MAC Copper - Earnings Call - Q2 2025

Transcript

Speaker 2

I would now like to hand the conference over to Mr. Mick McMullen, CEO. Please go ahead.

Speaker 0

Thank you very much, and thank you, everyone, for joining us. I'm joined on the call by our CFO, Morné Engelbrecht. I'll run through the slides, and these will be released as well so that everyone can refer to them at your leisure. This is our second quarter 2025 quarterly presentation. Obviously, there's the usual disclaimer at the front that people can read at their leisure. If I go to slide four, in summary, look, MAC Copper at a glance, it's a well-capitalized, low-cost, high-grade copper mine in a Tier 1 jurisdiction, and we're trending towards greater than 50,000 tons of copper by 2026. During the quarter, we announced the transaction with Harmony to sell the company in the absence of a superior proposal at $12.25 U.S. a share, all cash. There's been various announcements made about that. We are on our growth pathway.

We have a very strong balance sheet. At the end of the 30th of June, we had about $196 million of liquidity, and Morné will run through the components of that here shortly. We have been advancing our key growth projects, which are the ventilation project and the Merin mine. We did the refinancing, and we sort of said that we wanted to have less than 20% net gearing, which is where we are. There were separate announcements about that, but that has reduced our interest costs by around about $14 million U.S. dollars per annum. It's reduced our interest rate to floating rate just under 7% right now. We had $102 million U.S. dollars of actual cash on the balance sheet at the end of the second quarter. Overall, we ended Q2 in a really good position. Moving into the next slide, that position is always underpinned by operations.

We've got a slide on safety here, and very importantly, we've seen a significant improvement in our safety record. We produced just under 10,600 tons of copper, which was a 23% increase quarter on quarter. Like we've said before with CSA, we can produce anywhere from 2,000 tons of copper in a month to five and a half, and in the month of July, potentially 6,000 tons. It really comes down to where we are in the stope sequencing. Also, I think in the full-form quarterly, we've made some commentary in there about how disruptive it is when you have a transaction like we announced. That was certainly the case here during the first quarter and April as well, which, if you look at how much we produced in April versus June, there was a significant difference there. Grade was great, 4.4% copper grade.

It was an 8% increase quarter on quarter. We hit a few records during the quarter. Under our ownership, the most copper produced in a day was actually, I think, the 30th of June, 385 tons. We had quite a few days around the 300-ton mark. C1 for the quarter was a good $1.48 U.S. a pound. Whenever we talk about numbers, it's always in U.S. unless especially stated otherwise. That's consistent with the goal of where we said we thought we could get the mine to. Really pleasingly, you can see in the month of June, we're at $0.94 a pound C1. Overall, good operating result. Everyone sort of settled down at site after the transaction was announced and then really delivered for us. Record quarterly operating free cash flow for us of about $42 million U.S. dollars.

We do note here that the first Glencore contingent payment conditions will likely be satisfied in August of this year. In the absence of the transaction that's proceeding right now, that would then get paid in June of next year. We've had really strong production the last few months. We're maintaining our guidance of 43,000 to 48,000 tons for the year. I would say we'll be in the sort of bottom half of that maybe. Grade, again, keeping the same grade, notwithstanding the fact that we have been producing well above that grade. We do sort of see the stope sequencing towards the, I guess, the middle to the back end of the current quarter. We'll start moving into a bit of that lower grade material. Again, towards the back end of the year, we'll see a pretty strong run in terms of production and grade.

Growth CapEx and sustaining CapEx, again, maintaining those guidance ranges, we're tracking for those. The Harmony transaction, we have announced here in the last day or two that the restructuring agreements that were required with both Cisco and Glencore for Harmony have been executed. Got various CPs in them still to be satisfied, including the votes and FERV and SARB. That has allowed us to schedule a Jersey court hearing, the first court hearing for 30 July, which will then allow us to dispatch the circular on 4 August and target a vote date of 29 August at this stage. Exploration, I've got a little slide at the back. We don't really give a lot of information on exploration these days because, quite frankly, I don't think the shares trade on the back of the exploration results that we get, notwithstanding that they are world-class.

We've got some interesting stuff happening on exploration as well. Our key goals for this year are really consistent, safe, and low-cost high-grade production, which we are delivering on. Progress the Harmony transaction to close in the absence of a superior proposal. Advance our ventilation project through, get first ore out of the new Merin mine in Q4 of this year, and maintain balance sheet strength. I think, you know, based on Q2, we are absolutely delivering on all of those things. Safety and TSF, as you know, safety had, our TRIFRA had been a bit sticky for about the first year, but you can see a very sustained reduction there, which again, against the backdrop of all the sort of corporate goings on with site visits and uncertainty around a transaction, has been very pleasing. The team have worked really diligently to drive that incident rate down.

No reportable incidents, you know, for last year and none for this year either. The stage 10 TSF embankment works are progressing well. They're on track for completion in the fourth quarter of this year, which is one of our, I guess, our three main capital projects for the year. Pleasingly, we worked, or our team worked with the regulator to get a reduction of $4 million Australian dollars in our environmental bond, the RCE. That was good. We also donated $100,000 Australian dollars to the local Cobar Shire Council's museum effort, which is really important in terms of selling Cobar as a destination and why mining is so important out there. As we've always said, we're quite happy to put money into the local community because, you know, that's basically where we operate, right?

On the recommended transaction with Harmony, obviously, a lot of work has gone into both getting to announcement, but also then the restructuring agreements. Both Cisco and Glencore have worked with us and with Harmony to get those things papered up. The timetable is being published there, but we are working towards a vote date on the 29th of August. We will also hold our annual general meeting on the same day as well. The circular, as I say, will have a pretty fulsome description of the transaction. We'll have a pretty fulsome background of the transaction. That is planned to be sent around on the 4th of August at this stage. Record date is the 29th of July. Unlike in Australia, a relatively long period between record date and vote date, but everyone has plenty of notice, I think, at this point.

Production, as you can see, a big jump on the previous quarter, which had been a bit of a slow start to the year. Really, a lot of that came in from the back part of May. Certainly in June, you can see the impact of a 6% copper grade in the month of June. Lots of copper coming out. Very low C1, obviously. Grade has been in excess of 8% for much of the last couple of weeks of June. Extending into July, as of yesterday, we produced 4,500 tons of copper in July. We expect this month to be somewhere in the order of 5,900 to 6,200 tons of copper at an average grade of around 7%. You can see some of that super high-grade ore coming from the bottom of the mine. That is CSA. We've spoken about this many times before publicly.

We have a small number of very high-grade, reasonably bulk tonnage stopes that drive our annual production. As we explained after Q1, we just didn't have those online. We had them in Q4 last year, didn't have them really in Q1, and then we got into them in Q2, and now that's extended into Q3. I guess that is CSA for you, right? It isn't a porphyry where we've got the same grade plus or minus a couple of percent for all year. We have a small number of big high-grade stopes that drive our production. That's why we get a bit of volatility in our quarter-on-quarter production. You can see there we had a fair bit of concentrate laying around, and that pile has only grown. Great results on costs, obviously all-in costs continuing to trend down, notwithstanding just a small amount of general cost escalation.

The plant, again, has continued to demonstrate it can produce it far in excess of what we currently can mine. That's why we're developing some other ore sources. As I said, for the rest of the back half, I suppose, of Q3, we do expect grade to moderate a bit, reasonable bulk tonnage stopes, but grade to moderate a bit. We do have a planned change out of some of the concentrate filter plates in August. Even so, we expect Q3 should be a reasonably strong quarter, particularly in this instance. We've actually started off with our best month in the quarter with July, as opposed to having to come home with a wet sail, which has been the case in a few of the other quarters. In general, we're pretty happy with the way site’s settled down. They're operating really well. The team's all going well.

We've made a few changes as well just to sort of get people enthused and add some extra resources. We've been bringing in some extra equipment. Now that we can probably utilize that, we might as well put that extra equipment into the mine. With that, I might hand over to Morné, our CFO. He can talk to the next couple of slides in terms of the financials.

Speaker 1

Thank you, Mick. Good evening and morning, everybody. I'm going to slide 11 now. This is covering the overall capital expenditure and development meters, where we had another record under MAC ownership and development meters for the quarter. Overall capital expenditure, as you can see, increased by around 85% quarter on quarter. This is mostly driven by, obviously, the increased activity around the vent project and the Merin mine, which Mick will go through next. The development meters overall increased to that record-breaking 1,196 meters for the quarter, that's obviously under MAC ownership. The Merin mine development meters increased by around 65% to 530 meters, and the vent project increased by 125% to 564 meters. This translated into growth capital expenditure for the quarter, increasing by 139%.

This is mainly driven by those two key projects for us in terms of the vent project, which was around $7.3 million spent for the quarter, and the Merin mine, which was around $3.5 million US for the quarter. Obviously, very pleasing to see those key projects being executed really well by the team at site and obviously to plan with the Merin mine coming online in Q4 this year. On the sustaining CapEx side, that mainly consists of the stage 10 TSF, which has stepped up again and is progressing to plan. That is earmarked for completion in Q4 of this year as well. Moving to slide 12 now and the all-important cash flow waterfall, there are a number of key drivers to keep in mind that impacted the cash flow over the June quarter.

Firstly, we had another record for the quarter under MAC ownership, as Mick mentioned, relating to free cash flow from operations. That's obviously after sustaining CapEx, which amounted to around $42 million US for the quarter. This was mainly driven by that 23% increase in production. The 8% increase in grade obviously made a big difference as well. There is a 3% increase in realized copper price over the quarter that added to that number. Secondly, as you can see, our interest costs have significantly reduced over the quarter. That's after the refinancing was completed at the end of March, where we are starting to see the benefits of reducing that average weighted interest cost by more than 30% through that refinancing. We are definitely well on our way to realize that $14 million US of interest savings per annum.

Moving to growth capital, which incorporates the vent project, the Merin mine, as I said before, and then exploration as well. This ramped up for the quarter, a total cash spend of $13 million U.S., which drove that development, which was driven by that record development meters done in the quarter as well. Our senior facility still sits at $159 million U.S., and we maintained a drawdown on the revolving facility of $66 million U.S. as well, with $102 million U.S. in cash at bank at the end of June, which leaves us with that net debt figure of $123 million U.S. As Mick has said, that's way under 20%. We're just over 17% at the moment in terms of that net gearing ratio. We also had a very healthy $196 million U.S. in liquidity. That's almost $300 million Aussie available to us at the end of the quarter.

That consisted of that undrawn revolving facility of $59 million U.S., outstanding QP receipts of 11 unsold concentrate at 30 June of $18,500, and then that investment in Polymetals of around $5,500 that's still doing great for us. Finally, on the contingent copper payments to Glencore, we currently anticipate that based on the average daily LME closing price over the last 18-month period leading up to June, the condition of the payment for the first contingent payment will be met around August of this year, as Mick has previously mentioned. Under the terms of the CSA agreement with Glencore and the integrated deed, that obligation to make that payment is deferred until the earlier of the payment being permitted by the current debt arrangements and the three-year anniversary of when MAC actually acquired the CSA copper mine.

We therefore expect that the first contingent payment, as Mick has mentioned, will become payable on 17 June 2026. Given MAC's current liquidity position, the company expects to be able to fully cash settle this obligation when it becomes payable. Overall, a very strong and healthy balance sheet position at the end of the quarter with that circa $102 million of cash at bank and $196 million of liquidity available to us. With that, I'll hand back to Mick.

Speaker 0

Thanks, Morné. As I sort of showed on that photo, we had even more concentrate last week sitting at the mine. We have a significant amount of liquidity over and above what's actually that $196 as well. We've shown this before. Really, we're sort of on track to moving towards that 50,000-ton mark or greater than. Those key projects, obviously the capital vent project and the Merin mine, that's where our growth capital comes in. You can see clearly we're doing a lot more meters of development. We're buying more equipment for those projects, and that's why the capital spend is going up in those. That's consistent with what our guidance is. We are delivering on those things. The Merin mine, we are moving fairly quickly on development out there now.

The exploration team have also continued to sort of close out the drilling out of Cutia South Upper that we're, I guess, about halfway across or a bit more than halfway across. They've drilled out Pink Panther, which has got some other material that is potential to be mined as well, lower grade than Cutia South Upper, but is still there. This area of the mine has independent firing. The development rates in this, as you can see from the previous graphs, are materially faster than what we get at the bottom of the mine, just basically because it's so much easier and we can fire independently from the rest of the mine. It's progressing quite rapidly there now. You can see that little schematic there where we are, and you can see the sort of the ore body just on the very left of that thing there.

Additional ventilation is going in. We are well on track for this. We sort of said it's very slow to get started on it because you're interacting with the existing mine up until you get to independent firing. Now that we've got that, now we can go much, much faster. That seems to be going pretty well up there. Not only do we have that sort of Cutia South Upper stuff that we're developing out to, but there's a series of zinc stopes that are being planned and some copper areas there that are not currently in resource. We're sort of in the process of drilling that stuff out and getting a plan around going to mine that stuff. During the quarter, you'd have noticed Polymetals has announced they've recommissioned their concentrator during the month. That is up and running to provide the processing route for the zinc ore.

We still think it'll be towards the end of the year before we would be ready to send some material to them. We are certainly making plans to do so. Ventilation project, again, we are starting to spend a fair bit more money on this thing as part of your capital budget. If you want to get your project done, you need to spend your money. We're not that far away from starting the vertical raised boring works on that as well, which will be the next key phase of that project. Finally, exploration, we don't really talk about exploration much anymore. No one seems to give us much value for exploration. The exploration team are quite excited. They've done an EM survey about 15 kilometers north of the mine.

It has picked up a very strong anomaly that looks quite similar to what we have at the CSA copper mine. We have very quickly moved two drill rigs onto that, and we are currently drilling that, and we shouldn't be far away from hitting the target zone on that. We think that's quite an exciting area for us to go and try and explore. If we can find a CSA-style ore body, that could be pretty interesting. We'll come back to the market if we find something material on it, certainly ahead of the vote date so that everybody has the full amount of information. Closing off, just in terms of our goals for this year that we've been pretty consistent about, we are accelerating work on many of these projects.

I think we've, having near enough to $300 million Australian dollars of liquidity on the balance sheet for a company our size, we'll definitely tick the box for a strong balance sheet. I think the fact that we managed to get the C1 in the quarter down to $1.48 U.S. a pound, but clearly, June at $0.94 was pretty good. If we produce more copper in July, I guess it's going to be even better. There has been a large amount of documentation required for this Harmony transaction. We've now managed to get that out of the way, and now we're moving forward to getting organized for the vote. With that, that's really the summary of the second quarter. I think overall it was a great result from a safety point of view, good result from a production and cost point of view.

As I say, July has been quite exceptional as well. We think given where we started the year at the end of Q1, where obviously we were a bit behind where we needed to be, we've now caught up and gotten a bit ahead of where we need to be. That's always a good spot to be in as you're coming into the end of the year. With that, I'm going to open up the floor to questions if anyone's got some.

Speaker 2

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speaker phone, please pick up the handset to ask your question. We'll pause momentarily for any questions to register. Once again, if you wish to ask a question, please press star one. Thank you. There are no questions at this time. I'll now hand back to Mr. McMullen for closing remarks.

Speaker 0

I appreciate everyone taking the time to dial in. Thank you very much. We'll be back to you as we progress the transaction. Bye.

Speaker 2

That does conclude our conference for today. Thank you for participating. You may now disconnect.