MAC Copper Ltd (MTAL) 2023 Q4 法說會逐字稿

Good day, everyone, and welcome to today's Metals Acquisition 2023 financial results presentation. (Operator Instructions) Please note, today's call will be recorded, and I will be standing by should you need any assistance.

It is now my pleasure to turn the conference over to Mick McMullen, CEO of Metals Acquisition. Please go ahead, sir.

Thank you very much, and thank you, everyone, for dialing in from wherever you are in the world. So my name is Mick McMullen; I am the CEO of Metals Acquisition. Also on the call, we have Morne Engelbrecht, who is our CFO. We have Dan Vujcic, our Chief Development Officer; Chris Rosario, our General Counsel; and Sandy Noyes, who is Head of IR for us.

Today, we'll be running everyone through the financial results for 2023, which, as you would know, was a large year for us in terms of acquiring the CSA copper mine in Western New South Wales in the middle of the year. And so we thought it would be useful to run everyone through the results to try and separate out some of the non-recurring and one-off items, mainly related to that acquisition.

Morne will be controlling the slides. So we'll just skip through the disclaimers. This presentation has been lodged with the ASX. So everyone can read that at your leisure. And if we go to the next slide, Morne, to the company overview.

As I said, you've got myself, the CEO, Morne, Dan, and Chris along the line, and this is the team that's been charged with taking this business forward. And as you can see, a significant amount of experience in both turnarounds and acquisitions. So I guess we've left acquisition [in the 90's for raise] and our view is to try and build this business. But right now, we're pretty heavily focused on sorting out the CSA copper mine.

If we go to the next slide, please, Morne. As most people would know, this is a mine that's been running for a very long period of time, since 1967, in its current format. It's been producing around about 40,000 tonnes of copper a year and sort of 400,000, 500,000 ounces of silver. And again, as you would know, we have strained the silver off to Osisko. It currently has a reserve of about just under 8 million tonnes at 4% copper. And we've been working quite heavily on a new reserve and resource estimates which should be coming out shortly.

We have a significant amount of drilling that's gone into the new resource and reserve estimate as we've announced to the market in recent past. We have around about just under 500 employees working at bay. And again, it's been producing at sort of C1 at just under $2 a pound. And when copper has just hit $4.20 a pound overnight, it's obviously a good time to be in copper.

Next slide, please, Morne. Again, for those of you who follow the company, you've seen the slide before. It's the mines out in Western New South Wales. It is a fantastic place to operate. Because it's been running for so long, it's got all of its infrastructure in place.

And because we listed on the NYC first, we have a fairly standard North American cap structure, which is a large number of shares, high share price as opposed to the usual Australian large number of shares, low share price. We've decided to differentiate ourselves on the ASX by maintaining that structure rather than doing a split. We'd like to be a little different from the rest of the pack.

And we've got a fantastic shareholder base, very supportive large equity holders. And as you would also know, we recently listed on the ASX, which brought a significant amount of capital into the business post the December 31 balance sheet date we'll discuss today, and, as Morne will discuss with you, as much of that cash to pay down interest-bearing liabilities. Just under around 70 million shares in issue. And again, as I said, very heavily weighted to large institutions who are sort of backing us to build amidst the copper business.

Next slide, please, Morne. And our growth strategy is obviously organic initially. So we believe that that CSA copper mine has the potential to carry on for significantly longer than its current reserve life, subject to the exploration results and conversion of resources to reserves. But we're also very focused on growing the business in general, clearly, multiple assets, large business is certainly something that the market is open for, I believe, and we've got a track record of doing that.

So again, this has been our strategy from day one. We've executed on part one of that strategy, but we still expect to have a few other things to carry on with here. Next slide, Morne, we might move into your part shortly, I think.

I'll hand it over to Morne, and he can discuss the financial results for FY23.

Thank you, Mick. Good evening, morning, everyone. My name is Morne Engelbrecht, and I'm the CFO of Metals Acquisition Limited. I will mainly take you through the high-level results and some of the one-off and noncash items that creates some noise, for a lack of better term, in the P&L and balance sheet as reported for 2023.

These one-off and non-cash items mainly relate to the acquisition of the CSA copper mines. Mick has sort of outlined the associated financial instruments that are fair values through P&L. I will also cover some elements of the capital structure and liquidity.

So just going through slide 11, the main points to note and keep in mind when you read the results, one, is that the results reflect the first six months of the ownership and operation by MAC of the CSA copper mine that was acquired on June 16, '23; and the underlying earnings vehicle represents roughly half a year's underlying operating results.

Secondly, as I mentioned before and Mick has mentioned as well, there's some significant noncash and one-off items hitting the P&L, with around USD71 million of one-off items and non-cash fair value adjustments of around USD47 million being recognized in the P&L.

Going to the results for 2023, you would have seen that we recorded a statutory loss after tax of USD145 million. In that result, you will also note the significant administration expense of USD79 million. Included in this number are a number of one-off items relating to the acquisition, namely stamp duty of about $48 million; advisor fees, $13 million; redundancies of $2 million; legal costs of $8 million; and inventory movements of about $10 million.

Also, I should note that included in the cost of goods sold is depreciation and amortization expense of, non-cash, of $47 million, and this is obviously based on the uplift of values of the assets in accordance with the purchase price allocation, which is disclosing the accounts.

I am providing some guidance in terms of the depreciation expected for 2024 as well to be around USD90 million to USD100 million. This is obviously driven by production and the reserves and resources that drive the lives of mine over which the assets are depreciated, and will therefore be impacted by production levels in '24 and any changes to the reserves and resources, as Mick has outlined as well, which will be released shortly.

The other key point to note in terms of the underlying cash generation of the company relates to the renegotiated offtake agreements with Glencore, in that the previous historical constraints that existed does not exist under the current offtake agreements as reflected in the accounts, and that the pricing is linked to industry mixes over a quotational period.

Last thing to cover here is just to note that we do have a hedge book in place in the form of swaps at a strike price of USD3.72 per pound. So this covers roughly 30% of the production in '24 and '25, and obviously at less than 15% in '26. And we recognized a realized loss of about $600,000 in the 2023 accounts for these contracts.

Just going to slide 12 now. We are showing here the reconciliation from the loss after tax to EBITDA, which you can follow in Appendix A where this graph starts, and then to the underlying EBITDA to the right. The major adjustments here relating to fair value adjustments, obviously non-cash, stamp duty, acquisition costs relating to the acquisition of the CSA mine; and the net fair value adjustments mainly relates to warrants, so there's about $22 million there. That mainly reflects the change in value of the warrants over the period.

Mezzanine debt, so there's about $9 million there that flow through the P&L. This relates to the valuation of some of the embedded derivatives, and that's where the interest rates link to the LME cash settlement price and the voluntary repayment option there.

Thirdly, there's some swaps there of $13 million that's been recognized in terms of change in value, which obviously is linked to the underlying contract value versus the future consensus copper price. But also noting that 70% of our production over that period of time, like I said, '25 and '26, is unhedged. So we benefit on the other side in terms of the -- where this liability is recognized.

Contingent consideration, so this relates to the fair value of the first and second contingent consideration payable to Glencore if the daily LME closing copper price exceeds USD425 per pound over a rolling 18-month period and USD450 per pound for any rolling 24-month period. So again, noting that you need to conserve the cash inflows at the company under these copper price scenarios.

Just moving to slide 13, here I just wanted to cover the capital structure quickly. These are the shares, including the most recent ASX issuance, and then also showing the fully diluted securities at April 2, '24. The main point to note here is that the private and public warrants can be called by MAC at any time through conversion for cash or on a non-cashless basis through the issue of MAC shares, with the conversion to net shares on a cashless basis to be based on the table published on F4 in May 2023.

If for example, we had to call for the redemption of the private and public warrants today on a cashless basis, and the share price was USD13 per share, then these warrants would be settled by issuing 0.3 of a MAC share for every warrant as per the table.

Alternatively, if, for example, all the warrants were to be called for cash, then this would raise an additional USD217 million. And the full dilution, as shown on the table, would be the outcome. I also note the senior mezz debt on the table there, but I'll cover that in the next two slides.

Moving to slide 14, I just wanted to touch on the liquidity of the company, which, again, has made this fund receive a much-needed boost through the ASX IPO subsequent to 2023, which raised about $325 million or the equivalent of USD214 million.

The rising of the equity provides, obviously, greater flexibility for us and a much stronger balance sheet. As a result, we have aimed to show here some of the subsequent year-end inflows and outflows of cash, with the overwhelming use of funds dedicated to the reduction of interest-bearing liabilities. Of note, we repaid the deferred consideration to Glencore, which amounted to some USD83 million, which we did in February.

We also repaid the revolving facility, which is around USD25 million. We settled a working capital facility, which is interest bearing at $9 million. We repaid a portion of the senior facility amounting to around USD8 million, and we also paid advisor and IPO fees of $10 million. And then we also started, importantly, the [growth agenda] in terms of continuing our exploration and development programs at site.

Looking to more recent material cash inflows as well, we had a late and delayed shipment in March, which we will only receive the cash for in April, and then an early shipment planned for in April as well. Both of these will bring in around $48 million in cash to the company.

So overall, and subsequent to year end, we have raised significant equity, which has, as I said, provided us with greater flexibility and balance sheet strength, and this really gives us the opportunity to focus not only on reducing our interest-bearing debt, but also keep growing the company through organic means as outlined. We also have the beneficiaries in recent times authorizing copper price, which we are definitely highly leveraged to.

On our theme of reducing interest-bearing liabilities, we can move to slide 15. We wanted to show the current repayment profile of our senior mezz debt facilities, again, our ASX IPO credits are much-needed flexibility and strengthen our balance sheet.

This, coupled with the fact, as Mick had mentioned, we are close to issuing our reserve resource statement and the exposure to rising copper prices. We've got funded capital expenditure, obviously, through the IPO as well. Increased revenue, lowering costs provide us with the ideal time to look at our financing structure and our capital structure, mainly with the purpose of reducing our interest-bearing debt, reducing our overall cost of our debt as well, and preserve our cash to fund our organic and inorganic growth opportunities for the company.

So all of these current positives really lends itself well for us to approach the debt markets and seek better terms for our debt, which in turn will provide us with a stronger balance sheet and improve our future cash flows as well.

So looking at the current repayment profile, we'll also be looking at how we can secure longer-term money with bullet repayments. And more practically, we also need to put in place a letter of credit facility for our environmental bond, which is about AUD43 million.

And so overall, we have a really positive market setting in terms of copper generally as a commodity, with prices remaining strong and increasing. We had a really positive engagement with investors, with the ASX IPO with high demand for our equity. This provides a really strong balance sheet and creates the ability to strengthen the balance sheet and simplify the capital structure going forward as well.

And so with that, I'll hand back to Mick for some closing remarks before we go to Q&A. Mick?

Thank you, Morne. And again, we've launched this presentation so the people -- you can sort of pull those graphs apart and try and -- really, we've tried to put some information out where people can look at what's cash and what's non-cash impacts on the P&L.

Because as Morne indicated, we do have a fairly large amount of the non-cash impacts of sort of reval of various instruments that do impact the P&L, and they are non-cash. And we obviously acknowledge that we've got a few of those instruments on the balance sheet that perhaps we may not want to have in the longer term.

I think the copper price setting that we've sort of found ourselves in is significantly different to when we bought the mine. You'll notice on that repayment schedule on the liquidity slide, we've sort of back-end loaded all of the repayments, which allow us to get up on our feet, build a significant cash balance.

Our cash inflows are relatively lumpy. Each ship is, as Morne indicated, around about USD24 million worth of revenue now. When we bought the mine, that was around about $18 million to $19 million. And that's the same volume of copper in it; that's just the increase in the price. So I think we're in a really good spot to renegotiate all of that lending.

The first half that we owned the mine for, obviously a lot of one-off items, with, really, closing costs, which we laid out in the prospectus at the time. Again, a fair bit of noise in those results that are non-recurring that we just don't have on a go-forward basis. And so we are working diligently with our teams to get a new resource and reserve estimate out, which will come out at some point during April.

And we've always indicated we felt that this mine has had a four- to five-year reserve life for nearly 60 years. With a bit of extra drilling that we've been doing, we think -- we believe that we can push that reserve life out a reasonable amount, which clearly is beneficial for, A, the market; but, B, when we're having discussions [with others] clearly a longer reserve life is beneficial.

So with that, I'd like to thank the team. There has been a lot of work going into pulling these results together. And clearly, we've got many things underway, having, not that long ago, closed off the ASX IPO, doing the R&R, and then obviously operational improvements.

So we're very busy, but happy to take questions at this point from anyone.

(Operator Instructions) David Radclyffe, Global Mining Research.

Hi, good morning, Mick and team. My question is an operational one, actually. I was just wondering if we could get a bit of an update on how plans are progressing to debottleneck the mine and specifically the initiatives around improving level ventilation and the stoping sequence there. So when we can start to maybe see that coming through in terms of the production data.

Sure. Well, it won't be this year in terms of the impact of it. The work is underway; we're out there (inaudible) drilling at the moment to put in those [root -- return arises]. So it's obviously -- it's not a quick fix in terms of doing it in the space of the quarter.

So really, you won't see any benefit during the course of this year; it will be in the next year before you really see the benefit. But I think as you correctly spotted, return [may arise] at the very bottom of the mine is actually our key limiting factor.

Okay. And then maybe just one follow-up on the cash flow. Obviously, this quarter, there was one deferred shipment, but how many shipments actually did go this quarter?

Good question. Morne?

We had one late last year and then we had a couple this quarter. So as I said, the last one in March just slipped over into -- we'll recognize revenue from an accounting point of view, but from a cash point of view, that cash will only flow in in April at $24 million. And then then we've got an early shipment in April as well that sort of follows like 1.5 weeks after the last shipment in March. So that's a question of $48 million there.

So that one -- that ship got loaded in March. But of course, you get paid about 10 days later. So loaded in March, paid at the start of April.

Eric Winmill, Scotiabank.

Thanks very much for taking my question. I just wanted to ask a little bit about the drilling results that came out. Obviously, some pretty good widths and grades, especially relative to the current reserve grade. And I know you mentioned that at least they won't be included in this update in April, but just wondering how we should think about that after you apply dilution. Or what's the nature here in terms of what you think the mineable grade is and possible impact on tonnage, if you can speculate on that at this time.

It's a bit early to speculate because we haven't actually put it into the new BOT model yet. But yes, clearly, that stuff is well above reserve grade. Now I would say that we're not going to just mine the high-grade core only, because, even if something's only 3% copper, it's still pretty economic for us, right? So you're going to try and take all of it.

What I would say is, in the mine plan, we've been working away and looking at how can we mine the high-grade core in priority from a scheduling point of view and come back and mine the, again, what we call lower grade, but still maybe 3% copper later on. If you think about it as an open pit, you'd dive down and mine your highest-grade, highest-margin material first, and then you'd stockpile all your lower grade stuff to mill later.

We've been looking at the mine plan in that context and seeing if we can do that, and I think that's directionally where we'll end up at. But yes, look, it's a bit early to work out what that is -- what those drill results are going to mean in terms of the next resource and reserve upgrade because they clearly have come up well after the [call] for this new resource and reserve [we have a stick out].

But I think it just highlights the kind of stuff that is in the ore body. And the other way I look at it is, well, if copper was to fall precipitously, what would you mine? You'd go and mine that stuff clearly and still have a mine.

Thank you. That's super helpful. And maybe just one more follow up too. I know there were some zinc and lead there as well, which is really a focus for you guys. But any comments on that? Any additional work in that respect?

Well, yes, is the short answer. So for those people who have long memories, the CSA mine actually started out as a very high-grade zinc mine. And we've been looking at the data, the historical data, that was in hard copy, and it's not [you're] compliant because it's old data and we don't have all the [QHEC stuff or all that].

Based on that old data, there is significant zinc mineralization in the upper portions of the mine, and we've put a drill rig on it and we are actually drilling that material right now. So we don't quite know what it will all come out to be, but there is still -- there's a fair bit of work to be done in that.

But yeah, it does look like that there is a reasonable amount of pretty high-grade zinc plus a little bit of lead and copper mineralization in the upper parts of the mine here. So as with all these things, you need to drill it first to see what you've got and then you make a plan afterwards as to how you're going to deal with that material.

Okay, great. Thanks for that. I'll hop back in the queue, but great to see the results and look forward to seeing the new reserve update and production. So thanks very much.

(Operator Instructions) And it does appear that there are no further questions at this time. I would now like to turn the call back to management for any closing remarks.

Well, again, thanks everyone for dialing in. We will have a conference call around Q4 where you'll get the opportunity to ask more questions after we put a bit more information in the marketplace. And we would just like to thank everyone for their time this morning. Good evening.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful evening.