Mr. Alberto Lavandeira reports
ATALAYA MINING PLC ANNOUNCES Q2 AND H1 2022 FINANCIAL RESULTS
Atalaya Mining PLC has released its quarterly and six-month results for the periods ended June 30, 2022, together with its unaudited interim condensed consolidated financial statements.
The unaudited interim condensed consolidated financial statements for the periods ended June 30, 2022, are also available under the company's profile on SEDAR and on Atalaya's website.
- Earnings before interest, taxes, depreciation and amortization of 14.7 million euros for Q2 2022 and 41.4 million euros for H1 2022, despite high input costs and negative provisional pricing adjustments;
- Significant investment in projects that are expected to reduce cash costs and carbon emissions, including the 50-megawatt solar plant and E-LIX phase I plant;
- Continued balance sheet strength, including net cash of 67.6 million euros, supporting continuing investment program;
- Interim dividend of 3.6 U.S. cents per ordinary share declared.
Alberto Lavandeira, chief executive officer, commented:
"Today we are announced our financial results for H1 2022, which was a period that included many macroeconomic challenges. Positively, the plant demonstrated strong performance in Q2, processing around four million tonnes of ore and yielding good recoveries despite lower grades. We expect strong throughput to continue for the remainder of the year.
"However, as a result of the ongoing conflict in Ukraine and the inflationary environment globally, our costs have increased materially since last year and it is likely that current conditions will persist for some time. High electricity prices are having a notable adverse impact, along with consumables linked to the price of energy, such as explosives and diesel.
"Thankfully, we have preserved a strong balance sheet and continue to make meaningful investments in the sustainability and growth of our business. In H1, we progressed development of our 50 MW solar plant, which will deliver stable and low-cost electricity from mid-2023. We are also advancing construction of our E-LIX phase I plant, which is expected to reduce costs and help to unlock value from our polymetallic resources in the Iberian pyrite belt. Further, we are conducting exploration and progressing the permitting process at several projects and deposits, including Proyecto Masa Valverde, San Dionisio and Proyecto Touro, which we believe will allow Atalaya to grow its production, reduce unit costs and become a multiasset copper producer."
Investor presentation reminder
Mr. Lavandeira, CEO, and Cesar Sanchez, chief financial officer, will be holding a live presentation relating to the Q2 and H1 2022 results via the Investor Meet Company platform at 1 p.m. BST today.
Management will also answer questions that have been submitted via the Investor Meet Company dashboard.
Ore mined was 3.6 million tonnes in Q2 2022 (Q2 2021: 3.3 million tonnes) and 7.5 million tonnes in H1 2022 (H1 2021: 6.6 million tonnes).
Waste mined was 6.7 million tonnes in Q2 2022 (Q2 2021: eight million tonnes) and 13.6 million tonnes in H1 2022 (H1 2021: 15.5 million tonnes). Waste stripping in H1 2022 was higher than budget as waste mining was prioritized during the temporary plant maintenance stoppage in Q1 2022.
The plant processed four million tonnes of ore during Q2 2022 (Q2 2021: four million tonnes), consistent with the plant's ability to operate above its 15-million-tonne-per-annum nameplate capacity. Throughput was 7.5 million tonnes in H1 2022 (H1 2021: eight million tonnes) as a result of the Q1 2022 transport sector strike and maintenance stoppage.
Copper grade was 0.39 per cent in Q2 2022 (Q2 2021: 0.42 per cent) and 0.38 per cent in H1 2022 (H1 2021: 0.42 per cent). Lower grades so far in 2022 are the result of blending with lower-grade stockpiles due to pit sequencing but are expected to improve in H2 2022.
Copper recoveries were strong despite lower grades, with Q2 2022 at 86.44 per cent (Q2 2021: 84.83 per cent) and 86.26 per cent in H1 2022 (H1 2021: 84.85 per cent) as a result of continuous improvements made at the plant.
Copper production was 13,386 tonnes in Q2 2022 (Q2 2021: 14,353 tonnes) and 24,847 tonnes in H1 2022 (H1 2021: 28,232 tonnes). Lower production was due to lower grades (pit sequencing) and lower throughput (Q1 2022 plant stoppage), partially offset by higher recoveries.
Q2 and H1 2022 financial results highlights
Revenues were 93.4 million euros in Q2 2022 (Q2 2021: 99.7 million euros) and 179.7 million euros in H1 2022 (H1 2021: 197.1 million euros). Lower revenues were the result of lower concentrate sales volumes and negative provisional pricing adjustments in 2022, compared with positive adjustments in the comparative 2021 periods.
Operating costs were 78.7 million euros in Q2 2022 (Q2 2021: 47.8 million euros) and 138.3 million euros (H1 2021: 97.7 million euros) as a result of significant increases in key input costs such as electricity, diesel, explosives, steel and lime.
EBITDA was 14.7 million euros in Q2 2022 (Q2 2021: 52 million euros) and 41.4 million euros in H1 2022 (H1 2021: 99.4 million euros). The decrease in EBITDA was driven by the combination of lower revenues and higher operating costs compared with the periods in 2021.
Profit after tax was 11.8 million euros in Q2 2022 (Q2 2021: 32.3 million euros) or 8.6 cents basic earnings per share (Q2 2021: 23.3 cents) and 30.1 million euros in H1 2022 (H1 2021: 66 million euros) or 22.1 cents basic earnings per share (Q2 2021: 48.1 cents).
Cash costs were $3.12 per pound payable copper in Q2 2022 (Q2 2021: $2.26) and $3.22/lb in H1 2022 (H1 2021: $2.15/lb), with the increase due to lower production volumes and higher costs associated with electricity and other supplies, partially offset by the weaker euro.
All-in sustaining costs were $3.33/lb payable copper in Q2 2022 (Q2 2021: $2.52/lb) and $3.45/lb in H1 2022 (H1 2021: $2.49/lb). The increase in AISC in 2022 was driven by the same factors that increased cash costs. AISC excludes one-off investments in the tailings dam, consistent with prior reporting.
Cash flow statement
Cash flows from operating activities before changes in working capital were 14.3 million euros in Q2 2022 (Q2 2021: 50.1 million euros) and negative 6.9 million euros after working capital changes (Q2 2021: 33.3 million euros). Working capital movement is mainly related to changes in account receivables and payables owed to timing differences. For H1 2022, cash flows from operating activities before changes in working capital were 41.2 million euros (H1 2021: 106.1 million euros) and 21.4 million euros after working capital changes (H1 2021: 73 million euros).
Cash flows used in investing activities were 19.8 million euros in Q2 2022 (Q2 2021: 6.9 million euros) and 27.3 million euros in H1 2022 (H1 2021: 70.9 million euros). Major investments in H1 2022 included 11.7 million euros for the 50 MW solar plant (H1 2021: nil), 2.9 million euros in sustaining capital expenditure (H1 2021: 3.4 million euros) and 6.4 million euros to increase the tailings dam (H1 2021: 6.8 million euros). Cash flows from investing activities in the H1 2021 period included the early payment of the deferred consideration to Astor.
Cash flows from financing activities were 17.8 million euros in Q2 2022 (Q2 2021: 1.9 million euros) and 15.5 million euros in H1 2022 (H1 2021: 54.8 million euros). Unsecured debt facilities were drawn in H1 2022 in order to finance the 50 MW solar plant, while in H1 2021, unsecured debt facilities were drawn to finance the payment of deferred consideration to Astor.
Consolidated cash and cash equivalents were 127.1 million euros at June 30, 2022 (Dec. 31, 2021: 107.5 million euros).
Net of current and non-current borrowings of 59.6 million euros, net cash was 67.6 million euros as at June 30, 2022, compared with 86.8 million euros as at March 31, 2022, and 60.1 million euros as at Dec. 31, 2021.
Inventories of concentrate valued at cost were 8.4 million euros at June 30, 2022 (Dec. 31, 2021: 5.2 million euros). As at June 30, 2022, total working capital was 129.3 million euros, compared with 120.1 million euros as at March 31, 2022, and 102.4 million euros as at Dec. 31, 2021.
Update on key input costs
Electricity market in Spain
As a result of the continued conflict in Ukraine and its impact on energy markets, especially in Europe, electricity prices in Spain were significantly higher than historical levels during Q2 and H1 2022. Market prices reached unprecedented levels of over 500 euros per megawatt-hour in March, 2022, before moderating and averaging approximately 190 euros/MWh in April and May, 2022. In mid-June, 2022, the legislated gas price cap for Spain and Portugal took effect. The cap had a positive impact on electricity prices, with rates averaging approximately 145 euros/MWh since the implementation of the new pricing mechanism.
Market electricity prices averaged approximately 180 euros/MWh in Q2 2022 and approximately 205 euros/MWh in H1 2022, a sharp increase over the H1 2021 average of around 60 euros/MWh. An increase or decrease in realized electricity prices of 100 euros/MWh results in an increase or decrease, respectively, to the company's annual operating costs of around 37 million euros.
Cost of key consumables
In addition to elevated electricity prices, the company continues to experience material cost inflation in many key consumables. These include explosives, diesel, tires, grinding media and lime for which prices have increased 40 to 90 per cent from levels observed in late 2021 for several of these cost inputs. The company continues to pursue cost savings and efficiency initiatives, however, prices of these inputs are heavily linked to energy costs and carbon dioxide, which remain elevated globally.
50 MW solar plant
Development progress continues at Atalaya's 50 MW solar plant, which will become a reliable source of low-cost and carbon-free energy for Proyecto Riotinto. Equipment orders have been placed and deliveries of key materials are expected to arrive on site during Q4 2022. Planned start-up of the solar plant continues to be Q2 2023. In H1 2022, the company incurred capex of 11.7 million euros related to the 50 MW solar plant.
Combined, the 50 MW solar plant and the previously announced long-term power purchase agreement (PPA) will guarantee that over 50 per cent of the electricity requirements at Proyecto Riotinto are sourced at competitive terms. Once the 50 MW solar plant is operational and the new long-term PPA is in effect, the annual impact on cash costs would be a reduction of around 35 cents/lb copper payable compared with a scenario where actual H1 2022 electricity prices were realized for a full year.
E-LIX phase I plant
Development progress continues at Atalaya's E-LIX phase I plant, which will produce high-value copper and zinc metals from complex sulphide concentrates produced from material sourced within the Riotinto district. The E-LIX system is expected to provide numerous benefits, including higher metal recoveries, lower transportation and concentrate treatment charges, and reduced carbon emissions. The company expects the plant to be ready for commissioning by the end of 2022.
Atalaya has placed all equipment orders and has started initial construction activities on the site. In H1 2022, the company incurred capex of 5.8 million euros related to the E-LIX phase I plant, of which 5.3 million euros are long-term loans to Lain Technologies.
Outlook for 2022
As announced on July 14, 2022, Atalaya expects 2022 copper production to be 52,000 to 54,000 tonnes. Good operating performance from the plant is expected to continue, with full-year copper grade and copper recoveries expected to average 0.40 per cent and 85 to 87 per cent, respectively.
As a result of the elevated prices of electricity and other key consumables, the company now expects 2022 cash costs to be $2.95 to 3.25 per lb copper payable and AISC to be $3.25 to 3.45 per lb copper payable. These new ranges are based on an assumed electricity market price range of 150 to 175 euros per MWh for H2 2022. Should the electricity market price be lower than expected, cash costs and AISC may be lower than the revised guidance.
Atalaya continues to make significant investments in growth and the long-term sustainability of its operations. For 2022, the main components of the capex budget are associated with the 50 MW solar plant, the E-LIX phase I plant, expansion of the Riotinto tailings facility as well as sustaining capex. The company is maintaining its prior guidance for full-year 2022 capital expenditures.
The company continues to maintain an exploration budget of 10 million euros for 2022. However, due to the availability of equipment and delays owing to high temperatures during the summer, the budget might be only partially utilized.
2022 interim dividend
In October, 2021, Atalaya declared its inaugural dividend and also announced the implementation of a sustainable dividend policy that provides capital returns to its shareholders and allows for continued investments in its portfolio of low-capital-intensity growth projects. The dividend policy consists of an annual payout of 30 to 50 per cent of free cash flow generated during the applicable financial year and is payable in two half-yearly instalments.
Accordingly, the company's board of directors has elected to declare an interim dividend for H1 2022 of 3.6 U.S. cents per ordinary share, which is equivalent to approximately three pence per share.
The record date for the interim dividend will be Aug. 19, 2022, and the shares will become ex dividend on Aug. 18, 2022. Shareholders will also have the option to receive the interim dividend in sterling or euros, should they elect to do so by communicating their currency election to the company by no later than Aug. 31, 2022. The exchange rates for payment in sterling and euros will be fixed by the company on Sept. 5, 2022, and subsequently announced.
Update on asset portfolio
Riotinto 15 mtpa plant -- process optimization
During H1 2022, several improvement initiatives were implemented and tested, with the goal of lowering reagent consumption, improving copper recoveries and reducing cash costs.
Riotinto district -- San Dionisio and San Antonio
On April 13, 2022, the company announced new independent mineral resource estimates (MRE) for the San Dionisio and San Antonio deposits at Proyecto Riotinto. San Dionisio includes a potentially open-pittable resource, with separate copper-rich and polymetallic zones, that represents an extension of the existing Cerro Colorado pit, as well as an underground polymetallic resource. San Antonio is an underground polymetallic deposit located less than one kilometre east of the Cerro Colorado pit.
The company expects to complete a preliminary economic assessment (PEA) for San Dionisio by the end of 2022, including an evaluation of a scenario that combines Cerro Colorado reserves with higher-grade material from San Dionisio, potentially providing an uplift to copper production by increasing the blended head grade.
Riotinto district -- Proyecto Masa Valverde (PMV)
On April 5, 2022, the company announced a new MRE for PMV's Masa Valverde and Majadales deposits. Highlights included a significant increase in tonnage and contained copper, silver and gold compared with the prior estimate, as well as an initial indicated mineral resource at Masa Valverde. The mineralization includes zones that are copper-rich and low-zinc, which could deliver higher-grade material for processing at the existing Riotinto plant with minimal plant modifications.
Exploration activities continue at PMV, with four drill rigs currently operating, including two rigs at the Campanario trend and two at anomalies west of the Masa Valverde deposit. Initial drilling results from Campanario were announced subsequent to the end of the quarter and included intersections of massive and semi-massive sulphides at shallow depths.
In addition, the permitting process continues, and the company expects to complete a PEA for PMV by the end of 2022.
Atalaya remains fully committed to the development of the Touro copper project in Galicia, which could become a new source of copper production for Europe. The company continues to engage with the many stakeholders in the region in advance of its plans to submit a new project design.
In June, the company commissioned a new acid water treatment plant at Touro, which will address the legacy issues associated with water runoff from the historical mine. The construction of the plant was contemplated in the original project proposal, but Atalaya volunteered to fix the historical acid water issues prior to submitting the environmental impact assessment (EIA) in order to demonstrate its operating philosophy and the benefits of modern operating systems.
Atalaya continues to be confident that its approach to Touro, which includes a fully HDPE (high-density polethylene) plastic-lined thickened tailings facility with zero discharge, is consistent with international best practice and will satisfy the most stringent environmental conditions that may be imposed by the authorities prior to the development of the project.
Other regional exploration
At Riotinto East, various exploration activities continue, including field mapping, rock sampling, soil geochemistry and reinterpretation of geophysical data. The company expects to begin drilling targets later this year once the investigation permit is granted.
At Proyecto Ossa Morena (POM), the company has been focused on permitting, environmental and social matters. Subsequent to Q2 2022, Atalaya increased its ownership interest in POM to 99.9 per cent, up from 51 per cent, following completion of a capital increase that will finance exploration activities. An initial drilling campaign is expected to begin soon at the Hinchona copper-gold target and at the flagship Alconchel-Pallares copper-gold project.
About Atalaya Mining PLC
Atalaya is an Alternative Investment Market- and Toronto Stock Exchange-listed mining and development group which produces copper concentrates and silver byproduct at its wholly owned Proyecto Riotinto site in southwest Spain. Atalaya's current operations include the Cerro Colorado open-pit mine and a modern 15 mtpa processing plant, which has the potential to become a centralized processing hub for ore sourced from its wholly owned regional projects around Riotinto that include Proyecto Masa Valverde and Proyecto Riotinto East. In addition, the group has a phased earn-in agreement for up to 80-per-cent ownership of Proyecto Touro, a brownfield copper project in the northwest of Spain, as well as a 99.9-per-cent interest in Proyecto Ossa Morena.
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