Good financial performance despite impact of energy prices, inflation and transport sector strike
Atalaya Mining Plc (AIM: ATYM; TSX: AYM) is pleased to announce its unaudited quarterly results for the three months ended 31 March 2022 (“Q1 2022” or “Period”), together with its unaudited interim financial statements for Q1 2022.
The Unaudited Interim Condensed Consolidated Financial Statements for the three months ended 31 March 2022 are also available under the Company´s profile on SEDAR at www.sedar.com and on Atalaya’s website at www.atalayamining.com.
Good financial performance including cash flows from operating activities of €28.3 million, despite unprecedented energy costs, inflationary pressures and transport sector strike
Continued to strengthen the balance sheet, with net cash position growing to €86.8 million
Maintaining 2022 full year operational outlook including copper production of 54 – 56 kt
Growth pipeline advancing as outlined in the April 2022 announcements of new Mineral Resource Estimates for higher grade Riotinto District deposits – San Dionisio, San Antonio and Proyecto Masa Valverde
Q1 2022 Financial Results Summary
Quarter ended 31 March Unit Q1 2022 Q1 2021 %
Revenues from operations €k 86,251 97,380 (11.4%)
Operating costs €k (54,789) (48,026) 14.1%
EBITDA €k 26,712 47,443 (43.7%)
Profit for the period €k 18,257 33,702 (45.8%)
Basic earnings per share € cents/share 13.5 24.5 (44.9%)
Cash flows from operating activities €k 28,298 36,803 (23.1%)
Cash flows used in investing activities (1) €k (7,552) (63,930) (88.2%)
Cash flows from financing activities €k (2,378) 52,948 (104.5%)
Net cash position (2) €k 86,836 10,588 720.1%
Working capital surplus €k 120,124 61,028 96.8%
Average realised copper price US$/lb 4.42 3.62 22.2%
Cu concentrate produced tonnes 54,209 67,260 (19.4%)
Cu production tonnes 11,461 13,979 (18.0%)
Cash costs US$/lb payable 3.33 2.04 63.5%
All-In Sustaining Costs (“AISC”) US$/lb payable 3.59 2.46 46.0%
Q1 2021 includes €53 million early payment of the Deferred Consideration to Astor.
Includes restricted cash and bank borrowings at 31 March 2022 and 31 March 2021.
Alberto Lavandeira, CEO commented:
“We are pleased to have generated over €20 million in free cash flow during the quarter, despite the many external challenges we faced. The transport sector strike in March forced a temporary shutdown of our processing plant, electricity prices in Spain remain extremely high compared to historical and expected future rates, and cost inflation is affecting the prices of many key consumables.
However, our team has been successful in reducing the impact of these external factors. During the transport sector strike, we brought forward maintenance activities which should allow for higher throughput in Q2, we are advancing the construction of our 50 MW solar plant and entered into a new long term PPA, and are implementing various efficiency measures to help to offset cost inflation. We also look forward to the new regulations proposed by Spain, which would cap the gas price and significantly reduce spot electricity prices.
Meanwhile, we continue to focus on advancing our project pipeline in the Riotinto District, which we believe can deliver significant production growth at low capital intensity as a result of the expected grades and synergies associated with utilising our existing plant as a central processing hub. In addition, stakeholder dialogue and the permitting process continue at Proyecto Touro, which could become a new source of safe and responsible copper production in Europe.”
Investor Presentation Reminder
Alberto Lavandeira (CEO) and César Sánchez (CFO) will be holding a live presentation relating to the Q1 2022 results via the Investor Meet Company platform at 1:00pm BST today.
To register, please visit the following link and click “Add to Meet” Atalaya via:
Management will also answer questions that have been submitted via the Investor Meet Company dashboard.
Q1 2022 Operating Results Summary
Units expressed in accordance with the international system of units (SI)
Q1 2022. Q1 2021
Ore mined Mt 4.0 3.3
Ore processed Mt 3.5 4.0
Copper ore grade % 0.37 0.41
Copper concentrate grade % 21.14 20.78
Copper recovery rate % 86.07 84.90
Copper concentrate tonnes 54,209 67,260
Copper contained in concentrate tonnes 11,461 13,979
Payable copper contained in concentrate tonnes 10,918 13,306
Ore totalling 4.0 million tonnes was mined during Q1 2022, which is consistent with processing rates in recent quarters. This compares with ore mined of 3.3 million tonnes in Q1 2021.
The plant processed 3.5 million tonnes of ore during Q1 2022, compared to 4.0 million tonnes in Q1 2021 and 3.9 million tonnes in Q4 2021. The decrease resulted from the transport sector strike, which interrupted the supply of essential daily consumables and resulted in a temporary shut down of the plant. In order to minimise the impact of the down time on full year production, the Company brought forward certain maintenance works previously planned for Q2.
The processed copper grade was 0.37%, which was below comparative quarters and resulted from pit sequencing. Copper recoveries were strong at 86.07% despite lower grades, compared to 84.90% in the Q1 2021 period.
Copper production in Q1 2022 was 11,461 tonnes, which was below Q1 2021 production of 13,979 tonnes. The decrease in copper production was mainly attributable to the temporary plant shutdown following the transport sector strike and lower copper grades processed, partially offset by higher copper recoveries.
Q1 2022 Financial Results Highlights
Revenues for Q1 2022 were €86.3 million, compared with €97.4 million in Q1 2021. The reduction was mainly as a result of lower copper concentrate sales volumes, partially offset by higher realised copper prices of US$4.42/lb compared with US$3.62/lb in Q1 2021.
Operating costs for Q1 2022 were €54.8 million, compared with €48.0 million in Q1 2021, due primarily to the increase in electricity prices following the invasion of the Ukraine and inflation associated with other key supplies.
EBITDA for the Period was €26.7 million, below Q1 2021 of €47.4 million. The decrease in EBITDA was driven by the combination of lower revenues and higher operating costs compared with Q1 2021.
Profit after tax was €18.3 million, or 13.5 cents basic earnings per share, compared with Q1 2021 profit after tax of €33.7 million, or 24.5 cents basic earnings per share.
Cash costs for Q1 2022 were US$3.33/lb payable copper, considerably higher than those reported in Q4 2021 (US$2.18/lb) and Q1 2021 (US$2.04/lb) as a result of lower production volumes and higher costs associated with electricity and other supplies, partially offset by the weaker Euro.
AISC during Q1 2022 amounted to US$3.59/lb payable copper compared with US$2.48/lb payable copper in Q4 2021 and US$2.46/lb in Q1 2021. The increase in AISC in Q1 2022 was mainly driven by the same factors that increased cash costs. AISC excludes investment in the tailings dam during the Period, which amounted to €2.5 million (Q1 2021: €2.7 million).
Cash Flow Statement
Cash flow from operating activities before changes in working capital amounted to €26.9 million in Q1 2022 (Q1 2021: €50.2 million) or €28.3 million after working capital changes (Q1 2021: €36.8 million).
Cash flows used in investing activities were €7.6 million in Q1 2022, compared with €63.9 million in Q1 2021, which included the payment of deferred consideration to Astor. Capital expenditures in Q1 2022 included €0.9 million in sustaining capex, €2.5 million for tailings dam expansion, as well as land purchases.
Cash flows used in financing activities were €2.4 million, which included debt repayment of €5.8 million and the proceeds of employee options, compared with an inflow of €52.9 million in Q1 2021 following the drawdown of unsecured debt facilities to fund the payment to Astor.
Consolidated cash and cash equivalents as at 31 March 2022 were €128.5 million (including restricted cash and equivalents of €15.4 million), up from €107.5 million as at 31 December 2021 and €63.6 million as at 31 March 2021.
Net of current and non-current borrowings of €41.6 million, net cash was €86.8 million as at 31 March 2022, up from €60.1 million as at 31 December 2021 and €10.6 million as at 31 March 2021.
Inventories of concentrate at 31 March 2022 valued at cost amounted to €14.6 million (31 December 2021: €6.6 million). As at 31 March 2022, total working capital was €120.1 million, representing a €17.7 million increase from the €102.4 million surplus as at 31 December 2021 and an increase of €59.1 million from 31 March 2021.
On 25 April 2022, the Company published its inaugural sustainability report, as part of its ongoing commitment to enhancing its disclosure and reporting.
The 2021 Sustainability Report, which is available on the Company’s website, was prepared in accordance with Global Reporting Initiative Sustainability Reporting Standards (“GRI Standards”) with the assistance of independent sustainability consultancy ERM and was audited by EY.
Energy Market Developments in Spain
During Q1 2022, the price of electricity in Spain continued the volatile trend of late 2021 and reached unprecedented peaks in March as a result of the conflict in the Ukraine. The European natural gas reference price (“TTF”) peaked at an all-time high that was ten times the level of one year earlier. Although the consumption of European gas in Spain and Portugal is minimal, the price of electricity is set by the marginal high-cost producerthat uses TTF as a reference, and as a result the Company has seen the price of electricity during Q1 2022 averaging around €230/MWh, which is almost four times higher than the price realised in 2021.
The Spanish Government announced plans to implement measures that will aim to significantly reduce prices, which are currently unsustainable for the general economy. The details of these measures have not been finalised yet but are expected to come into effect during the coming months.
Since the end of the Period, TTF has decreased by over 50% from its peak in March, and in April, electricity prices in Spain averaged around €190/MWh, including days when the price was below €90/MWh.
Electricity Procurement Strategy
The Company is focused on implementing a range of measures that will reduce its long term energy costs and exposure to the spot market, while also lowering carbon footprint.
As previously announced, in Q1 2022 the Company signed a long-term Power Purchase Agreement (“PPA”) with its electricity supplier for approximately 31% of its electricity requirements, with deliveries beginning in January 2023 at prices that are approximately 80% of the rate realised in 2021.
The Company’s planned 50 MW solar plant for self-consumption will also help to reduce the Company’s long term power costs while at the same time lower its carbon emissions. The solar plant, which is expected to provide approximately 22% of the Company’s electricity needs, is under construction following the signing of an agreement with an affiliate of Endesa, the power supply company. With ground preparation under way and equipment on order, full commissioning of the solar plant is expected in H1 2023.
In additional, the Company is evaluating further long term renewable power initiatives such as additional solar capacity, the installation of a wind farm for self-consumption at the mine site and a pumped hydro project linked with the clean water dams that the Company is already utilising.
Outlook for 2022
The Company is maintaining its previously announced guidance for 2022, despite the operational disruptions and lower grades experienced during the Period.
Full year copper production guidance is 54,000 – 56,000 tonnes, with improvements in copper grade and ore throughput expected in the remainingquarters of the year, due in part to the bringing forward of maintenance activities during the transport sector strike.
2022 guidance for cash costs and AISC are US$2.25 – 2.80/lb and US$2.50 – 3.05/lb, respectively. Although electricity prices remain elevated at present, they are within the range assumed when setting annual cost guidance. In addition, as Europe enters the summer months and regulatory changes are implemented in relation to energy prices, the cost of electricity is expected to return to normalised levels. The Euro/U.S. dollar exchange rate has also weakened compared to the 1.16 budget, averaging 1.12 during Q1 2022.
In January 2022, the Company announced the approval of the development of a Phase I industrial-scale plant that utilises the E-LIX System. The plant will produce high value copper and zinc metals from complex sulphide concentrates produced from material sourced within the Riotinto District.
All equipment has been ordered and construction activities are under way. The plant is expected to reach the commissioning phase before the end of 2022.
Update on Asset Portfolio
Riotinto District – Cerro Colorado
Several efficiency and cost reduction initiatives have been implemented in recent months. The expert system to control the SAG mill operations has been fully implemented and is reducing energy consumption. Various initiatives have focused on improving the flotation process, including the use of new reagents which have had a positive impact on recoveries. Also, the new tailings thickening circuit has successfully reduced lime consumption.
Riotinto District – San Dionisio and San Antonio
As announced on 13 April 2022, an independent consultant has finalised new Mineral Resource Estimates for the San Dionisio and San Antonio deposits, as part of preparing a new NI 43-101 technical report on the overall Proyecto Riotinto property.
The San Dionisio deposit is located immediately west of the operating Cerro Colorado open pit. It represents a high-grade resource that could be mined first by open pit methods by expanding the existing historic Atalaya pit, followed by underground methods for the remaining resource. The San Dionisio deposit contains copper ore that is very similar to what is currently being mined at Cerro Colorado, as well as polymetallic mineralisation containing copper, zinc and lead. Atalaya plans to complete a PEA on an operating schedule that combines Cerro Colorado reserves with higher grade material from San Dionisio deposit during 2022. Open pit mining at San Dionisio will require the relocation of certain infrastructure such as the public road, power lines and water lines that currently run between the two deposits.
San Antonio is a shallow polymetallic deposit that will require underground mining methods. It is located immediately east of the Cerro Colorado open pit, from where it is easily accessible via the construction of a ramp.
Riotinto District – Proyecto Masa Valverde (“PMV”)
PMV consists of two main deposits: the large Masa Valverde (“MV”) deposit and the smaller, shallower and higher grade Majadales (“MJ”) deposit, which is located 1 km to the southeast of MV along the same northwest trending structure.
A new Mineral Resource Estimate for PMV was announced on 5 April 2022, which included a significant increase in tonnage and contained copper, gold and silver compared to the prior estimate. An initial Indicated Mineral Resource was also declared for the MV deposit. The supporting NI 43-101 technical report has now been filed. As a next step, the Company plans to complete a PEA that focuses on scenarios that would leverage the existing plant at Proyecto Riotinto and access the orebodies via a single ramp.
Four rigs continue drilling at PMV, with two focused on the Campanario trend and the other two drill testing a Fix Loop Electromagnetic Anomaly (“FLEM”) anomaly 300 meters west of MV. The Campanario trend is a parallel structure to MV-MJ, located 1 km to the north and with associated outcropping mineralisation (gossans and sulphide stockworks) along approximately 5 km. In addition, several high-priority FLEM anomalies were defined on PMV, all of which will be systematically drill tested.
Riotinto District – Proyecto Riotinto Este
At Riotinto East, work continues on the definition of drill targets as well as obtaining the pending administrative permits. It is expected that drilling will commence in the coming months.
Atalaya remains committed to the development of the Touro copper project and continues to engage with all stakeholders in order to resolve any concerns associated with the project.
Consistent with its commitment to a world class development of the project, the Company made the decision to address the legacy issues associated with water runoff from the historical mine prior to submitting the Environmental Impact Assessment (“EIA”) for the new Touro development proposal. The original plan was to construct a water treatment plant during project development, but the Company has volunteered to address the legacy matters ahead of the EIA submission as an early contribution to the local community and to demonstrate that operating systems have drastically improved over the last 35 years. The water treatment plant is near completion.
In addition, as an integral part of Atalaya’s commitment to excellence and long-term transparency in relation to the development of Touro, agreements have been signed with major fishing communities in order to implement a water quality control system located downstream of Touro at the Ulla River, in order to demonstrate the project’s lack of impact on the river. This is consistent with the Company’s overall project design and its “zero-discharge” philosophy.
The Company continues to be confident that its approach to Touro, which includes fully plastic lined tailings with zero discharge, is in line 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.
Proyecto Ossa Morena (“POM”)
At Proyecto Ossa Morena, preparation work continues and it is expected that drilling will begin at the flagship Alconchel-Pallares Cu-Au project during July or August.
Update on Corporate Developments
As announced on 21 March 2022 and 24 March 2022, the Company received the formal Judgment from the High Court of Justice in relation to the claim for residual interest arising out of the payment of €53 million in deferred consideration to Astor.
The Judgment, which puts an end to the litigation between the parties (subject to any appeal by either party), clarified the basis for calculating the interest due and confirmed that it is payable by the Company.
On 7 and 8 April 2022, the Company paid €9.6 million to Astor from the trust account of €15.4 million previously established by Atalaya on 15 July 2021.
A hearing was held on 6 May 2022 and the calculation of the correct interest arising under the Master Agreement was subsequently agreed between the parties. Atalaya has agreed a final payment amount of €1.1 million with Astor which was paid on 16 May 2022.