Amerigo Resources (TSX: ARG) (OTCQX: ARREF) announced 2022 production results form Minera Valle Central (MVC), their 100% owned operation located near Rancagua, Chile.
Aurora Davidson, President and CEO commented,
“We are pleased to report annual copper production of 64 million pounds, marking three consecutive years where production has outperformed guidance. We thank our teams in Chile and Canada for their consistent commitment to meet or exceed corporate goals.”
“As copper prices continue to recover, recently exceeding $4 per pound, we look forward to a strong year. In addition to maintaining our quarterly dividends, we have already redeployed a share buyback program, and anticipate the payment of performance dividends as part of our capital return strategy.”
In 2022, MVC produced 64 million pounds of copper, with 59% of production coming from fresh tailings. Annual copper production was 3.4% above guidance of 61.9M lbs, due to higher grade and recoveries from fresh tailing and higher grade from historical tailings (Cauquenes tailings).
Amerigo’s 2022 cash cost was $1.98 per pound (“/lb”), including $0.04/lb paid to MVC’s workers in Q4-2022 as the signing bonus of a 3-year collective labor agreement. Normalized cash costs excluding the effect of the signing bonus was $1.94/lb, only 2% higher than 2022 cash cost guidance of $1.90/lb.
Guidance & Copper Prices
MVC continues to produce over guidance year after year – a good sign for investors and a testament to the operational capabilities of management. Amerigo expects to produce 62.3M lbs of copper and 1.0M lbs of molybdenum, in line with 2022 guidance of 61.9 M lbs.
More importantly Amerigo’s indicated copper price was $3.80/lb in Q4, compared to $3.50/lb in Q3. However, Amerigo is ultimately paid based on the January/February/March copper price. Copper is averaging around $4.40/lb YTD in 2023, which is 16% above the number given in the earnings release. Every 10% increase in copper prices is $5.7M of extra revenue, as the company stated in Q3.
In Q4-2022, Amerigo returned $3.7 million to shareholders through the regular quarterly dividend of Cdn$0.03 per share and made bank debt repayments of $3.5 million in principal.
On December 31, 2022, cash was $37.8 million (a reduction of $4.0 million from September 30, 2022), restricted cash was $4.2 million (a reduction of $2.2 million from September 30, 2022) and outstanding bank debt was $24.5 million (a decrease of $3.5 million from September 30, 2022).
Cash Costs Guidance for 2023
Higher power charges from the Chilean power grid will increase expected cash costs this year, contribution $0.06/lb to the 2023 guidance of $2.14/lb. This compares to cash costs of $1.94/lb in 2022.
The attributed cash costs affect all industrial consumers in the country and represent ongoing global inflation for energy and many industrial consumables. The 2023 guidance assumes an average copper price of $3.60/lb and an average molybdenum price of $16/lb; based on an exchange rate of $920 Chilean pesos to $1USD.
The company wisely factored in annual plant maintenance into their production guidance. There will be an annual 9-day plant maintenance shutdown at MVC and El Teniente in the second half of 2023.
Projected 2023 EBITDA is expected to be $33.8 million (excluding the effect of 2022 settlement adjustments). Each $0.10/lb increase in copper price up to $4/lb would have an impact on EBITDA of $2.0 million. Each $0.10/lb increase in copper price over $4/lb would have an increase in EBITDA of approximately $2.7 million.
In 2023, MVC is expected to incur the following capital expenditures on projects (“Capex”):
Amerigo is confident they will continue their attractive capital return strategy, due to a healthy cash balance, minimal debt and strong free cashflow. Since the implementation of the dividend in 2021, the company has paid a cumulative dividend of $0.14 per share, or $18.6 million. The company also used $21.1 million to buy and cancel 17.87 million of its common shares, a 9.82% reduction in common shares outstanding.
Under the 2023 guidance assumptions presented in this news release, the Company remains confident in the security of the quarterly Cdn$0.03 per share dividend, and in Amerigo’s ability to opportunistically reduce common shares outstanding.
Under the current Normal Course Issuer Bid (“NCIB”), up to 10.75 million shares (representing 6.14% of the issued and outstanding) can be repurchased for cancellation prior to December 1, 2023.
In addition to quarterly dividends of Cdn$0.03 per share and the repurchase of common shares for cancellation under the NCIB, the Company has indicated that it will likely look to pay additional performance-based dividends in 2023.
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