capital cost in total was just 8% over budget. The major cost variances were due to increased labor, steel and concrete costs. Overall, heavy capital spend during the year of lower production, which really impacted our cash balance but that’s all behind us now as we move forward to focus on production.
I will now turn the call over to Letitia, who will conclude with a summary of the sales agreement we announced for the Eva Copper Project and our guidance for the rest of the year.
Letitia Wong
Thanks, Gil. Turning to slide 11. In October, we announced the definitive agreement for the sale of the Eva Copper Project and our exploration land package in Australia to Harmony Gold for a total consideration of $230 million. This includes an upfront cash payment of $170 million. We are very pleased with this result as it illustrates the value that we created in Eva. Further, with the contingent payments of up to $60 million, we’re able to capture some of the upside in both the copper price and the exploration portfolio. There are only two conditions to close, Harmony receiving foreign investment with the board approval and Copper Mountain receiving consent from our bondholders. Both processes are well underway and tracking to schedule. We expect the transaction to close no later than by the end of the first quarter of 2023.
The net proceeds from this transaction will be mostly for reducing our debt, with the remainder to be kept as cash on our balance sheet. We’ll be focused on building our cash position, which was drawn down heavily during this year with a focus on maintaining conservative balance as we expect to generate improved cash flow in the fourth quarter and 2023 on higher production and lower costs.
Moving on to our guidance on slide 12. We expect production in the fourth quarter to be the strongest quarter in 2022. Production is expected to be between 15 million and 20 million pounds as the majority of ore will come from the higher-grade Phase 4 area of the main pit with grades expected to average around 0.27% in the quarter. Recoveries are also expected to improve, and we’ll begin to reap the benefits from all of our plant improvement projects that Gil had referenced earlier. So far this quarter, [indiscernible] recoveries well into the 80s and throughput achieving daily tonnage rates as high as 53,000 tonnes per day. This production range includes the downtime in October due to repair and maintenance as the primary pressure Don had alluded to earlier.
With year-to-date results of around 40 million pounds, we expect production in 2022 to be between 55 million and 60 million pounds of copper. Our gold production is expected to be in line with our original guidance. As a result of higher levels of production, minimal sustaining capital and minimal to no deferred stripping, we see fourth quarter all-in costs decreasing meaningfully to between $2.90 and $3.10 per pound, closing out the year between $4.25 and $4.50 per pound of copper.
Further, with our plant improvement projects now complete, expansionary capital is also expected to be de minimis in the fourth quarter. As a result, our development capital for the year remains in line with our original guidance of $60 million. So just to conclude, we look forward to ending the year with our highest production and lowest cost quarter and moving into a very strong 2023. We will announce our annual guidance for 2023 early next year as per the usual practice.
With that, operator, we can open the call for questions.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question comes from Orest Wowkodaw with Scotia Bank. Please go ahead.
Orest Wowkodaw
Hi, good morning. Obviously, a pretty challenging 2022. When we look ahead to next year, you’ve got a fairly fresh technical report that came out about two months ago. When I look at what’s disclosed there for 2023, it’s got a copper production target of 112 million pounds, but that’s assuming a grade of 0.35% copper. Your release today, I guess, disclosed a lower grade for next year at 0.33%. Can you maybe talk about what’s — sort of how these operational issues are impacting that rate? Like why is the grade supposed to be lower for next year if the issues are behind you? Maybe we’ll start there.
Gilmour Clausen
Hi, Orest. The plan that we had in the technical report is basically forming the budget plan that we have for next year. And the disclosure that we just did now is going to kind of fall in line with our guidance range for the following year. So, we really have no model changes or anything else like that. I think what we’re doing is, we’re kind of sticking to our first year of the feasibility study, second year, third year of the feasibility study, that’s in line with — roughly in line with our three year performance, and it will be roughly in line with our three year guidance. So, there’s really no significant change in the mine plan. We’re a little bit conservative. And after a year like this, I hope you can’t blame us for that.
Orest Wowkodaw
I see. Okay. So the technical — basically, you’re saying that 0.33% is a conservative guidance estimate and you’re not seeing material changes to the technical report.
Gilmour Clausen
Yes. As a matter of fact, we’re seeing really good reconciliation between our models now and our geological model that was in the technical report and the ORM basically and mine production. So, we’re getting really good reconciliation.
Orest Wowkodaw
Okay. So, are there any of the operational challenges you’ve had this year? Do you see anything flowing into next year or beyond?
Gilmour Clausen
Actually, in fact, no. It seemed to be a cavalcade of what could go wrong, did go wrong this year. It seems that between supply issues, secondary crusher to start the year issue and failure, getting into the primary crusher and doing the maintenance repair on the primary later in the year on a major and then finding that we had to replace the lower bushings and do some machining on the eccentric those were I think things that happen so periodically and really, that’s the first work we’ve done to that crusher since it was installed over 12 years ago. So, it’s held up very well, and we expect it to hold up very well in the future.
So we’re pleased with the way that our crushing circuit is performing right now. We’re pleased with the way the mill is performing with the new expansion, and we are geared up for the high grade. Like we always talk, we wanted to be ready for when we started delivering really high-grade ore. Like we did in last year, we had a high-grade ore and we had big production in 2021. And there are many, many times in 2021 when we had to throttle back throughput because the grade was high and the flotation circuit couldn’t handle it. And there was too much concentrate being produced, so it was going on the floor, et cetera, et cetera, et cetera.
So now we’re in a position that we have more capacity at the back end. We designed the back end of that circuit to 65,000 tonnes a day, both the cleaner flotation circuit, the filtration circuit. So we can take anything that the mill and the rougher circuit throws at us and be able to produce at high tonnage rate. So the expectation is that we should have some pretty darn good performance coming out of that mill. The rougher flotation expansion, just to be clear, allowed us to almost double our retention time in the mill. We had one of the lowest flotation retention time for copper projects in North and South America if you looked and did a benchmarking analysis, now we have one of the best. So we’re certainly expecting improvements in recovery based on those investments.
So for us it was an unfortunate timing where we had bad production the way we did this year, and these issues hit us at the same time we were investing in all of these projects. It drew down some cash. But now we’re ready — we’re building cash, and we’ll be ready to continue to build cash into the future year.
Orest Wowkodaw
Thanks, Gil. I appreciate the color.
Gilmour Clausen
My pleasure, Orest.
Operator
Thank you. Your next question comes from Craig Hutchison with TD Securities. Please go ahead.
Craig Hutchison
Hi, guys. My question was one similar vein as Orest’s. Just really with respect to recoveries next year and kind of going forward, the technical report has some pretty lofty recoveries, [89%] (ph) for the next couple of years. Given that you always tend to counter some oxide ore during pushback, is that a realistic number to kind of model, and I appreciate you’ve done some capital upgrades to improve retention time, but just it seems high, if I look back historically.
Gilmour Clausen
Well, Craig, I think that is a result of a huge amount of work on metallurgy and then the circuit performance and the circuit modeling. We’ve actually had those kind of recoveries at Copper Mountain in the past when we were running these grinds and low circuit tonnage like back in the early days when the mine first started running. So we had recoveries in these ranges. We’ve got a lot of knowledge on this deposit with respect to performance of the various lithologies in the mill and concentrator.
So, everything that we’ve done on this study falls right squarely in line with what our prior history has been in the early years when we were only like doing 30,000 or 35,000 tonnes per day through the mill. And so, we’re comfortable with what we’re guiding there because of the flotation differences.
Getting to the oxide, whenever we run into oxide on the outside ore, on the outside of, let’s say, a new pioneering area like the North pit, you’re going to run into a little bit of problems. But what we’re finding here is that, with our mine plan going forward, we are squarely into sulfides in the North pit. Any outside oxide we encounter now, we can separate the stockpile. We don’t have to rely on anything or any oxidized material. And there shouldn’t be very much of it at all in the North pit, but with us solidly into high-grade in Phase 4 and into really good sulfide material in the North pit of sufficient volumes. We’re actually getting a little ore-bound right now. So, it’s a much healthier and much better position for us to be in.
Craig Hutchison
Okay. Thanks for that. And just with regard to sustaining capital kind of any guidance for the last quarter of the year. You mentioned that I think most of the development capital is now being complete. It should be de minimis for this quarter, but anything kind of in terms of sustaining capital for Q4. And I don’t know if it’s too soon to give some kind of guidance with respect to 2023, but if you could, that would be appreciated.
Letitia Wong
There should be very little sustaining capital in the fourth quarter. So, we’re just wrapping up the very end of some of the water monitoring systems that we have underway in 2022. So, we expect it shouldn’t be more than about $1 million, a little more than $1 million for the fourth quarter. It’s a little too early to say for 2023. We do have the [indiscernible] report, which is — can be somewhat of a guide for next year, but we’ll put out guidance, a more refined guidance in January and February.
Craig Hutchison
Okay. Thanks guys.
Gilmour Clausen
Thanks, Craig.
Operator
Thank you. Your next question comes from CJ Baldoni with Principal Global Investors. Please go ahead.
CJ Baldoni
Hi. Thanks for taking my question. When do you expect to receive the FIRB approval for the EVA sale?
Letitia Wong
That’s not for us to guide. That is a condition for Harmony. So we’re unable to provide that guidance. But we do expect to close the transaction in the first quarter.
CJ Baldoni
And then relative to the cash proceeds of $170 million, could you talk about what the net proceeds would be?
Letitia Wong
We do not talk about our tax structure or the tax effect on us. So we would not be able to add that on a common call.
CJ Baldoni
And then relative to the price and exploration upside of $60 million, I’m assuming that the price component of it won’t be available to you until the project is developed and is producing and the exploration upside. Would you have any expectations with respect to whether that may materialize and over what time frame?
Letitia Wong
Just to be clear, the $60 million is for — one portion is on our revenue. It’s over $380 copper price on revenue and there’s $3 million of that $60 million, which is for the exploration upside.
CJ Baldoni
Yes. Understood. So, the half of it related to price wouldn’t come until the project is developed and producing. And the exploration upside, I’m asking about when that may materialize. Could it happen prior to the asset being developed?
Gilmour Clausen
This is Gil speaking. So that’s Harmony’s plan. My understanding is that Harmony plans to continue to explore. So we believe that, that is certainly realizable, but we can’t guide for that. That’s Harmony’s guide there. We just want to make sure that our shareholders participate in what we believe is a good exploration upside on that property. And we think that transaction that we have before us represents fair value for that, and we think that ultimately should be realized for our shareholders in terms of time, we can’t guide on that, that’s Harmony’s guide. I think that’s it, that’s all we have to question.
CJ Baldoni
Can I ask one more question, Gill?
Gilmour Clausen
Sure go ahead.
CJ Baldoni
So I think that you mentioned in the opening remarks that over the last year, you’ve been discussing your retirement with the Board. So, I’m asking about timing for a new CEO and when you may ultimately retire.
Gilmour Clausen
So the Board is engaged in a formal process, which actually makes that a little bit more easier when you publicly disclosed. I have no fixed time for retirement. We’re looking for high-quality candidates for the position. I have been contemplating retirement over the past year or so and wanted it to be a very smooth transition and wanted to make sure that we completed a lot of the work that we had before us. So, I would expect that as this process concludes that there will be a very smooth transition between myself and whoever steps into the seat as CFO and whomever the Board decides CEO rather, whomever the Board decides is going to be the appropriate candidate. So, I’m fully engaged in the activities of the company. I think we have an unbelievably solid future in front of us. And I’m here for as long as the company needs me in this transition.
Operator
Thank you. There are no further questions at this time. Mr. Clausen and you may proceed.
Gilmour Clausen
All right. Thanks very much. Thanks, everyone, for joining us today. We look forward to catching up again soon. And that wraps it up. Stay safe.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Be the first to comment