COBRE DEL MAYO Corporate Presentation October 2013

Transcription

1 COBRE DEL MAYO Corporate Presentation October

2 Agenda I. Introduction 3 II. Company Overview 6 III. Operational Environment IV. Industry and Commodity Overview V. Conclusion COBRE DEL MAYO 2

3 I. Introduction

4 Introduction n Cobre del Mayo, S.A. de C.V. ( Cobre del Mayo, CDM or the Company ) is a Mexican mining company that operates the Piedras Verdes open-pit copper mine ( Piedras Verdes or the PV Mine ) Third largest copper mine in Mexico as measured by production with LTM sales of 30,718 t of Cu Began commercial production in 2006, purchased by Invecture in mid 2009 Produces LME Grade A copper cathode and sells refractory and vein type ore for processing into concentrate n Since January 2012, Piedras Verdes has been operating on a sustained basis at close to or just above its design capacity of 87 metric tons per day ( tpd ) of copper cathode with strong EBITDA and cash flow generation Mineral resources of 1.7 million metric tons with estimated remaining mine life of 17+ years LTM EBITDA as of June 30, 2013 of US$102.6 million Strip Ratio has declined from 3.2x in FY 2012 to 1.8x during 3Q 13 Life of mine strip ratio is scheduled at 0.9x 4 COBRE DEL MAYO 4

5 COBRE DEL MAYO 5 10 Company Highlights Strong cash flow generation with modest leverage, low capital expenditure commitments and ample liquidity Proven methods of operation in which selective mining and grade control maximize recovery rates and minimize cash costs Declining cash costs driven by progressively lower strip ratios and continuous incremental operational improvements C1 cash costs in the 65 th percentile of global industry Long life mine of over 17 years in favorable location with fully developed infrastructure in attractive mining jurisdiction Stable operation enabled by experienced management and operational team with a proven industry track record 5

6 II. Company Overview

7 Conversion of Piedras Verdes Mine to Stable Operation n Changed from contract mining to owner operation n Purchased the former contractor s equipment fleet and installed a crushing, screening, conveying and stacking system n Conversion from Truck Dump Run of Mine to a primarily crush-conveyor stacked heap leach n Undertook the successful recharacterization and modeling of alternative styles of mineralization n Developed new mining and processing plans and implemented an effective ore quality and grade control system n Completed an agreement with Kupari Metals, S.A. ( Kupari Metals or KM ) to supply crushed ore Monthly Production Evolution (kt) Acquisition by Invecture 0.5 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun COBRE DEL MAYO 7 16

8 Declining Cash Cost Driven By Low Risk Operations and Processes n Operations are based on modern and proven technologies in common use n Ore is processed selectively according to grade, rock type and other characteristics by the most efficient of three processes: ROM heap leach Crushed ore heap leach Sale of ore for concentration to Kupari Metals since April 2013 n Result is an increase in both production per unit mined and significant reduction in cash costs n During 1H 13, cash costs of US$1.90/lb Ore sales to Kupari Metals, which started in April 2013, have enabled a reduction in cash costs to the $1.62/lb range in 3Q 13 Historical Cash Cost (US$/lb) LTM 1H'13 9M'13 8 COBRE DEL MAYO 8 16

9 Fully Developed Infrastructure and Favorable Location n All infrastructure is in place n Extremely competitive transportation costs for off-takers given Piedras Verdes location and nearby infrastructure Easily Accessible by: n Air: Deep Water Port Ciudad Obregón Airport (~90 minute drive km) P Private Airport Álamos-5,000 foot paved runway (22 km) n Road: Guaymas Ciudad Obregon Sonora Navojoa Huatabampo C Chihuahua Piedras Verdes Alamos P Sinaloa C Commercial Airport Railway Rail Station Major Highway 14 km access road to secondary road that reaches (i) the State Highway 162, (ii) the Álamos/Navojoa Highway or (iii) the Pan- American Highway that passes through Navojoa n Rail: ~50 km to Sonora s mainline north-south railway n Port: 250 km to deep-water port of Guaymas (from which copper concentrate is blended and exported by both trading and mining companies) n Power: Connected to CFE grid to the mine owned and maintained substation with continuous capacity of 25 MW; CDM is CFE s single largest customer in the area Cost of electricity is ~0.10/kWh, which is ~17% cheaper than Chile, largest copper producing country n Water: CDM holds 16 titled water concessions with a combined tested industrial water totaling ~8.1 Mm³/ y while the requirement for the operation of the PV Mine and flotation plant is ~5.5 Mm³/y 9 COBRE DEL MAYO 9 22

10 COBRE DEL MAYO Modern Operations and Recently Purchased Asset Base n Over US$225 million in capex has been invested since 2009 Limited maintenance capex going forward n Refurbished ore crushing, screening and stacking system n All equipment has been recently purchased and limited remaining capital expenditures are required Mine fleet has over half of its useful life remaining Mine Equipment Availability (%) % 73% 75% 85% 84% 90% 86% 93% H'13 Loading Equipment Hauling Equipment 10

11 Agreements that Eliminate Marketing Costs and Reduce Risk n Trafigura and CDM have entered into a 18-month agreement for 100% of CDM s cathode production Copper Cathode n Cu Cathode sold FOB at the mine and is paid twice per week against holding certificates n LME quality and brand that is recognized in the market n CDM committed to sell copper ore to KM and KM committed to purchase and process it Ore for Concentrate Purchase Price of Ore: The purchase of the ore is a function of the copper recovered and the current LME copper price with certain freight, handling and operating charges Volume: CDM will sell up to 10,500 tpd of ore, with a minimum copper content of 0.45% and will use commercially reasonable efforts to supply a minimum of 20,000 tpa of contained copper Term: Initial fixed term of 10 years and provides for renewals n Entered into a 12 month forward sale agreement in June 2013 Hedging Arrangement 2,400 t per month from July 2013 through June 2014 (approximately 92% of the total copper cathode production) Fixed price of $7,089/t (approximately $3.22/lb) n Cash settlement, no margin 11 COBRE DEL MAYO 11 24

12 COBRE DEL MAYO Competitive Cash Cost Profile n The cash costs are currently in the industry s third quartile n CDM will look to continue to maintain cash cost below industry average by continuing to benefit from the relationship with Kupari Metals Kupari Metals has committed to expand its flotation plant by early 2015 and increase their ore purchase from us to 10,500 tpd from 5,500 tpd, further reducing cash cost 2013 Estimate Global Copper C1 Cash Cost Curve 350 Including By-Product Credits Quartiles >$1.23/lb >$1.58/lb >$2.06/lb C1 Cash Cost c/lb CDM 3Q 13 = $1.62 CDM 1H 2013 = $ Cumulative Production Source: Wood Mackenzie 12

13 Extensive Mine Life Supported by High Quality Reserve and Resource Base n Since the acquisition of CDM by Invecture, total mineral resources have increased 110% to over 685 million Mt and CDM s mine life has extended from less than 9 years to over 17 years n Management has significantly increased mineral resource estimates based on successful exploration and drilling programs n Overall pit shape used to define the minable resources is based on a $2.50/lb copper price Mine Plan & Resource Evolution (Total Cu, Mt) Summary of Estimated Mineral Reserves and Resources 1,800 1,600 1,400 1,200 1, ,242 1,713 Mar. '08 Dec. '09 Dec. '11 Sep. '12 / Current Reserves Resources Estimated Reserves Ore (kt) Grade (%) Total Copper (t) Estimated Reserves (proven and probable) 477, ,241,708 Resources Ore (kt) Grade (%) Total Copper (t) Measured 210, ,000 Indicated 326, ,404 Total Measured and Indicated 536, ,350,404 Inferred 147, ,638 Total Resources 684, ,713, COBRE DEL MAYO 13 18

14 III. Operational Environment

15 Stable Operating Environment in Mexico n Mexico is an economic leader in Latin America and is the world s 14 th largest economy by GDP 2013E and 2014E real GDP growth of 1.2% and 3.0%, respectively High degree of political stability OECD/WTO country and member of 12 free trade agreements, including NAFTA Mexican Peso has long history of one of the ten most traded global currencies n Mexico is recognized as a mining friendly jurisdiction Largest producer of silver globally (18% of global production) 2 nd largest producer of zinc in Latin America (2012E production of 630kt) 3 rd largest producer of copper in Latin America (2012E production of 500kt) n As a result of mining-supportive governmental policies, stability, OECD tax regime and abundance of resources, Mexico has attracted extensive investment from international mining companies Over 200 mining companies operate in Mexico, of which 60 have producing assets; 53 of those 60 belong to subsidiaries of foreign companies ~40% of mine production and ~70% of investments in exploration are undertaken by foreign investors Sources: IMF, Brook Hunt, World Bank, U.S. Geological Survey. 15 COBRE DEL MAYO 15 26

16 Sonora is Among the Most Prolific Mining Areas in Mexico n Sonora represents Mexico s most important state in terms of mining production 2012 Total Mining Production in Mexico 2012E Copper Production in Mexico Others 27% Sonora 28% Zacatecas 10% San Luis Potosi 5% Others 7% Coahuila 8% Chihuahua 13% Zacatecas 24% Sonora 78% n Sonora is one of Mexico s safest states and the only U.S. border state that has not been significantly affected by recent violence associated with the war on drugs Sources: Statistical Yearbook of The Mexican Mining, 2012 (2013 Edition). 16 COBRE DEL MAYO 16 27

17 Strong Track Record of Safety, Environmental and Labor Relations n Safety, Environmental compliance and Labor relations are key areas of focus of CDM n Since current management took control of the operation, Piedras Verdes has had a solid safety track record CDM pays the lowest premium for Riesgo de Trabajo (worker risk) as classified by IMSS, demonstrating the safety standards at CDM n CDM has obtained all necessary permits for the construction and operation of the mine n Piedras Verdes complies with all applicable environmental standards that are among the world s most advanced n Labor relations: Large pool of nearby qualified labor from Navojoa and Alamos Approx. 342 of our 853 employees are represented by the Confederación de Trabajadores de Mexico ( CTM ) which is one of Mexico s largest unions characterized by constructive and open approach towards labor relations No work stoppages in the history of the Piedras Verdes Mine n Certified as a Socially Responsible company by the Mexican Center for Philanthropy (Centro Mexicano para la Filantropía) and certified as a Clean Industry by the Mexican Federal Attorney for Environmental Protection (Procuraduría Federal de Protección al Ambiente), the enforcement arm of the Mexican environmental ministry 17 COBRE DEL MAYO 17 28

18 IV. Industry and Commodity Overview

19 Copper Price Forecasts Over Time n The market has consistently underestimated the copper price when forecasting long term Copper Price (US$ / lb Cu) Actual LT LT 2012 LT 2011 LT LT 2008 LT 2009 LT LT LT 2001 LT 2002 LT 2003 LT 2004 LT 2005 LT Actual Copper Price Broker Consensus (as forecast during Q4 of year indicated) Long Term Price (as forecast during Q4 of year indicated) (1) Source: Broker Research, Bloomberg. (1) Except 2013, where forecasts are as of 24 October (1) Except 2013, where forecasts are as of 19 August 2013 COBRE DEL MAYO Jefferies LLC / August i 19

20 Incentive Price Drives the Value of Copper n The incentive price required to justify investments in the expansion of existing mines and the construction of new ones is estimated at US$3.23/lb (US$7,117/t) Incentive price considers required Cu price to achieve specified rate of return on expansion capex n Although short term copper prices are unpredictable, according to the chart below, copper must ultimately trade above US$3.23/lb for global mine copper supply to be maintained Incentive Prices for Major Projects Incentive Price for 15% Risk Adjsuted IRR (US$/t) 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 Sentinel Buenavista SX/EW Resolution Pebble Sierra Gorda Chuquicamata Los Bronces Haquira Oyu Tolgoi 25 th Percentile: = $6,317/t (US$2.87/lb) Wafi Golpu Quellaveco Cerro Verde Toromocho - 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 Cumulative Production (kt/a) Radomiro Tomic Escondida Constancia Caserones Esperanza Sur 50 th Percentile: = $7,117/t (US$3.23/lb) Encuentro Cobre Panama Aynak Andina Galeno Relincho Quebrada Blanca 75 th Percentile: = $8,242/t (US$3.74/lb) Source: Wood Mackenzie, Goldman Sachs Global Investment Research, LME. 20 COBRE DEL MAYO 20 Jefferies LLC / August 2013

21 Cu Pricing Considerations n Copper has traded in the market at a premium to the 90 th percentile of the C1 cash cost curve C1 cash cost (direct cash cost) as estimated by Wood Mackenzie C1 90 th Percentile Costs vs. Cu Price (1) YTD C1 90th Percentile Average LME Cu Price (High, Low) Source: Wood Mackenzie, LME. (1) 90 th percentile as estimated by Wood Mackenzie. LME prices for 2013 YTD through October 10, COBRE DEL MAYO 21 Jefferies LLC / August 2013

22 V. Conclusion

23 Conclusion Strong cash flow, modest leverage, low capex commitments and ample liquidity Stable operation led by experienced management team with proven industry track record Long life asset in favorable jurisdiction and fully developed infrastructure COBRE DEL MAYO C1 cash costs in the 65 th percentile of global industry Proven operating methods to maximize recovery rates and minimize cash costs Declining cash costs driven by lower strip ratios and continuous operational improvements 23 COBRE DEL MAYO 23 46