Full Year 2023 Metals Acquisition Ltd Earnings Call

Participants

Michael McMullen; Chief Executive Officer, Director; Metals Acquisition Ltd

Morne Engelbrecht; Chief Financial Officer; Metals Acquisition Ltd

David Radclyffe; Analyst; Global Mining Research

Eric Winmill; Analyst; Scotiabank

Presentation

Operator

Good day, everyone, and welcome to today's Metals Acquisition 2023 financial results presentation. (Operator Instructions) Please note, today's call will be recorded, and I will be standing by should you need any assistance.
It is now my pleasure to turn the conference over to Mick McMullen, CEO of Metals Acquisition. Please go ahead, sir.

Michael McMullen

Thank you very much, and thank you, everyone, for dialing in from wherever you are in the world. So my name is Mick McMullen. I am the CEO of Metals Acquisition. Also on the call, we have Morne Engelbrecht, who is our CFO. We have Dan Vijcic, our Chief Development Officer; Chris Rosario, our General Counsel; and Sandy Noyes, who is Head of IR for us.
So now we'll be running everyone through the financial results for 2023, which, as you would know, it was a lot easier for us in terms of acquiring the CSA copper mine in Western New South Wales in the middle of the year. And so we thought it would be useful to run everyone through the results to try and separate out some of the non-recurring one-off items, mainly related to that acquisition.
Morne will be controlling the slides. So we'll just skip through the disclaimers. This presentation has been lodged with the ASX. So everyone can read that at your leisure. And if we go to the next slide, Morne, to the company overview. As I said, you've got myself to say, I, Morne, Dan, and Chris along the line, and this is the team that's been charged with taking this business forward. And as you can see, a significant amount of experience in both turnarounds and acquisitions. So I guess we've left acquisition in the 90's for raise and our view is to drive and build this business.
But right now, we're pretty heavily focused on them on sorting out the sales a couple of months. If we go to the next slide, please, Morne. As most people would know, this is a mine that's been running for very long period of time, since 1967, in its current format. It's been producing around about 40,000 tonnes of copper a year and 400,000, 500,000 ounces of silver.
And again, as you would know, we have strained the silver off to Osisko. It currently has a reserve of about just under 8 million tons at 4% copper. And we've been working quite heavily on a new reserve and resource estimates we should be coming out shortly. We have a significant amount of drilling that's gone into the new resource and reserve estimate as we've announced to the market in recent past.
We have around about just under 500 employees working at bay. And again, it's been producing at sort of silver at just under $2 a pound. And when copper is just at $4.20 a pound overnight, it's obviously a good time to do copper. Next slide, please, Morne. Again, for those of you who follow the company, you've seen the slide before. It's the mines at in Western New South Wales. It is a fantastic place to operate. Because it's been running for so long, it's got all of its infrastructure in place.
And we -- because we listed on the NYC first, we have a fairly standard North American cap structure, which is a large number of shares, high share price as opposed to the usual Australian large number of shares, low share price. We've decided to differentiate ourselves on the ASX by maintaining that structure rather than doing a split. We'd like to be a little different from the rest of the pack. And we've got a fantastic shareholder base, very supportive large equity holders. And as you would also know, we recently listed on the ASX, which brought a significant amount of capital into the business post the December 31 balance sheet that we'll discuss today and as Morne will discuss with you as much of that cash deposits and interest-bearing liabilities.
Just under around 70 million shares in issue, and again, as I said, very heavily weighted to large institutions who are sort of backing us to build amidst the copper business. Next slide, please, Morne. And our growth strategy is obviously organic initially. So we believe that that CSA copper mine has the potential to carry on for significantly longer than its current reserve life subject to the exploration results and conversion of resources to reserves. But we're also very focused on growing the business in general, clearly multiple assets, large business is something that the market is open for, I believe, and we've got a track record of doing that.
So again, this has been our strategy from day one. We've executed on part one of that strategy, but we still expect to have a few other things to carry on within. Next slide, Morne, we might move into your part shortly, I think. I'll hand it over to Morne, and he can discuss the financial results for FY23.

Morne Engelbrecht

Thank you, Mick. Good evening, morning, everyone. My name is Morne Engelbrecht, and I'm the CFO of Metals Acquisition Limited. I will mainly take you through the annual results and some of the one-off noncash items that creates some noise for a lack of better term in the P&L, and balance sheet as reported for 2023.
This one-off and non-cash items, mainly relate to the acquisition of the CSA Copper Mines. Mickey sort of outlined the associated financial instruments that are fair value through P&L. And I will also cover some elements of the capital structure and liquidity. So we're going through slide 11 and the main points to note and keep in mind we need to read the results. one is that the results reflect the first six months of the ownership and operation by MAC after CSI copper mine that was acquired on 16th of June in '23. And the underlying earning represents roughly half year's underlying operating results. Secondly, this, as I mentioned before and Mick mentioned as well, there's some significant noncash and one-off items hitting the P&L with around USD71 million of one-off items and non-cash fair value adjustments of around USD47 million being recognized in the P&L.
Going to the results for 2023. You would have seen that we recorded a statutory loss after tax of USD145 million. In that result, you will also note the significant administration expense of USD79 million, included in this number are a number of one-off items relating to the acquisition, namely stamp duty for that $48 million advisor fees, 13 redundancies up to legal costs and FX and inventory movements of about 10. Also, I should note that included in the cost of goods sold and depreciation and amortization, expense off, a non-cash of $47 million, and this is obviously based on the outlets and the values of the assets in accordance with the purchase price allocation, which is disclosed in the accounts.
I am providing some guidance in terms of the decreased cash and expected for 2024 as well to be around USD90 million to USD100 million. This is obviously driven by production and the reserves and resources to drive the loss of mine of which the assets are depreciated, and therefore -- would therefore be impacted by production levels in '24 and any changes to the reserves and resources, as Mick has outlined as well, which will be released shortly.
The other key point to note in terms of the underlying cash generation of the company relates to the renegotiated offtake agreements with Glencore and that the previous historical constraints that exist, it does not exist under the current offtake agreements as reflected in the accounts, and that the pricing is same to industry mixes over quotational period.
Last thing to kind of gears, just to note that we do have a hedge book in place in the form of swaps at a certain class of USD3.72 per pound. So this covers and play and a 30% of the production in '24 and '25 and obviously at less than [15] in '26. And we recognized a realized loss of about $600,000 in 2023 accounts for these contracts.
Turning to slide 12 now. We are showing here the reconciliation from the loss after tax to EBITDA, which you can follow in Appendix A. And then with this kind of start and then to the underlying EBITDA to the right, the major adjustments here, lighting to fair value adjustments for the non-cash stamp duty acquisition costs relating to the acquisition of CSA mine and the net fair value adjustments mainly relates to the warrants are at about $22 million a day.
That mainly reflects the change in value of the warrants over the period. Mezzanine debt, so this is about $9 million paid a flow through the P&L. This relates to the valuation of some of the embedded derivatives and that with interest rates, I think to the LME cash settlement price and the voluntary repayment option there.
Thirdly, this swap sales, $13 million that's been recognized in terms of change in value, which obviously is linked to the underlying contract value versus the feature consensus copper price. But also noting that 70% in percent of our production over that period of time, like is it '25 and '26 is unhedged. So we benefit on the other side in terms of those liabilities recognized.
Contingent Consideration, so this relates to the fair value of the first and second contingent consideration payable to Glencore. If the daily LME closing copper price exceeds USD425 per pound, either rolling 18-month period and USD450 per pound, running 24 month period. So again, noting that you need to conserve the cash inflows at the company under the copper price scenarios.
And just moving to slide 13. I just wanted to cover the capital structure quickly. These are the shares, including the most recent ASX issuance and then also showing a fully diluted securities at the April 2, '24. The main point to note here that the private and public warrants can be called by MAC at any time to conversion for cash or on a cashless basis through the issue of MAC shares and with the conversion to net shares on a cash flow is basically based on the table publicized for in May 2023.
If for example, we had to call the redemption of the private and public warrants today for a cashless basis, and the share price was USD13 per share. And these warrants would be settled by showing that point. We have a net share flow to every warrant as per the table. Alternatively, if, for example, the ones with record cash in this provides an additional USD217 million. And the full dilution as shown on the table would be the outcome.
I also note the senior [mezz] debt on the table, a bit of color that's in the next two slides. And moving to slide 14, I just wanted to touch on the liquidity of the company, which again has makers are fine received the much-needed boost to the A6 IPOs subsequent to 2023, which raised about $325 million or the equivalent of USD214 million.
And the rising of the equity provides greater flexibility for us and a much stronger balance sheet. As a result, we have to show here and some of the subsequent year-end inflows and outflows of cash with the overwhelming use of funds dedicated to the reduction of interest-bearing liabilities. Of note, we repaid the deferred consideration to Glencore, which amounted to some USD83 million, and we do that in February.
We also repaid our revolving facility, which is around USD25 million. We settled a working capital facility, which is interest bearing at $9 million. We repaid a portion of the senior facility amounting to around USD8 million and we also paid a cost in IPO fees of $10 million.
And then we also thought it important to the growth agenda in terms of -- we're continuing our exploration and development programs at site. Looking to more recent material cash flows as well, we had a light and delayed shipments in March, which will only receive the cash for in April and then an early shipment plan for in April and small virtual piece or bring in around $48 million in cash to the company.
So overall and subsequent to year end, we have price has significant equity, which is as I say, provided us with greater flexibility and balance sheet strength and this really gives us the opportunity to focus not only on reducing our interest-bearing debt, but also keep growing the company full organic things as outlined.
We also the beneficiaries in recent times authorizing copper price, which we are definitely highly leveraged to. But our aim of reducing interest bearing liabilities. We can move to slide 15. I wanted to show that current repayment profile of our senior mezz debt facilities, again, how it takes an IPO credit, some much-needed flexibility and strengthen our balance sheet.
This coupled with the SEC, as Mick had mentioned, we closed two issuing reserve resource type event and the exposure to rising copper prices. We've got funded capital expenditure, obviously for the IPO as well. Increased revenue, lowering costs, provide us with the ideal time to look at our financing structure and our capital structure, mainly with the purpose of reducing our interest-bearing debt, reducing our cost of debt as well and preserve our cash to fund our organic and inorganic growth opportunities for the company.
So all of these current positive is really lends itself well for us to approach the debt markets and seek better terms for our debt, which in turn will provide us with a stronger balance sheet and improve our future cash flows as well.
So looking at the current rig count claim for repayment profile along constantly looking at how we can secure longer-term money with a bullet repayments. And more practically, we also need to put in place a letter of credit for environmental bond, which is about $43 million already.
And so overall, we have a real part of that market sitting in terms of profit generally as a commodity, the process remaining strong and then increasing, we had a very, very positive engagement with investors. Look at a six IPO with high demand for equity. This provides a very strong balance sheet and creates the ability to strengthen the balance sheet and simplified capital structure going forward as well. And so with that, I'll hand back to Mick for some closing remarks before we go to Q&A.

Michael McMullen

Thank you, Morne. And again, we've launched this for this presentation so the people, you can sort of pull those graphs apart and drawn. Really, we've tried to put some information out where people can look at what cash and what non-cash impacts on the P&L. Because as Morne indicated, we do have a fairly large amount of the non-cash impacts of [reval] of various instruments. We're doing fact of the P&L and non-cash.
And we obviously acknowledge that we've got a few of those instruments on the balance sheet, but that perhaps we may not want to have the longer term. I think the copper price setting that we've sort of found ourselves in is significantly different to when we bought the mine.
You'll notice on that repayment schedule on the liquidity slide, we've sort of back-end loaded all of the repayments which allow us to get up on our feet, build those significant cash balance.
Our cash balances -- our cash inflows are relatively lumpy, a shippy as Morne indicated around about USD24 million with the revenue now. When we bought a mine, that was around about [$89 million]. So that's the same volume of copper in it. That's just the increase in the price. So I think we're in a really good spot to renegotiate all of that lending before we a lot of one-off items.
We really closing costs, which we laid out in the prospectus at the time from, again, a fair bit of noise in those results that are non-recurring that we just don't have on a go-forward basis. And so we are working diligently with our teams to get a new resource and reserve estimate out, which will come out at some point during April.
And we've always indicated we felt that this mine has had a four to five year reserve life that nearly 60 years as with a bit of extra drilling that we've been doing. We think we believe we can push that reserve life at a reasonable amount, which clearly is beneficial for either market. But when we're having discussions, we will end is clearly a longer reserve life is beneficial.
So with that, I'd like to thank the team. There has been a lot of work going to be pulling these results together. And clearly, we've got many things underway, having not that long, the close of the ISX IPO doing the (technical difficulty) and then obviously operational improvements. So we're very busy, but happy to take questions at this point from anyone.

Question and Answer Session

Operator

(Operator Instructions) David Radclyffe, Global Mining Research.

David Radclyffe

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

Michael McMullen

Sure. Well, it won't be this year in terms of the impact. The work is underway, where our agents that drilling at the moment to put in those root return arises com. So it's obviously a cyclic fixed in terms of doing it in the space of the quarter.
So really, you won't see any benefit during the course of this year, it will be into next year before you really see the benefit. But I think as you correctly spotted, some return to a rise at the very bottom of the market is actually up a limiting factor.

David Radclyffe

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

Michael McMullen

Good question. Morne?
We had one back last year and then we had a couple of this quarter. So as I said, the last one in March just slipped over into -- we'll recognize revenue from an accounting point of view, but from a cash point of view that cash will only slowly and in April of $24 million and then with converting it from an April as well. And that sort of follows like a week-and-a-half after day and last shipment in March. So that's a question of $48 million pay.
So that one -- that ship got loaded in March. But of course, you get paid about 10 days later. So floated in March, paving at the start of April.

Operator

Eric Winmill, Scotiabank.

Eric Winmill

Thanks very much for taking my question. And I just wanted to ask a little bit about the drilling results came out. Obviously, some pretty good widths and grades, especially relative to the current reserve grade. And I know you mentioned the release to will be included in this update in April, but just wondering how we should think about that and you have to apply dilution or what's the nature here in terms of what you see the mineable grade is a possible impact on tonnage, if you can speculate at this time?

Michael McMullen

It's a bit early to speculate because we haven't actually put it into the new BOP model yet. But yes, clearly that stuff is well above reserve grade. Now I would say that we're not going to just mind the high-grade core only because even if something's only 3% copper, it's still pretty economic for us, right?
So you're not trying to take a look. What I would say is where the mine plan, we've been working looking at how can we mine the high-grade core in priority from a scheduling quarter view and come back and mine that again, what we call lower grade, but still maybe 3% copper. Later on, if you think about it as an open pit, you dive down in mind your highest-grade ores margin material first, and then you'd stop followed by a lower rate started to mill lineup.
We've been looking at the mine plan in that context. I'm saying if we can do that, and I think that's directionally where we'll end up at that. But yes, look, it's a bit early to work out what that is -- what those drill results are going to mean in terms of the next resource and reserve upgrade because they clearly have come off well after the call for this, this new resource and reserve, we have a stick out.
But I think it just highlights the kind of stuff that is in the ore body. And the other way I look at it is well a couple of ways to fall precipitously. What would you mind on your down on that stuff clearly and still have a mine.

Eric Winmill

Thank you. That's super helpful. And then maybe just one more follow-up to I know there wasn't some zinc and lead there as well, which is really a focus for you guys. But any comments on the additional work in that respect?

Michael McMullen

Well, yes, is the short answer. So after those people who have long memories are the CSA mine actually started out as a very high-grade zinc mine. And we've been looking at the data, the historical data that was in hard copy and it's not you're compliant because it's all data. And we don't have over QHEC suffered.
But on based on that all data, there is significant zinc mineralization in the upper portions of the mine, and we've put a drill rig on it and we are actually drilling that material right now. So we don't quite know what it will come out today, but there is still -- this a fair bit of work to be done in that.
But yeah, it does look like that there is a reasonable amount of pretty high-grade zinc plus a little bit of lead and copper mineralization in the upper parts of the mind yet. So as with all the things you need to drill at first to see which we've got and then you make a buying afterwards as to how you guys deal that material.

Eric Winmill

Okay, great. And thanks for that or back in the queue, but a great set of results and look forward to seeing the new reserve update and production. Thanks so much.

Operator

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

Michael McMullen

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

Operator

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