Amerigo Resources Q1 2024 Earnings Report

Amerigo Resources EPS Results

• Actual EPS: C$0.04
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Amerigo Resources Revenue Results

• Actual Revenue: $60.56 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Amerigo Resources Announcement Details

• Quarter: Q1 2024
• Date: 5/8/2024
• Time: N/A
• Conference Call Date: Thursday, May 9, 2024
• Conference Call Time: 2:00PM ET

Amerigo Resources (TSE:ARG) Ltd is principally engaged in the production of copper and molybdenum concentrates through its operating subsidiary Minera Valle Central S.A. The group operates in one segment, the production of copper concentrates with the production of molybdenum concentrates as a by-product. The company geographically operates in Chile and Canada and earns most of its revenue from Chile.

Amerigo Resources Q1 2024 Earnings Call Transcript

Key Takeaways

• Amerigo delivered a Q1 2024 net income of $4.3 million, EBITDA of $13.6 million and free cash flow to equity of $7.3 million, outperforming cash cost and production guidance by 9%.
• Copper revenue fell to $44.9 million in Q1 2024 from $52.6 million a year earlier due to lower copper and molybdenum prices and a slight production decrease.
• Management highlighted that global copper demand is outstripping supply, necessitating a new higher incentive price floor and supporting a bullish copper price outlook.
• The company paid a $3.7 million quarterly dividend (7.7% yield), is building cash toward a $25 million target, and plans to deploy excess cash via performance dividends or share buybacks.
• Two approved low-CapEx optimization projects totaling $2.3 million will add ~345 tonnes of annual copper production at $6,600/ton with a ~15-month payback, exemplifying the company’s operational efficiency.

Presentation

[Operator]

Good afternoon. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amerigo Resources Q1 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the formal remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. Thank you, Mr. Graham Farrell of Harbor Access Investor Relations. You may begin your conference.

[Graham Farrell, Managing Partner at Harbor Access]

Thank you, operator. Good afternoon, and welcome everyone to Amerigo's quarterly conference call to discuss the company's financial results for the first quarter of 2024. We appreciate you joining us today. This call will cover Amerigo's financial and operating results for the first quarter, ended March 31st, 2024. Following our prepared remarks, we will open the conference call to a question-and-answer session. Our call today will be led by Amerigo's Chief Executive Officer, Aurora Davidson, along with the company's Chief Financial Officer, Carmen Amezquita. Before we begin with our formal remarks, I would like to remind everyone that some of the statements on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to, financial projections or other statements of the company's plans, objectives, expectations, or intentions. These matters involve certain risks and uncertainties.

[Graham Farrell, Managing Partner at Harbor Access]

The company's actual results may differ significantly from those projected or suggested by any forward-looking statements due to a variety of factors which are discussed in detail in our SEDAR filings. I will now hand the call over to Aurora Davidson. Please go ahead, Aurora.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

Thank you, Graham. Welcome to Amerigo's earnings call for the first quarter of 2024. All dollar figures reported in the call are U.S. dollars, except where we specifically refer to Canadian dollars. Amerigo's first quarter results were operationally and financially solid. Copper production guidance and cash costs outperformed guidance by 9%. Our average copper price during the first quarter was $3.95 per lb. That is not a bad price, but it is nowhere near what we have today. At this $3.95 copper price, Amerigo's financial results included net income of $4.3 million, EBITDA of $13.6 million, and free cash flow to equity of $7.3 million. After my remarks, Carmen will provide a full recap of the quarterly financial results.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

During the quarter, Amerigo's quarterly dividend to shareholders was $3.7 million, representing a 7.7% yield against our quarter-end share price. The investment yield remains best in class at today's higher Amerigo share price, and as you know, this secure quarterly dividend yield is only one of the ways in which we'll return capital to shareholders. As mentioned, our copper price in the first quarter was $3.95 per lb. In April, the average price increased to $4.30, and today's spot price is $4.41. This sharp increase in copper prices did not surprise us, as it confirms our analysis of copper supply and demand dynamics. For several quarters, we have described the driving factors behind strong global copper demand and the factors hindering meaningful secular growth in global copper supplies. Demand is now outstripping supply.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

Global PMIs are coming in strong, and improvement in manufacturing activity is expected to continue. Historically, recoveries in global manufacturing cycles positively correlate with copper prices. In particular, recent Chinese PMIs have been strong, and there continues to be robust demand for green projects in China, as was the case in 2023. India's manufacturing activity is also very robust, recording the strongest PMI of all, of all countries in March. India's copper demand grew 16% in 2023. Double-digit growth is again expected this year. One study quotes that for each $1 million growth in Indian GDP, we will have a 300% kilogram growth in copper demand. Simply put, global copper demand continues to grow, and as demand continues to grow, there are clear risks to copper supply.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

Last year, global copper consumption was 25.4 million tons, while global copper mine production was 22 million tons. Consumption grew, but copper mine supply remained flat last year. For 2024, copper consumption is expected to grow by 3.5%, and refined copper production is expected to grow by 3.1%. However, global mine production, which is the life of refined copper production, is stalling. So consumption is outpacing refined copper supply and mine production, which feeds the smelters that produce refined copper, cannot be turned on like a light switch. So what needs to happen to get additional copper mine supply going? The old assumption that $4 per lb is the incentive price is no longer valid. This is clearly shown by the lack of recently sanctioned copper projects.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

The last time a batch of large copper projects was approved due to higher copper prices was in 2017 and 2018, with projects such as Quellaveco and QB2. However, the stronger copper prices we started to see in 2021 still has not incentivized miners to invest in new projects. Although copper is insufficient to justify the risk of approving new copper projects, new capacity is coming primarily from expansion projects, not from greenfields, as used to be the case. Copper miners have slowed expansion for over a decade due to higher capital costs, higher projected operational costs, and more regulation. The permitting process are complex, and they are lengthening with increased risk of resource nationalism. We also cannot ignore the declining quality of new projects. Copper prices were lower when copper was mined from higher grade mines or mine sectors.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

A company cannot mine its highest grade sections indefinitely, and as copper grades decrease, a higher price is required for profitability and most certainly to invest in new projects. Earlier this year, $11,000 a ton, essentially $5 a pound, was floated as the new incentive price, but that is just one price point to consider. Robert Friedland, perhaps the most vocal copper supporter and long-term industry spokesman, says that an incentive price of $15,000 a ton, $80 a pound, is necessary to bring on new projects. If short-lived, a price spike to these levels cannot incentivize substantial new projects. Copper miners would need a sustained period of higher prices to sanction new projects. Of course, to say that Amerigo would flourish in this pricing environment would be quite an understatement.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

Our capital return strategy has been designed to quickly maximize our returns to investors under the pricing circumstances I have just described. Industry analysts estimate that at least $200 billion of investment is required in the next decade to fix a 10 million ton copper deficit. That massive investment figure is based on current capital intensity estimates and does not reflect the inflationary pressures that are occurring in the industry. In a moment, I will tell you another example of Amerigo's competitive advantage in this area. To sum up my comments on the macro situation, we know that for the rest of this decade, there will be limited new copper supply coming online. We also know that a higher incentive price is required to bring additional capacity online and that there are long lead times to add supply.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

In our opinion, this market dynamics will establish a new floor price for copper, just as occurred in 2003 with the industrialization and urbanization of China. So this is where we are now in Amerigo. Strong copper prices, stable operations, controlled costs, low CapEx, declining debt levels, and a proven capital return policy. The quarterly dividend of CAD 0.03 per share is our live or die cash obligation to shareholders, and it is very safe under these conditions. We are building up our cash position to the desired target of $25 million, which happens very quickly under current copper prices. Additional cash will be distributed to shareholders via performance dividends, share buybacks, or a combination of both.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

As a reflection of the increasingly positive market sentiment, the questions I receive from shareholders have changed from at what copper price is the quarterly dividend safe, to whether we will be buying back shares or paying a performance dividend. The board of directors analyzes multiple elements to determine how best to allocate surplus cash for the benefit of shareholders. For example, we know that the timing of our cash generation cycle is inverse to the timing of buybacks. At higher copper prices, ample cash is generated to buy back shares, but this would typically occur at a higher share price because Amerigo's share price is so responsive to changes in copper price. Of course, in a perfect world, we prefer to buy back shares at lower prices, and in fact, that is what we have done.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

In 2021, Amerigo shares have been repurchased at an average price of CAD 1.50. We are currently trading at CAD 1.76, which is 17% above that average purchase price. However, the real strength of the capital return strategy we have is having multiple tools to return excess cash to shareholders quickly. We can use the quarterly dividend, a performance dividend based on elevated copper prices and thus higher cash balances, or share buybacks. These different tools amplify the effect of shareholders' long-term return on invested capital. It is also amplified because of how quickly the tangible effects of this strategy can be felt, particularly for the dividend components of the strategy. Now I will provide a brief operational update. During the first quarter, we had another excellent safety record at MVC with no lost time accidents.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

In fact, on January 29th of this year, we celebrated two years without lost time at MVC. This is significant to all of us. This week, we're not producing copper at MVC as we're doing the annual plant maintenance shutdown. This is a planned event that we factor into our annual production guidance. It is a monumental endeavor as we bring in 667 additional workers to ensure we can complete more than 500 necessary projects when all the equipment is shut down. This shutdown is a crucial part of our operational planning as it allows us to maintain and upgrade our equipment, ensuring optimal production in the long run. This shutdown period is also perfect for bringing any new production-related projects online.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

MVC's standby power transformer, a significant risk mitigation project, is coming online this week. As you may recall, when we issued our 2024 guidance news release, we informed the market that we were evaluating two CapEx projects that would contribute to increasing production. We also indicated that the projects could be initiated this year, subject to further technical analysis and higher copper prices. I am pleased to report that we are proceeding with these projects and want to tell you more about them. Together, they will generate an additional 345 tons or around 760,000 lb of copper per year once they are completed.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

The projects will cost approximately $2.3 million, representing a very low CapEx intensity of $6,600 per ton, which is significantly lower than the $30,000-$40,000 per ton capital intensity, which is typically required today for new copper projects. This is a perfect example of the benefits of Amerigo's low capital needs and operational excellence. The first project involves installing more uniform in the regrind cyclone battery to improve the pumping equipment in that process stage. This should increase recovery and translates to higher production. The second project involves installing new operational control equipment in the cleaning stage to better control water, air, and level variables, further increasing efficiency. This CapEx should be seen as quote, unquote, growth CapEx, as it makes sense to initiate them now with higher copper prices.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

The fact that the cost of Amerigo's growth is so much less than the rest of the industry is compounded by how quickly shareholders will feel the benefits. For example, at a $3.80 copper price, the payback of the projects is 15 months, with the subsequent cash flows available to shareholders using any of our capital return strategy tools. To end my remarks, I will tell you that we performed strongly in April, and so did copper. The potential to return additional capital to shareholders this year should be very apparent, whether through the payment of our first performance dividend, the retirement of shares, or a combination of both. As a shareholder, I believe this is a great place to be. Last week, on April 30, we had Amerigo's Annual General Meeting of shareholders.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

I want to thank our shareholders for their participation and support as they voted in favor of all business items before the AGM. Our next earnings call will be on August 1st, 2024, to discuss the Q2 financial results. As usual, if you have further questions about Amerigo, Carmen, Graham, or I are available anytime. I will now ask Carmen Amezquita, Amerigo's Chief Financial Officer, to discuss the company's financial results. Carmen, please go ahead.

[Carmen Amezquita, CFO at Amerigo Resources]

Thank you, Aurora. We are pleased to present the Q1 2024 quarterly financial report from Amerigo and its MVC operation in Chile. As Aurora mentioned, we are pleased to report strong financial results in the first quarter of 2024. We posted net income of $4.3 million, earnings per share of $0.03, and operating cash flow before changes in non-cash working capital of $10.2 million. The comments on quarterly financial performance and quarter-on-quarter variances with Q1 2023 are as follows: Copper production in Q1 2024 was 500,000 lb lower quarter-on-quarter due to MVC's production plan sequence. This decrease in production and the fact that Amerigo's financial performance is sensitive to copper prices impacted our top-line copper revenue.

[Carmen Amezquita, CFO at Amerigo Resources]

The company's Q1 2024 average copper price was $3.95 per lb, which was lower than the $4.02 per lb price we had in Q1 2023. Top-line copper revenue was $61.3 million in Q1 2024, compared to $66.8 million in the comparative quarter. The notional items deducted from top-line copper revenue were all lower quarter-on-quarter. These include DET royalties of $16.7 million, smelting and refining of $6.2 million, and transportation of $0.4 million. In Q1 2024, we had positive fair value adjustments to prior quarter sales of $1.5 million, which were lower than the $3.4 million in positive adjustments posted in Q1 2023. After these revenue deductions, copper tolling revenue in Q1 2024 was $39.5 million, compared to $44.6 million quarter-on-quarter.

[Carmen Amezquita, CFO at Amerigo Resources]

Our molybdenum revenue was lower this quarter at $5.5 million, compared to $8 million, primarily due to the decrease in moly prices. In Q1 2023, moly prices were exceptionally strong, surpassing $30 per lb. Therefore, Amerigo's final revenue numbers in Q1 2024 were $44.9 million, down from $52.6 million in Q1 2023, driven fundamentally by lower copper and moly prices. However, our tolling and production costs also decreased by percent quarter-on-quarter to $37.1 million, compared to $39.2 million in Q1 2023. Reasons for reduced tolling and production costs included decreases in direct costs of $1.6 million, which I will address shortly, and lower moly royalties to DET of $800,000 due to lower moly prices, and lower plant administration costs of $500,000.

[Carmen Amezquita, CFO at Amerigo Resources]

Offsetting these lower costs was an increase in depreciation of $800,000 quarter-on-quarter from CapEx projects put into use at the end of 2023 that began to be depreciated during the quarter. Regarding the performance of direct tolling and production costs, in Q1 2024, we faced lower power costs due to lower power consumption and lower pass-through charges, lower grinding media costs due to less consumption and lower input costs, and lower costs overall due to 17% weaker Chilean peso quarter-on-quarter. However, we did have higher lime costs of $400,000 due to higher consumption associated with higher processing of Cauquenes' tailings and increased lime costs. Our head office general and administration expenses were $1.3 million, consistent quarter-on-quarter.

[Carmen Amezquita, CFO at Amerigo Resources]

Other losses, gains included a loss of $41,000 compared to a gain of $1.5 million in Q1 2023, mainly an unrealized foreign exchange gain coming from an intercompany loan balance that was cleared out at the end of 2023. The company's finance expense in Q1 2024 was $0.5 million, compared to $0.8 million in the prior quarter. The difference mostly came from changes in the mark-to-market position of interest rate swaps. The company recognized an income tax expense of $1.7 million, with a current tax expense of $3.1 million, offset by deferred income tax recovery of $1.4 million. As a side note, most of the current tax expense occurs at the MVC level, and under Chilean tax provisions, MVC is required to pay monthly installments on current-year tax.

[Carmen Amezquita, CFO at Amerigo Resources]

This means that most of the actual tax expense for the year is being paid on the go, minimizing taxes payable and filing tax returns for the preceding year. All of the above items resulted in a quarterly net income of $4.3 million, compared to $9.1 million quarter-over-quarter. Before moving to the statement of financial position, I should mention two non-IFRS measures, cash cost and all-in sustaining cost, which we started reporting this quarter. Amerigo's cash cost in Q1 2024 was $1.96 per lb, increasing from $1.91 per lb, quarter-on-quarter. However, this includes $0.07 per lb paid to MVC supervisors as the signing bonus of a three-year collective labor agreement. The normalized cash cost, excluding the effect of the signing bonus, was $1.89 per lb.

[Carmen Amezquita, CFO at Amerigo Resources]

While this may look like only a $0.01 per lb reduction quarter-on-quarter, it's important to note that moly by-product credits to cash costs were $0.15 per lb lower in Q1 2024, due to lower moly prices. We've started reporting all-in sustaining costs this quarter to include cash costs plus DET royalties and depreciation, in other words, total cost, plus sustaining CapEx and corporate G&A. In Q1 2024, our all-in sustaining cost was $3.57 per lb, compared to $3.79 per lb in Q1 2023.

[Carmen Amezquita, CFO at Amerigo Resources]

Moving on to the statement of financial position, on March 31, 2024, the company had cash and cash equivalents of $13.8 million, restricted cash of $6.2 million, and a working capital deficiency of $4.2 million, which was a significant reduction from the working capital deficiency of $12.3 million on December 31, 2023. A significant change in working capital items was in accounts receivable, which increased by $7.2 million. In our receivable cycle, MVC received payment for most of these receivables during the first week of April. The totality of MVC's restricted cash is also now a current asset, as $3.5 million will be released per the terms of the finance agreement on January 1st, 2025.

[Carmen Amezquita, CFO at Amerigo Resources]

Short-term debt came down as a $1.8 million payment was made during the first banking day of 2024. All other working capital items remain comparable to the December 31st, 2023 balances. Regarding cash flow during the quarter, Amerigo generated cash flow from operations of $10.2 million, and the net cash flow generated in the quarter, including the changes in working capital, was $4.5 million. In terms of uses of cash, $1.1 million was used in investing activities for CapEx, and $5.3 million was used in financing activities, which included $3.7 million in dividends paid to shareholders at CAD 0.03 per share, as well as $1.8 million in the repayment of borrowings.

[Carmen Amezquita, CFO at Amerigo Resources]

As a final comment, our Q1 2024 copper sales were booked at a provisional copper price of $3.97 per lb. The final settlement prices for January, February, and March 2024 sales will be the average LME prices for April, May, and June 2024, respectively. Each 10% change from the $3.97 per lb provisional price would result in a $6.3 million change in revenue in Q1 2024, regarding Q1 2024 production. We now know the April price, which was $4.30 per lb. Therefore, the adjustment for Q1 2024 sales in April will be roughly $5.3 million, and today's spot price is $4.41 per lb. We will report Amerigo's Q2 2024 financial results in August 2024, and thank you for your continued interest in this company.

[Carmen Amezquita, CFO at Amerigo Resources]

We will now take questions from call participants.

[Operator]

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Steve Ferazani with Sidoti. Your line is now open.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Thanks, afternoon, Aurora, Carmen. Appreciate all the detail on the call. I wanted to ask about cash costs, 'cause I know you were comparing it year-over-year, but if we look at it, the significant decline sequentially and also well below your guidance, just given a couple of months ago, anything one-off in the quarter? I know you cited the weaker peso, but anything to say that this lower level of cash cost, particularly the normalized cash cost, which we'd see, is more sustainable now?

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

Steve, thank you for the call. The Chilean peso has an impact, obviously, and we have provided all of the variability that one could expect on our guidance news release. In practice, we saw lower pass-through charges as well. We don't know what the level of the charges is going to be from month to month, so we basically project in our budgeting process, the most recent information, plus any other changes that have been communicated to industrial consumers. So far in Q1, they were lower than what they were in the last quarter of 2023, so that's another source of impact. We use less grinding balls than we thought we would need.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

That varies depending on the mix of fresh and organic tailings that we are putting through the grinding circuit. On the other side, we did have, as Carmen mentioned, higher line costs. In general terms, we, you know, we monitor the operation constantly. We're always looking for opportunities of cost containment. So I would say our guidance remains valid for the rest of the year, depending considerably on how the Chilean peso behaves.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Right.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

It's surprising to see what has happened with the Chilean peso. There is a significant decoupling between CLP performance compared to copper prices. Normally, what you used to see years ago was, you know, a stronger Chilean peso in response to stronger copper prices. We haven't seen that yet this year. So, it may be lagging or it may be more.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Okay.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

Of a structural thing.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Perfect. Thank you. In terms of the production optimization equipment, it sounds like you're installing them during this right now, during this shutdown. Is that accurate? Are we gonna see the benefits really as early as 3Q, or what's your timing on that?

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

I wish it happened like that. It doesn't happen like that. The projects have just been approved, essentially this week.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Okay.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

When we presented the capital allocation proposal to the board of directors, and we supported it with the technical analysis and with our projections for copper prices, for the rest of the year. We are starting to work on them, basically once we finish the current shutdown, which is taking place this week. It will take approximately seven months for.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Oh, wow!

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

Works to be completed, and then we have to wait for shutdown period to put it on to put that in place. That's one of the reasons why we wanted to accelerate that deployment and those early works now, so that they would be, they will be ready for the next plant shutdown to come online. Plant shutdowns have been occurring in May for the last years. They used to occur in January in prior years. So we have to be ready for that in case that's when El Teniente will be having their 2024 2025 shutdowns.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Understood.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

So don't expect, don't adjust—

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Yeah.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

Your projections for this year.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Okay.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

This is basically, getting ready for 2025 with that project, with those two projects.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Understood. Perfect. Sounded like Carmen indicated that she had the receivables build, but it sounds like that reversed right at the beginning of April. If it did, then you're back up to, you should have been back up to about $20+ million in cashes, you know, last month. So you're closing in on that target area where you might start considering a buyback again. Is, is, is that fair? And given where, where, where copper prices are now, you're probably closing in.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

We're getting close.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Okay, and last one for me. On second straight quarter, Cauquenes was a larger percentage of the mix than it historically has been over the last couple of years. And any reason for that, or is that just quarter-to-quarter shift?

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

That is in response to the feed or to the, in response to the throughput that we get from El Teniente, and it is-

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Mm-hmm.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

It is one of the advantages that we have, spoken about in prior quarters. We have that flexibility. If we get lower throughput from El Teniente, for their own, mine sequence or operational, reasons, we can always, go in and chunk up a little bit more of Cauquenes to keep up our production, guidance online.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Any reason to think that could extend into this year or?

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

Well, El Teniente had an incident in May 2023. It is factored into our plans for this year that this will be resolved in the second half of the year, and we would then be able to revert back to our normal parameters. Q2, Q1, 2023 are good comparison points there.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Okay.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

But if that doesn't happen, and if they need some more time to get back to their normal operational parameters, it's not of concern to us. We can continue doing what we've done in Q1.

[Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti]

Yep. Okay, perfect. Thanks, Aurora. Thanks, Carmen.

[Operator]

Your next question comes from John Polcari with Mutual of America Capital Management. Your line is open.

[John Polcari, VP of Fixed Income Research at Mutual of America Capital Management]

Thank you. Aurora, thank you for taking the call.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

John, I'm not hearing your question. You may have cut off.

[Graham Farrell, Managing Partner at Harbor Access]

I think he dropped off.

[Operator]

Yes, the line was disconnected. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one.

[Graham Farrell, Managing Partner at Harbor Access]

Let's wait for John to come back. I think he'll come back.

[Operator]

Okay. Your next question comes from John Tumazos with John Tumazos's Very Independent Research. Your line is open.

[John Tumazos, Principal at John Tumazos Very Independent Research]

Thank you. I was attentive, Aurora, to how optimistic you are about the future of the copper market. Do you plan to make larger capital investments to expand your milling complex because of the good outlook for copper? Or will you acquire other assets beyond your tie-up with El Teniente to increase your exposure to the copper market?

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

John, our investments at MVC are at the optimal stage. We have done our expansion to increase our plant capacity. We worked that in conjunction with the mining plant for El Teniente from El Teniente, so we're fine at MVC. Obviously, the outlook for copper is very strong in our opinion, and we know how to operate very well with copper tailings. We look for these opportunities, but they have to be the right opportunities. We're not just going to go and seek operations that don't make economic sense. Obviously, with the stronger copper prices, I think that tailings will be an area of focus for other miners. They will see them as an area of opportunity rather than just an environmental liability.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

When that is the case, we're better-positioned than anyone to work with other partners in recovering copper from copper tailings.

[John Tumazos, Principal at John Tumazos Very Independent Research]

Thank you.

[Operator]

Your next question comes from John Polcari with Mutual of America.

[John Polcari, VP of Fixed Income Research at Mutual of America Capital Management]

Thanks.

[Operator]

Your line is now open.

[John Polcari, VP of Fixed Income Research at Mutual of America Capital Management]

Thank you. Sorry about that. I'm not sure what happened. Aurora, just four quick questions. First, is there any possibility or discussion as copper prices, if copper prices continue to ramp up, that you would move maybe to some partial hedging from a zero hedging strategy? Or at the moment, and for the immediate future, is that the continued strategy, just to stay completely unhedged?

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

We have no immediate plans of hedging. We are not looking at hedging right away, but we always analyze the costs and the potential benefits of doing that, but there's nothing in front of us right now.

[John Polcari, VP of Fixed Income Research at Mutual of America Capital Management]

Okay. Secondly, the recently approved optimization projects, I think you might have answered this already. I was wondering what the estimated payback period was. I think you said something like seven months to complete, and then after that, it would start to have an impact. Is that what I heard earlier?

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

It is seven months of preliminary works to get them in hookup mode, and then we're waiting, we will be waiting for, we need at least eight days of equipment shutdown.

[John Polcari, VP of Fixed Income Research at Mutual of America Capital Management]

Okay.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

To bring them online. So they're—

[John Polcari, VP of Fixed Income Research at Mutual of America Capital Management]

So it's—

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

They're happening in 2025.

[John Polcari, VP of Fixed Income Research at Mutual of America Capital Management]

Got it. Thanks. And, third question, what would be the level of, sustainable cash balances that, would be, you'd be comfortable with for the company? Maybe $25 million, on a—

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

It is $25 million.

[John Polcari, VP of Fixed Income Research at Mutual of America Capital Management]

I'm sorry?

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

$25 million is the sweet number.

[John Polcari, VP of Fixed Income Research at Mutual of America Capital Management]

Twenty-five. Thanks. And then lastly, any possibility, I know there's been some talk over the years of possibly expanding the tailings relationship with Codelco. Any possible further discussions on that where they would be willing to allow Amerigo to expand its existing facilities?

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

I think I answered that in the prior question. We—

[John Polcari, VP of Fixed Income Research at Mutual of America Capital Management]

Okay. I was disconnected. Sorry.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

Sorry. Sorry about that. We remain interested for the right opportunities. I think there is no one else out there that has the experience recovering copper from copper tailings that are very good at. So, as copper prices continue to be robust, copper tailings will be of interest in a different way as most of those tailings. And I think we're the first candidate they should look at, there and then.

[John Polcari, VP of Fixed Income Research at Mutual of America Capital Management]

Do you think, has there been an expression of interest maybe to expand their tailings processing arrangements or not, not at this time?

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

Well, with El Teniente, that's where we are at now. We are processing basically their fresh, and tonnage of tailings. So that relationship has expanded over time and has led us to where we are now at, at our stage with MVC and El Teniente. They have six other mines. Eventually, they will probably be interested in doing something similar, and we'll be a prime candidate for them to consider. But there's nothing in front of us immediately to report back to you.

[John Polcari, VP of Fixed Income Research at Mutual of America Capital Management]

Great. Thanks again, and look forward to continued excellent management.

[Operator]

There are no further questions at this time. I will now turn the call over to Aurora for closing remarks.

[Aurora Davidson, President, CEO, and Director at Amerigo Resources]

Thank you. Thank you for joining us today. The recording and the script will be available on our website as soon as we come back from our providers. As I mentioned earlier, we will talk again on August 1st to discuss Q2 financial results. In the meantime, you can always reach out to myself, to Carmen, or to Graham. Thank you very much for being with us today.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.

Participants

Executives

• Aurora Davidson, President, CEO, and Director
• Carmen Amezquita, CFO

Analysts

• Graham Farrell, Managing Partner at Harbor Access
• John Polcari, VP of Fixed Income Research at Mutual of America Capital Management
• John Tumazos, Principal at John Tumazos Very Independent Research
• Steve Ferazani, Senior Equity Analyst for Diversified Industrials and Energy at Sidoti