MAC Copper - H1 2024

Transcript

Operator (participant)

Thank you for standing by. This is the conference operator. Welcome to the Metals Acquisition Limited Half Year Accounts Conference Call and Webcast. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press Star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing Star, then zero. I would now like to turn the conference over to Mick McMullen, CEO of Metals Acquisition Limited. Please go ahead.

Mick McMullen (CEO)

Thank you very much, and thank you everyone for joining us, in particular in Australia, on a very busy results day. We'll try not to keep everyone for too long. So myself and Morné, our CFO, will be doing the talking on this conference call. So Morné, if you can go forward to the slide, if everyone can read the disclaimer at your leisure. So, you know, look, everyone knows we're you know, we've got an asset in Western New South Wales, super high grade. You know, EV is about $1.1 billion today, based on where the share price sits. And it's a very well-established mine.

We don't really need to sort of go through the detail of the operations too much today, but, you know, we think we've got one of the better copper assets around, as you'll see from the financial results. I think they speak for themselves. We can go to the next slide there, Morné. Again, from a year ago, what did we say we'd do versus what have we done? We've sort of ticked all the boxes. I just checked our shares from a year ago are up precisely 0.09%, so not so sure that actually checking the boxes has done much for us. We have delivered on everything we said we would do in the last year and a bit. Next slide, thanks.

You know, we've put out our formal guidance into the marketplace. Now, I would say to people that guidance is based on the information we had at hand, actually from a year ago, the end of August last year. And as you will see from our production results and some of the things we're doing, we're getting increasingly more confident in our ability to meet and potentially go a little bit beyond that. So you can see there over the next couple of years, we sort of end up, you know, above the 50,000 tonnes of copper mark. Again, we have only been able to base that on reserves. We have no inferred material in there. We have QTS South Upper, which is predominantly inferred. We are drilling that out right now.

We do see that as having very good potential to add a little bit more, and I think some of the productivity improvements and mine design changes that we've been doing with some of these double lift stopes that have allowed the site to pull a bit more high grade copper forward. You know, we are feeling increasingly more confident that we may be able to potentially do a little bit better than that over that medium term, so next slide there, please, Morné. Again, from the highlights, Morné will go through all these in great detail, but a strong quarter for Q2. So you know, again, we're sitting around about midpoint of guidance after the half. Obviously, Q2 was stronger than Q1, so sequentially, we're building through the year. Strong cash balance.

You know, we've increased the mine life, so very long, you know, mine life now, which I guess was one of the things that we said we'd do at the start of this exercise. And as I said, guidance is gradually ticking up over the years as we sort of catch up on some of the backlog of development that we inherited. As the drilling is showing towards, we'll see at the back end of this deck, we are seeing significantly more copper units as the mine goes deeper, so we're expanding the ore body. So that's all looking pretty good for our future production. Next slide, please. Safety, look, this is a work in progress. We have seen the TRIFR roll down a bit since the June quarter.

And we're a very big part of the community we operate in. You know, we are the largest employer. We're about 80% residential now. We provide a lot of funding into the town, both through donations, but also just our economic activity there. And I think that's a key thing for us out in Cobar, where our main approval authority is the Cobar Shire Council, that you know, the people in charge of approving projects for us are the community that we interact with and impact with. So we think that's a great relationship, and it does make CSA a little bit unique in, well, much of Australia, actually. So if we can keep going to the next slide there, Morné. I'm gonna hand over to Morné for all the financial numbers now.

There's a lot of numbers here, but I think the underlying story is very strong, as you will hopefully pick up as he goes through this. Over to you, Morné.

Morné Engelbrecht (CFO)

Great. Thanks, Mick. Good evening, morning, everyone. I will take you through the next couple of slides, slides 9-15, which covers the elements of the half year financial results for 2024, and just specifically taking note that the presentation should be read in conjunction with the Appendix 4D and the auditor-reviewed first half financial statements, which were released in the various markets. Starting on slide 9, we have obviously the financial results, so we leave it there. Also a quick note that we report in U.S. dollars, so all amounts are in U.S. dollars, unless otherwise shown. All the great work that Mick has spoken about in terms of the operational side for the half and meeting our goals are reflected in the half year results...

which resulted in some record earnings for the mine under the MAC ownership. We are comparing the first half of 2024 to the preceding half of 2023, and you will note all line items are considerably better in comparison, including the net revenue of $182 million, or AUD 272 million, for the six months. This is up some 29% compared to the preceding half, off the back of obviously slightly increasing copper prices and sales volumes for the half. I should note here that we did recognize the revenue and associated cost of sales for the concentrate pre-sale to Glencore, as reported at the quarterly, as we did meet the requirements on the IFRS 15 revenue standard.

This has resulted in sales volumes increasing by about 5,000 tonnes and additional revenue of $41 million for the half. The increased revenue, together with the reduced cost of sales and admin and selling expenses, contributed to our very healthy underlying EBITDA of $91 million or AUD 136 million for the half. More importantly, our underlying EBITDA margin increased significantly to 50% for the half, mainly driven by a 22% increase in sales volumes, which absorbed more of our overall operating fixed costs and lower cost of sales as well. As I mentioned, there was a 3% increase in the average realized copper price for the six months compared to the preceding six months.

Our statutory net loss of $95 million for the half was heavily impacted by non-cash changes in fair value of financial instruments of $109 million, which was mainly driven by the increase in the copper price compared to the preceding half. It should be noted that the volatility around the fair value adjustments will be somewhat reduced going forward with the redemption of the private and public warrants, which accounted for about 36% of that $109 million fair value adjustments, which was revalued just before the redemption of those warrants. So overall, record revenue underlying EBITDA for the asset on the MAC ownership with a very healthy underlying EBITDA margin of 50%. Moving on to slide 10.

We provide a breakdown there of the statutory net loss for the period, noting the impact of the non-cash elements on the earnings, with statutory net income from operations of $46 million shown there. The statutory earnings were also impacted by net financing costs of $32 million, with interest expense of $21 million, and a realized hedge loss of $5 million for the half. With the remainder made up of non-recurring interest costs on the Glencore deferred settlement payment and working capital facility. I should also point out that as part of the cost of sales number, we reported an underlying corporate cost of about $10 million for the half. Slide 11.

Here we show the reconciliation from the net statutory earnings to the record underlying EBITDA of $90 million or AUD 136 million, as I said before. If we move from left to right on the graph, we start with the statutory net loss and then adjust for tax, net finance expenses, net change of fair value in financial instruments, depreciation, amortization, and then underlying adjustments relating to one-off items relating to the ASX IPO completed early in the year. In relation to the non-cash fair value adjustments of $109 million, the main underlying driver there, as I said, is the fair value change in the driven by the copper price, but also the the increase in the reserves and therefore the increase in life of mine as well, which impacted that.

And then the impacts of fair value adjustments on the hedges that remain outstanding included there. As I noted earlier, the big value of fair value volatility has now been removed with the redemption of the private and public warrants as well. On slide 12, our cash and cash equivalents have materially increased by 174% from $32 million at the previous balance date of 31 December to more than $88 million as at 30 June 2024. From the significant cash generation by operations, we ended up with $70 million of free cash flow from operations for the half.

We received a much-needed boost through the ASX IPO subsequent to 2023 year-end, which raised AUD 325 million, or the equivalent of $192 million after U.S. costs. The raising of the equity provided us with some greater flexibility and a stronger balance sheet. As noted in the previous call, we are focused on the simplification of the balance sheet and utilizing the great cash flow generation from the operation, not only to grow our production materially, but reduce our interest-bearing liabilities at the same time.

So since the beginning of the year, you can see there on the graph that we have certainly done just that in terms of we've repaid the deferred consideration to Glencore, which is some $83 million, including the working capital facility of $15 million. We also repaid the revolving facility of $25 million, and then some principal repayments there on the senior debt of $16 million for the half. We also paid significant one-off liabilities in the form of stamp duty, which amounted to $23 million for the half as well. And then from a growth agenda perspective, we have commenced the exploration program, so we show there the $3 million spent on exploration.

I've also commenced development of the Vent Project, which will further support the expansion of the CSA Copper Mine, and drive that 25% uplift in production to 2026 based on the midpoint of guidance. We end the quarter with more than $88 million of cash and a further liquidity of around $46 million, which includes the undrawn $25 million of revolving facility. We also had some $21 million of unsold concentrate ready for shipment at 30 June 2024. Overall, we are in a very healthy cash flow position and continue to build on our strong balance sheet. Moving on to slide 13. Here we show the interest-bearing debt waterfall, demonstrating the significant deleveraging that we have undertaken since June last year.

As you can see, we repaid $160 million in interest-bearing liabilities after starting out with around $430 million of interest-bearing debt with the acquisition, increasing to 31 December, and then a significant reduction of 29% to be at around $320 million at 30 June 2024. Importantly, with the significant cash generation for the half, we have reduced our net debt position to $232 million. We are looking further into obviously simplification and strengthening our balance sheet with our strong free cash flow and increasing production. Slide 14.

As a result of our drive to reduce interest-bearing liabilities, you will note on the slide there that we've reduced our net gearing ratio over the last six months by some 25% from 41% to 31% as at 30 June 2024. Furthermore, we provide an update on our debt profile there at the bottom of the slide there, and you will note that more than 80% of the scheduled repayments of the outstanding debt is to be made in 2026 and 2028, respectively. As announced on slide 15 in June, we completed a redemption of some 15 million private and public warrants with almost 100% redeemed through the cashless redemption mechanism available to the company.

And we issued about 4.7 million shares to redeem some 15 million warrants. Overall, this means that we have 74 million ordinary shares on issue, with still some financing warrants outstanding, and our fully diluted securities now around that 78 million shares. Also noted, just confirming the net debt position there of $231 million, taking into account that strong build, strong cash build and repayment of debt over the half. And with that, Mick, I'll hand it back to you.

Mick McMullen (CEO)

Yeah, thanks, Morné. And look, just a couple of points I'll also touch on there. So, if we look at the company from when we closed on buying the mine 14 months ago, you know, we had about nearly $450 million of interest-bearing liabilities or net debt actually. We've sort of halved that in that 14 months period. So gearing, not just in the half, but if we look at since we bought this mine, gearing has materially reduced in this business. We have a 50% EBITDA margin. I haven't searched through all of our peers, but I think we're probably at the front of the pack there in terms of EBITDA margin from our operation.

And look, I think the other point that's on one of those slides there is that, it's all well and good having EBITDA, but if you spend it all in CapEx, it's not much good to shareholders. We convert about 75% of our EBITDA for cash flow of the ops. Again, I haven't looked at all of our peers, but I'm pretty sure that's one of the better in the class. So I'm a little bit perplexed with where our share price sits today. As I said, I'm 0.09% up in the last 12 months, when we've actually completely, not fully delevered, but materially delevered the business. Ops are going very well, 50% EBITDA margin.

I'm sure a few of you have got your calculators out already and working out what our trailing EBITDA margin is, and I'm pretty sure you'll find that again, it's pretty low for the peer group. This is a quality, long life, super high grade, high margin asset, that's in a fantastic jurisdiction for permitting and operating. And we're getting a little bit frustrated with where the share price sits, and so, you know, from a strategy point of view, I think, you know, clearly our number one goal is deleveraging and investing in the mine to, if we can invest in the mine and grow value for shareholders by doing that, there's a very strong internal bid for capital right now.

So, you know, I think the team at site would say, you know, compared to, you know, sort of previous times, we are investing in that mine with a view to getting a return out of it, a strong return. You know, what do we do? We pay down the debt, I think. We continue to make the business as strong as we possibly can, build as much cash in the business as we can. And look, at some point, you know, well, I went into the market and bought AUD 300,000 or AUD 400,000 worth of stock a few weeks ago.

But at some point, if we view the business as being a really strong business, that it's undervalued. Well, I guess at some point, one of the things we're buying is our own stock back. So I think we've done. The team has done a great job getting this business sorted in the timeframe. We just aren't being recognized in the marketplace for that right now. It does look like we're likely to get into the ASX 300 here in a few weeks time, so you know, we think that might be a good catalyst for the stock. The other thing in that period, in that 12-14 months, is copper price has gone up $0.40 a pound. So we're a little bit perplexed with the way we're trading.

But I guess all I can do right now is just run the business as best as we can and sort that balance sheet out as much as we can, and just make the story as simple as possible for people, so you know, following my view on life on that, we might just roll on, so again, we've put three-year guidance, and as I said earlier, this is really based on information from literally a year ago. I do think we're feeling increasingly comfortable and confident, I suppose, is the best way I could put it. We have been asked, given the performance the last quarter and sort of where we're tracking now, whether we'll change guidance for this year. I think we'll stick with where we are.

These new double lift stopes, we're onto the second one, seems to be working, but that's really a probably a story for when we review our guidance for next year as to, you know, what we do with that. I would say May and June really shows what this mine can do. We did 4,000 tonnes of copper in May. We did 5,400 odd tonnes of copper in June. When this mine is well run and things all come together, that's the sort of thing this mine can do. So clearly, June was an exceptional month, but, you know, I think repeatable at times. Clearly well above the run rate of what we're telling people for guidance for this year, right?

So, we had C1 costs around about $1.60, $1.50, $1.60 for those two months. So again, high fixed cost operation. If we get the production out, that's what you're gonna get. Again, we announced some drill results after the quarterly call, so I'll sort of talk roughly what does that all mean on this slide. This ore body has been going, really, for 150 years, but in modern format since 1967. We've sort of doubled the reserve life since we've had it again on data from a year ago. The drilling that we're doing now in sort of QTS North around where we're mining has extended the strike length of the ore body 20%-25%. What does that mean? That means we're getting more tonnes per vertical meter.

That means we need to do less development to get our copper tonnes out. Or conversely, once we have this ventilation in place, we have a lot more tonnes available, and we have the vent available to be able to actually produce more. We're very excited about what this ore body throws up. You know, we continue to announce drill results of, you know, 20 m at 10%+ or 15%, you know, 20 m at 15%. The market seems to yawn because it's sort of become, "Well, well, that's just a standard CSA drill result." I would suggest if we were a standalone exploration company announcing those things with zero infrastructure, the stock would probably double on the back of that, right?

Again, pretty frustrating that people sort of yawn when we put those kind of drill results out, when it truly is an amazing mine, and those kinds of results underpin our increasing confidence about, you know, being able to produce more out of this business than what perhaps we thought we could a year ago. So with that, we might just go to the closing slide. Again, very strong, like 50% EBITDA margin, 70% of that's converted to cash flow, material deleveraging of the business over the last half and well, 12 months as well. So operationally, we think things are going fantastically. Always more to do.

But yeah, I think it's a great asset, and I think compared to our peer group, I think we have many attributes that are, you know, towards the top end of the peer group, all bar our share, of course, so with that, I'm gonna hand over to shareholders. I'm happy to take questions.

Operator (participant)

Thank you. We will now begin the question-and-answer session. To join the question queue, you may press Star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press Star, then two. First question comes from Daniel Morgan with Barrenjoey. Please go ahead.

Daniel Morgan (Founding Principal and Mining Equity Analyst)

Hi, Mick and team. So my question just relates to can you give us a little bit of a sense of how the operations have performed post the end of the quarter, please?

Mick McMullen (CEO)

Yeah, look, again, we've sort of left our guidance where it is. So, you know, midpoint of the guidance is about 40,500 tonnes. We feel comfortable with that. I did say on the quarterly call that, you know, just from the scheduling of the sort of high-grade stopes, Q3 will be slightly weaker than Q2, like, you know, a few hundred tonnes of copper, and quite frankly, that's as accurate as we can be. And Q4 looks like pretty strong. So, but overall, you know, no real surprises, I think is the short answer. We will, so the one thing that we will see a bit more of now is, we've done the geotech drilling out for that Vent Project, and so development has commenced out there. So...

We will start seeing development meters pick up as we get into that project, and we are, you know, moving ahead with that pretty quickly. That's probably the only sort of real change I think you'll see. No other surprises, I think otherwise.

Daniel Morgan (Founding Principal and Mining Equity Analyst)

And latest plans to potentially exploit QTS South Upper, when might we hear more on that potential project?

Mick McMullen (CEO)

Quite soon, I think. We sort of have got the final things in from contractors. Look, I, you know, we'll make a decision in the next, I don't know, week or so, but I suspect that there's a better than even chance that perhaps we certainly have the people and the equipment to do it ourselves. And I think the team at site are getting increasingly more confident as they sort the bottom of the mine out in their ability to execute that. But fairly soon, we are doing a drill program to upgrade that to measured and indicated. There's 25 holes going into that. We'd be, I don't know, half, two-thirds of the way through that. That will allow me to call it a reserve, which will allow me to then add it to guidance, right? It's not in our guidance right now. Can't put.

Daniel Morgan (Founding Principal and Mining Equity Analyst)

Okay, thank you for your perspectives, Mick.

Operator (participant)

The next question comes from Eric Winmill with Scotiabank. Please go ahead.

Eric Winmill (Mining Equity Research Analyst)

Great. Thanks a lot, Mick and team, appreciating my question. I had a couple of quick financial questions, but maybe just on the vent raise, can you remind us what the spend is there and kind of what the major deliverables we should expect, I guess, throughout the end of the year? Or sorry, just the ventilation, sorry, not vent raise.

Mick McMullen (CEO)

Yeah. So, there's a slide in the quarterly deck that we put out, that, that's got the detail on it, but it's, it's around about AUD 42 million, so not U.S., it's AUD. And, that'll be... Sort of we started that drilling really about six months ago, for five months ago. And that'll go through to, about mid-2026. And, Morné, I don't know how much we've spent on it. That'd be AUD 2 million-AUD 3 million, but maybe USD, that we've spent on it so far.

Morné Engelbrecht (CFO)

Yeah.

Mick McMullen (CEO)

And it's, do you have the number offhand there? But it's in that order, I think.

Morné Engelbrecht (CFO)

Yeah, it's about $3.3 million.

Mick McMullen (CEO)

Great. So the deliverables are, the sort of components of that project are the geotech drilling to make sure the ground's good out there, which is sort of done. Then there's the development meters to get out there, which you know, we'd be, I don't know, halfway onto the first drive out there. We've got to do it across three or four levels, so, and then raise boring. We've just actually closed the tender for the raise boring last Friday. Off the top of my head, I would think we'll be out there raise boring early next year, maybe, somewhere in that order.

Eric Winmill (Mining Equity Research Analyst)

Okay, great. Thank you. Appreciate that, and just on the concentrate sales, so obviously there was a bit of delay because of the rail issues. I assume that's all been sorted out now, and any views on Q3 in terms of timing the shipments or what we can expect there?

Mick McMullen (CEO)

Uhh.

Morné Engelbrecht (CFO)

Yeah, look, I think, well, Mick, you go.

Mick McMullen (CEO)

Morné, you can talk about the timing of shipments, but we still do have a fair bit of concentrate around. We've, you know, we produce a lot of concentrate. So it's a good problem to have, I guess. But Morné, I might let you talk about it.

Morné Engelbrecht (CFO)

Yeah, look, I think in terms of the timing of the shipments, we spoke about at the quarterly call that has started to be sorted out. I think in the call, I did indicate that that will take some time to clear, but we're confident by the end of September, we'll have most of that sort of back in time in terms of the sequence with the trains, the shipping, and obviously production as well. Maybe a little bit into October, still, in terms of clearing that sort of backlog. But like Mick said, we've got a lot of concentrate on site, which is a good problem to have at the moment.

As we indicated, we're able to recognize that revenue in any event from those pre-sales. Overall, we're still getting the cash in the door from that perspective.

Eric Winmill (Mining Equity Research Analyst)

Okay, appreciate that. Thank you. And just a quick one on taxes, any view on what we should model or think about taxes for the rest of this year?

Mick McMullen (CEO)

Look, we've recognized and expensed about AUD 7 million for the half, so I think, you know, for the rest of the half, we do have a tax shield with the acquisition of the mine, and that tax shield obviously shields you from some of the tax liability on a yearly basis. Not really sure in terms of, yeah, in terms of the quantum of that and how far that will extend. I mean, obviously, that will depend on the copper price as well, but we might tip into a slight tax payment by the end of this year, but again, that's if you roll forward sort of the last quarter going forward.

On balance, in terms of where the copper price is now, I wouldn't expect us to be in a tax-paying position at the end of this year.

Eric Winmill (Mining Equity Research Analyst)

Okay, fantastic. Appreciate that. I'll hop back in the queue. Thanks.

Operator (participant)

Once again, if you have a question, please press Star, then one. The next question comes from Paul Hissey with Moelis. Please go ahead.

Paul Hissey (Equity Analyst)

Thanks. Yeah, just wanted to expand a little bit on the forward sales. Just trying to understand, I guess, the working capital moves and whether. I mean, you know, clearly that the sales number in your quarterly is not the sales number that's been reflected in the P&L. So, you know, how much of that stockpile has been forward, how pulled forward, and how much of that is kind of a one-time deal? I'm just trying to understand, I guess, on a go-forward basis, the relationship between the sales you report at your quarterly versus the sales that will manifest in the revenue line of your financials.

Morné Engelbrecht (CFO)

Yeah, I think, obviously with the anomaly at year-end, that sort of, you know, had a material difference between production and sales. To start with, we recognized as additional sales, so that sort of brought it back in line with, you know, production matching up with the sales volume there. Going forward, as I just said, by end of September, probably middle of October, we'll probably work back through that backlog in terms of the concentrate and be on even keel in terms of having a healthy inventory of concentrate on site, in the warehouse versus port, versus what we're shipping out.

So, so I think by sort of end of September, beginning of October, we'll be in an even keel in terms of having a normal run-off inventory in terms of the copper concentrate rolling through, in terms of having that balance right. So, I think come December, you'll, you know, we'll be in full swing, I suppose, in terms of that sort of working capital movement. So I suspect a little bit more to go in terms of end of September, but then by December, you won't notice that from that perspective, bar any issues with trains and shipping and stuff.

Paul Hissey (Equity Analyst)

Yeah, so will we see higher sales? 'Cause I mean, really, there's sales and then there's sales, right? There's the regular sales, and then there's the forward sales. So will we see forward sales as well, at the end of September?

Morné Engelbrecht (CFO)

Look, we might do. I mean, as you can appreciate with, you know, as Mick has outlined, I mean, currently we've got, you know, over 20,000 tonnes of concentrate still in port, in the warehouse. You know, we've obviously spent the cash to actually mine and process the ore to generate the concentrate. If there's still that sort of amount or close to that amount at the end of September, we would want to obviously get the cash in the door and obviously pay for that, the cost to get that cost straight to that point in time.

So I think that there might still be, at the end of September, that sort of imbalance that we need to check in terms of the working capital and making sure we've got the cash balance right as well. But then going forward, bar any issues on shipping or trains, that should even out and we shouldn't be doing any pre-sales, from that perspective going forward.

Paul Hissey (Equity Analyst)

Yeah. Okay, thank you.

Mick McMullen (CEO)

Perhaps I just clarify a little bit. We obviously can't pre-sell stuff that we haven't made. So all we're trying to do is get revenue in the door from stuff that we've made and pay the cost of making, right? So my gut feel is we'll still have a bit of that stuff sitting in inventory at the end of September, just given what the month of September looks like. So yeah, I'm pretty sure there'll be that. I guess in an ideal world, we'd like to end up with, at the end of every quarter, carrying about $10 million of inventory at most.

Paul Hissey (Equity Analyst)

Sure. Yeah. Yeah.

Mick McMullen (CEO)

Fortuitous, if we can get it below that, like, I think that's sort of about what you need to have sitting in the business. But clearly, you know, at the end of June, we had $58 million worth. Now, that's a bit much. So we pre-sold $37 million of it, which is recognized in the EBITDA revenue line here. We still had 21, which is still too much. And right now, yeah, we have a fair bit. I think there's a boat going out this week and another one in a couple of weeks. But yeah, what we're trying to do is align production. Like, you obviously can't sell stuff you haven't produced, unless you're a magician.

Paul Hissey (Equity Analyst)

Sure.

Mick McMullen (CEO)

So all we're trying to do is catch up that lag of all this stuff, all this value we've got sitting around, we want it to be dollars.

Paul Hissey (Equity Analyst)

Sure. No, completely understand that. I'm just, it's just the reconciliation between the copper sold number you quote in the quarterly versus the, I guess, the amount of tonnes you need to have sold to reach the revenue number when you come to the financials, right? So I mean, I'll be frank, I missed the discrepancy, right? So my financials don't look anything like your real financials because I had you selling, you know, I had you selling 16 tonnes, not 21 tonnes of copper, right? So just trying to understand, you know, the, I guess, the accordion effect in your inventory there and whether or not we're creating a hole in the future. But clearly, you had a big buffer to begin with that you're trying to work your way through.

But I must admit, you know, I didn't appropriately factor in those additional forward sales on top of your, I guess, conventional sales, for want of a better word.

Mick McMullen (CEO)

Yeah. But you know, again, for the half, we produced, I don't know what it was, 9,500 tonnes, you know, just under 20 tonnes. If I'm just a simple bush math guy. You know, I look at it on the basis, well, how much did we produce? Assume we sold it all, how much money did we make on that? Then there's a working capital line that goes below that, but that's how I look at the business, right? If you assume that we sell whatever we produce, then there'll be some sort of working capital adjustment somewhere in there. That will work its way through the system. As Morné said, you know, I think we were very back-ended in the half, if you wanna think about it that way. You know, we produced a lot of the metal.

There's a slide in there somewhere, but, you know, we produced whatever it would be, not quite half to 40-45% of the total metal in the last two months of the half, right?

Paul Hissey (Equity Analyst)

Sure. Yes.

Mick McMullen (CEO)

You end up with all the stuff that you then can't get on a train and get on a boat by the cutoff date. So hence why we've done the presale, and as Morné talked about that. Between publishing the quarterly and the half, there's been a lot of work go on within terms of revenue recognition and does it meet the standard for revenue recognition? And the answer is yes. So in an ideal world, you know, we'd sell every ton that we make, and it'll be on a boat by the end of the quarter, and that's that. It's a bit lumpy, right? So it's probably we're gonna have adjustment here and there.

Paul Hissey (Equity Analyst)

Yep, thanks.

Operator (participant)

The next question comes from David Radclyffe with Global Mining Research. Please go ahead.

David Radclyffe (Managing Director)

Hi. Hi, sorry, Mick and Morné. So my first question is just on if you come back to, you know, one of the thesis for the transaction was obviously the big opportunity for cost out. You know, costs have been sort of moving the right way, but I thought, you know, it may be good to get a bit of an update on what costs you think still could come out of the business, and if there are or are you largely sort of, you know, gone through what you saw as the key opportunities?

Mick McMullen (CEO)

I'd say headcount-wise, we're there or thereabouts where we need to be. You know, again, Q1, we probably undershot on headcount a little bit. So Q2, we've added, I don't know, 20 odd people back into the operation to make sure that we've always, you know, got operators. I think that component's done. I think commercial contracts we're part the way through. There's still a bit of work to be done there, and Morné and the team are sort of going through that. Some contracts we can renegotiate at short notice, others you're sort of waiting for, you know, the contract to run its course. And you know, I've done a fair few of these turnarounds.

You sort of get to a point where you can't really cut your way to future profit, further profitability, right? So then you've got to grow production, and I would say that's the inflection point where we're at, and we clearly saw that in May and June, right? We, you know, we look at the cash flow or EBITDA or C1, whatever metric you want to look at, when we get that mine running at those levels, then that's really your cost out, right? Your C1 really drops. That's where we are, right? We need to get more production out of this thing, both from what we're doing in the rest of the mine, plus some incremental stuff like QTS South Upper. That's the key, right?

I know you're not a big fan of EBITDA, and I may have actually stuck that metric in there of our EBITDA, the cash conversion for you. I think that's the other key thing here, is we're not having to spend every dollar we make on CapEx.

David Radclyffe (Managing Director)

Okay. Thank you. Then, look, just, I think the numbers are trying to reconcile the revenue. So it's very helpful to get the sales number of copper tonnes sold, because that sort of helps us square that away. But, look, in terms of how should we be thinking about this, what a normal inventory level should kind of be? I mean, you produce 100,000 tonnes, roughly 150,000 tonnes of copper a year, and that's sort of spread between, I guess, the mine and the port or on the way. But, yeah, what is sort of a normal kind of level that we should be thinking of? Is it sort of, you know, a month's worth of copper or the such like?

Because I guess we don't get the granularity on where it sits, and that's causing a lot of us to, I guess, not be able to estimate exactly where inventories currently are.

Mick McMullen (CEO)

I'd like it to be zero. But like I said, I think $10 million worth of inventory, probably. Morné, I don't know. Do you think we can do better than that? I'm not sure we can.

Morné Engelbrecht (CFO)

Yeah, look, I think, you know, this, you know, it's we do about two trains a week, you know, at full tilt. So, you know, I think if you're around that sort of shipload at any one point in the system or a little bit more, I think that's probably what you're gonna get to, right? So that's about, I don't know, 11,000 tonnes. So that's about, you know, so about 2,500 tonnes of copper. So, you know, it's about that sort of number, I would think. So maybe a little bit more than $18 million, Mick, but, you know, it's probably not gonna be much more than that. But that's sort of the...

I don't think you can get away with less than that, because you need 11,000 tonnes sitting at port, ready for the next ship, right? So, so it's gonna be there or thereabouts.

David Radclyffe (Managing Director)

All right. Brilliant. Thank you. I'll pass it on.

Mick McMullen (CEO)

I'm giving you a stretch target, Morné. Just do it a bit less than that.

Morné Engelbrecht (CFO)

Yeah.

Mick McMullen (CEO)

I think the short answer is, unless you just happened to strike it, that you load a boat on the very last day of a reporting period, I don't think it's ever gonna be zero, is the short answer. There's always gonna be some working capital floating around in the business.

Operator (participant)

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

Mick McMullen (CEO)

Well, look, thanks, everyone. I know it's a very busy reporting day here, so, if anybody's got any questions, we're happy to take them offline as well. But, you know, again, I think the ops are doing very strongly, and we still see a bit of room for improvement here going forward. Clearly, if we can get production up, you can see the impact on C1, EBITDA, free cash flow and everything. So that's really the key for us where we are now.

Operator (participant)

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