Atalaya Mining Copper, S.A. (ATYM) Earnings Call Transcript

Good morning and welcome to the Atalaya Mining Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand over to your CEO, Alberto Lavandeira. Good morning.

Hello, good morning. Thank you very much. It's a pleasure for me -- thank you for being here. It's a pleasure for me to be presenting the second quarter results and the first half results for 2025. With me, I have Cesar Sanchez, that can answer any questions that you may have at the end of the session. And we thought that I'm going to go direct into the presentation that you see on the screen. Going to Page 6. We had an excellent quarter and an excellent first half of the year, as a result mainly of good operations that we have already flagged. Production of copper was 27,500 tonnes of copper during the first half. And we did that with very low cash costs on the site and also with quite low all-in sustaining cost, which includes investments that are carried in the operations and other things. So as a result of this excellent first half of the year, we have decided to upgrade a little bit the guidance for the full year of 2025, increasing the low end of the copper and also lowering a little bit our view on what are the copper production costs, cash costs up to $60 to $80 per pound or all-in cost of $310 to $330 per pound. We are going to go into the details a bit later, so I'm not going to be reading all these numbers of revenues. But it's important to say that the revenues were very consistent with what we had in the first quarter, during the second quarter. EBITDA was quite -- actually was a new record for the company, also slightly better than what we had in the first quarter. And we continued our rigs, excavating and doing investments in stripping in San Dionisio and Cerro Colorado, basically to prepare the mine for the future. And we did all this, keeping an excellent balance sheet with a net cash position of EUR 70 million, which is around $85 million, and with a working capital surplus that we have not seen for some long time of over EUR 92 million, which is well over $100 million. And of course, we don't have any long-term debt. We don't have any hedging streams or anything like that. As a result of all that, we decided to give a dividend, which -- interim dividend, which is higher than the previous one. And we also did some other things in the company. From the corporate point of view, we appointed Fernando Arauz as General Manager of Riotinto, which substitutes Enrique Delgado which is semi-retiring but still keeping a position in the company, which has been with us already in the last 5 or 6 years. And we also named Fernando Diaz Riopa as General Manager of Proyecto Touro, because we see how this project is going to be developed very soon. And this person has been responsible of part of the construction of Riotinto but also has been in the construction phases of several mines in the world. So all the things that happened during this quarter that we were added to the FTSE 250 Index in 7 of May, which has allowed increase of visibility and liquidity in the company. And then going through all things, we -- I think it's -- also at the Board, we made some changes, simply to reinforce the Board for the future. And this includes the retirement of Hussein Barma that had been with us over 10 years. He is joining an excellent company now. And we appointed Cori Gonzalez -- Coriseo Gonzalez, who's leading with quite an experience in Spain, very well connected. And Hennie Faul, which has incredible background experience and track record in Anglo American Copper, which we believe they are going to be 2 playing very important roles in the future of our company. And with that, I will pass directly with the highlights of production. As we said before, the plants continue to operate very well. The plant has been running at 4 million tonnes per year, and this quarter same as previous quarter, which means that, basically, we are running at 16 million tonnes per year capacity. And I remind you that this company -- this plant has been built by this company at 15 million tonnes per year capacity. So we are running our entire capacity. We went through higher grades in the plant, and that has been the key of production. This high grade also includes some oxidized material that has been found in San Dionisio in the old workings. We are mining in some areas close to the old workings, which means the recovery has been slightly lower. But at the end of it, what matters is the production of copper, and the production of copper is quite good at almost 13,200 tonnes of copper produced. And a result of all this, in the next slide, you'll see that we have strong revenues driven by the excellent copper price. Good production result, good sales, and also low cost of -- low selling costs. With those 2 ingredients, with good copper price and good control of our costs, we had a record EBITDA of over EUR 50 million, which is excellent. And of course, this drove an increase in cash position of the company and an improved result of the balance sheet. Same thing we would say for the whole half of the year. Half of the year, the profits are EUR 60 million, which is a huge increase, almost more than -- over 4x what we had in the similar year of '24. EBITDA was over 3x what we had in '24. And of course, the cash flow, of course, also like 3x operating cash flow what we had in '24. And that's including the fact that we continue to invest in the stripping of San Dionisio, which you can see in several slides of this presentation, which includes almost EUR 42 million during the first half, which is even higher than last year. But still the free cash flow has been excellent compared to the last year, which was negative during the first half of the year. Looking at the breakdown of our cash costs, you will see them in Page 10. You will see that the mining costs have been going down, processing costs have been going down due to the higher production. But not only due to the high production. In the mining, our mining costs have been going down from average of $2.20 per tonne to $2 per tonne due to shorter distance and diesel and higher productivity. And in the processing, we also have experienced almost $1 per pound increase in the cost per tonne due to the fact that we treated more tonnes, but we also have low electricity costs. And we go through some big maintenance during this quarter, which makes -- big maintenance is planned for this quarter. So our site costs have been quite good, both in a per pound basis, but also in a per tonne basis. But what has been a big change is the offsite costs. During this quarter, they were negative and actually basically neutral during the first half. And this is due to 2 reasons. First is the byproduct grades, silver price with very good prices and also good production of silver, which meant that we have higher byproduct grades than previous years, like 30% higher than previous years. But in addition to that, we also had the benefit -- we started to enjoy the benefit of lower premium charges, which means that our freight TCs and RCs are basically half of what they used to be. And we expect this tendency in this freight premium charges to continue like that in some years because there's a lack of concentrate in the world that is very important. Important that, as you know, we always report all-in sustaining costs. And there we include corporate costs, sustaining capital, capitalized stripping. So whenever we produce more waste than our average waste plan, we capitalize those costs, but we always report then because at the end they are cash. And there we have a higher production of waste due to the fact that we now have the permits of San Dionisio, which means we no longer capitalize that -- we will be no longer be capitalizing that. But during this quarter, we had a lot of that. All-in, again, our all-in costs were still around $0.40 per pound lower than previous years. And all this in spite of the fact that we have an unfavorable exchange rate of euro to dollar, which moved from $1.05 to $1.15. So that's -- all our mining, processing and site operating costs are in euros, most of them. But even so we had a favorable evolution of our all-in sustaining costs. And we report this all-in costs, normally, we benchmark with other companies to see if we are doing well or if it's just the world that's doing the same thing because the explosives are cheap or the diesel are cheap. We see a continuous trend of our costs going down and sustaining and being under control under the $3.50 level, which is we believe the level you need to be in order to be competitive, because at the end it's showing you what's the type of copper price that you will be needing to enjoy in the future to sanction new projects. So how are we looking at the rest of '25? Well, we decided to upgrade a little bit the production because we are going to be treating likely over -- around 60 million tonnes per year. The grade seems to be going well, although we expect to have slightly lower in the months to come, in the second part. But I still think we believe we are safe that we are not going to be touching the low end of the guidance. So we decided to increase a little bit. And we maintain the upper guidance -- upper range of the guidance just to be a little bit conservative. In the costs, we also lowered our cash costs by $0.10, and $0.20 in the high end, thinking again being a bit conservative, thinking on the unfavorable evolution of the euro/dollar, which we expect it to be there going into the second part of the year. We also lowered our capital investments, some of them due to the fact that we are going to be, as I said before, not capitalizing those going forward in San Dionisio. And another thing, reason is that we are going to be -- we have delayed a little bit some of the investments in Masa Valverde and in the road around San Dionisio, simply because the delays in permitting have pushed the investment back. But none of this is affecting us in the future. So basically, some of them are saving, some of them are simply delayed. But we have increased a little bit the exploration expenditures due to the good results of Masa Valverde, and also the campaign that we want -- that we are planning in Sweden as well as some exploration that we are going to be doing around Touro basically ahead of our -- what we believe is going to be the startup. Due to these good results and good views that we see in the company for the rest of the year, the Board has decided to give a dividend that is 21% higher than the previous dividend of EUR 0.044 per pound of euro, which is around, I would say, is around 2-point-something yield, which is consistent to the fact that we want to return money to our shareholders, which I think so far we have almost given around $100 million back since -- only since 2021. And in addition to that, we still maintain a very healthy balance sheet. So what's the -- where are we going to be focusing our efforts in '25. Well, more or less what we were doing. Continue with San Dionisio. You can see in the screen, in '25, that we have already started as soon as we got the permits, taken away the hill in San Dionisio. We're already taking a couple of 2 or 3 benches already there, we are moving very fast. And we expect to reach the good grades later in this year, beginning of this year, of fresh material. Right now we are mining in the bottom, that small pit, where we are mining some material, which is good, but slightly lower grade. We will continue finalizing the road, most of it at the end of this year. And we'll continue supporting our partner, Lain, in the E-LIX System. The plant is working well and continuously. Still not in the final positions to be breaking even. But what we can confirm is that the system works well. And we still need to fine-tune and debottleneck -- or they need to debottleneck the installations. An important thing will be that we will continue exploring completing the exploration result of Masa Valverde. Recently, about 1 month ago, we released the results of the campaign. In dark colors you see the intercepts that are going to be providing the copper material, with very big areas of 2% copper, which means that this -- this is very coarse material with expected recoveries in our existing installations without having to make any significant modifications of the installations that we have at Riotinto. We will also start the ramp. We plan to start the ramp subject to Board approval during this half of the year. The ramp will access first one of the deposits called Majadales. But this is a high-grade deposit, but it's polymetallic. This will require a mill to treat the zinc concentrates. But this ramp will be accessing the green area, which is the green copper stone only, but also will provide access to the red area, which is the polymetallic which also contains lead, zinc, silver materials. So this will be an important focus. But of course, the important focus will be to continue with Touro. Touro, we are very well advanced. We like this project because it will provide, with a modest capital investment of around EUR 250 million, will provide a production of around $30,000 per -- sorry 30,000 tonnes per year, which means a capital intensity of 10,000, which is 1/3 to 1/2 of what's normal in any other project in the world, due to the very good infrastructure location of the project. It will also provide very good costs, around $0.5 per pound less than what we have in Riotinto. So you can easily see and judge what we do when we have grades of around 0.42%, which is what we had in Riotinto, but imagine that, instead of having 80% recovery, I think Riotinto we had 90% recovery, and we had a higher concentrate grade and higher payability and low penalties because it's a very clean concentrate and this is slightly softer. So what -- the bottom line of this is that the cash cost of Touro could be around $0.50 per pound lower than what you would have at Riotinto. So you can judge by yourselves. How are we with this project? We are in the final stages of the environmental impact evaluation. The administration is preparing lots of reports from the different sectors. We have received almost all them had positive results, but we are still working with the administration to respond to questions or doubts that they may have before providing the final reports. We expect all this to be finalized soon. Actually, I can report back that the administration, this is not stopping in July, neither our teams are stopping -- sorry, in August. So the teams are working in August to finalize this, and we hope to have all these reports ready by September. So in summary, for '25, San Dionisio, working. Masa Valverde, development, ramp. Touro, permitting, continue. E-LIX, finalize the debottlenecking. San Antonio is a new deposit, as you know, it's around 1 kilometer away from Cerro Colorado, just directly east. It's a good grade polymetallic. We are drilling that already. We'll update the market in the right moment. And then we'll continue with exploration because we have certain areas that we are quite interested in, and we'll continue doing that. So in conclusion, our company, I mean, I'm not going to review, you all know this company. 50,000 range production. Potential to double this production in the next 3 years. Low risk. Good grades. Stable jurisdiction. Good team. Good operators. Now in the FTSE 250, one of the pure copper plays. EUR 800 million in price value. This was before the hike in the share price today, but I think this is quite logical because we have an excellent balance sheet and we are deploying -- paying dividends and we have a great future. And with that, I think we'll open it for questions. And we have lots of questions. I will try to reply to as many as possible.

That's great. Alberto, thank you very much indeed for your presentation. [Operator Instructions] While the company takes a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q&A can be accessed via your Investor dashboard. Alberto, Cesar, as you can see, we have received a number of questions for today's presentation. And Alberto, if I may now hand back to you to take us through the Q&A, and I'll pick up from you at the end. Thank you.

Thanks. I will try to read all of them and reply to all of them. Presubmitted. Switzerland is a principal country to which Atalaya sells their copper. What do the Swiss use it for? Well, this is just -- it's kind of artificial because the traders that are buying our copper are based in Switzerland, so they probably -- it looks like it's going to Swiss companies. But the reality is that they are just traders, and most of our copper goes to China and eastern area, regions. But also with some of this material going to Spain, the smelter in Huelva, and to Europe in the smelters that are in Germany and Sweden. How does the Spanish government view the importance of copper and Spain contribution to that in EU [indiscernible]? Well, look, I don't think the government has any special view on this situation. And they see it as a contributor, we are a good contributor, but not as big as other countries like Poland and Sweden. But what I can do is -- I can say is that we are getting a lot of support, specifically by the regional governments, which are those that rule our activities. The dividend is rather less than half of what the annual dividend policy implies. Can you confirm you're simply telling prudent at the half of the year? Well, simply probably will not very well explain. But the reality is that we always give an interim dividend first, then a second dividend. So this is roughly half of what we will give. Very likely the next dividend would be, things continue, would be either like this one or higher. We always give the dividends in 2 stages, interim and final. Did Trump tariffs affect your results? No. Really, no. I think Trump tariffs, I think what's affecting is the uncertainty on the market, which there's always fears of recession. And recessions are never good for copper or for anything. But besides that for us, they are not affecting us at all. I think the copper is affected by consumption and by supply. Consumption seems to be going well in the Western countries, and in China, which still consumes around 50% today of the market. And from the supply side, we have seen recently in the last few months some issues with supply with seismic events with earthquakes in Chile and in Congo, with production disappearing from -- and this is just telling you how difficult it is. The mines get deeper, this means a problem. Next question is, how will Touro capital be financed? We have had already and we have reported that in several presentations public, so I'm not saying anything new, that we already have 3 offers from 3 banks in Spain for over EUR 150 million to finance Touro based on basically corporate loans, a very good interest from 3 Spanish banks, and 2 other in the queue. In addition to that, we have a good balance sheet, as you've seen with over $100 million in cash, and we continue to generate cash. And on top of that, we have the interest from traders, smelters that are -- traders, and smelters, that are willing to finance the full amount of Touro in exchange of off-take agreements or in the way of repays or with other type of bills. We have several in writing from several of them. And in the right moment, we will announce what's the final formula. Will probably be a combination of all the 3. Could you please recap when you say the copper production to double given the new projects in the pipeline? I think the production of copper plus copper equivalent, we will need to have both Touro working and the polymetallic working, which means about 3 years from now. Maybe a little less, but 3 years from now. When will Touro start producing and how long it will reach full production? If we get the permits at the end of this year, that probably will be in production in 18 months, 1.5 years. So we will see production by mid-'27. And the ramp-up should be very fast. If you look at our past presentations where you see the ramp-up of the different phases of Riotinto, in 2 or 3 months, we're in full production. This concentrate seems to be quite straightforward. We have a team that has lots of experience. We will be training also the operators in our installations at Riotinto with very similar machines. So I think this will be very fast. In 2 or 3 months, it will be working. Copper concentrate market looks very tight. Why? Do you see this happening also in H2 '25 and '26? Without any question, without any question, this thing is very tight. It's very likely going to be like that, not in 2 years, probably 4 years, and even we heard things of 5 years. Maybe not as tight as soon as we start getting some new production from new mines. The problem is that there are some new smelters that have been built in Indonesia, Congo, India -- in China, and the mines have not followed. So this is going to stay. And unless somebody starts closing the smelters, and this is difficult if you -- Europe and Australia, North America, if they start closing the smelters, they are very difficult to reopen again. And there's a real question mark of, if Europe, North America, Australia wants to be in the hands of external third parties for copper, which is required for cables and big industry. So we expect this thing to be very tight, really tight in the next years. Extremely tight. There are talks about negative benchmarks for the future, which I don't think it's a good thing because it's almost -- we cannot ask all the smelters to lose money. But certainly better than we are now, which are already very good for us. Regarding E-LIX, when will this start to mean fully benefit results? And how does this operation impact your approach to other polymetallic deposits? Well, I don't know. I don't know because it's external to us. I expect them to be -- follow what their guidance to be fully, let's say, breaking even and with the cost demonstrated during this year, and then we'll decide what we do with this. Our current thinking is that we will go with the safe route, which is flotation. Even in spite of lower recoveries, it would be good. So whatever will come from E-LIX will be a plus. And they can be complementary because we could produce a higher recovery with a bulk concentrate and then leach the problem with E-LIX in order to remove the copper or to remove the lead or any of that goods. It's very unlikely that we'll be producing copper because it's very difficult to compete with these smelter premium charges. So I think in 2026, that thing should be running. And for us, it's very clear. It cannot be dragging cash. That's the instructions of the Board. So if it doesn't work well with our ores and concentrates because we produce good results without it, we'll not use it. But we can always use it with third parties material, which obviously we have to make the return. I have a question here of: Returning cash to shareholders is great. However, since the corporate resolution to Spain, U.K. shareholders are hit with 19% withholding tax on dividend payments. Share buybacks are, therefore, a much better strategy for shareholder returns. Please advise the Board's strategy on buybacks. We have not -- we have discussed at the Board the possibility of buybacks. At certain time, we had low liquidity -- we had low liquidity and we didn't make too much sense. Now we may revisit again. Looking at the 19% tax, I suppose this thing can be offset, so it's something that it's quite difficult to -- for me to judge. Depends on where are the shareholders. But specifically looking at the buybacks, the Board will revisit it. But right now, we are not considering that for the moment. How should we think about grades over the next couple of years? The grades for a couple of years would be equal or better than what we have right now. So they will not be over 45%, so don't expect us to have 60,000, 65,000 tonnes of copper. But expect it to be higher than that due to the blend of San Dionisio, which we have to be very careful to blend it because it contains lots of sulfide. So it's quite a tricky task in the mill to maintain those grades then as constant with that condition. But you will see it either equal or higher than what we have this year. Are there any problems with water supply foreseen? Not at all. Actually what we have is excess water. Actually, excess water we have. This year was we had double rain than we had in the past years. We have all our dams are full, the deposits are full. And actually, we always want to operate water. But we never know because we still have the rest of the summer. It could be that the autumn, we don't have any rain. It has happened in other years. But this year and very likely with the water we have, we will have more than enough to get to the next spring, much more than we have -- never had in the past. Whenever Touro is fully working, Atalaya will be reaching C1 cost below $2 per pound average, and all-in same $250, which is very competitive. 100% right. That's our goal. And also when -- as soon as we get the byproduct grades from zinc and so on, our cash costs at Riotinto will be slightly lower. So absolutely, 100%, our cash costs in the future, all-in sustaining cost will be in the range of $250 level.

That's great. If I may just jump back in, Alberto. And thank you for addressing those questions for investors today. And of course, the company can review your questions submitted today and will publish those responses on the Investor Meet company platform. Alberto, before I redirect investors to provide you with their feedback, which we know is particularly important for the company, could I please just ask you for a few closing comments?

Well, as usual, I only want to thank everybody for attending the presentation, especially in the holiday period, or at least in Spain is holiday period, and half of Europe also. Thank you again for your support, our shareholders and the company. The company has had some difficult periods, but we are very constant and I think we are now getting the rewards. So thank you again for your continued support, and see you next time, in 3 months from now.

Fantastic. Thank you for updating investors today. [Operator Instructions] On behalf of the management team of Atalaya Mining, we'd like to thank you for attending today's presentation. And good morning to you all.