CEO: Rob Henderson
WSA: Good day from Wall Street, this is Juan Costello, Senior Analyst with the Wall Street Analyzer. Joining us today is Rob Henderson, CEO and President of Amerigo Resources. The company trades on the Toronto Stock Exchange, ticker symbol is ARG and on the OTCQX, ticker symbol is ARRES. Thanks for joining us today Rob.
Robert Henderson: Thanks Juan.
WSA: Great, so starting off please give us a history and overview of the company for some of our listeners that are new to your story?
Robert Henderson: Sure, Amerigo owns 100% of Minera Valle Central, it’s a Chilean company that produces copper. MVC has been producing copper since 1992 and it has contracts to produce copper until 2037. So we are a very long term producer of copper in Chile. We also think we’re a pretty innovative company since we produce copper from tailings and this is a model that is not that common in the world. However, we are producing now in the order of 65 million pounds per year of copper in the order of $1.55 a pound.
We are “in the water” we are not an explorer looking to build a mine, we actually are producing copper—we’re not producing a lot of copper compared to some of the biggest mines in the world—but it’s a pretty significant revenue we get from the 65 million pounds at the copper price today of $2.15 and we’re making enough margin to stay healthy. We have been a dividend payer in the past and our share price is very, very dependent on copper prices. Right now I think the consensus is that copper prices are at a low, it’s kind of bottomed out at $2.15 and we believe we’re very well-geared to the copper price and as copper price increases, so will our share price and so will our ability to pay dividends again. We think we are a pretty attractive investment vehicle for someone who believes in copper.
WSA: Great, so please bring us up the speed on recent news from MVC and some of the other current activity there?
Robert Henderson: Yeah, sure thing. If we go back to our last quarter’s release we announced record production there and I think that’s reflective of our success and our ramp up in our new project. We’ve just recently gotten access to a tailings deposit called Cauquenes it was put down in 1937, so, it’s a pretty old tailings deposit and consequently the grades are a lot higher than any other of the tailings around. So, we are running at a pretty high grade 0.27% copper into our mill and consequently our copper production has ramped up significantly and I think in this quarter we’re going to report even higher production than Q2. So the good news is that production has ramped up and it’s continuing to ramp up.
I think the second press release of note is recognition from the Chilean National Mining Societies, SONAMI, this is a national award in Chile. We’ve got the award for recognition of our innovative business model and the use of mine tailings and the recent investment which provides continuity to the operation till 2037. So, we’re very pleased with that recognition from Chile’s National Mining Award. I think the hot issue today is our negotiations with the unionized employees down in Chile. We have a four year collective agreement that ended at the end of September and we’ve been in the process of negotiation with the union. We are expecting to hear from them very shortly. I think the expectation is that the union demands are excessive and there is probably a likelihood of a strike taking place.
So that is I guess the damper on the news is that our negotiations with the union have not gone as well as we expected and there is likely to be a short interruption in production down in Chile. We believe we’ve got sufficient cash reserve to last out a long time at the current copper price of $2.15, our margins are not huge, so it’s not a huge pain to sustain operations temporarily and focus on getting a collective labor agreement that we believe is sustainable.
WSA: So, what are some of the current trends that you’re seeing right now in the sector and how is the company positioned to capitalize?
Robert Henderson: I think anyone investing in the mining sector recognizes that the sector is extremely cyclical, you get periods of over investment and then you get periods where there is absolutely nothing and essentially metal price would come up until you get over investment again and then metal prices are down again. So, there is a natural cycle to the industry driven by over investment and consequent underinvestment. I think what we’ve seen in the last five years as metal prices have gone down across the industry is that the exploration geologists have had very little to do. There’s been very little new investment in mining operations and we know that it takes five to ten years to put a new mine into production and mines are dwindling, depreciating assets — ore bodies don’t last forever.
So, what we’re seeing is a gap in investment over the last five years and we do believe that it’s going to lead to a drop in production and consequently increasing metal prices. We’ve seen that in 2002, we saw it in 2008 and I believe we’re seeing that same trend now. So, how we’re positioning ourselves is we’re not an exploration group who is looking for a copper deposit. We actually are producing copper. So, any increase in copper price we see, that benefits directly in our bottom line. There’s no waiting period, there is no build out, there is no need for extra investment in the assets—we are fully invested—I think we’re a pretty pure play on the copper price.
WSA: Right, so what are some of the other factors you feel make you unique from the other players in the sector?
Robert Henderson: I think there are not many junior copper producers around, you’re either a very big guy making a lot of copper or you’re well diversified. So, we’re very pure in what we do. I think the fact that we do it from tailings is certainly interesting, we believe there is another mine in the world that can benefit from our business model. So, we are looking for other opportunities to process tailings in other jurisdictions, so I think from that point of view that we are pretty unique amongst the copper producers in the world.
WSA: And what are the key goals and milestones you’re hoping to accomplish over the course of the next six to twelve months?
Robert Henderson: In the last two years we’ve seen significant investment into our assets. We believe that we have a level of build that’s appropriate. What we’re doing is just consolidating our operations making sure we can carry on producing copper at a run rate at 65 million pounds a year, obviously focusing on keeping cash cost as low as we can to stay competitive; but I think in the next 12 months what we want to see is a consolidation and a continuation in keeping the production as high as we can and the cost as low as we can, and not get into anymore debt . So, it’s basically a consolidation phase in the next 12 months.
WSA: Sure. and so as far as investors and the financial community what are the main drivers there that you wish perhaps they better understood about you guys?
Robert Henderson: Amerigo previously was a very small producer, we were in the order of about 30 to 40 million pounds a year. We’re now much more material at 65 million pounds a year, so we’ve grown a lot over the last two years. We haven’t spent a lot of time on addressing the financial community. We have been happy to do our expansion through debt or internal cash flow and we’re not really on the radar screen of big equity players.
So, I think we’re a relatively unknown story. We’ve been happy plodding along and making the appropriate investments; but I believe now is the time to open people’s eyes to the fact that we are a very pure player in copper. We’re in the water, we’re swimming and we’re ready for the tide to come in. My message to the financial community is have a look at us, have a look at our past record as a dividend player and our ability to survive the low times and make money when times are higher. So, if you’re a believer in the copper cycle I think investors should have a personal look at our company.
WSA: And perhaps you could talk a little bit about your background experience Rob, as well as key management?
Robert Henderson: Of course. I’m an engineer, I have been in the mining industry all my life. I started off with Rand Mines in Johannesburg, South African processing tailings as it were from big gold mines south of Johannesburg. We processed the tailings and made gold from the old stuff left behind. I have been in Canada since 1994. I spent 10 years with Kinross Gold Corporation as their Senior Vice President, Technical Services and I came to Amerigo four years ago and now I’m the current CEO.
The previous CEO, Klaus Zeitler started the company back in 2002, his timing was perfect for the purchase of MVC, it was back then when the copper prices were low. Klaus spotted the opportunity in Chile, floated the Amerigo Company, purchased MVC and started paying dividends in 2005. So Klaus has a spectacular record of starting the company up and he still remains very active as the Chairman of the company.
WSA: Certainly, so once again joining us today is Rob Henderson, CEO and President for Amerigo Resources which trades on the Toronto Stock Exchange, ARG and on the OTCQX, ARRES. Currently trading at 12 cents a share US, the market cap is about $20 million US. Before we conclude here Rob to recap some of your key points. Why do you believe investors should consider the company as a good investment opportunity today?
Robert Henderson: We’ve been in business for a long time, Amerigo started up in 2002, so we’ve seen several cycles of the copper price both high and low. In the low times we survived and in the high times we paid dividends. We are producing, we are making positive cash flow today. We are surviving at these low copper prices and we believe that when the cycle turns, as history has shown us that it will, we are very geared to the copper price and we will certainly see an increase in our share price and a return to paying our dividend.
Juan Costello: Well, we certainly look forward to continue to track the company’s growth and report on your upcoming progress and we would like to thank you for taking the time to join us today Rob and update our investor audience on ARG. It’s great having you on.
Robert Henderson: Thank you very much Juan.