Metals Acquisition Corp. II Q2 FY2024 Earnings Call

Thank you for standing by. This is the conference operator. Welcome to the Metals Acquisitions Limited Second Quarter 2024 Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Mick McMullen, CEO of Metals Acquisitions Limited. Please go ahead.

Thank you. And thank you everyone for joining us. Evening in North America and morning in Australia. This is the Metals Acquisition Q2 quarterly presentation, and we'll just go through to the slide with the list of speakers today if we can, to run through who'll be speaking. So I'm obviously Mick McMullen, I'm the CEO. I'll run through the highlights, and Morné Engelbrecht, our CFO, is on, and he'll go through the more financial metrics. Rob Walker, our General Manager of the CSA Copper Mine, is also on and can provide some context regarding how the quarter developed and the important projects we have underway for the future of the business. We own the CSA Copper Mine, which we purchased just over a year ago in Western New South Wales. We currently have 74 million shares issued, and on a fully diluted basis, we have about 78 million shares. Based on the closing price on the New York Exchange on Friday, we had a fully diluted market cap of about USD980 million. The mine has a long history, running since 1967, with well-established infrastructure and strong relationships with local stakeholders. Cobar is an excellent place to operate due to its stable regulatory and tax regimes and good local relations. Now, regarding our quarterly performance, I'm pleased to report that we produced a record 10,864 tons of copper, which is a 24% increase quarter-on-quarter. Our highest daily production under our ownership was 265 tons of copper. The C1 cash cost was down around 11% quarter-on-quarter to USD1.92 per pound, and our average realized price was broadly in line with the spot market at USD4.41 per pound. Other highlights include a significant copper grade increase, up about 20% for the quarter to 4.2%. When reviewing records, we noted that June yielded the highest monthly revenue in the mine's history. Overall, it has been a robust quarter, especially given that we planned maintenance in April, which meant that most production came from May and June. We are on track for our guidance, targeting between 38,000 and 43,000 tonnes of copper for the year. Recently, we announced a significant increase in our mine's reserve life to 11 years. We invested in Polymetals, located approximately 40 kilometers north of us, which gives us a low-cost processing option. Additionally, we spent just under USD13 million on capital during the quarter, aligning closely with the annualized USD52 million target. Overall, a very strong quarter.

Thanks, Mick. Good morning and good evening, everybody. I'm Morné Engelbrecht, the CFO here at Metals Acquisition. I'll guide you through the cash flow details for the quarter on slides 8 and 9, covering the cash flow waterfalls in U.S. dollars and AUD on slide 9, along with the capital structure updates on slide 10. Please note all presented figures are unaudited. On slide 9, it's apparent that the outstanding results Mick discussed have contributed to a great quarter from a cash flow perspective. Our cash and cash equivalents increased significantly by 25% quarter-on-quarter, from USD71 million to over USD88 million, or approximately AUD109 million to AUD134 million, after including a one-off payment of USD23 million related to the CSA copper mine acquisition payable to the New South Wales Revenue Office, alongside an additional quarter of cash interest from Q1 net debt, amounting to almost USD5 million captured in Q2. Furthermore, we had about 24,000 dry metric tonnes of concentrate at site as of June 30, 2024. To streamline cash outflows, we decided to presale a proportion of this before June 30, which resulted in USD74 million or around AUD112 million flowing into our operations during the quarter. According to our offtake agreement with Glencore, all products do not transfer until the concentrate is loaded onto the ship, meaning we recorded the cash but not the earnings or revenue in Q2. Additionally, we still have around 8,000 dry metric tonnes of concentrate both at port and site which represent USD21 million or AUD32 million of available liquidity beyond the USD25 million revolving facilities at MAC as of June 30, 2024. Other crucial cash flow elements include sustaining CapEx of almost USD13 million aligned with Q1 levels, a roughly USD8 million reduction in our interest-bearing liabilities, and nearly USD14 million in interest paid, including that USD5 million for Q1 interest on the Maersk debt. Since completing the oversubscribed equity raise in February on the ASX, which brought in USD215 million, we've repaid around USD140 million in interest-bearing liabilities since the year's onset. Thus, we ended the quarter with over USD88 million in cash, alongside further liquidity of approximately USD46 million, which includes the undrawn USD25 million revolving facility and USD21 million of unsold concentrate ready for shipment. Overall, we maintain an extremely healthy cash flow position and continue building on our solid balance sheet from the previous quarter.

Thanks, Morné. It was a strong quarter in production and cash flow. We're utilizing this cash flow to diminish our interest-bearing liabilities and settle any creditors as we aim to operate with a solid balance sheet. Again, we are pleased with a 24% quarter-on-quarter increase, which is above our previous outputs. However, we had some challenges in Q1 due to various operational issues. Our team excelled in Q2, particularly in May and June, which has demonstrated how effectively our mine can operate. The average cash costs exceeded USD2.60 per pound, which showcases the efficiency of our operations compared to similar copper mines. Our grade has significantly improved, and development meters are trending well, with ongoing efforts to further improve efficiencies and costs.

Good morning and good evening, everyone. I'm Rob Walker, the General Manager for Metals Acquisition at the CSA Mine in Cobar. We were faced with challenges in Q2, particularly regarding safety performance. While we remain below the industry average, we recognize the room for improvement. We have actively implemented strategic decisions, including structural changes to enhance onsite safety measures. Some of these endeavors include intensive visible leadership training focused on cultivating a safety culture amongst our team members. I’m proud to report that we achieved zero recordable injuries in June, which signifies our commitment to improving safety initiatives. Moreover, as highlighted earlier, we have strategic plans for expansion, and our tailings facility improvements are essential for future projections. Our capacity for managing large-scale projects has been demonstrated through successful completions of significant initiatives.

Overall, this quarter underlines the potential of our mine. We have effectively managed operational obstacles that arose from planned maintenance and have continued moving forward on several critical projects. Our goal remains centered on consistency and optimizing efficiency, alongside the ambitious infrastructure upgrades intended to further enhance our production capacity. We look forward to leveraging our strengths to ensure sustainable growth.

The first question comes from Daniel Morgan with Barrenjoey. Please go ahead.

Hi, Mick, and Tim. First question, just the balance of the year. What do you expect in terms of tonnes and grade relative to this quarter? I understand again you've got a high degree of inventory at the end of the quarter. Thank you.

Yes, look, we do. I would say the turnaround is not linear. I think Q3 might be slightly weaker compared to Q2, but I anticipate that Q4 will be another strong quarter. If we consider the trend, it will be approximated but not exact.

Thank you. Regarding the presales, does this mean the copper price is locked in? What are the specifics of the presale terms? Thank you.

Yes, in terms of the presales, we aimed to match cash inflows with outflows. The pricing remains open until loading onto the vessel. A 10% QP follows loading; we get paid within 10 days post-loading. Some pre-sold shipments were dispatched by the end of June and continue into July, and August.

Was there any positive reconciliation against expected ore grades?

A little, but it wasn't a significant factor. The dilution was slightly better due to different firing methods, which expedited some operations. There was a specific stope that was extracted about four months earlier than planned.

What’s the status of the ventilation project expected to complete mid-2026?

Yes, a gradual improvement from this project will happen throughout the period, though not a jump in one go. We plan for a continual enhancement in airflow to optimize our mining capabilities.

Good morning, Mick, Morné, and Rob, just following up on the ventilation project. What would the capital expenditure profile look like for this project? Is it part of the existing CapEx guidance?

The ventilation project adds cost incrementally, with spending aligned to growth capital. Current sustaining CapEx is expected at about USD45 million, alongside around AUD20 million for the vent project.

What are expectations surrounding grade for the balance of the year?

Our plan factors in lower tonnage but higher grade for '24-'25. Overall, we expect an average copper grade around 3.7% to 3.8% this year.

What is the expected timing for the raise boring related to the ventilation project?

It's unlikely to occur within the next nine months; initial work will extend through '25. We are engaging development now for better ground conditions.

Could you elaborate on the recent double-lift stooping strategy and its results?

Implemented in May, this strategy has been effective, resulting in lower dilution and improved output from certain stopes. The operational times saved translate positively for metal recovery.

Are you focused on improving production efficiency? Is this about increasing output while maintaining expenses?

Yes, we're focused on gaining more metallic output while maintaining expenditure levels. The significant gains in operational consistency have put us in a solid position.

We are structuring our debt to lower capital costs. Continuous progress in improving cash flow and balancing expenditures drives our ongoing management efforts.

It's important to focus on optimizing ours and providing updates on QTS South Upper developments.

This concludes the question and answer session. I would like to turn the conference back over to Mick McMullen for any closing remarks. Please go ahead.

Thank you everyone for your time. This quarterly review highlights substantial progress and performance, and we're eager to release subsequent updates on exploration efforts and future forecasts. We appreciate your interest and support.

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