Amerigo Resources Ltd
(TSX: ARG)
(OTCQX:ARREF)
CEO: Rob Henderson
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INTERVIEW TRANSCRIPTS:
WSA: Good day from Wall Street, this is Juan Costello, Senior Analyst with the Wall Street Analyzer. Joining us today is Rob Henderson, CEO for Amerigo Resources Limited. The company trades on the Toronto Stock Exchange, ticker symbol ARG and on the OTCQX ARREF. Thanks for joining us today there Rob.
Rob Henderson: Thank you Juan.
WSA: So for some of our listeners that didn’t catch our interview from last year, can you provide us with a history and overview of Amerigo?
Rob Henderson: Certainly, 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 in place to produce copper until 2037. So we’re a very a long-term producer of copper in Chile. We’ve been producing copper for 24 years and will be producing copper for another 20 years at least. We also think we’re a pretty innovative company since we produce copper from tailings and this is a model that’s not common in the world. We have contracts with the El Teniente, the largest underground copper mine in the world, to process both fresh and the historic tailings. And last year in 2016, our copper production was a record of 57 million pounds. In 2017 we estimate that we’re going to make about 60 to 65 million pounds of copper at an annual cash cost of a $1.60 to $1.75 per pound.
The company is very geared to the copper price, and as it rises we benefit immediately as we’re producing copper every day. We are not an explorer looking for deposits or a developer trying to permit or build a new mine, we’re actually producing copper. Admittedly, not as big as some of the biggest mines in the world, but we’re making pretty good revenue from the copper price today. And over the last year we’ve seen copper stay flat for the last three quarters – for the first three quarters of 2016 and they were about $2.15 a pound, and then in the last quarter of last year it rose to $2.50 per pound and that’s huge for us because our breakeven cost is around $2 to 2.20 per pound. Anything above $2.20 we start generating cash flow, and in the last quarter of 2016 we reported earnings of $3 million. So what I’m most excited about is our plan to grow our production to 87 million pounds of copper per year and drop our cash cost to $1.40 per pound.
We’re in the process of securing $30 million in debt financing to improve the plant facility of MVC and we expect those projects to be complete in the second half of 2018. This project will both increase our revenue and decrease our unit cost, and therefore it’s going to have a pretty big effect on earnings. In the past we’ve been a dividend payer and our share price is very, very dependent on copper prices. So right now I think the consensus is that copper prices are rising after a long term low and getting back to their historical highs of around $3.50 per pound. As copper price increases, (today it’s in the order of $2.60), as it goes above $3, up to $3.50 our ability will increase to pay dividends again. So we think we’re a pretty attractive investment vehicle for someone who believes in copper.
WSA: Great, so in terms of the recent results, can you talk about the Q4 profit and some of the results from last year?
Rob Henderson: Sure. You know we’ve issued a couple of press releases. At the end of the year we had a press release telling everyone that we met our phase I completion criteria, we borrowed $64 million from BBVA, a Spanish bank. In December we successfully met all the completion criteria under which phase I of the Cauquenes project was financed. Then in February we announced that we executed a mandate agreement with BBVA to arrange financing for phase II of the Cauquenes expansion project. We’re looking for $30 million to increase our copper production up to 87 million pounds a year. On February the 22nd we announced our annual result for 2016 including the record copper production and the Q4 mid earnings of $3 million. So looking forward, hopefully next month we will be able to announce that we have secured the financing with BBVA for our phase II expansion project and we’ll be aggressively drawing down that loan to purchase the equipment to install at MVC.
WSA: So what do you feel are some of the key factors that continue to make Amerigo unique from some of the other players in the sector and able to capitalize on some of the copper trends?
Rob Henderson: Right. You know we are making copper right now. So we’re in the water and swimming, we’re not looking to spend a lot on money or anything on exploration. We’re not looking for new deposits. We are focused on increasing our production up to 87 million pounds at our existing assets. We’re only in copper, so we’re very pure in that, and we’re a very pure player on copper, and there are not many other pure players in copper out there; you know a lot of bigger companies tend to be very diversified. So Amerigo is making money, we’re making copper, and we’re a very pure play on copper.
WSA: Certainly. And what are the key goals and milestones you’re hoping to accomplish over the course of this upcoming year?
Rob Henderson: So last year we saw a record production and that’s because in the last two years we’ve seen a significant investments into our assets down in Chile. We borrowed the $64 million dollars from the Spanish bank BBVA and the Canadian Export Development Corporation. We developed a new tailings deposit called Cauquenes in 2015 on time and on budget, and now we’ve planned to complete the project by installing new plant to maximize the recovery of copper from Cauquenes. As discussed, we aim to fund the $30 million project via debt; we hope to get that sorted next month. We then intend to place orders for long-delivery equipment next quarter, which will enable us to complete the construction in the second half of 2018. So in Q4, 2018 we plan to start producing at a rate of 87 million pounds of copper per year at an estimated cash cost of a $1.40 per pound, and this project is going to increase revenue and decrease costs and have a big effect on earnings.
WSA: And once again for some of our listeners that might have not caught our interview from last year, can you talk a little bit about your background and experience, as well as the other key management.
Rob Henderson: Certainly. My name is Rob Henderson and I’m an engineer, I’ve been in the mining industry all my life. I started off in Johannesburg, South Africa with a company called Rand Mines. We were processing tailings strangely enough from historic gold mines just south of Johannesburg. I moved to Canada in 1994. I spent 10 years with Kinross Gold Corporation as a President of Technical Services. I came to Amerigo five years ago and now I’m the current CEO. The previous CEO, Klaus Zeitler, Klaus started the company back in 2002 and he is now our Executive Chairman. So back in 2002 timing was perfect for the purchase of MVC, in fact back then when copper prices were very low, Klaus was in Chile, identified the opportunity, floated Amerigo on the TSX, purchased MVC and the company started paying dividends in 2005. Klaus has a spectacular record of starting companies up and he remains very active as Chairman of the company.
WSA: Good. And as far as investors and the financial community, are there any drivers there that you wish perhaps they better understood about you guys?
Rob Henderson: Yeah, we’re a mining company and I think anyone investing in the mining sector recognizes that the sector is extremely cyclical. You get periods of overinvestment, and then you get periods when there is absolutely nothing. Mines are depleting assets, and when metal is extracted from the ground, it’s not replaced. Mining companies have to spend capital on new projects in order to maintain production rates. So when metal prices are high, too much money is spent and eventually industry produces too much metal, so the prices drop. Investors get nervous, capital dries up, and eventually there’s not enough metal to meet demand, and prices go up again. So there is a natural cycle to the industry driven by overinvestment and consequent underinvestment.
I think that what we’ve seen in the last six years as metal prices have gone down across the industry is that the exploration geologists and mine builders have had very little to do. There has been little to no investment in mining operations, and we know that takes five to ten years to put a new mine into production. So what we’re seeing is a gap in investment in the industry over the last six years, and we do believe that it’s going to lead to a drop in production and consequently increasing metal prices. We’ve seen copper price lows in 2002, it happened in 2009, and I believe we’re seeing the same trend now. So what Amerigo is trying to do is to be counter cyclical – spend money in the bad times in order to maximize our position when the price does go up. So we’re currently producing copper, we’re planning to produce even more copper, and that way we stay a very true play on the copper price.
WSA: Certainly. So once again joining us today is Rob Henderson, CEO for Amerigo Resources Limited, which trades on the Toronto Stock Exchange, ticker symbol ARG as well as on the OTCQX ARREF. Currently trading at $0.52 a share at US price and market cap is around north of $90 million US. And 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?
Rob Henderson: Certainly Juan, you know we’re producing copper. We’ve been in business for a long time. Amerigo started up in 2002 and we’ve seen several cycles of the copper price, both high and low. In the low times we’ve survived and in the high times we’ve paid dividends. We are now back to making positive cash flows. Copper price I believe has turned the corner and starting to increase, and we are very, very geared to the copper price and as copper price increases we will certainly see an increase in our share price and our ability to return to paying a dividend.
WSA: Well, we certainly look forward to continue to track the company’s growth and report on your upcoming progress and we’d like to thank you for taking the time to join us today Rob and update our investor audience on ARG. It was great having you on.
Rob Henderson: Thank you very much Juan.
