Earnings conference call (announced in 6-K)

for some closing remarks thank you wayne before we open it up to questions a few points i would like to leave everyone with this morning first our operations are performing well and we are positioned to deliver on our full year guidance with stronger performance at both our copper and gold operations expected in the second half of the year second with strong cash flows we expect to continue to deliver on our commitment of deleveraging our balance sheet and third we are rapidly advancing for us where we are on track to complete the Phase III drill program well before year-end and deliver a pre-feasibility study in 2027. With that, we'll open the line for questions.

Thank you. We'll now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request.

Operator, if you can open the line for questions, thank you.

Yes. Are you not hearing me? We'll now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. Sorry, operator. Are you able to hear me now?

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I'm sorry. Can you hear me now? This is the operator. Are you able to hear me now? Okay. I'm getting word that everyone else, that others in the call can hear me. So, what I'm going to do is ask the presenter line to reconnect. Perhaps the issue is on their end. So, if the presenter, I'll just ask them now. Please stand by. We'll get this resolved. Okay. We have our presenter line reconnected, and they are able to hear me. So let's get the question and answer session underway. As I said, if you wish to ask a question, press star, then 1. If you wish to remove yourself, press star, then 2. And our first question is from Matthew Murphy with BMO Capital Markets. Please go ahead.

First question would be on the Tucuma tailings expansion. Can you just remind me what expansion was completed, and then what timeline are you currently looking at for adding these filters in the second half?

Yeah, hey, Matt. Apologies for the delay there, everyone. So the expansion that we completed so far was with our existing circuit. So, during the quarter, we added additional filtration plates to our three existing filters. That's about a net 8% improvement to tailings filtration capacity, and that was completed successfully during the quarter. Right now, our three modular filters are expected to arrive on-site this quarter and be installed and operational in the fourth quarter. Okay, got it. Thank you.

And then on Javantina, the addition of a dryer and filter press, what could that do for your Q3 concentrate sales?

Yeah, look, obviously, you know, under the confines that we're at, we were unable to provide forward-looking guidance, as we've talked about multiple times. That's related to the technical and scientific information that we have available. But what I can tell you, Matt, is that if you look at June and July, when we had those operational, both those months, we achieved more than 7,000 ounces of gold. And I think that speaks really well for Q3 and through the rest of the year. Okay, that's interesting. Thank you.

The next question is from Guillermo Rosito with Bank of America. Please go ahead.

Hi, everyone. Thanks for taking my questions here. So, my first question is on Chaventina and maybe, Marco, if we could just explore. You haven't adjusted production guidance and you sounded pretty confident on the call. So, maybe if you could just give us some color on what you guys are seeing right now from July at Chaventina, what makes you so confident that you're reaching guidance even after a rough first half of the operation. And maybe just if you could comment on that and what you guys are seeing in terms of grades Because they've been pretty volatile ever since you made the mechanization investments, right? So maybe if you could just touch on that a bit. And second question is, we're at 0.8 times now that should be generated cash this quarter. From everything that looks like second half is stronger in production, therefore in cash generation. So we're probably moving lower there. So what's next now? What are your priorities in terms of capital allocation? This is the time to maybe we can discuss shareholder returns or anything else. So just wanted to pick your brains there.

Perfect. Yeah, we'll go through those in detail. A few things to unpack, but starting with Javancina, I would say, look, you know, as taking a step back here, as we discussed last quarter, you know, we've made very, very important investments at Javancina in ventilation and cooling. What we've seen since we completed that tie-in is that we've been able to get back on track in terms of development rates. The reason that we're focused on the second half of the year at Jevoncina and why we firmly expect to have a better second half is when you look at the stopes that we're developing into, particularly in Santo Antonio, we're developing into stopes that are higher grade and they're also much thicker. What that translates to in operational terms is that every meter of development that we're doing now is releasing more ore to feed to the mill. And so, you know, when you look at where we've been in the last several months, again, sort of May, June, July, all hitting those development rates that we need to achieve and really working towards getting these higher grade stopes, larger stopes into the mine plan as we expect. Obviously, that is a slightly slower ramp up than we anticipated at the end of Q2, both in development in terms of getting to those development rates that we're achieving now and also, as a consequence, mining rates. But again, I think really the main thing to look forward to is how we see that translate into second-half production at Javancina. And I was just there with Jelson two weeks ago and really pleased to see the progress the team's making on-site there to improve performance. Again, not just at the mine, as we discussed, but as Matt asked, you know, how are gold concentrate sales? And as I mentioned, we're seeing really good progress on the, you know, not only the end of the rainy season, but also the filter and dryer that we put in place and achieving, you know, elevated levels for two months. Obviously two months don't make a quarter and don't make a year. So we've got a lot more work to do, but we're feeling good about where the mine's positioned and certainly where the gold concentrate program is positioned. This quarter, we talked a little bit more about the operating costs associated with gold concentrates. And as you can see, that's very, very high margin material, and hence our focus on delivering that to the bottom line. Hopefully that answers your question, Jav and Sheena. I'm happy to expand on that in a follow-up question, but getting to your second point on leverage and cash generation, absolutely. I would say the cash inflection of our business, it's clear that it's already happened. We saw that happen in Q2 and in July where we made another $25 million payment on a revolver. Our objectives for this year that we set out were threefold. So number one, to get below one times leverage, we did that the end of Q1, obviously coming at 0.8, we're progressing below that level. And step two is to pay down a revolver. As we mentioned, we've paid to date $60 million in that revolver through the end of July. That means we have an additional $95 million to go. I think, you know, from our perspective, as a management team, we want to make sure that that pace continues to decrease. We're making excellent progress so far. I think it's still too early to talk about the shareholder return program, but obviously it is top of mind, as everyone knows in this call, and we've talked about many times. Aerocopper was built around a philosophy of return invested capital, and that certainly is one of our objectives. But we want to see us really achieving that second milestone, which is to pay down our revolver. We've made excellent progress so far this year. We've got a bit more to go.

Very clear, Michael. Appreciate it. Thanks.

The next question is from Craig Hutchinson with TD Cowan. Please go ahead.

I wanted to ask about Takuma and specifically, I guess, around the reserves. It's been about five years since you guys provided an updated reserve report. And over that period of time, obviously, copper prices have nearly doubled here. Just curious whether there's a plan to put up an updated report, whether you guys have done some drilling there, and whether there's a potential to see some of the measured indicated resources come into the mine plan over the next couple of years.

Yeah, thanks for the question. For sure, that's something top of mind, and we've been working. We do expect to publish a technical report on Tucumbo this year, so stay tuned for that. Okay, great.

The next question is from Emerson Vieira with Goldman Sachs. Please go ahead.

Hey, everyone. I have three questions, maybe. First one on Caraiba, I think despite the low production grades and effects impacting costs, I mean, if you want to decline a quarter over a quarter, but it was helpful by lower TCRCs, right, that offset those impacts. You guys mentioned that you were able to achieve a $20 million savings due to renegotiations in TCRCs. So I just want to confirm if going forward into the second half, TCRCs will continue to be running at those lower levels that we saw in the second quarter and maybe providing some offset to other cost pressures. That's the first question.

It's Wayne speaking here. I think it's important to point out, yeah, we did get the benefit of renegotiated contracts for our concentrate sales. We sell our concentrate on term contracts, not on spot contracts. And so some of our historical contracts rolled off and we were able to negotiate, obviously, much more favorable terms given the current environment. I would say that the 20 million you referred to is the total savings. We didn't obviously benefit, we didn't get the full benefit of the 20 in Q2. So that benefit will be spread over the remainder of the year. And our contracts allow us to basically sell both mines production into each contract. So that benefit you may see, depending on the shipping schedule and depending on which contract we're selling into, you could see some of that benefit flow to Tucuma in the second half of the year rather than Cariba.

Right. Thank you. My second question goes on Tucuma. Can you please comment on what was the exit throughput at the plant and what could be, I don't know, increments of throughput in the second half given that you have increased the tailing filtration capacity by 8 percent?

Yeah, I would say, you know, we're really encouraged by what we're seeing at Tucumac. If you look at, you know, where we got to in Q2 and some of the levels that we're achieving there, You know, I think the most important thing to probably look at is if you take what we achieved in the second half of the quarter into July, we've been able to maintain a rate of between 250 and 260,000 tons per month. I think what's particularly noteworthy is that in July, we achieved a rate of throughput right around 250,000, but that included five days of downtime for a mill liner replacement. And so I think, you know, we're really pleased to see the daily progress that's happening there and increasing production rates. And again, we think that bodes well for the second half of the year as we outline in our guidance discussion.

Okay. Thank you. Just last one here. On the capital location, just to follow up actually, the company has 120 million in the revolving credit, that facility, right? And if we just assume I mean the same pace of amortization, does it make sense to believe that the company will be in a better position by third key or fourth key of next year to maybe update us on the shareholder distribution policies? Does it make sense about the timing?

Yeah, look, I think if you go back to, you know, whenever we talked about shareholder returns and the commitments we made, it was a three-step process. So number one, get leverage below one, which we achieved in Q1. So we're doing great there. The second was to pay down our revolver. Again, coming back to the payment we made in July, that brings year-to-date total payments on our revolver to $60 million, meaning that we have $95 million left to go in that program. I think the pace of that second step obviously depends on commodity prices. We continue to see very strong tailwinds there and also operational performance in the second half of the year. So I would say stay tuned on both those things and we'll give more clarity on what that looks like later in the year once we achieve the second step all right thank you very clear the next question is from Fahad Tariq with Jeffries please go ahead hi thanks for taking my questions on the Javantina concentrate can you just remind us where we are on the remaining 80% of the stockpiles that were not sampled and when we should expect the next update thanks yeah thank you look just Just coming back to Q4 last year for a bit of context, I'm sure everyone on this call is aware, but that was a value initiative that we announced in October of last year. At that time, we had sampled 20 percent of the volume, of the known volume to develop a resource estimate for, you know, as we've discussed before, under NF4301, we can't provide forward-looking guidance on information that's not supported by a 43-101 estimate. So really, unfortunately, unable to provide that information and clarity that you're looking for, other than to say we've seen really strong sales June, July, coming to dry season on the back of our filtration and concentrate program. We continue to expect this program to last through at least mid-2027 as we put out early in a year, and we see really strong sales in the second half, again, with the effort that we put into the filter press and dryer.

Okay, great. And then just maybe a high-level question. Given where copper prices are now, is there anything in the portfolio that you're looking at differently, whether it's a brownfield opportunity or additional exploration spend at a particular asset? Just wondering if you're thinking about anything differently, given how elevated copper prices are. Thanks.

Yeah, I don't think it's fundamentally changed the way we think about our business. You know, we've continued to invest in expiration across the portfolio. It's been part of our strategy from day one when we started the company. Obviously, we've, you know, if you look at where our expiration dollars are allocated today, obviously we're putting a big focus in front of us as we've spoken to, but we've continued to allocate expiration dollars to earlier stage opportunities throughout our portfolio. You know, the last decade, we've built a really strong knowledge of the regions that we're operating in, and we're seeking to leverage those through some earlier stage opportunities. But again, that's not a change in strategy that's continued over the last couple of years. Could we in the second half see some of those programs getting a little bit more capital allocation perhaps, but it's not going to fundamentally change the way that we think about our business or how we're operating. Thank you very much.

The next question is from Stefan Ayoano with Cormark Securities. Please go ahead.

Thanks very much. Just back on Javentina, you mentioned this is kind of the first quarter where we're seeing reported C1 and ASIC costs for the concentrate gold production. And just looking at the numbers for the latest quarter, could we sort of interpolate those as sort of a steady state run rate for costs, or do you think they could come down even further going forward?

Yeah, look, I think they're pretty steady state. Obviously, it's mostly variable costs, right? Because if you look at the component that makes up that C1, the overwhelming majority is going to be on transport costs. So, you know, we don't see much of an opportunity, even with increased sales, to reduce those costs further. We obviously now are operating the filter and the dryer, which has increased that cost relative to where we were last year. But as you can see, $700 all in sustaining cost at $4,200 gold is a pretty healthy margin.

Definitely, definitely, yeah. And this is what I got you, sorry, apologies of mine, maybe just one housekeeping question. Just when Wayne was talking about the FX hedge program, sorry, Wayne, did you say that the effect of the hedges are reflected in the C1 cash cost or not?

They are not reflected, Stéphane. Not, okay, okay, okay. Yes, they're below the line, but obviously the way we run the business and we think about the business is around the exchange rate that we guided to at the beginning of the year, which was 540, and we structure our hedges to protect that level. So that's why you see the fairly significant gains year to date.

Got it. Thanks very much, guys.

The next question is from Auras Walkabout with Scotiabank. Please go ahead.

All right, good morning. I'm wondering if you could give us an update on the shaft sinking project at Kariba and what the timeline is for, I guess, that to go into operation next year.

Yeah, thanks, Horace. Good question. And we'll have the opportunity in a few weeks to be the person to review the progress there. You know, right now, we're just over 1,100 meters below surface. You know, we've continued to see our sinking rate improve month on month since we started connecting that third leg, which is a fairly significant milestone in that project. I think the thing to keep in mind about the shaft, you know, we started engineering on this back in 2020. 2020, the last shaft that was built at Pillar was in 1986, and we're making this investment for, you know, the next several decades, not for one quarter or the next. But, you know, as we said last quarter, our objective is to get to shaft bottom, you know, by year end with the progress that we've made so far and increasing, you know, it talked to Jelson about this nearly daily. You look at some of the projects that are happening in the world today. I think if the team needs, you know, an extra month or two to make sure that we can deliver that project safely, we're going to go ahead and make that call 10 times out of 10. So, you know, we'll have the opportunity to be on site in a few weeks to review that progress. I would say that, you know, as I said, our sinking rate's improving. We're continuing to to make significant improvements. We need to see a bit faster pace here after the balance of the year to hit that milestone, but we're going to make sure that we do that safely and deliver that project for the next several decades.

No, that all totally makes sense. And can you give us, what about the budget? Where are you in terms of the capital spend on that, and are you seeing inflationary pressures?

Yeah, we're not seeing much inflationary pressures there. You know, we've got a small team that's on site that you'll meet that are coming in from South Africa. It's a third-party contractor that's doing that sinking rate. We don't have the same type of exposure that we do to our operations in terms of diesel prices because the hoist saw electrical powered. So we're not seeing much in the way of inflation on the shaft itself. You know, obviously, if we make the decision to slow that rate down, to make sure we deliver that project safely, there will be an incremental cost component, but to be relatively minor. And we think that, you know, if you look at where we're at against that budget, as I've said many times, we're very much through peak CapEx in our business. And so irrespective of kind of where we land through year end, we see that capital coming down significantly into next year, with this year being the last big year of CapEx that we have to that we have to spend okay and just to clarify how much was left in the budget as of june 30th for that project yeah so if you look at what we said early on in the year we had about 80 to 90 million to spend this year with a stub into next year uh we're about halfway through the budget on on this year's uh this year's spend and what what will be uh next year we expect is a is a stubbed year of CapEx, right, as we switch that shaft over from its sinking phase into its operational phase.

Thank you very much.

Once again, if you have a question, please press star, then one. Our next question is from Rafael Barcelos with Bardesco BBI. Please go ahead.

Thanks for taking my questions. My first question on Caraíba, can you please provide like an update on the Pillar shaft in terms of the potential for productivity gains going forward and the timing for these gains. And of course, more color on what you're expecting in terms of the ramp up of this project. And then moving to capital allocation, just a quick follow-up. I mean, the company will probably turn into a net cash position by the end of the year so I'm just wondering you know if you could discuss more you know shareholder remuneration versus you know the preparation for starting the investment plans for fullness how do you expect to balance those things that could be interesting thank you perfect I think as Oris alluded to, the shaft's making good progress.

We continue to expect the first year of full benefit to be 2028. Obviously, next year, 27, we'll be focused on transitioning that from the sinking phase into the operational phase after we reach shaft bottom. I think the easiest way to talk about the benefit is to give you the current experience and the future state. So if you go right now to the deeper part of Pilar Mine and you drive down the ramp, that can take up to about an hour and a half. As you well know, underground mines in Brazil operate on six-hour shifts. What that means in practical terms is we're starting out with 50% availability of our workforce in the deepest part of the mine. Obviously, we operate at multiple different levels, so that's not true for the entire operation. But in the deeper, higher-grade zones, that's the reality today. When the shaft is completed, it's been designed to get our entire workforce in and out of the mine in under an hour. So we expect a very significant improvement in workforce productivity, improved access, improved ventilation. It'll be a transformational investment that, again, if you go back to when the last shaft was built, 1986, this one happening now, it's going to support the operation for decades to come. And there's no one more excited about finishing that project than me having been involved with this in 2019, and we're making good progress. As I said to ORAS, we're going to make sure that we deliver that project safely and on budget, and that's what we're committed to doing over the second half of this year and into the next year. On the cash position and share all returns, yeah, look, we're excited as everybody here. We're making great progress on our objectives that we committed to in 2025. I think the way that I would characterize our priorities in terms of cap allocation, we're still focused on that second step, which is paying down our revolver, right? We have $95 million left to pay down after the payment that we made in July. We're continuing to accelerate Ferdas. You know, it's not, I would say it's not one or the other. If you look at where we're at in Ferdas, we're going to finish effectively a five-year drill program in the better part two years, right? If you look at when we started drilling to this in October 2024 to the end of this year, we're going to complete all the 90,000 meters that were envisioned under that project where we completed the PEA, we're rapidly advancing the PFS. So, I wouldn't look at it as an either or. Obviously, if we see opportunity to accelerate for an office and put more capital to work there, that's a great place to put capital. But we're working, you know, flat out on that project already and so you know taking a big step back again for us first priority here well first priority was to get to below one times leverage we did that second priority pay down our revolver and number three I think come back to the market later this year when we've met that second milestone which is to pay down our revolver if I may like one follow-up still on this as far as the capital allocation topic.

How do you see, you know, EuroCopper in the middle of this recent M&A trend that we've seen over the past few years in the corporate sector? I mean, how do you see the company in this environment?

Yeah, look, as I always say, you know, we have a corporate development team. They have a very, very important job and organization. We look at opportunities in the Americas for growth. We do that pretty thoughtfully in the lens of what our existing portfolio looks like. We have, I would say, one of the better, if not the best from our perspective, development projects in the market, which is from us. We have an incredible pipeline of early-stage exploration projects that our exploration teams are working on. And so we look at opportunities outside of our business through that lens. So we take reviews in the Americas very, very seriously. But I think our focus is really on executing on our own portfolio. You know, we, as I said, we have a corporate development team. They have an important job to do in our company. But we're really happy with where our portfolio sits today, and that's what we're focused on executing. Okay, thank you.

This concludes the question and answer session. I'd like to turn the call back over to Mako DiFilippo for any closing remarks.

Yeah, thank you, everyone. As always, our team's available. We appreciate your patience as we re-dial back in here. And just one last reminder on our Capital Markets Day in Sao Paulo, look forward to seeing many of you there. Thank you very much. Have a great day.

Brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.