Copper Mountain Mining Corp. (OTCPK:CPPMF) Q2 2016 Earnings Conference Call August 8, 2016 10:30 AM ET
Rodney Shier - Chief Financial Officer
James O’Rourke - President & Chief Executive Officer
Orest Wowkodaw - Scotia Capital, Inc.
Alex Terentiew - Raymond James Ltd.
Marco Rodriguez - Stonegate Securities, Inc.
Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Copper Mountain Mining Corporation Second Quarter 2016 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] Thank you.
Rod Shier, Chief Financial Officer of Copper Mountain Mining Corporation, you may begin your conference.
Thank you, Chris. After opening remarks by management, we'll open the lines to participants for questions as noted by Chris.
Please note that comments made today that are not of a historical factual 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 material than actual outcomes, and that's noted on slide two of our presentation for people following along online. Please refer to the bottom of our latest news release for more information. And for those of you following on the webcast, again, I remind you about the page numbers for the supporting slides.
I'll now turn the call over to our CEO, Jim O'Rourke, for his remarks.
Thank you, Rod. Good morning, everyone, and thank you for joining us this morning. Today, we'll discuss the 2016 second quarter results of the operation at Copper Mountain, plus our corporate financials. I will briefly summarize the financial results and provide an update on the various operational activities, after which Rod will provide financial details for the second quarter.
During the three months ending June 30, 2016, Copper Mountain continued to focus on our priority of cost reduction and production improvements to strengthen our operating base and address the realities of the weaker copper price environment
During the quarter, the company completed a total of three shipments of copper concentrate containing approximately 20.1 million pounds of copper plus precious metals. These shipments generated CAD 62.6 million in revenue net of treatment and refining charges and price adjustments.
The average realized copper price was US$2.13 per pound for the quarter. This is compared to an average copper price of US$2.74 per pound for the period ending June 30, 2015, in which revenues were CAD 56.8 million net of pricing adjustment. The increase in revenue during 2016 is due to the increase in sales volumes, improved precious metal prices and the weaker Canadian dollar, which was partly offset by a decrease in the copper prices during the quarter as compared to the first quarter last year.
Looking at slide number three. Production for 2016 second quarter was 26.5 million pounds of copper equivalent based on the current metal prices. This production included 21.2 million pounds of copper, 7,980 ounces of gold and 74,600 ounces of silver, as compared to 19.5 million pounds of copper and 7,800 ounces of gold and 71,100 ounces of silver in the second quarter of 2015. During the second quarter, the precious metals accounted for about 20% of our production value.
Looking at the mine plan, mining activities continued to be focused in Pit #2 area and in the Virginia pit for the majority of the second quarter. During the quarter, a total of 17.9 million tonnes of material was mined, including 5.7 million tonnes of ore and 12.2 million tonnes of waste for a strip ratio of 2.14 to 1.
During the quarter, the mine continued to optimize our short waste haul opportunities and continued to focus on maximizing our haulage truck productivity hours. For the quarter the mine averaged 196,900 tonnes per day, about 18% above the mining rate in the second quarter last year.
As mentioned, mining in the Virginia pit continued during the quarter. It's planned that the Virginia pit will be completed in the latter part of this year.
Our mining fleet continues to enjoy favorable mechanical availabilities as outlined on page six. In 2016, the mining production equipment averaged over 85% mechanical availability. Total unit open pit mining costs averaged CAD 1.61 per tonne mined, which were 14% below the costs during the same quarter last year.
The lower unit costs were achieved with improved utilization of our dispatch system, reduced diesel fuel cost, and reduced haulage cycle times as a result of shorter waste haulage distances. Improvements to the haulage options are key and are continuously being investigated.
Moving on to slide seven, the mill processed a total of 3.4 million tonnes of ore grading 0.34% copper to produce 21.2 million pounds of copper, 7,980 ounces of gold, and 74,600 ounces of silver during the quarter. Copper recovery averaged 82%, while gold recovery averaged 70%. Mill operating time during the quarter averaged 91.5%, (sic) [91.6%] (6:30) which was slightly above the 90.8% (sic) [90.7%] (6:33) operating time reported for the same period last year.
Moving on to page eight on the slide, the mill continued to achieve monthly improvements in throughput during the quarter and averaged 37,300 tonnes per day for the quarter. Improvements in mill throughput continued into July, where the mill averaged 40,700 tonnes per day with a 96% operating time. This average is equivalent to 39,000 tonnes per day at our budgeted operating time of 92%.
We are confident that the 2016 guidance of 37,500-tonne per day is readily achievable. Mill throughput during the first half averaged 37,200-tonne per day, an increase of 6% as compared to the average in 2015.
Total cash cost for the month (sic) [quarter] (7:39) ended June 30, 2016 were US$1.58 per pound copper sold net of precious metal credits, while site cash costs averaged US$1.17 per pound of copper produced, net of precious metal credits. This represents a reduction of 13% and 14% respectively, compared to the total unit costs of US$1.81 per pound and site cost of $1.36 per pound of copper produced net of precious metal credits during the second half of 2015.
The company is on track to meet our 2016 guidance level of 80 million pounds copper. The copper grade is forecast to average 0.33% and mill throughput is planned at 37,500-tonne per day as mentioned above. The planned average mining rate for the year is 174,000 tonnes per day.
During the quarter, our stakeholders contributed to the mine's cost saving initiatives, and these coupled with production improvements, have strengthened the mine's ability to weather the current global economic environment.
Lower fuel prices, shareholders' deferral of crushing tolling fee, and contributions by our employees and supplier, plus the deferral of electrical payments of BC Hydro are significant and have greatly strengthened our operating base.
I'll answer specific questions in the question-and-answer period for those wishing more details. And I'd like to now turn it over to Rod to review the second quarter financial. Thank you.
Thank you, Jim. As noted on slide number 11, the company recognized revenue of CAD 62.6 million for the second quarter ended June 30, 2016, after pricing adjustments and treatment charges. And this was based on sales of 20.1 million pounds of copper, 7,200 ounces of gold and 63,700 ounces of silver.
The average realized copper price for the second quarter of 2016 was $2.13 per pound as compared to $2.74 per pound for the quarter ended June 30, 2015. Comparative revenues for Q2 2015 were CAD 56.8 million after pricing adjustments and smelter charges. While average realized copper prices declined 22% year-over-year, net revenues increased by 10% for the second quarter of 2016 as compared to the same period last year. This is attributable to the stronger sales volume, a higher U.S. dollar exchange rate and - as all sales are settled in U.S. dollars. However, the revenue was partially offset by the lower copper price realized during the quarter.
As noted on slide 12, cost of sales for the second quarter ended June 30, 2016, were CAD 60.2 million, which resulted in a gross profit of CAD 2.4 million as compared to cost of sales of CAD 55.6 million, which resulted in a gross profit of CAD 1.1 million for the second quarter ended June 30, 2015.
Production efficiencies and cost savings realized as part of the company's cost-saving initiatives helped minimize the increase in cost of sales associated with the increased sales volume as noted by Jim.
General and administrative expenses, which include some mine site administrative expenses, were CAD 1.2 million for the second quarter ended June 30, 2016, compared to the CAD 2.7 million for the second quarter ended June 30, 2015.
Non-cash share-based compensation reflected an expense of CAD 0.2 million for the second quarter ended June 30, 2016, compared to an expense of CAD 0.3 million for the quarter ended June 30, 2015.
For the quarter ended June 30, 2016, the company recorded finance income of CAD 0.04 million and finance expense of CAD 2.8 million as compared with finance income of CAD 0.9 million and finance expense of CAD 2.5 million for the second quarter ended June 30, 2015. Finance expense primarily consists of interest on loans and the amortization of our financing fees.
For the second quarter ended June 30, 2016, the company recognized a non-cash unrealized foreign exchange gain of CAD 2.7 million, compared with a non-cash unrealized foreign exchange gain of CAD 5.2 million for the second quarter ended June 30, 2015, which primarily relates to the company's debt that is denominated in U.S. dollars.
During the second quarter of 2016, the company recognized a non-cash unrealized loss on the interest rate swap of CAD 0.7 million as compared with the non-cash unrealized gain on the interest rate swap of CAD 0.4 million for the second quarter ended June 30, 2015, which is related to the revaluation of the interest rate swap liability required under company's loan agreements. It should be noted that these adjustments to income are required under IFRS, are non-cash in nature as outlined in the company's MD&A and statement of cash flows.
For the second quarter ended June 30, 2016, the company recorded a current resource tax expense of CAD 0.1 million as compared with the current resource tax expense of CAD 0.1 million for the second quarter of June 30, 2015. It's all resulted in a net loss attributable to shareholders of the company for the second quarter ended June 30, 2016 of CAD 1.9 million or CAD 0.02 per share as compared to a net gain of CAD 1.6 million or CAD 0.01 per share for the second quarter ended June 30, 2015.
As you can see on our income statement, foreign exchange gains and losses can vary significantly on a quarterly and yearly basis. Therefore, we really need to look at adjusted earnings and adjusted EBITDA to better measure the company's financial performance.
After removal of all the accounting non-cash items, the company reported adjusted EBITDA of CAD 10 million, and an adjusted loss of CAD 5.3 million or about CAD 0.04 per share for the second quarter ended June 30, 2016, compared with adjusted EBITDA of CAD 15.4 million and adjusted earnings of CAD 3.4 million or CAD 0.03 per share for the second quarter ended June 30, 2015. This decrease in adjusted EBITDA and adjusted earnings is primarily due to the 21% drop in copper prices that we saw in the past year.
As noted on slide 13, the company had cash flow from operations before working capital changes of CAD 14.3 million during the second quarter of 2016, as compared to CAD 6.9 million for the second quarter ended June 30, 2015. At the end of the quarter, the company had CAD 24.9 million of capital resources available in the form of CAD 5.1 million in cash, and cash equivalents, CAD 9.6 million in concentrate sales receivables, and CAD 10.2 million in concentrate inventory at the port ready to be shipped.
In conclusion, we enjoyed a strong quarter with a weak copper price environment. As noted on slide 14, our priorities remain focused on continuing to maximize cash flow and minimize costs. We look forward to a strong second half of 2016 and are confident our 2016 production targets will be met.
We would now like to open up the lines for any questions. Thank you.
[Operator Instructions] The first question is from Orest Wowkodaw with Scotiabank. Your line is open.
Hi. Good morning. I was wondering if we could get a little bit more detail in terms of your upcoming debt maturities. Specifically, can you give us any kind of feel on where the discussions may be with the lenders here in terms of relaxing some of the upcoming debt maturities?
Sure. Sure, Orest. And we tried to do that in the last press release. You'll recall that Jim and I noted for the marketplace that we introduced this idea back in early January when we produced our annual budget for the banks. And we were originally hoping to combine the rescheduling of the debt with the extension of the guarantee that we get done every annually in June. Unfortunately, that wasn't possible right at the tail end there.
It took - the bank separated those two issues, and we did get the guarantee right at the end of June as planned. We are - continue to be in discussions with the banks. The next step - they've already sent up their technical engineer. That report came back well, and now they've asked us - now that Jim has done the report, actual numbers up till June, and then forecast out by the months for the next 18 months, and then annually for the life of mine.
So we're just in the process of redoing those numbers and would anticipate - it's like the annual renewal of our guarantee extensions, which always happen right at the tail end before you need them. I would suspect that we would not have this - the re-jigging of an amortization schedule with the bank until later this year. And that's - I'm talking like late November, early December. The payment is due December 15.
And our present plan, Orest, we have the cash to make that payment in December, but we wanted to relax the payment a little bit and not make them so, I guess, the term will be a little - they're up and down. We started out with a little bit lower payments, then they went to nominal payments, and now they're going up to CAD 8.1 million in December for, I think, two terms, then they go back down and back up. We're just trying to smooth that out a little better in light of where we are in our production plan and the pricing environment we're in.
Okay. Your comment that you have sufficient liquidity to meet those commitments, do I understand your financial statements correctly specifically in Note 8 that there is US$16.2 million due this year on the credit facility and that's due, I guess, December 15, plus another US$9.6 million on the term loan due, I guess, that would be in August?
That's right, in August. And you'll also note on the financials, you saw in the first quarter this year where Mitsubishi, our partner, put in money for that subordinated loan.
Okay. So there's US$26 million due in the back half of this year. So help me understand how you have sufficient liquidity then to meet those debt maturities.
Well, we've got - the only - the one I'm referring to, Orest, is the US$8.1 million that's due in December. The payment in August will be made with some additional funding coming in from Mitsubishi.
Sorry, what about the other $8.1 million? Isn't that due...
There's only one $8.1 million due in December, and that's the one I'm talking about.
So your disclosure here about US$16.2 million due in 2016, is that - so is that not reflective of just the second calendar 2016, or is that a 12-month number?
You're looking at 12 months out.
I see. So that's $16.2 million is a 12-month to mid-2017?
Yeah. So it's going to be a rolling to be current.
We're always going to be 12 months looking out, so you're actually going all the way to June 30 of next year.
Okay. Thanks for clarifying that.
The next question is from Alex Terentiew with Raymond James. Your line is open.
Hey, good morning, guys. Just two questions for you. First on your Hydro deferral, can you just clarify or confirm for me, is that part of the reduction to your operating cost and included in your cash cost?
And the second question, Jim, you made a comment about grade being 0.33%. I kind of didn't catch if you sad that was for second half of this year or if not, if it was first 2017 and I just want to get a bit of color on your grade expectations, both copper and gold for next year.
Our - I'll let Rod in.
Yeah. I'll just touch the Hydro question for you, Alex.
The Hydro cost are included in our cash cost. It's only impacting us from a cash flow point of view. And you'll see our non-current liabilities start to increase by about CAD 1.8 million per month as we go forward because that's the cash savings. But we include 100% of the cost in our cash cost. And I'll let Jim talk about the grade.
Yeah. The grade is our average for the year, the 0.33% and that's as per our guidance. We would...
Sorry. Go ahead.
Yeah. We would expect our gold to continue about where it is because we're still in Pit #2 area and also in the Virginia for the balance of the year.
Okay. And because I think previous mine plan you guys had published talked about grades. I think it was 2018, rather, going up a little bit, so I just was curious if you're sticking to that or any opportunities to bring some of those grades forward into 2017 a little bit.
Well, I think we've mentioned before, every year in - we're just going into it now, we do our budgeting for the next year and we'll be reviewing the mine plan between now and November, and seeing what we can do to obviously maximize cash flow. So that's an ongoing process, and, as I say, we're going to do whatever we can to make it - bring forward the grades as much as we can.
Okay. Great. Thank you.
[Operator Instructions] The next question is from Marco Rodriguez with Stonegate Capital Your line is open.
Good morning. Thank you for taking my questions. I'm not sure if I caught this, but was there any a deferral of the tolling fees in this quarter?
We do in terms of cash flow, but in terms of cost, the tolling fees are included in our costs.
Got it. And just in terms of the total cash cost, I mean, how should we be thinking about that? Any sort of target rates for the second half of the year?
Marco, I would think our - we're starting to, I don't want to say plateau, but get a real normalized operation through the mill. And I would expect to see our costs being similar in the second half of the year as we reported just now.
Got it. Appreciate it, guys. Thank you.
Showing no further questions at this time. We'll turn the call back to the presenters.
Okay. I just like to thank everybody for dialing in and listening to our second quarter results. And as usual, if you have any direct questions, please don't hesitate to call Jim or myself or Dan Gibbons. Thank you very much.
This concludes today's conference call. You may now disconnect.
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