Yahoo Finance Metals Acquisition Corp (NYSE:MTAL) Q1 2024 Earnings Call Transcript
Metals Acquisition Corp (NYSE:MTAL) Q1 2024 Earnings Call Transcript April 30, 2024
Metals Acquisition Corp isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello and welcome to the Metals Acquisition First Quarter 2024 Results Conference. At this time, all parties are in a listen-only mode. Later, you will have an opportunity to ask questions. [Operator Instructions] Please note that this call is being recorded and I will be standing by should you require any assistance. I would now like to the call over to CEO, Mick McMullen. Please begin.
Mick McMullen: Thank you, and thank you, everyone, for joining. I'll be speaking to these presentation slides today along with Morne Engelbrecht, our CFO. We're going to give an update on our Q1 2024 results as well as a bit of an update on the business up until now. So, CSA, obviously, we own is a very high-grade copper mine sitting in a Tier 1 jurisdiction in Western New South Wales. And as most of the people on the call would know, it's been operating for a very long period of time. And so it's sort of a known quantity in terms of infrastructure and great relationships with local stakeholders and a very stable regulatory taxable royalty regime, which in day and age is becoming increasingly rare. The company has got just under 70 million shares in issue.
We, as everyone would know, we're listed on the New York Stock Exchange as well as the ASX. And the enterprise value is near -- about $1.1 billion. We have a very strong register, large institutional banking, not a lot of retail in the company. And we view CSA as a great foundational asset for us in terms of a phenomenal resource in the ground with a lot of excess infrastructure. We thought we'd put in a bit of a scorecard for us to sort of mark how we've progressed along our journey since acquiring the mine back in June of last year. And I think overall, we've delivered on many of the things that we said to people we would do. Obviously, closing the mine with the first of those, operate the mine safely and in a fully permitted fashion. We managed to deliver on several key permits since we got the mine, including the Tailings [ph] M Stage 10 lift.
We said we'd deliver a large resource increase. We always believe that the mineral resource and reserve have potential for significant expansion and as with our call last week, we've delivered on that. We said we'd deleverage and simplify the balance sheet. And as you will see, when Morne starts to talk here shortly, you can see exactly to the extent that we've done so. We've indicated that we'd like to simplify our capital structure, and I would say that's a work in progress, but something that is front and center of our mind. We've been building our team, both at a Board and management level. And I'd say that's a bit of a work in progress as well. And we have certain steps underway that we'd like to take in order to sort of further broaden our board diversification as well as management.
A technician in a hardhat examining a drill head inside a mining facility.
Operational turnaround. We've always said that CSA was a turnaround story in terms of it being a very small asset inside its previous owner, which is a very large company and perhaps didn't have the level of focus that the asset really needed. And so I would say we're partway along there in terms of operational turnaround, whereby no means where we'd like to be, but we see a good potential to further turn the asset around. We said we'd deliver a meaningful reserve life upgrade and we've now delivered that with an 11-year reserve life based on data up until the end of August. We -- clearly, we have aspirations to grow the business, but we would be disciplined on M&A, and I think we've demonstrated that. And for those of you who can recall from the closing in the middle of last year, we had a reasonable sized deferred payment due to Glencore, which if we didn't pay it in cash by the middle of 2024, would have converted to equity.
And so having paid that down, we've removed that potential dilution overhang. So, three quarters into our ownership, I give us a reasonable score in terms of our delivery. And I think a few of those orange or yellow ticks there, we have plans in place in order to deliver on the remainder of those over the next six to nine to 12 months. Moving on to the next slide, Slide 6. Obviously, we've increased the life of mine and the reserves very significantly. And I think, again, based on the call that we had last week, the fact that the 11-year mine life actually only goes down 95 meters beyond the bottom of the current decline is very important in terms of the requirement for development going forward. We've had a very large increase in resources.
And again, the top 850 meters of the ore body actually are not in that resource. Q1 production was down a bit from where we'd like it to have been. It was 8,700 tons of copper. And similarly, because of the high fixed cost nature of the operation, our C1 went up about $0.15 a pound relative to the prior quarter. I would say, and I did indicate on the call last week that sequentially, we expect quarters to be better production during the course of the year. We spent about $13 million of capital, which again was sort of exactly where we guided to before. And look, as everyone knows, the copper price has been increasing. We did achieve slightly higher than the average price -- the spot price during the quarter. So, again, we're achieving a better price relative to the market.
Balance sheet. At the end of the quarter, we had about $100 million of liquidity, so AUD155 million. We did pay down $127 million of interest-bearing liabilities. We've been very clear that one of the key things from operating cash flow and the ASX IPO was to delever the balance sheet, and we have some further simplification that we'd like to do there. And we've also put out our first sort of guidance for the three years there indicating that by 2026, we'll be producing in excess of 50,000 tons of copper. So, in terms of production, look, it was a bit of a weaker quarter relative to the prior quarter, and that was a combination of really a couple of -- two or three things. One was we did see a bit higher labor turnover in absenteeism, which impacted the production a little bit.
It was also partly with the planning of the stope. So, as we've said before, the mine would sort of turn over circa 70 stopes a year. The top half a dozen of those could be as much as a third of your metal. And so if you're out of those, then you have weaker production, if you're in those as we're sort of seeing -- in two of those stopes coming online or have come online during Q2, then obviously, you get a large increase in metal. So, we do have a bit of variability or volatility quarter-on-quarter in terms of production. The other thing in Q1 was that we announced we had a three-day complete power outage to the mine due to that storm to the east of us. And we did lose a bit of momentum coming out of that. So, that was a sort of 500, 600-ton copper impact for the quarter.
C1 really was driven by the volume and so we did see a little bit of an increase in C1. We do expect Q1 for 2024 to be our weakest quarter for the year. And part of the scheduling is we were mining a reasonable portion of ore from the East and West deposits, which are shallower, but they are quite a bit lower grade and so we did see that come through in the average grade. So, again, as we move out of those East and West deposits into QT North and QT Central, which is sort of really what the new mine plan is based on, we expect to see grade start to tick back up again. Similarly, development meters were down. Now, we did a couple of things in the quarter. One was that we did a fair bit of rehabilitation meters, which are included in the primary development meters.
We sort of went back and did a fair bit of extra ground support, but also under the new mine plan because we sort of -- we only need to advance about 95 meters below where we currently are for the next 11 years. It does mean that we actually need to do a bit less development relative to where we had been before. So, again, we focus very much on productivity. So, productivity was in line with the previous quarter, well above where it had been a year ago. And similarly, CapEx was basically exactly as we'd sort of forecast in the previous couple of quarters. We are doing those TSF works and in the quarterly report, we put some photos there of all those earthworks. And so as those things roll off during the course of the year, we expect the sort of the capital spend to drop back down.
But again, it was exactly in line with where we guided the market to be. At this stage, we don't have any growth CapEx. It's all-in sustaining CapEx and so it's trending exactly where we said it would be. I'm going to hand over to Morne, our CFO, for the next three slides, as he talks about the cost side of the business.
Morne Engelbrecht: Thanks Mick. Good evening and morning everyone. My name is Morne Engelbrecht and I'm the CFO for Metals Acquisition. I'll take you through the next three slides and also the high-level liquidity order flow at the end of the quarter. Before we get into Slide 10, if you look at through our risk -- S-K 1300 report, we issued in the U.S. and copy on the ASX as well. You'll note that in that BDA report, they note that around two-thirds of our overall costs are being fixed costs from a mining point of view, which impacts to a large degree, our cost per ton and cost metrics as presented here, especially if volumes are down. Going to Slide 10 and to the left, there's our processing cost per ton in U.S. dollars, which remained pretty steady with a slight uptick of around 2% on the lower volumes compared to last quarter.
And due to the higher fixed cost nature of our mining cost per ton will also impacted by those lower mining volumes as Mick has already covered off on. That metric is also impacted by the fact that our capital development meters were down by almost 45% compared to last quarter, which just means that less of that sort of fixed cost component, it's capitalized and therefore, had to be distributed over the mining volumes as well and therefore, it allows a net higher cost per meter. Going on to Slide 11. You will see there that the volume gain is critical once again, with two-thirds of the G&A costs being fixed. There's little room to move when volumes drop off. The underlying costs are still high for my liking and we are actively working to reduce these overall retendering contracts where possible.
As added before, on the development meters side, we're almost 45% lower on quarter-on-quarter. And as Mick has outlined, this is predominantly due to more meters being completed, which is not part of the weight calculation. And then we're also pivoting in the new mining plan where they're going to mine higher grades areas going forward. On Slide 12, here I wanted to take you through a high-level liquidity update as at the end of March 2024. As you can see, we started off the year with liquidity of around $32 million, which included the drawdown of our revolving facility of $25 million. We then completed a very successful oversubscribed equity raise on the ASX, which brought us in so much needed liquidity of around $215 million or AUD325 million before cost.
Almost immediately, we paid a deferred Glencore consideration of around $83 million, which was one of our higher debt costs on our balance sheet as it carries the same interest as the mxx debt facilities, so immediately accretive to earnings. Alternatively, this liability could have been converted to shares, which would have been RDWS [ph], so paying that back as soon as possible was the best thing to do for us there. We then reduced further some additional interest-bearing liabilities by repaying the revolving facility of $25 million and reducing some of our principal on our senior facility as well of around $8 million. We ended up the quarter with around $100 million of liquidity, which is around that AUD155 million Mick has outlined as well.
I think it's very important to note that this liquidity does not include the two shipments we referred to previously as well on our previous calls of around $48 million, which was shipments around -- one of the shipments was the last week of March and the other one in the first week in April. And if you look at that sort of liquidity graph, you will see that we carry, obviously, all the costs in the quarter for those two shipments during the quarter, but there's no revenue or cash to offset that. So, you will see that coming through in the next quarter. And that's just based on our terms and offtake agreement, which sort of states that title doesn't transfer until that provisional payment is made, which can be around two weeks after the ship is loaded.
So, that's just a cash flow timing issue there. And then also there's no revenue accrued at the end of March for those two shipments as well. So, just I wanted to make that very clear. Also of note, this subsequent to quarter, we paid the stamp duty on the acquisition of the CSA Copper mine, which is around $24 million, which you will see coming through the next quarter as well. And then as Mick has mentioned, we are looking at ways to strengthen our balance sheet and simplify our capital structure, as I mentioned before as well. So, we're looking at a number of options there, which we can report on over the next couple of quarters. With that, I'll hand back to Mick.
Mick McMullen: Thanks, Morne. And for those of you who are trying to sort of back calculate our free cash generation during the quarter from operations, I think the point around that $50-odd million worth of two shipments right at the end of the quarter and dropped into the first, I think it was the 2nd of April, we have booked all the costs associated with those shipments, but none of the revenue. So, if you were sort of lining up on an accruals basis, you would need to put that $50 million back into the revenue line. And so you can see even at $3.87 copper that was our average price during the quarter, the mine is generating quite strong free cash flow. Clearly, at $4.60 copper, the prices are even better. And each of the shipments today is worth around about $28 million to $29 million of bode load.
So, it does make your cash flow somewhat lumpy. But at the end of the day, the mine is generating quite strong free cash flow. And again, just rolling into some of the information we put out the other day, we think coming out with an 11-year reserve life really sort of gives people confidence that this truly is now a long-life asset, all of those ore bodies are outlooked. That's on information up until the end of August. We continue to drill at some pace. And so you can see on the graph there, it truly is a significant increase in the resource and reserve. They have historically been very successful at maintaining a sort of a certain level of resource and reserve despite annual production. You can see how significant this R&R update has been relative to where it's been in the last 10 years.
And we see opportunity subject to exploration success and sort of economic factors for that to continue to increase. We have run those resources and reserves at a $3.76 copper price, obviously, $4.60, everything becomes economic. So, again, circa 1 million tons in contained copper at a fantastic rate of 4.9%. Again, everything is open. Really, we now see the opportunity to be to try and produce this faster than what the current mine plan has us doing. We did talk the other day about some of the shallower mineralization in the ore body. So, again, QT South Upper is that little thing on the top left in green, we do intend to get in and start mining that fairly soon. But interestingly, we've been mining the historical data, so to speak, and have discovered that there is substantial zinc mineralization in the upper portion of the mine, very proximal to existing infrastructure within 50 to 70 meters of the decline in most cases.
And at drill hole had about 16 meters of massive sulfide zinc-rich sitting right up in your surface, so around about 300 meters below surface. So, we're very excited about this. We're not specifically chasing zinc. We still see CSA as a predominantly copper ore body. But if there's a free ore body, we'll take that as well. Again, reserves, very significant upgrade in the reserve status, which underpins some of the discussions that we've sort of touched on in terms of balance sheet simplification. This is one of the key building blocks along with the ASX IPO and the large equity raise and then obviously, the operations generating strong free cash flow. They're really the three pillars upon which you can sort of replan our balance sheet in terms of where you'd like to be.
Again, guidance, we see guidance, production gradually picking up. Again, we'd like to see if we can improve on that as our knowledge of the ore bodies change and we can sort of now focus our development efforts on unlocking that bottom of the mine through additional ventilation, which is really the -- one of the key changes in the development plan is to sort of not have to be driving down as deep, but actually take those meters and use some of those on pushing that ventilation in because that's really the key in terms of actually unlocking production. So, just coming back to our highlights, again, a little bit weaker quarter in Q1. We do expect sequentially the quarters during 2024 to improve and costs up slightly, again, fixed cost base, but really at $4.60 copper, this mine, clearly, with the C1 having that sort of $2, $2.15 a pound level, clearly is generating significant operating free cash.
And then the CapEx of sort of historically, we've guided the market to around about $50 million to $52 million for the year. It obviously generates some very good free cash. I think the simplification of the balance sheet is something that we see as pretty critical here going forward and obviously, generating lots of free cash and paying down interest-bearing debt is right on the top of that list of things to do. And so with that, I think that's really the summary of the update. I'm happy to turn it over to questions.
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