Ero Copper Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 6, 2024

There are 10 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Arrow Copper Third Quarter 2024 Operating and Financial Results Conference Call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

Operator

I would now like to turn the conference over to Courtnee Lin, Senior Vice President of Corporate Development, Investor Relations and Sustainability. Please go ahead.

Speaker 1

Thank you, operator. Good morning, and welcome to Aerocopters' 3rd quarter earnings call. Our operating and financial results were released yesterday afternoon and are available on our website, as are our financial statements and MD and A for the 3 9 months ended September 30, 2024. On the call with me today are David Strang, Eero's Co Founder and Chief Executive Officer Macco DiFilippo, President and Chief Operating Officer and Wayne Dreyer, Chief Financial Officer. We will be making forward looking statements that involve risks and uncertainties from which actual results may differ materially.

Speaker 1

We would refer you to our most recent annual information form available on our website, SEDAR and EDGAR, for a discussion of the risk factors of our business and their potential impact on future performance. As a reminder, and unless otherwise noted, all amounts are in U. S. Dollars. I will now pass the call over to David Strang.

Speaker 2

Thank you, Courtney. We appreciate that this is a busy week, especially with the news surrounding the U. S. Presidential election. So thank you all for taking the time to join us today.

Speaker 2

Before diving into our Q3 results, I want to take a moment to discuss the leadership succession announcement we made yesterday. This transition is something we've been thoughtfully planning over the last 2 years, beginning with Knoll's decision to step down as Executive Chairman in January of 2023. Noel's contributions have been instrumental in shaping Eurocopa from its early stages into the successful high growth copper producer we are today. And I am immensely grateful to have him taken this unimaginable journey with him over the past 8 years. As I step into the role of Executive Chairman, I'm excited about what lies ahead for Eero.

Speaker 2

I remain fully committed to our long term success and look forward to continuing to support our growth in this new capacity. With Mako assuming day to day leadership of Euro as President and CEO, we are in incredibly capable hands. Mako has demonstrated exceptional leadership as our Chief Operating Officer, championing safety, advancing our strategic growth initiatives, including the successful construction of Tucumã and strengthening our culture of accountability. I have absolute confidence in his ability to lead Eero into this next chapter. I am also pleased that Macca will have the full support of Gelson Batista, who joined us in September in anticipation of this transition.

Speaker 2

Gelson brings a wealth of experience from his 25 years in the mining industry, most recently serving as Chief Operating Officer of ArcelorMittal's Mining division. His expertise will be invaluable as we continue to strengthen our operations and execute on our growth strategy. With that, let's move to our Q3 operating and financial results. This past quarter brought both notable successes to celebrate as well as new challenges for our team to navigate. Among the successes was the completion of construction of Tal Turkomay operation, culminating in the first production of 1st saleable copper concentrate in July 2024.

Speaker 2

Reaching this milestone just over 3 years after the publication of Tucomo's optimized feasibility study in September 2021 is a testament to our team's extraordinary dedication and hard work. What makes me most proud, however, is that we achieved this milestone without a single lost time injury. Another important milestone in the quarter was the execution of a definitive earning agreement on the Furnace copper gold project with a subsidiary of Vale Base Metals in July. Consistent with the terms outlined in the binding term sheet announced in October 2023. We are delighted to partner with Vale Base Metals on this opportunity and look forward to advancing the project towards a final investment decision over the next few years.

Speaker 2

Shortly after executing the agreement, we applied for the drilling permits required to commence the Phase 1 drill program, which we received in September. Then in early October, we published an initial NI 40three-1 101 compliant mineral resource estimate, based on a contemplated high grade underground mine scenario. In mid October, the 1st drill rig arrived at site and we kicked off the 28,000 meter Phase 1 drill program, which will focus on infill drilling and extending high grade zones within the broader deposit to depth. As of the end of October, we have 2 drill rigs on-site with an additional 2 rigs expected to arrive by the end of this month. Our plan includes drilling approximately 4,500 meters in the 4th quarter with the remainder scheduled for 2025.

Speaker 2

Alongside these achievements and strong progress we made in executing our growth strategy, we encountered operational challenges at both Carribe and Tucumab. On a positive note, we achieved an 11.9% increase in copper production at Carribe during the quarter, producing 9,920 tons of copper in concentrate, driven by higher mine grades both Vermeos and Pallar. This improvement reflects progress in developing high grade stopes at Pallar during the quarter. However, underground development rates at Pallar have not advanced at the pace we had anticipated, primarily due to underperformance by the 3rd party contractor we engage for this work. To address this, we are bringing on a second contractor before year end.

Speaker 2

In the meantime, lower mining rates at Para Larre are expected to extend into the Q4. As a result, we are adjusting our full year production guidance at Carriba to 35,000 to 37,000 tonnes of copper and concentrate production. Despite production headwinds at Cariba, our Seawarn cash costs for the quarter decreased 24.5 percent to $1.63 per pound of copper produced. In addition to higher copper grades, several positive factors contributed to this impressive performance. As mentioned in our previous conference call, the tightness of the copper concentrate market enabled us to secure some of the most favorable treatment and refining terms we have ever seen, which kicked in as of May 2024 for both Cariba and Tucama.

Speaker 2

Another important driver of our C1 cash cost performance has been a more favorable U. S. Dollar to Brazilian reais exchange rate, which averaged approximately BRL5.6 per U. S. Dollar in the Q3.

Speaker 2

Along with this, we also experienced higher gold byproduct credits with regards to improving gold prices. This reduction in unit operating costs supported improved operating margins at Caribe. At Tucumab, we began the quarter on a strong note, completing our first 24 hour shift of continuous mill operations and producing our 1st salable concentrate in July. This positive momentum continued through most of August as we gradually ramped up mill throughput. However, as we approached higher throughput levels in late August, we encountered intermittent voltage fluctuations on the regional third party power grid, which limited our ability to sustain higher throughput levels continuously.

Speaker 2

Initially, we were informed that the voltage fluctuations were due to regional wildfires, which led power utilities to reduce voltage throughout the transmission lines. Following a decrease of wildfire activity, the area however was struck by severe windstorm causing a 10 day power outage that impacted industrial power consumers, including our Tucumã operation. After power was restored, we safely restarted mill operations on October 16. However, as we ramped up mill throughput once more, we have observed the recurrence of the voltage oscillations initially attributed to wildfires. While the root cause remains under investigation, we've promptly deployed an engineering team to implement a mill power management solution, allowing for continuous plant operations despite minor voltage fluctuations.

Speaker 2

Since implementing this solution last week, the plant has maintained continuous operations and is increasing throughput daily and advancing toward full capacity. Due to the intermittent power disruptions, total mill throughput and consequently copper production for the Q3 was below plan, with throughput totaling 110,000 788 tons and copper production coming in at 839 tons of copper in concentrate. The power issues encountered from late August through most of October have also extended our ramp up to commercial production. As a result, we are revising our full year copper production guidance for Tucumã to a range of 8,000 to 11,000 tons in concentrate. In light of the anticipated delay in achieving commercial production, we are narrowing our copper C1 copper cash cost guidance to include Ony Carahiba, where we are maintaining cost guidance at $1.80 to $2 per pound for the reasons I outlined earlier.

Speaker 2

Before discussing Javan Tina's performance, I'd like to briefly address our expectations for copper production in 2025. While we are still finalizing our production numbers for next year's budgets, we anticipate that Cariba will initially underperform relative to previous 2025 guidance as its 2nd development contractor ramps up in the first half of the year. However, we expect Tucumas production to trend towards the higher end of previous guidance due to positive grade reconciliation. Overall, at this stage, our preliminary production profile for 2025 suggests production will generally be in line with our previous guidance. Turning now to our Argentina operations, we delivered another quarter of strong performance with gold production totaling 13,485 ounces.

Speaker 2

As mentioned on our Q2 conference call, gold grades were expected to be lower in the second half of the year, leading to decreased production and higher unit costs in the 3rd and 4th quarters. Consistent with these expectations, our 3rd quarter C1 cash costs and all in sustaining costs for the quarter came in at $5.39 $10.34 respectively per ounce of gold produced. For the full year, we are reaffirming our increased gold production guidance range of 60,000 to 65,000 ounces and maintaining our reduced cost guidance range of $4.50 to $5.50 per ounce for C1 cash costs and $900 to $1,000 per ounce for all in sustaining costs. Before I hand the call over to Macca and Wayne, I'll briefly cover our quarterly financial results. Our financial performance for the quarter reflects an expansion of operating margins, driven by a significant reduction in unit costs at our Carrieba operations and higher realized gold prices at Charentina.

Speaker 2

This margin growth led to quarterly operating cash flows of $52,700,000 and adjusted EBITDA of 62,200,000 dollars Our liquidity position also remains strong with total balance sheet liquidity of $125,200,000 at quarter end. As we continue ramping up production at Tucumont, we believe we reached the cash flow inflection point in October and anticipate building additional liquidity throughout the end of the year. I'll now pass the call to Mako to discuss our operating results in more detail, after which Wayne will provide more detail on our financial results.

Speaker 3

Thank you, Dave, and good morning, everyone. Before commenting on our Q3 operating performance, I want to start by saying that I'm truly honored to have been appointed the next CEO of ARO Copper. Having been with ARO since before our IPO, I take immense pride in what we've been able to achieve together over the past 8 years. We have a strong underlying asset base an outstanding portfolio of growth projects in Brazil, a proven mine building team and an extremely dedicated global workforce. I'm excited and deeply committed to continuing to serve our shareholders and to lead the sustainable execution of Arrow's next stage of growth.

Speaker 3

Switching gears back to our operations and starting at Tucumã. As David mentioned, we navigated a highly dynamic ramp up environment over the past few months due to intermittent voltage variability that was compounded by a major windstorm related disruption in early October. While these obstacles created some setbacks in the pace of overall ramp up progress following a very successful July August, I'm proud of the resilience of our engineering project and operational teams on-site, who in a joint effort with other major industrial users in the region were able to safely restore power to site in just 10 days. In parallel, over the past few weeks, we worked closely with our automation partners and our broader engineering group to adjust our mill drive to accommodate this voltage variability. I'm optimistic about the progress we are seeing, and we've been able to achieve and sustain higher throughput levels at Tucuman since the implementation of this solution.

Speaker 3

It is worth mentioning that our recoveries and concentrate grades have continued to remain at or above design levels. During the second half of October, following restoration of power to site, we produced more copper from Tucumã than all of Q3, averaging recoveries of around 90% and concentrate grades above our design target of 25%. With the capital spend of Tucumã behind us and production and copper sales increasing, we're confident that Tucumã is going to be a fantastic operation. At Cariba, we saw a notable improvement in production and operating margins relative to the Q2, driven largely by increased grades from the Pilar and Vermeos mines. However, as Dave mentioned, our ability to execute on the plans we developed for the Q3 were impacted by underperformance of a third party development contractor in the Palar mine.

Speaker 3

The lower achieved development rates have now been reflected in our revised guidance range for Cariba. To improve access to high grade stopes and increase operating flexibility, we're mobilizing a second third party contractor to site by year end to support our development efforts in 2025. At Firdapse, I'm pleased to report that the Phase 1 work program has begun in earnest with drill rigs mobilized to site in October and the 1st drill core of our program now coming to surface. Our primary focus for the remainder of this year and through 2025 will be to complete the 28,000 meter Phase 1 drill program and complete the scoping study as contemplated in the IRN agreement. I will now turn the call to Wayne to discuss our financial results.

Speaker 4

Thank you, Meka. As Dave highlighted, our 3rd quarter financial results benefited from an expansion in operating margins, driven by a significant decrease in unit costs at Cariba and higher realized gold prices at Chavantina. This resulted in higher adjusted earnings before interest tax depreciation and amortization of $62,200,000 and adjusted net income attributable to owners of the company of $27,600,000 or $0.27 per share on a fully diluted basis. During the quarter, we took advantage of the rallying gold prices by opportunistically entering into 0 cost collars on 2,500 ounces of gold per month from January 2025 to December 2025. These contracts establish a floor price of $2,200 and a ceiling price of $34.25 per ounce, allowing us to participate in gold price increases up to a level that is over 20% above the all time high reached in October 20 24.

Speaker 4

The total hedge volume of 30,000 ounces represents just over 50% of our projected 2025 gold production at our Charentina operation.

Speaker 5

With respect

Speaker 4

to our foreign exchange hedge program, we reported an unrealized gain of $9,800,000 and a realized loss of $3,400,000 for the quarter. The total notional value of our foreign exchange derivative position through quarter end was approximately $327,000,000 consisting primarily of $315,000,000 in 0 cost collars with a weighted average floor and ceiling of $5.23 and $608 per U. S. Dollar respectively, these extending through the end of 2025. Our liquidity position at the end of the quarter remains strong at approximately $125,000,000 As Dave mentioned earlier, we believe we have passed a cash flow inflection point in October and expect our liquidity position to meaningfully increase as production and concentrate sales at Tucumor ramp up.

Speaker 4

I'll now pass the call back to David to share some closing thoughts.

Speaker 2

Thank you, Wayne, and thank you everybody for joining us today. Before I move into the Q and A session, I want to take a moment to express my gratitude to the entire Eura team. As I continue to be part of Eura's growth journey, I am more than excited than ever about what lies ahead for us. I want to extend my best wishes to Mako and Jelson as I step into their new roles. I have full confidence they will exceed all expectations.

Speaker 2

I'd also like to thank Noel for his dedication and partnership over the past 8 years. I'm incredibly proud of what we have achieved together, and I wish him the best in his next chapter of his life. Now I'll hand the call back to the operator to open the line for questions.

Operator

We will now begin the question and answer Our first question comes from Ralph Profiti with 8 Capital. Please go ahead.

Speaker 6

Thanks, operator. First off, David Macko and Nelson, I offer my congratulations on the appointments and Noel, congratulations on his retirement. Firstly, on Cariba, if I may, it sounds like the contractor issues are going to have a sort of a knock on effect on dilution versus plan and reconciliation versus plan. I'm wondering if that's kind of what you meant by sort of the underperformance in the mine plan, not only in Q4, but sort of the 1st part of 2025. And if you can sort of help me to understand kind of what degree versus plan are we impacting dilution and reconciliation?

Speaker 3

Yes. Thanks. Good question. And just to clarify, the issue with the 3rd party development doesn't have to do with dilution or any modifying factors for the stopes. It more has to do with our ability to increase operational flexibility and access additional high grade stopes that we hoped would be in the plan for the second half of this year.

Speaker 3

Those are being shifted out into the first half of next year. And obviously, there's a knock on fact to the entire plan with the underperformance of those development rates. So just to be clear, no impact on dilution, reconciliations or anything with respect to the soaps that are in the plan. It more has to do with the access and timing of getting to those soaps and mining that safely and that's where you.

Speaker 6

Okay. Got you. Yes, thank you for that clarification. And just coming to Tucumã and Power. In the prepared comments, it sounded like the trips and these oscillations were happening at higher throughput.

Speaker 6

And I was just wondering, was Tucumã at the entire allotment of its 25 megawatts on the grid at the time of this disruption? And the reason I'm asking is whether or not these are sort of structural and systemic issues that perhaps require capital? And as part of your investigation happening with the public utility, And could there be some capital needed to ensure long term reliability of the system?

Speaker 2

It's a really, really good question. With respect to the power grid and what is being done, it's a little bit more complicated in terms of how the whole power grid works up in Para because they are 3 separate power providers. Our power provider ties into another network that on which this oscillation issue occurs. Frankly, we became aware of it once and throughout our partners at Vale Based Metals. Once the Onsipooma mine came back from maintenance and started drawing power back from increased power from the grid.

Speaker 2

The good news is with respect to that is this is a situation that Vale had been dealing with. Historically, they have been able to put in systems in their own operations with respect to dealing with this issue. We have worked with our contractor ABB and working on a solution in and around. And for us, it really only affects our mill. It does not affect the rest of the operations.

Speaker 2

And so with regards to the mill, we have worked with them on software updates with regards to that, but we're not going to rest on that. Similar to what Ansukuma and some of the Vale operations have put in place, we are looking at putting another solution in place. The capital cost on these things is not excessive. It's a small amount of money, approximately $1,000,000 with regards to putting one of these systems in. And I can leave it to Mako to talk more broadly with regards to what that system looks like and how it

Speaker 3

performs. Yes. It's a good question. I think the main thing to take away from it is that the timing of the voltage oscillations that we experienced, I think, we're coincidental, although we're still working with our increased ramp up to understand that. The solution itself, as Dave mentioned, 2 things were done.

Speaker 3

We immediately started engineering a contingency plan for a longer term installation of a serious transformer that allow us to accommodate that voltage volatility at our substation. But in parallel, working with ABB and our engineering groups, we implemented the solution at our mill to accommodate the variability there. So I'd say the engineering for the long term solution has been in progress. As I said, at this stage, we view that as contingency plan, not required based on what we've seen over the last week. But obviously, we're going to continue to monitor that and evaluate the implementation of that solution.

Speaker 3

I think the main message to take away from this call is that the permanent fix, if required, is not a significant investment. It's around $1,000,000

Speaker 6

Got you. Okay. Yeah. Helpful answers. Thanks very much to the team.

Operator

And the next question comes from Guillermo Rosita with Bank of America. Please go ahead.

Speaker 5

Hi, thank you. Good morning, everyone. First, I'd like to also congratulate Dave on your journey and wish you best of luck in your new challenge. And also, Marco, wish you best success in your new role. So my first question is on Cara IMA.

Speaker 5

Just wondering if you could go into a bit more detail of what you guys are seeing in this new guidance, if the top ranges where you are targeting then have some room to maybe still have some underperformance to still meet guidance? Or are you targeting the middle of the guidance, there's an upside risk to the top? Then into 2025, when you talk about underperforming first half, should we expect something in the lines of the top end of the guidance? And just to understand what is the structure of what's going on there and what is circumstantial in terms of the contractor delays that we can look to the coming years before the shaft is up? And my second is to Wayne.

Speaker 5

I completely agree that you had a time of inflection in terms of cash generation, especially as Tucuman ramps up and your CapEx bill goes down and then you start to generate a lot of cash. So the question is, where is that cash going? What are our priorities in terms of capital allocation? Just given the considerable underperformance of the stock recently, does it make sense to open a buyback program? Would you rather pay dividends?

Speaker 5

Or would you rather take down your leverage first and think about that? Just trying to understand what are you thinking about? Thank you.

Speaker 3

Yes. So great question. I'll take the first part of that. And there was a few component parts of the question. So if I miss anything, just feel free to jump back in and let me know.

Speaker 3

But I think the primary question was on what's systemic versus structural or temporary in nature. I think truly the development delays that we're seeing, we see as a moment in time in terms of our ability to have enough flexibility in the Polar mine to continue to access high grade stopes. So we see that impacting, as Dave mentioned in the prepared remarks, we see that impacting, let's say, the first half of twenty twenty five. It's going to be a few quarters to get things back on track there. But overall, we're not seeing a major structural change in terms of the production volumes that we have over the next few years from Cariba complex.

Speaker 3

Together, as I said, obviously, it's impacting this year because of that underperformance relative to our expectations. And we see that impacting in the next few quarters. But by the second half of twenty twenty five, I think it's fair to say that we expect to be back in a good position with respect to operating flexibility around these high grade stopes that will be aided by the efforts of a second third party contractor that we're bringing on board. I think that was probably covered a few of the different questions that were asked. But maybe before we get into capital allocation, maybe just pause there and see if there's any questions on the operating side that weren't answered.

Speaker 5

I think that was great, Marco. And just one thing to make it clear, when you guys look at the guidance this year, is the top end where you guys are targeting and then have some new now or targeting the middle of the range and then have some upside in reaching the top end?

Speaker 3

Yes. Look, it's a great question. I mean, obviously, we're we've got a few months left in the year here. I think we gave ourselves a bit of room on production at Caribou. But I don't want to it's a very narrow range at this point.

Speaker 3

So I prefer not to comment on whether we're forecasting to be at the top end or bottom end.

Speaker 2

Let me just add in. We've just gone through October. On the revised plan, the team is a little better than what we planned at forecast. So, Mako doesn't want to go and the hesitancy is just making sure that we don't get too far over our skis. We're certainly with regards to the plan that Jelson put in place since he's arrived in terms of getting us back to where we need to be, October was better than what we expected.

Speaker 2

Let's see how November goes. But this is all about getting the team to get back on track, start progressing every month and start keep improving. We've put in some conservative assumptions within this plan. Obviously, from our perspective as senior leaders of the company, we'd like the team to beat the plan. And so let's see how we're going.

Speaker 2

October was a good start.

Speaker 3

Capital allocation?

Speaker 4

Yes. And on the capital allocation question, Guillemet, it's obviously we the first priority will be to pay back the revolver that we have outstanding. I think once we are comfortable that Tucomir has hit commercial production and is running smoothly in 2025, then we can start having a more fruitful discussion around how best to handle the excess cash flow that we expect to produce. I think that's a discussion that is always robust and is continually happens at our Board. So I think next year we'll be at a point where we start to sort of formulate some plans on how best to start returning some of the cash to shareholders.

Speaker 5

Great. Thank you very much guys.

Operator

And the next question comes from Connor MacKay with Ventum Financial. Please go ahead.

Speaker 7

Thanks, operator. And I echo the comments of congratulations there for Dave, Mako and the rest of the team on your new appointments. Just wondering at Pilar, what are the cost implications you guys are anticipating of adding the second mining contractor? Is that going to impact long term sustaining capital or operating costs going forward?

Speaker 3

It's a great question, Conor. I think it's important to note with respect to 3rd party contractors that bringing someone on board in 2025 was always part of the plan. We obviously accelerated that into the second half of this year in response to some of the challenges we had in the Q1. So it's really a it's just a pull forward of that plan. So when looking at our longer term outlook and plans for the company, we always had a development contractor in place starting in 2025 to increase the rate of development.

Speaker 3

We've had a 3rd party development contractor, in fact, the same 3rd party development contractor operating successfully throughout our operations for the last several years. So this isn't something new to us. And as I said, it was always part of the operating plan. The idea with the 2nd third party contractor isn't so much to increase the rate of development versus what we have planned. It's more to distribute the distribute the load as a risk mitigation measure more than anything else.

Speaker 7

Got it. Thank you. And Tucumab, so I assume with the comments surrounding targeting the upper end of 2025 guidance production guidance out of Tucama, you're fairly confident that commercial production is within reach in the near future, probably late this year or early next year, if I'm reading that correctly?

Speaker 2

Yes. So let's be clear. Where we are right now, and we had to make sure everybody understood with regards to what we said, Our preliminary work that we're doing right now is showing exactly what we said with regards to general guidance for next year. At the moment, you are correct. We are working.

Speaker 2

The mill is now in continuous operation. We are not seeing any voltage shutdowns of the mill. Mako and the team are now slowly ramping up that mill to commercial production levels. And it is our anticipated hope that we will be at commercial production within the next couple of months. It may slip into early 2025.

Speaker 2

Our hope is it's not. That's why we're using terminology like preliminary and general at this stage. Once we are better suited, once we've got through the next month with continuous operations and as we said, continuing to ramp up through commercial production levels, then we'll be in a much better position to be able to have a more fruitful conversation with everybody regarding that. And that will dictate into our guidance that we will release in January of next year. But as it stands right now, based upon the runway we see going forward here, what we see is there's no reason to change our general guidance for next year.

Speaker 7

Got it. Appreciate the clarity there. Thank you. That's all for me.

Operator

And the next question comes from Roald Ross with Clarkson Securities. Please go ahead.

Speaker 8

Good morning, guys. Congrats on the quarter and congrats on progress with ramping up. So my first question is on Caraiba. I'm just curious if you can provide some color on the cash cost into the next year after having reached this low level?

Speaker 3

Yes. Look, I think from a cash cost perspective, there's a couple of things that are creating some good tailwinds for us. And again, I mentioned this last quarter, although we didn't come out this quarter. In the early last year, we started what we call our full potential program. We've seen the benefits of that quarter on quarter.

Speaker 3

And so we're continuing to get supplier cost come down. I would say specific to Q3, we started to see the full benefit of improved treatment and refining charges, specifically related to obviously the overall treatment and refining charges are coming down as David mentioned. But I think it's important to note that the gold price strength continued to benefit us pretty significantly in Q3. And we also saw a weakening of the BRL during the quarter, which if you follow the Brazilian rej here over the last 24, 48 hours has continued to be in a great spot for us in terms of improving margins relative to our expectations early in the year when we put our budget together. So I would say major tailwinds that we're continuing to experience, obviously, the TCRCs, the strength of the gold price and the weakening at the BRL are all tailwinds we expect to continue here for

Speaker 4

the next couple of months.

Speaker 8

Great. And also on the realized copper price, it seems like for this quarter that the discount looking at the 3 months LME is a bit bigger compared to last quarters. Is that something to comment on? Or is it just a coincidence? Or should we sort of think that this discount could be also this wide going forward?

Speaker 4

No, look, I mean, we had lots of commentary on previous calls about this really. If you look at Q3, the copper price did slide in Q3. And so all of that is often just driven around when we ship concentrate. We're not a huge producer in terms of volume compared to some of our peers. So a lot of it's driven by the timing of shipments.

Speaker 4

And simply when you can't take a simple arithmetic average, when we our shipments the timing of our shipments does drive that. So last quarter was a little higher than it was the quarter before. Obviously, the quarter before we saw a a very significantly strengthening copper price in Q2. I would suspect most copper of our peers had a very tight range on their realized price. But that's all it is, nothing significant.

Speaker 2

Yes. If you look at it, Q2, the LME average price was $4.42 Q3, the average LME price was $4.17 So that's why you would see that change in the realized price is related to directly the underlying metal price offset a small amount by changes in the gold price over the same period of time.

Speaker 8

Okay, great. Makes sense. And lastly, for Tucumã, could you give us some color on the sustaining CapEx going forward as you reach nameplate capacity and everything is going as expected?

Speaker 3

Yes. Look, I don't think it's appropriate at this point. We're obviously putting together our plans for next year with respect to sustaining capital. We don't see a meaningful variation from what we put on the past in terms of sustaining capital. Obviously, costs have increased relative to when we put out the feasibility study just generally in the sector.

Speaker 3

So I think that's probably a fair comment. But we're I'm going to hold comment on that until we put out our formal guide in January. We're still focused right now on our ramp up and getting to the commercial production level. So I'd suggest we revisit that in January with our full year guidance for 2025 because we'll have a again put some clarity around what sustained CapEx is going to be. I expect it to be fairly low in the 1st year of production.

Speaker 3

Obviously, we don't have a lot of it's a brand new plant. That will increase a bit over time.

Speaker 8

Okay, great. Appreciate that. Thank you.

Operator

The next question comes from Dalton Baretto with Canaccord. Please go ahead.

Speaker 9

Thanks, operator. Good morning, guys. I'm a little surprised to see all these operating challenges in Q3 given that we were just on-site in the 2nd week of September. And I appreciate all the color that's been given on the call so far. But it's still a little bit unclear to me at Caribou what the root cause of the productivity issue with the contractor is?

Speaker 9

I mean, is this a newer contractor? Was there something temporary that happened or is this more of a structural thing? And so I'm just wondering if you can comment on that. And then maybe as you're caught up with the 2nd contractor mid-twenty 25, whether you think it's sustainable on a go forward basis at that point in time? Thanks.

Speaker 3

Yes. Look, it's a great question, Dalton. And I think really what you're looking at, if I go back to I think when we're talking about under performance, it's relative to the expectation and the performance against the contract we signed. If I go if I look at the curve of weekly increases, mobilization of equipment, mobilization and training of people, those were all behind. So when I look over the past couple of weeks, I'd say the development rates that the contract is achieving are in line with the full mobilization.

Speaker 3

But that mobilization took much longer than we anticipated and largely due to the availability of equipment and resources in Brazil. I think that's a theme probably throughout the sector, but certainly impacted our contractors' ability to ramp up the development rates. As I said over the past couple of weeks, they've increased their productivity and rates. So I don't see that as a systemic issue or like a challenge in the operation itself. It more has to do with the timing and their ability to achieve higher development rates.

Speaker 9

Okay. Thanks for that, Batko. And then maybe switching gears to Tuthamay as well. I think Dave said that you've only just installed that power management system last week. And I'm just wondering, I mean, have you tested it at full capacity yet and with your sort of regional neighbors running at full capacity yet?

Speaker 9

How comfortable are you that this is a permanent solution?

Speaker 3

Yes. Look, it's a great question, Dalton. We took a couple of weeks to implement the solution. The first phase was to really measure the volatility and variability that we saw to put it into context. The power arriving on-site is 138 kilovolt line.

Speaker 3

We see on the millisecond frequencies, voltage dropped to the 120 range. It took a couple of weeks to measure that data fully so that we can engineer the appropriate solution. As Dave mentioned, we put that in last week. We've seen the same levels of variability, that 120 range and the mill hasn't stopped turning. So I would say that we're really encouraged, although it's only been a week.

Speaker 3

We've if you look at the operating performance since we implemented that solution, we've been able to address the root cause of the issue at our mill. As I mentioned, there's a second solution more expensive around $1,000,000 that we could implement and we started the engineering of that solution in parallel a few weeks ago. But we're really encouraged by the results we've seen with just the bill adjustment that we've done to date.

Speaker 2

Dalton, I know I'm going to see you tomorrow, but just Michael has just highlighted something I think we need to clarify. These voltage interruptions are generally 0 point 7 of a millisecond. So these aren't voltage fluctuations that sit there for minutes or half an hour or an hour. They are literally very small frequencies. In fact, when we first brought it up with the power provider, they said there wasn't an issue on the line because their measuring equipment couldn't measure that volatility.

Speaker 2

The issue with regards to was is the software package that was managing our mill motor was such that it had built in safety frequencies with regards to changes in voltage down to that millisecond. So what would happen was if we encountered 1 within as Mac has pointed to me 0.7 of a millisecond, the mill would go into standby mode. And then we'd have to just physically restart it. But the issue with regards to the restart is the whole system would take another 15 minutes to half an hour to get booted up again. And when that would happen over 8 times in a day, you can imagine how your continuous ability to operate at your so we were able to operate in between these mill shutdowns by the safety equipment at capacity.

Speaker 2

But when we average it out on a continuous basis, it was because the mill would go into safe mode, the motor. This ABB solution merely extends out that safety margin on the downside with regards to more fluctuations. So what the mill motor will not do now is go into safe mode with regards to a drop in voltage. Still protects it, but a change if the voltage goes up, which we don't see. It's just merely the fluctuations of the mill over a milliseconds of change with regards to voltage frequency.

Speaker 2

So we've essentially just desensitized the software package to an extent to be able to allow that when that voltage drop occurs, the mill doesn't go into safe mode.

Speaker 9

That's great color, Dave. Thank you. That sounds like more of a teething pain type issue as opposed to a opposed to a more structural issue. I appreciate that.

Speaker 2

Correct.

Speaker 9

That's all for me.

Speaker 4

Correct.

Operator

This concludes the question and answer session. I would like to turn the conference back over to David Strang for any closing remarks.

Speaker 2

Thanks, operator. Again, thank you, everybody. This is the last time I will be leading one of these. The next quarterly will be Macca's lead. And I thank you all for those who've been following us over the last 8 years for the length of time you've put up with me and for those new people who are following us in the New York Times.

Speaker 2

Look forward to meeting some of you if I haven't met you before, but certainly supporting Macca in his role of running these quarterly earnings calls in the future. So thanks very much. Enjoy your day. Bye bye.

Operator

This brings an end to today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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Earnings Conference Call
Ero Copper Q3 2024
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