Bottom Line: Amerigo is confident in the sustainability of the current dividend generating a 9% yield for investors. With production guided to rise 8% in 2024 and cash costs to decrease 4% Amerigo is well positioned to not only pay the dividend but also pay performance dividends or reinstate buybacks if copper prices remain above $3.80/lb.
Amerigo continues to offer best in class upside to copper prices (A 2.5% increase in copper equals a 10% increase in EBITDA) with downside protection from the highest sustainable dividend yield in the industry, stable production and conservative debt leverage.
Key Highlights
- 2024 Production estimated to grow 8% from 57.6 M pounds to 62.4 M pounds.
- $34.6 million of EBITDA expected in 2024 at $3.60/lb copper. Current copper prices of $3.80/lb would equal $40 million of EBITDA.
- 4% cost decline and lower expected CAPEX in 2024 will allow the debt balance to decrease another $10 million.
Amerigo Resources Ltd. (TSX: ARG) (OTCQX:ARREF) announced today 2023 production results from Minera Valle Central (“MVC”), the Company’s 100% owned operation located near Rancagua, Chile. Dollar amounts in this news release are in U.S. dollars (“USD”) unless indicated otherwise.
In 2023, MVC produced 57.6 million pounds (“M lbs”) of copper, in line with the revised annual guidance of 57.8 M lbs announced last September. The revised yearly guidance incorporated the impact of severe rains on MVC’s Q2-2023 and Q3-2023 copper production.
In Q4-2023, MVC produced 16.4 M lbs of copper; 47% of copper production came from historic tailings (“Cauquenes tailings”), proving MVC’s operational flexibility and ability to increase processing from Cauquenes if and when needed.
Amerigo produced 1.2 M lbs of molybdenum in 2023, compared to the Company’s increased guidance of 1.1 M lbs.
The Company’s 2023 cash cost1 was $2.17 per pound (“/lb”), compared to our latest guidance of $2.20/lb.
In 2023, the Company incurred $14.3 million in capital expenditures on projects (“Capex”), up $1.0 million from our original guidance of $13.3 million. Capitalizable maintenance and strategic spares were $3.7 million.
Amerigo’s quarterly copper price in Q4-2023 was $3.82/lb, compared to $3.76/lb in Q3-2023. In Q4-2023, $3.6 million was returned to shareholders through Amerigo’s quarterly dividend of Cdn$0.03 per share.
On December 31, 2023, Amerigo’s cash position was $16.2 million ($3.1 million higher than on September 30, 2023), and restricted cash was $6.3 million (unchanged from September 30, 2023). The lost opportunity (decreased EBITDA1 of $10.6 million and increased Capex of $1 million) from the 2023 weather events resulted in a decrease in year-end cash balances of approximately $11.6 million.
Outstanding bank debt was $21.3 million (an increase of $0.25 million from September 30, 2023, as $2.0 million was drawn from MVC’s line of credit in October 2023, and only $1.75 million, or half of MVC’s $3.5 million debt repayment due on December 31, 2023 was processed). Year-end restricted cash and debt balances include $1.75 million plus interest semi-annual debt payment due on December 31, 2023, as one of the two lenders
processed it on January 2, 2024.
On December 31, 2023, MVC’s water reserves were over 10.0 million cubic meters, sufficient to maintain projected Cauquenes tailings processing rates for at least eighteen months, our maximum forecast horizon.
2024 Guidance
In 2024, Amerigo expects to produce 62.4M lbs of copper and 1.2 M lbs of molybdenum, with 61% of copper production coming from fresh tailings. 2024 is our 4th consecutive year of increased production guidance and is 8%, or 4.8M lbs, higher than 2023 copper production.
The annual plant maintenance shutdown at MVC and El Teniente is expected to last eight days and occur in Q2-2024. Our guidance factors in lower production from the maintenance shutdown.
In 2023, the London Metal Exchange average copper price was $3.85/lb despite strong macroeconomic headwinds. We are optimistic that in 2024, a combination of economic and political factors will contribute to higher copper prices. These factors include an accommodative interest rate environment during an election year in the United States and the interplay of copper supply and demand fundamentals. However, Amerigo employs
a conservative approach in its annual budget preparation, and for 2024 guidance, has used average market prices of $3.60/lb for copper, $21/lb for molybdenum, and an exchange rate of 935 Chilean pesos (“CLP”) to USD 1.
Under these conditions, Amerigo’s 2024 normalized cash cost1 is expected to be $2.08/lb, excluding $0.02/lb paid to MVC’s supervisors in January 2024 as the signing bonus of a 3-year collective labor agreement. This projected normalized cash cost1 compares favorably to our 2023 cash cost of $2.17/lb due to our guided higher production, lower benchmark treatment and refinery charges and cost reductions implemented at MVC.
A $2/lb change in molybdenum price would have a $0.03/lb impact on cash cost1, and a 10% change in the CLP to USD foreign exchange rate would impact $0.10/lb on cash cost1.
Using a $3.60/lb copper price, the royalty to Codelco’s El Teniente Division (“DET”) in 2024 would be $0.98/lb. The DET royalty is calculated on a sliding scale based on copper prices. A $0.20/lb increase in copper price would have a $0.10/lb impact on the DET royalty.
Projected 2024 EBITDA1 using these assumptions is expected to be $34.6 million (excluding the effect of 2023 settlement adjustments). Each $0.10/lb increase in copper price up to $4/lb would increase EBITDA1 by $3.1 million. Each $0.10/lb increase in copper price over $4/lb and up to $4.80/lb would have an increase in EBITDA1
of approximately $2.8 million.
In 2024, MVC is expected to incur $5.7 million in capital expenditures on projects (“Capex”) and $3.7 million on capitalizable maintenance and strategic spares. We are also evaluating two Capex projects that could further contribute to increasing production at MVC. These projects could be initiated in 2024, subject to the technical conclusions reached and higher copper prices.
Concerning financial obligations, as stated earlier in this release, $1.75 million of MVC’s December 31, 2023 debt repayment was processed on January 2, 2024, and MVC will make two scheduled semi-annual bank debt repayments of $3.5 million plus interest in June and December 2024. MVC will also repay $1.0 million of the $2.0 million drawn from its working capital line of credit in 2023. No further draws from the line of credit are projected to occur in 2024, and bank debt at year-end 2024 is expected to be $11.5 million, a decrease of $9.75 million.
Capital Return Strategy
Since the implementation of Amerigo’s Capital Return Strategy (the “Strategy”) in September 2021, the Company has paid cumulative quarterly dividends of Cdn$0.26 per share ($33.2 million) and used $23.7 million to purchase and cancel 20.1 million of its common shares, an 11.1% reduction in the number of common shares outstanding
at the inception of the Strategy.
Our quarterly dividend is the cornerstone of the Strategy and a key corporate objective. This dividend was
maintained by Amerigo in 2023 despite the unexpected $11.6 million negative impact on cash from the weather
events. We are confident that at the current copper prices of $3.80/lb, the quarterly dividend of Cdn$0.03 per share remains secure, subject to Amerigo attaining its 2024 production guidance herein released.
Release of 2023 financial results on February 21, 2024
Amerigo will release 2023 financial results at the market open on Wednesday, February 21, 2024.
Investor conference call on February 22, 2024
Amerigo’s quarterly investor conference call will occur on Thursday, February 22, 2024, at 11:00 am Pacific Daylight Time/2:00 pm Eastern Daylight Time.
Participants can join by visiting https://emportal.ink/48Ie9Zs and entering their name and phone number. The conference system will then call the participants and place them instantly into the call.
Alternatively, participants can dial directly to be entered into the call by an Operator. Dial 1-888-664-6392 (TollFree North America) and state they wish to participate in the Amerigo Resources 2023 Earnings Call.
