ARG Amerigo Resources Ltd

Amerigo Resources Ltd. (TSX: ARG) (“Amerigo” or the “Company”) announced financial results for Q2- 2019.

Amerigo’s financial results in Q2-2019 were affected by low production at Minera Valle Central ("MVC"), the Company’s 100% owned operation located near Rancagua, Chile, and by low copper prices in the period.

Rob Henderson, Amerigo’s President and CEO, stated “MVC experienced a very poor start up to the Phase Two expansion project this year due to low recoveries from the historic Cauquenes tailings deposit. In July, MVC completed construction of the deep level extraction sump and the new concentrate regrind mill, with which we expect performance to improve. In order to have more short-term financial flexibility, the existing MVC bank loans are expected to be restructured in Q3-2019.”

Amounts in this news release are reported in U.S. dollars except where indicated otherwise.

Amerigo reported a financial loss of $6.6 million in Q2-2019

• Net loss was $6.6 million (Q2-2018: net income of $2.7 million), due to lower production and lower metal prices.
• Loss per share was $0.04 (Q2-2018: earnings per share of $0.02).
• The Company used cash flow of $4.8 million in operations, before changes in non-cash working capital (Q2-2018: generated cash flow from operations of $6.4 million before changes in non-cash working capital). Net cash from operating activities in Q2-2019 was $3.0 million (Q2-2018: $1.8 million).

MVC’s Q2-2019 production remained low, negatively affecting financial performance

• Q2-2019 production was 13.3 million pounds of copper (Q2-2018: 14.7 million pounds), as a result of continued low plant recoveries during the quarter. Cauquenes material was still being extracted from the same low quality, high fines extraction zone that adversely affected Q1-2019 production.
• Copper production is comprised of 8.2 million pounds from Cauquenes (Q2-2018: 9.2 million pounds) and 5.1 million pounds from fresh tailings (Q2-2018: 5.5 million pounds).
• Molybdenum production was 0.2 million pounds (Q2-2018: 0.4 million pounds). The material processed in the molybdenum plant in recent months has also been very fine, negatively affecting production.
• Cash cost (a non-GAAP measure equal to the aggregate of smelting and refining charges, tolling/production costs net of inventory adjustments and administration costs, net of by-product credits) increased to $1.97/lb (Q2-2018: $1.71/lb).
• Total cost (a non-GAAP measure equal to the aggregate of cash cost, DET notional copper royalties and DET molybdenum royalties of $0.65/lb and depreciation of $0.33/lb) increased to $2.95/lb (Q2-2018: $2.74/lb), due to higher cash cost and depreciation, mitigated by lower DET notional royalties from lower metal prices.

Production at MVC is ramping up following completion of the new Cauquenes extraction sump

• MVC completed the construction of a new, deeper Cauquenes extraction sump which became operational on July 6, 2019. The sump has a depth of 48 meters and has enabled MVC to regain access to coarser material with better grades and better recoveries. Further plant optimization is still in progress.
• MVC has also installed and is operating its new concentrate regrind mill, thus completing the Cauquenes Phase II expansion.
• MVC expects its 2019 annual production to be 70 – 75 million pounds of copper and 1.5 million pounds of molybdenum at a cash cost of $1.60 to $1.75/lb. Amerigo’s financial performance in 2019 will be highly dependent on MVC meeting its production goals and recovery targets.
• In 2019, MVC continues to expect to incur $5.8 million in sustaining Capex, in addition to $3.1 million in Capex payments from the Phase Two expansion. 

MVC’s average copper price in Q2-2019 was $2.67/lb

• MVC’s copper price was $2.67per pound (“/lb”) (Q2-2018: $3.16/lb) and MVC’s molybdenum price was $11.84/lb (Q2-2018: $11.51/lb).
• Revenue was $22.7 million (Q2-2018: $33.0 million), including copper tolling revenue of $20.5 million (Q2-2018: $29.2 million) and molybdenum revenue of $2.2 million (Q2-2018: $3.8 million).
• Copper tolling revenue is calculated from MVC’s gross value of copper produced of $37.3 million (Q2-2018: $44.5 million) and negative fair value adjustments to settlement receivables of $3.2 million (Q2-2018: positive adjustments of $0.6 million, less notional items including DET royalties of $8.3 million (Q2-2018: $10.6 million), smelting and refining of $4.8 million (Q2-2018: $4.7 million) and transportation of $0.5 million (Q2-2018: $0.5 million).
• MVC’s financial performance is very sensitive to changes in copper prices. MVC’s Q2-2019 provisional copper price was $2.67/lb, and final prices will be the average London Metal Exchange (“LME”) prices for July, August and September 2019. A 10% increase or decrease from the $2.67/lb provisional price used at June 30, 2019 would result in a $3.6 million change in revenue in Q3-2019 in respect of Q2-2019 production.
• Amerigo remains fully leveraged to the price of copper.

Cash balance at quarter end was $8.4 million

• At June 30, 2019 the Company’s cash balance was $8.4 million (December 31, 2018: $21.3 million).
• MVC completed its scheduled semi-annual bank repayment, reducing borrowings to $57.6 million.
• At June 30, 2019, the Company had a $33.3 million working capital deficiency (December 31, 2018: $16.9 million), caused by the then estimated $25.7 million in scheduled bank debt repayments payable within a year.
• Subsequent to June 30, 2019, the Company received a Commitment Letter from and executed a Financing Mandate Agreement with Scotiabank Chile to refinance MVC’s loans (refer to Amerigo’s news release of August 6, 2019). Under the proposed terms and conditions set out in the Commitment Letter, Scotiabank Chile is to arrange a four-year senior secured term loan facility (the “New Facility”) of up to $56.5 million on a best efforts basis. Scotiabank Chile has committed to underwrite 50% of the New Facility, up to US$28.25 million, as it has received firm credit approval. Proceeds from the New Facility will be used to refinance MVC’s existing loans and to finance transaction related costs. Closing of the New Facility is expected in Q3-2019.
• Amerigo does not consider that its working capital deficiency constitutes a significant liquidity risk, as it anticipates generating operating cash flow to meet current liabilities as they come due, assuming copper prices remain at levels above $2.60/lb.

Investor Conference Call on August 9, 2019

Amerigo’s quarterly investor conference call will take place on Friday August 9, 2019 at 11:00 am Pacific Standard Time/2:00 pm Eastern Standard Time. 

To join the call, please dial 1-800-273-9672 (Toll-Free North America) and let the operator know you wish to participate in the Amerigo Resources conference call.

The analyst and investment community are welcome to ask questions to management. Media can attend on a listen-only basis.

About Amerigo and MVC

Amerigo Resources Ltd. is an innovative copper producer with a long-term relationship with Corporación Nacional del Cobre de Chile (“Codelco”), the world’s largest copper producer.

Amerigo produces copper concentrate at the MVC operation in Chile by processing fresh and historic tailings from Codelco’s El Teniente mine, the world's largest underground copper mine. Tel: (604) 681-2802; Fax: (604) 682-2802; Web: www.amerigoresources.com; Listing: ARG:TSX.

For further information, please contact:    

• Rob Henderson, President and CEO                                       (604) 697-6203
• Aurora Davidson, Executive Vice-President and CFO             (604) 697-6207

The information and data contained in this news release should be read in conjunction with the Company’s Condensed Interim Consolidated Financial Statements (Unaudited) and Management’s Discussion and Analysis (“MD&A) for the three and six months ended June 30, 2019 and the Audited Consolidated Financial Statements and MD&A for the year ended  December 31, 2018, available at the Company’s website www.amerigoresources.com and at www.sedar.com.    



Key performance metrics for the current and comparative quarter

		Q2-2019		Q2-2018		Change
						$		%
Copper produced (million  pounds)1		13.3		14.7		(1.4)		(10%)
Copper delivered (million  pounds)1		13.4		14.2		(0.8)		(6%)
Percentage of production from historic tailings		62%		62%				-
Revenue ($ thousands) 2		22,692		32,999		(10,307)		(31%)
DET notional copper royalties ($ thousands)		8,322		10,642		(2,320)		(22%)
Tolling and production costs ($ thousands)		28,794		27,209		1,585		6%
Gross (loss) profit ($ thousands)		(6,102)		5,790		(11,892)		(205%)
Net (loss) income ($ thousands)		(6,564)		2,720		(9,284)		-
(Loss) earnings per share - basic & diluted		(0.04)		0.02		(0.06)		-
Net cash from operating activities		2,951		1,785		1,166		65%
Cash flow from operating activities before changes
in working capital ($ thousands)		(4,754)		6,428		(11,182)		(174%)
Cash flow paid for purchase of plant and equipment ($ thousands)		(2,849)		(9,961)		7,112		(71%)
Cash and cash equivalents ($ thousands)		8,415		21,390		(12,975)		(61%)
Borrowings ($ thousands)3		57,641		65,561		(7,920)		(12%)
MVC's copper price ($/lb)4		2.67		3.16		(0.49)		(16%)
MVC's molybdenum price ($lb)5		11.84		11.51		0.33		3%

1	Copper production conducted under a tolling agreement with DET.
2	Revenue reported net of notional items (smelting and refining charges, DET notional copper royalties and transportation costs).
3	At June 30, 2019, comprised of short and long-term portions of $25.7 and $31.9 million respectively.
4	MVC’s copper price is the average notional copper price for the period, before smelting and refining, DET notional copper royalties, transportation costs and settlement adjustments to prior period sales.
5	MVC’s molybdenum price is the average realized molybdenum price in the period, before roasting charges and settlement adjustments to prior period sales

        

Summary Consolidated Statements of Financial Position
	June 30,	December 31,
	2019	2018
	$	$
Cash and cash equivalents	8,415	21,338
Property plant and equipment	205,238	208,729
Other assets	23,512	27,546
Total assets	237,165	257,613
Total liabilities	133,683	148,403
Shareholders' equity	103,482	109,210
Total liabilities and shareholders' equity	237,165	257,613
Summary Consolidated Statements of Loss (Income) and Comprehensive (Loss) Income
	Q2-2019	Q2-2018
	$	$
Revenue	22,692	32,999
Tolling and production costs	(28,794)	(27,209)
Other expenses	(1,212)	(1,060)
Finance expense	(1,501)	(912)
Income tax	2,251	(1,098)
Net (loss) income	(6,564)	2,720
Other comprehensive income (loss)	434	(234)
Comprehensive (loss) income	(6,130)	2,486
(Loss) earnings per share - basic	(0.04)	0.02
(Loss) earnings per share - diluted	(0.04)	0.02
Summary Consolidated Statements of Cash Flows
	Q2-2019	Q2-2018
	$	$
Cash flows (used in) from operating acitivities	(4,754)	6,428
Changes in non-cash working capital	7,705	(4,643)
Net cash from operating activities	2,951	1,785
Net cash used in investing acitivities	(2,849)	(9,961)
Net cash (used in) received from financing acitivites	(8,233)	447
Net decrease in cash	(8,131)	(7,729)
Effect of foreign exchange rates on cash	(51)	(750)
Cash and cash equivalents, beginning of period	16,597	29,869
Cash and cash equivalents, end of period	8,415	21,390

Cautionary Statement on Forward Looking Information

This news release contains certain forward-looking information and statements as defined in applicable securities laws (collectively referred to as "forward-looking statements"). These statements relate to future events or Amerigo’s future performance. All statements other than statements of historical fact are forward-looking statements. The use of any of the words "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "should", "believe" and similar expressions is intended to identify forward-looking statements. Although Amerigo believes that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond Amerigo’s control, Amerigo cannot assure that it will achieve or accomplish the expectations, beliefs or projections described in the forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such statements. These forward-looking statements speak only as of the date of this news release. These forward-looking statements include but are not limited to, statements concerning:

• the New Facility, including the expectation to use the proceeds of the New Facility to restructure the MVC bank loans during Q3-2019;
• the Company’s expectation that MVC’s performance will improve as a result of MVC having completed construction of a deep level extraction sump and the concentrate regrind mill;
• a forecasted increase in production and a reduction in operating costs;
• our strategies and objectives;
• the expected improvement of flotation recovery efficiency from the Phase Two expansion;
• our estimates of the availability, quantity and grade of tailings (including, but not limited to, the estimated higher grades and recoveries from the Cauquenes deposit), and the quality of our mine plan estimates;
• prices and price volatility for copper and other commodities and of materials we use in our operations;
• the demand for and supply of copper and other commodities and materials that we produce, sell and use;
• sensitivity of our financial results and share price to changes in commodity prices;
• our financial resources and our expected ability to meet our obligations for the next 12 months;
• interest and other expenses;
• domestic and foreign laws affecting our operations;
• our tax position and the tax rates applicable to us;
• the timing and costs of tolling/production;
• our ability to procure or have access to financing and to comply with loan covenants;
• the probability of DET exercising any of its early exit options under the Master Agreement;
• the production capacity of our operations, our planned production levels and future production;
• potential impact of production and transportation disruptions;
• hazards inherent in the mining industry causing personal injury or loss of life, severe damage to or destruction of property and equipment, pollution or environmental damage, claims by third parties and suspension of operations
• our planned Capex (including our plan to upgrade our existing plant and operations) including the timing and cost of completion of our capital projects;
• estimates of asset retirement obligations and other costs related to environmental protection;
• our future capital and production costs, including the costs and potential impact of complying with existing and proposed environmental laws and regulations in the operation and closure of our operations;
• repudiation, nullification, modification or renegotiation of contracts;
• our financial and operating objectives;
• our environmental, health and safety initiatives;
• the outcome of legal proceedings and other disputes in which we may be involved;
• the outcome of negotiations concerning metal sales, treatment charges and royalties;
• disruptions to the Company's information technology systems, including those related to cybersecurity;
• our dividend policy; and
• general business and economic conditions.

Inherent in forward-looking statements are risks and uncertainties beyond our ability to predict or control, including risks that may affect our operating or capital plans; risks generally encountered in the permitting and development of mineral projects such as unusual or unexpected geological formations, negotiations with government and other third parties, unanticipated metallurgical difficulties, delays associated with permits, approvals and permit appeals, ground control problems, adverse weather conditions, process upsets and equipment malfunctions; risks associated with labour disturbances and availability of skilled labour and management; fluctuations in the market prices of our principal commodities, which are cyclical and subject to substantial price fluctuations; risks created through competition for mining projects and properties; risks associated with lack of access to markets; risks associated with availability of and our ability to obtain both tailings from DET’s current production and historic tailings from tailings deposit; the availability of and ability of the Company to obtain adequate funding on reasonable terms for expansions and acquisitions; mine plan estimates; risks posed by fluctuations in exchange rates and interest rates, as well as general economic conditions; risks associated with environmental compliance and changes in environmental legislation and regulation; risks associated with our dependence on third parties for the provision of critical services; risks associated with non-performance by contractual counterparties; title risks; social and political risks associated with operations in foreign countries; risks of changes in laws affecting our operations or their interpretation, including foreign exchange controls; and risks associated with tax reassessments and legal proceedings.  Many of these risks and uncertainties apply not only to the Company and its operations, but also to Codelco and its operations.  Codelco’s ongoing mining operations provide a significant portion of the materials the Company processes and its resulting metals production, therefore these risks and uncertainties may also affect their operations and in turn have a material effect on the Company.

Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this news release. Such statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions about:

• the proposed indicative terms for the New Facility being the terms ultimately agreed to between the parties and Scotiabank Chile being able to secure an additional lender for the New Facility, and the parties being able to close the New Facility during Q3-2019.
• general business and economic conditions;
• interest rates;
• commodity (and in particular, copper) and power prices;
• acts of foreign governments and the outcome of legal proceedings;
• the supply and demand for, deliveries of, and the level and volatility of prices of copper and other commodities and products used in our operations;
• the ongoing supply of material for processing from Codelco’s current mining operations;
• the ability of the Company to profitably extract and process material from the Cauquenes tailings deposit;
• the timing of the receipt of and retention of permits and other regulatory and governmental approvals;
• the availability of and ability of the Company to obtain adequate funding on reasonable terms for expansions and acquisitions;
• our costs of production and our production and productivity levels, as well as those of our competitors;
• changes in credit market conditions and conditions in financial markets generally;
• our ability to procure equipment and operating supplies in sufficient quantities and on a timely basis;
• the availability of qualified employees and contractors for our operations;
• our ability to attract and retain skilled staff;
• the satisfactory negotiation of collective agreements with unionized employees;
• the impact of changes in foreign exchange rates and capital repatriation on our costs and results;
• engineering and construction timetables and capital costs for our expansion projects;
• costs of closure of various operations;
• market competition;
• the accuracy of our preliminary economic assessment (including with respect to size, grade and recoverability) and the geological, operational and price assumptions on which these are based;
• tax benefits and tax rates;
• the outcome of our copper concentrate sales and treatment and refining charge negotiations;
• the resolution of environmental and other proceedings or disputes;
• the future supply of reasonably priced power;
• our ability to obtain, comply with and renew permits and licenses in a timely manner; and
• our ongoing relations with our employees and entities with which we do business.

Future production levels and cost estimates assume there are no adverse mining or other events which significantly affect budgeted production levels.

We caution you that the foregoing list of important factors and assumptions is not exhaustive. Other events or circumstances could cause our actual results to differ materially from those estimated or projected and expressed in, or implied by, our forward-looking statements. Except as required by law, we undertake no obligation to update publicly or otherwise revise any forward-looking statements or the foregoing list of factors, whether as a result of new information or future events or otherwise.