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Amerigo sitting pretty on vast copper resource

One of the standout Americas copper stocks of the past 12 months has laid new “foundations for future growth”, says its president and CEO. This after Amerigo Resources (TSX: ARG) posted strong financial results in a transformational period for its Chile operations base and the copper market.

Amerigo sitting pretty on vast copper resource Amerigo sitting pretty on vast copper resource Amerigo sitting pretty on vast copper resource Amerigo sitting pretty on vast copper resource Amerigo sitting pretty on vast copper resource

Vast resource ... El Teniente tailings

Amerigo CEO Rob Henderson says the company's fully-funded expansion of the 100%-owned MVC plant, south of Santiago and near the Codelco El Teniente mine from which it draws plant feedstock, is proceeding towards completion in Q3 this year. The US$35 million second expansion of the project will enable MVC to produce 85-90 million pounds of copper a year at a cash cost of US$1.45-$1.65/lb.

In 2019, at the current copper price of around US$3.20/lb, MVC's AISC is projected at $2.33/lb and EBITDA would be $85 million.

As in the past Amerigo has been in a unique position to capitalise on a surge in copper prices and the long-term improved outlook for the metal because of its strong connection with Codelco at El Teniente and its vast supply of tailings from one of the world's biggest copper mines - where the state-owned copper giant expects to be in production for the next 50 years - and the scalable infrastructure and processing facilities Amerigo has built through its Chile subsidiary, MVC.

Its track record of delivery, prudent financial management and the stability of the asset base underpinning expansion meant Amerigo again found strong support for its expansion plans. And the surging copper price has helped. Amerigo got a 47% boost in its 2017 revenue to $134 million ($8 million net income) from increased production and the copper price uplift.

"The timing for delivery of the expansion couldn't be better," says Henderson.

"In 2018, we are focused on safely increasing production to 85Mlbpa to 90Mlbpa of copper and are well positioned to benefit from increases in the copper price while continuing to work hard to reduce costs."

Amerigo posted a gross profit for the year ended December 31, 2017, of $26 million compared with a loss of $0.6 million for 2016. Net income of $8 million for 2017 compared with the previous year's net loss of $7.5 million, with MVC yielding net income of $3.1 million on revenue of $37 million in the December quarter.

The MVC plant, 40km south-west of El Teniente, processes 130,000tpd of fresh tailings from current El Teniente production and 60,000tpd of historic tailings from the higher grade Cauquenes deposit, which present combined inferred ‘resources' of more than 1.17 billion tonnes grading 0.159% copper and 0.01% molybdenum for 1.5 billion tonnes of recoverable copper and 38 million pounds recoverable molybdenum. Cauquenes tailings were deposited over the period 1936 to 1977 and have a significantly higher average grade (0.27% copper) than the fresh tailings.

Tailings travel by gravity in a dedicated concrete channel to MVC. After processing, MVC's plant tailings are transferred back to the channel and flow to El Teniente's Caren impoundment.

MVC delivers copper concentrate back to El Teniente under a long term commercial agreement.

Production in 2017 was within Amerigo's guidance range of 60-65Mlb at 62.5Mlb - 10% higher than the 56.8Mlb produced in 2016. The latest year output included 39.3Mlb from Cauquenes, 21.8Mlb from fresh tailings and 1.5Mlb from Maricunga.

Production this year is pegged at 65-70Mlb at cash costs of $1.45-$1.60/lb. Annual molybdenum production is expected to be 1.5 million pounds.

"We expect to post stronger production and lower cash costs in H2-2018 when MVC accesses better quality material in Cauquenes and plant recoveries improve on completion of Phase Two of the Cauquenes expansion," Henderson says.

Copper tolling generated revenue of $119.5 million in 2017 compared with $83 million in 2016), with molybdenum and other revenue of $14.5 million ($8.4 million in 2016) making up the balance of the $134 million total for 2017.

Henderson says copper tolling revenue for the year was calculated from MVC's gross value of copper produced of $179.8 million, less DET royalties of $36.4 million, smelting and refining of $21.7 million, and transportation of $2.2 million. In 2017, MVC's copper price was $2.83/lb (compared with $2.25/lb in 2016), based on the market price for copper produced, before smelting and refining, DET copper royalties, transportation costs and settlement adjustments to prior period sales.

Higher power and lime costs increased tolling and production costs to $108 million in 2017, compared with $92 million in the previous year, but unit costs were held at $1.72/lb ($1.64/lb in 2016) as production increases kicked in.

Amerigo had a cash balance of $27.5 million at the end of 2017 after paying back $18.7 million on existing project loans and using $10.7 million of its new Cauquenes expansion debt facility. The cash balance compared with $15.9 million at the end of December, 2016.

 merigos expanding  plant Amerigo's expanding MVC plant

The company also had $13 million of undrawn standby credit at the end of 2017.

Henderson says phase two construction was 39% complete at the end of January.

The Cauquenes expansion project will augment MVC's existing plant facilities to improve flotation recovery efficiency. Confirmatory metallurgical studies on Cauquenes in 2016 showed copper recovery could be increased from 34% to 49%.

Equipment required includes rougher and cleaner flotation cells, de-sliming cyclones, a concentrate regrind mill and a concentrate thickener. At the end of January the expansion concrete foundation work for the new rougher flotation cells was progressing and the new cleaner flotation area was being prepared for concrete. The plant retaining wall and earthworks were complete.

Henderson says full phase two production is expected to start in Q4 this year.

"MVC expects to complete the project within budget of $35.3 million, including contingencies," he says.

"Phase two will improve flotation recovery efficiency, allowing MVC to increase production to 85-90Mlbpa of copper at an estimated cash cost of $1.45 to $1.60/lb."

MVC is expected to incur up to $23.5 million of the remaining expansion capital expenditures in 2018, including $5.5 million of sustaining capex.

"MVC is also planning to invest an additional $1.5 million in various smaller capex projects to improve safety and process efficiencies at MVC," Henderson says.

"In addition, MVC plans to undertake an expansion of its molybdenum plant at a capex of $7.9 million financed by way of a seven-year lease and operating contract."

Henderson says higher copper prices are still needed to incentivise investment in emerging and greenfields copper projects.

"On current projections refined annual copper demand is expected to increase from 19Mt to more than 25Mt by 2020," he says.

"Most of the existing geological discoveries cannot realistically be built and ramped up to full capacity within 10 years.

"If these projects are not developed then other higher cost projects will be needed to fill the supply gap that begins to emerge from 2020."

 

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HEAD OFFICE:  

DIRECTORS:

  • Dr Klaus Zeitler
  • Rob Henderson
  • Robert Gayton
  • Sidney Robinson
  • George Ireland
  • Alberto Salas

QUOTED SHARES ON ISSUE:

  • 187 million (fully diluted)

MARKET CAP (at June 14, 2018):

  • C$183 million

MAJOR SHAREHOLDERS: 

  • Ross Beatty (15.5%)
  • George Ireland (12.5%)
  • Rick Rule (10.4%)
  • Luzich Partners (10.4%)

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category-img

HEAD OFFICE:  

DIRECTORS:

  • Dr Klaus Zeitler
  • Rob Henderson
  • Robert Gayton
  • Sidney Robinson
  • George Ireland
  • Alberto Salas

QUOTED SHARES ON ISSUE:

  • 187 million (fully diluted)

MARKET CAP (at June 14, 2018):

  • C$183 million

MAJOR SHAREHOLDERS: 

  • Ross Beatty (15.5%)
  • George Ireland (12.5%)
  • Rick Rule (10.4%)
  • Luzich Partners (10.4%)