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Good afternoon. My name is Colin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Amerigo Resources Q2 2021 Conference Call. [Operator Instructions]Thank you. Mr. Jonathan Patterson of Harbor Access Investor Relations. You may begin your conference.
Thank you, Colin. Good afternoon, and welcome, everyone to Amerigo Resources Q2 2021 Conference Call. We are delighted to have you join us today. This call will cover Amerigo's financial and operating results for the quarter ended June 30, 2021, along with a discussion of some of our recent highlights and goals for 2021 and beyond. Please note that all dollar figures quoted in this call are US dollars, except where otherwise indicated. Following our prepared remarks, we will open the conference call to a question-and-answer session.Our call today will be led by Amerigo's Chief Executive Officer, Aurora Davidson, along with the company's Chief Financial Officer, Carmen Amezquita. Before we begin our formal remarks, I would like to remind everyone that some of the statements on this conference call may be forward-looking statements. Forward-looking statements may include, but are not necessarily limited to financial projections or other statements of the company's plans, objectives, expectations or intentions.These matters involve certain risks and uncertainties. The company's actual results may differ significantly from those projected or suggested and any forward-looking statements due to a variety of factors, which are discussed in detail in our SEDAR filings.I will now hand the call over to Aurora Davidson.Please go ahead, Aurora.
Thank you Jonathan. Welcome to our quarterly call to discuss Amerigo's second quarter 2021 financial results. We are very pleased to report another strong operational and financial quarter. We continue to be on track and maintain our 2021 annual production guidance of 61 million pounds of copper and 1.5 million pounds of moly. Carmen will provide a thorough review of Q2 financial results during her presentation, but I would like to mention 4 very strong figures.We posted net income of $11.6 million, EBITDA of $23.4 million and earnings per share of $0.06, CAD 0.08. I am very pleased that our operation at MVC is meeting production goals, achieving full operational continuity and controlling costs and these are our 3 fundamental operating pillars and reflect the commitment of our 2 hand-written 89 managers and employees in Chile. I feel extremely proud to work with this group of men and women. The MVC team received this week the San Lorenzo Annual award from Chile's National Mining Association in recognition of MVC's contribution to mining sustainability and leadership in tailings processing.Because it is such an important part of Amerigo's story, let me start my comments with a discussion of our debt refinancing, which we had intended to complete in Q3, but managed to squeeze into Q2. MVC's original debt of $100 million is now a well-structured and manageable $35 million term loan, repayable over 5 years. The loan can be fully prepaid at any time. We now have a robust balance sheet, and we're comfortable holding this level of debt, which will be reduced by $3.5 million every 6 months under the regular amortization schedule.One way of seeing the impact of the debt service, principal and interest of this new loan is at $0.14 per pound of copper produced annually, which is a very comfortable zone to be in. We also now have in place a $15 million working line of credit, which we don't intend to use, but which is great to have in case of potential market cyclicality. It is also very important for us to have a solid working relationship with domestic Chilean banks. These are the type of relations that we want to have, should we decide to expand the Amerigo business in Chile. This refinance is an integral piece of Amerigo's return of capital strategy.The former loan constrain our ability to utilize cash at our full discretion, but that is no longer the case. Under the new facility, we have sweeped cash in excess of $15 million. That cash is available for potential distribution. Going forward, MVC will also be able to do one annual distribution of 50% of free cash flow generated in the prior year. This mechanism was an absolute plus for us in order to put in place a payout policy. I mentioned in the prior call that refinancing the debt would enable the Board of Directors to reinstate Amerigo's dividend, put in place a share buyback program or undertake a combination of both in Q3.Amerigo's Board is actively working on determining a sustainable dividend policy, and we expect to be able to issue an announcement within this quarter. Our intention is not to sit on a pile of cash indefinitely. A payout policy is of significant strategic importance to the Amerigo's Board of Directors. Now, on to operational matters. In Q2, Amerigo produced 50 million pounds of copper and 330,000 pounds of moly.As I mentioned before, our annual production guidance of 61 million pounds of copper and 1.5 million pounds of moly is maintained. Cash cost in Q2 was $1.81 per pound, lower than our guidance of $1.90 per pound for the quarter due to stronger moly product credits due to an increase in moly prices. As a result of this, we revised our cash cost guidance down to $1.76 per pound in Q3, $1.84 per pound in Q4 and $1.82 per pound on an annual basis. In Q2, 49% of copper production came from fresh tailings and 51% from historical tailings.MVC's planned availability in the quarter was 98.3%. In Q2, the average head grade in the fresh tailings was higher than in recent quarters at 0.144%. And MVC work in areas of the Cauquenes deposit with lower head grade, averaging 0.23%. I received several calls asking is a downward trend in Cauquenes grade in recent quarters is worrisome? The answer is no. Cauquenes does not have homogenous grade throughout the deposit, and we know this. In the second half of 2021, we are working in areas with higher grade.In July, for example, the average grade in the Cauquenes was 0.248%. In fact, the higher grade areas we're working on are the reason why we continue to expect to meet our annual production guidance despite the fact that we will have fewer operating days in the second half of the year because of the annual plant maintenance shutdown. The variance in grade can also be seen in our moly production, which underperformed in Q2, reaching only 84% of guidance.This was so because of lower moly grade in the sector of Cauquenes we were working on during the quarter. In the second half of the year, our mine plan has us working in better moly grade areas. Again, to give you a concrete example. In July, moly production was 19% higher than average molly production in Q2. In our latest news release, we issued a clarification that we are not relying on the grades or recoveries and therefore, on the inferred mineral resource estimates contained in the company's last published technical report.This is not a new development. As our 2021 production guidance did not rely on the report. It also does not mean that we are unsure about how to progress at MVC. On the contrary, we have more knowledge of Cauquenes grades and recoveries now than before. We have done substantial drilling and lab work and have built robust models that have proven to be accurate. This can be seen in the strong correlation between 2021's forecast and actual results. MVC is a dynamic operation, and we are responding to those dynamics.Another example, the overall impact of fresh tailings in 2020 and 2021 has also changed substantially and favorably so, from what was projected in that last technical report. With higher throughput and grades from fresh tailings, we are currently producing 50% of our copper from fresh tailings and 50% from the historical tailings at Cauquenes. That was not what was originally expected. This new information is taking us to prepare a new technical report in the near future.Now I would like to give you some additional color on our operations in Chile. First, Chile's COVID situation has improved significantly. As of today, we have no COVID active cases at MVC and 96% of the employees have received their second vaccine. Our production is not being impacted by COVID. I also want to highlight our annual maintenance shutdown for you. Based on the last information we have from El Teniente, both MVC and El Teniente will have their annual maintenance shutdowns for 8 days in September and 1 day in October.This annual maintenance program goes on every year, usually in Q1, but was delayed in 2021 to a time when COVID was expected to be less of a risk, which happened to be the case. It is a time when the plants and that conduct -- the conduction channel between El Teniente and MVC are fully inspected and when major preventive maintenance requiring equipment shutdowns takes place. Unplanned corrective maintenance may also be identified during shutdowns. This year, we will be completing improvements to MVC's water thickeners during the shutdown. MVC also continues to work on plant optimization and as any changes result in sustainable production improvements, we will incorporate them into our future production plans.Here is an update on our water situation. The good news is that MVC continues to have healthy water reserves, currently at 7.1 million cubic meters compared to 7.2 million cubic meters at the last conference call. We continue to see low depletion of water reserves due to the input of freshwater from MVC's water rights. Water reserves are enough to maintain projected Cauquenes tonnage for at least the next 12 months in the absence of further rain. Unfortunately, rain so far has been scarce this year. The height of the rain season is between April and July, also rain can still be expected in August and September.Cumulative rainfall till the end of July have been 29% of annual rainfall in 2020, which was a normalized rainfall year. However, there is rain in the forecast for Monday to Friday of next week, which should reduce this gap. In 2020, most of the rainfall occurred over a short number of days, so we are encouraged to see a consistent period of rain in the near forecast. As you would expect, we continue to monitor our water situation closely. We also will have more data to work once we complete the optimization project of MVC's water recovery thickeners.We expect to see a positive impact from an increase in the water recirculation this October once the project is completed. As we announced in a news release, MVC officially received its first annual renewable energy certificate given starting in 2020, 100% of MVC's power supply is coming from renewable sources. We are very proud of using only renewable energy at the MVC operations. This is something still on the bucket list of most mining companies. It's not surprising that I have received follow-up questions on the topic of potential Chilean tax increases, so let me briefly address the situation. I spoke at the last call of a mining royalty tax bill that could significantly increase the tax load of mining companies in Chile. The bill was approved in the Chilean Congress in May and then moved down to the Chilean senate.Rather than rubber stamping the bill, senators are doing a diligent job gathering real data and interviewing crucial stakeholders, including CEOs of the major mining companies operating in Chile. We're following the story with interest. However, as I mentioned in our prior call, MVC is not subject to the Chilean mining royalty tax because it is not considered a mining company within the scope of this tax, and we expect to continue to be unaffected in the future. In other areas of Chilean politics, presidential primaries were held in July and radical left and radical right candidates were eliminated.We also see this as a positive development as Chilean showed a desire for moderation. The subjects of potential tax changes and electoral results are still open, but developments in the last 3 months confirm our belief that Chile is a stable and mature country where we feel comfortable conducting business in. We continue to have a positive opinion on copper prices. The average LME price from January to July was $4.15 per pound, which is a very sweet spot for copper producers.The long-term outlook for bullish copper prices remains intact on the back of the implementation of global renewable energy standards and electric vehicle sales. As an example, additional announcements over the quarter from governments such as the U.S. and multiple automakers indicate an increasing commitment to electric vehicles, which are significantly more copper intensive than internal combustion engines. Finally, I would like to mention that we are aware that there has been selling pressure on our equity.During this year, approximately 30 million to 33 million shares of Amerigo held in 2 significant blocks have been sold into the market. These are not sales from directors or management of Amerigo, but from long-term investors who came into the stock at a price of CAD 0.28 per share in 2009, shortly after the global financial crisis. These investors have fulfilled their personal investment cycle with the company, and I have no reason to believe their actions reflect the lack of faith in Amerigo. Whenever we are aware of disinterest, this type of interest in selling, we will always look to accommodate crossing blocks to minimize the impact on Amerigo's share price.Thank you for listening. I look forward to our conversation at the end of Q3. I will now pass it on to Carmen for her comments on financial results.
Thank you Aurora. We are pleased to present the Q2 2021 annual financial report from Amerigo Resources and its MVC operation in Chile. In Q2, the company continued its strong performance of 2021 and ended the quarter with a more robust balance sheet. Amerigo posted net income of $11.6 million, earnings per share of $0.06 or CAD 0.08, EBITDA of $23.4 million and quarterly operating cash flow before changes in working capital of $17.1 million. At June 30, the company's cash balance was $48.9 million, an increase of $10.3 million during the second quarter and an increase of $34.8 million during the first 6 months of the year.Total borrowings decreased from $53.8 million to $37.5 million. This change, including the debt refinancing completed during the quarter will be discussed later in the presentation. Amerigo's financial performance is highly sensitive to copper prices. Amerigo's average copper price, for the second quarter of 2021 was $4.44 per pound, a significant increase from an average copper price of $2.61 per pound in the second quarter of 2020 and from the average price of $4.08 in Q1 of this year. Today, LME copper price is $4.27 per pound. Another factor affecting earnings are the changes in copper price from one quarter to the next.This is so because of our M+3 price convention for copper sales, where the final settlement price is the average London Metal Exchange price for the third month following production of copper concentrates. At June 30, 2021, MVC's provisional copper price was $4.37 per pound and final prices for April, May and June sales will be the average LME price for July, August and September, respectively. July was $4.36 per pound. A 10% increase or decrease from the $4.37 per pound provisional price used on June 30, 2021, would result in a $6.6 million change in revenue in the third quarter of 2021 in respect of Q2 production.Revenue was $50.5 million in Q2, up from a revenue of $26 million in the prior year period. Revenue is made up of net copper revenue of $45.7 million and molybdenum revenue of $4.8 million. Within the corporate revenue of $45.7 million, the gross corporate sales were $66.6 million and positive settlement adjustment of $4.8 million. And then deducted from revenue, we had $20.2 million in royalties to DET, smelting and refinery costs of $4.9 million and transportation costs of $524,000.Total tolling and production costs, including depreciation in Q2 were $31.4 million. This compares to tolling and production costs of $26.4 million from the comparative Q2 2020 period. Cash cost per pound increased $0.09 from $1.72 per pound to $1.81 per pound. In Q2 2021, there were general and administrative costs of $922,000 compared to $434,000 in Q2 2020. The $488,000 increase in general and administrative expenses relates to an increase in salaries, management and professional fees, share-based payments and office and general expenses.The derivative to related parties during the quarter had a recovery of $8,000 compared to an expense of $2.1 million in Q2 2020. This decrease in expense in the current year was the result of an increase in discount rates used to compute the fair value of the derivative, which decreased the derivative liability, thereby resulting in a recovery from the fair value adjustment in Q2, 2021 of $253,000 compared to a loss of $1.8 million in the prior year quarter. Other losses were $146,000 compared to $382,000 in the prior year period. The decrease relates mostly to the change in foreign exchange recognized with a loss of $129,000 recognized in the current quarter compared to $396,000 in the prior year quarter.Finance expenses were $2.1 million this quarter compared to $900,000 in the prior year period. This difference is mostly with the result of $1 million charge from the fair value adjustment loss on interest rate swaps recorded in Q2, 2021 compared to $112,000 in fair value adjustments in Q2, 2020. $632,000 of the $1 million fair market value adjustment loss on the interest rate swap was recognized -- it was recorded to recognize the new interest rate swap liability related to the new finance agreement that was entered into at the end of the quarter.In Q2 2021, the company recognized an income tax expense of $4.3 million and a year-to-date tax expense of $8.6 million. Tax expense includes both current tax but is the actual taxes payable by the company and deferred tax, which is a non-cash figure to reconcile timing differences between financial depreciation and tax depreciation. The company's current tax liabilities are shown in the balance sheet, and on June 30 were $2.9 million. The balance sheet also shows a deferred income tax liability of $31.2 million, which is the balance that tracks timing differences and does not represent taxes outstanding or due by the company.In Q2 2021, the company posted a net income of $11.6 million and year-to-date, a net income of $22.5 million. In respect of cash flow in the quarter, cash generated from operations in Q2, 2021 was $17.1 million, $21.9 million after working capital changes. Cash flow used in investing activities in Q2 was $839,000 that relates completely to the purchase of plant and equipment. Cash used in financing activities was $10.6 million. This is made up of the repayment on borrowings of $44.1 million as well as the lease repayments of $341,000, offset by the proceeds from borrowings net of transaction costs of $33.8 million.Overall, there was a net increase in cash and cash equivalents of $10.5 million in Q2 and an ending cash balance of $48.9 million. One item to note during the quarter was MVC's debt refinancing. On June 29, we completed a refinance of our debt facilities with the objective of transitioning from a project finance loan to a commercial term loan that also brought to the table our working capital line of credit.MVC repaid the remaining outstanding principal amount of $42.2 million on its existing bank loan, along with accrued interest of $300,000 and an interest rate swap break fee of $2.3 million. On June 30, 2021 MVC entered into a new finance agreement of $35 million and a working capital line of credit of up to $15 million. The new term loan has a 5-year term to June 30, 2026, with 10 semiannual installments of $3.5 million, each commencing on December 31, 2021, together with accrued interest.Interest on the term loan is fixed through an interest rate swap. At the end of Q2, the interest rate swap was $632,000. Upon entering into the finance agreement, MVC's cash in excess of $15 million became available for future distribution to Amerigo shareholders. Going forward, MVC will be able to do one annual distribution to Amerigo's shareholders provided that MVC has a debt surface coverage ratio of at least 1.4 in respect of the preceding year's annual financial statements, maintains cash of at least $15 million after the distribution. And the amount to be distributed does not exceed 60% of free cash flow generated in the preceding year, which is defined as earnings before interest, taxes, depreciation and administration, less tax payments, plus or minus changes in working capital less debt service.Production results in the second quarter of 2021 continued in line with expectations and guidance, with copper production at 96% of guidance in Q2 and 98% of guidance year-to-date. We will report Q3 2021 financial results mid-November, and I want to thank you for your continued interest in the company during this year.We will now take questions from call participants.
Thank you. Ladies and gentlemen, we'll now begin the question-and-answer session. [Operator Instructions] Okay. Your first question comes from Terry Fisher from CIBC.
Thanks a lot. Yes. Congratulations again you guys on another terrific quarter, and the cash is piling up, which is good to see. Also, this time, I was able to get all of the MD&A and everything on the website right immediately after you announced it, which really helps so I've been all through it. I do have a few questions so I'll hit it off most of them. But just going back to what Carmen was saying before about the receivable adjustments for the last 4 quarters, you've had significant positive adjustments because copper price has been going up. And now, the copper price is slightly below where it was in the second quarter and it looks to me like there won't be any positive adjustment when we see the third quarter results and possibly even a negative number.I just want you to confirm that and tell me whether or not that's offset to some degree by an adjustment in royalties to DET?
Terry. Thank you for your question. That's a good question. Yes, we disclosed the price that we had booked at the -- in terms of the ending price at Q2. We already have our financial results for July ready. We did have a negative settlement adjustment but irrespective of those adjustments, we still posted a very strong profit during July. We're not disclosing that in detail, we never disclosed monthly information, but it was still an operation that was robust in July, irrespective of that adjustment in copper prices.
Okay. My second question I don't want to get into asking about what you're going to do with the cash because I don't think you're going to be able to answer that and you've given us some hints, although it's intriguing in your comments about investing in other activities in Chile, and that would be great if you could give us any more color on that. But what I really want to ask is 2 things. When you say that there's the ability to distribute cash to shareholders, which now is right now $15 million under the new bank arrangements. I would assume that also includes share repurchases and it would seem to me that one of the -- if I was a director, one of the obvious uses of cash is to have an NCIB that would enable you to buy back enough shares to offset any vested auctions that have been issued. And I also would ask about where the cash is sitting and in what currency and what kind of interest rate earnings? Because right now, you've got a negative carry on $35 million of bank debt at 5.48%, plus -- part of that's in a different rate. But I doubt you're getting very much interest income on the $49 million in cash that's sitting there?
Terry, good questions. I cannot provide any more information than what we have said already in terms of -- the Board is working on a comprehensive payout policy. Just a couple of clarifications. If you understood that $15 million is available for distribution, you didn't understand correctly, $15 million is the amount of cash that we kept for operating cash at MVC. The rest of the cash that was held at MVC when we entered into the loan in excess of $15 million is the amount that is available for distribution. So, there is more available for distribution than $50 million. That's one question. Most of the funds are still held in MVC. They're holding a free distribution account, they're held in U.S. dollars, and they're earning a very marginal amount of interest. It's important for us to hold, I mean, U.S. dollars and not to hold them in Chilean pesos and interest rates are as you say, marginal. We're not in the business of making money with that money, and we're not interested in sitting in that pile of money indefinitely.When I mentioned potential investments in Chile, I mentioned that in relation to the importance of having robust working relations with Chilean banks if projects of interest, similar to what we have undertaken at MVC materialize. It's not an immediate goal of the Board to look into that. I think the Board is basically focused on, as I mentioned, dividends, share buybacks or a combination of both.
Okay. That's good. Thank you. Finally -- well, not finally, I have 2 couple more questions. First of all, the technical report language is very specific, and you've addressed it, and I don't want to go back over that. I just would ask you this question and I know you're still working on ways to improve the recoveries and you mentioned water thickeners that will be coming. But in the fourth quarter of last year, we were over 16 million pounds of production, was that solely due to grade? And the last 2 quarters have seen the number come down. I'm just asking really, what does it take to get back to the 16 million pounds?
It's essentially great. If you look at our production data on a quarterly basis, you can see that we were working on very strong areas of grade of Cauquenes during those quarters. We are working on stronger areas of Cauquenes in the second half of the year -- stronger grades are conducive to stronger recoveries. They go hand-in-hand. It's a very closely correlated function so that's essentially what it takes. And as I mentioned, we are not working in homogeneous deposit, we go from area to area, we know that going in and that is all part of the annual mining plan, and that's all factored into our guidance.
Thanks. 2 final questions, and I won't be long. First, I appreciate your comments about the tax situation but I have a different kind of question about that. There are reopeners within the DET contract under specific kind of events. I don't know what those are. Your language says you don't anticipate the contract being reopened and the terms changed. But I'm wondering if a change in taxation on Codelco would be the type of event that might reopen the contract?
No, it is not the type of event that would reopen the contract and when we're talking about whether any tax changes would affect Codelco? The answer is no. Codelco essentially returns all of its earnings to the Chilean state, irrespective of how it returns it via first income tax, mining royalty tax or a special tax that is exclusive to Codelco. It is irrespective to them where in the order of taxation, you put it, it's all part of the same bucket.
Super. Okay. Final question. Let's assume that we don't get rain and we don't get it the next year either so we're back into drought conditions similar to what we had a couple of years ago. With all the changes that you've made and El Teniente has made, would we expect to see the company far better under the future drought than it did the last time?
Yes, I think so for a number of reasons. First of all, we have reserved that we didn't have. We went into a drought with essentially 300,000 cubic meters of water reserves. We have 7.1 million cubic million cubic water meters right now. So, our reserves are higher. We have new infrastructure that's coming online in October to recover more water and those are 2 essential changes. We have revamped our water rights as well, so we're in a better condition than what we would be. Let's see what happens in respect of rain next week. I know this sounds too punctual, what will 5 days of rain do? Last year, we essentially got all of our water reserves in Cauquenes to 10 million meters of water with rain that occurred during 2 weeks. So it's a situation in flux. Right now, it's very dry, but we have sufficient water reserves to remain unaffected in our operations for at least 12 months should no further rain be occurring.
Okay. That's it for me. Great disclosure and keep going and we can see the results finally of all the years of hard effort and now let's just see it in the share price. It is up $0.01 or $0.02 today.
Thank you, Terry.
Your next question comes from John Polcari from Mutual of America Capital Management. John, please go ahead.
Thank you. Several very short questions. First, is there any tax loss carry forward that remains?
No.
No. Okay. Secondly, the cash cost of $1.82, approximately I assume the work is on top of that, right?
Correct.
And then the -- I was wondering if the strikes or the potential strikes or the possibility of strikes at other facilities [indiscernible] unrelated to your operation would cause an impact because labor would not cross -- would move out drop tools in sympathy not cross the line or although it wouldn't directly impact your operations would the union walk out in sympathy necessarily to another union?
No, no. That usually doesn't happen. Right now, there are 2 strikes in Chile. Codelco's Andina is on strike and Lumina copper caserones is on strike. BHP's Escondida has successfully negotiated with their workers during the mediation period, so the strike has been called off. El Teniente has contracts that are expiring in October. They are conducting advanced discussions with their workers, but the existing strike activity is of no impact to MVC.
Even if Codelco would have a significant strike it wouldn't impact your tailings operation labor force?
If Codelco's Andina has a strike right now it doesn't have any effect on us. It's a separate operation. Any strike on El Teniente could have an impact with MVC, we don't expect that to occur.
Okay. And lastly, any potential dividends -- you're doing an annual calculation, but does that mean that the dividend will only be paid annually? Could it possibly be paid semiannually or quarterly or yet to be determined?
That is -- yes, that is part of the discussion that is ongoing. It's not just determining the dividend, the share buyback or the combination of both. It's when, for how much, what form of dividend, et cetera. So all of those elements are being discussed and analyzed.
So, historically, you had paid semi-annually.
Yes. We used to pay semi-annually, that could change or not.
Okay. So you're not locked into -- I'm not hearing that you're locked into simply a calculation based on covenants where you could only pay annually. You're open to discuss.
Absolutely.
Great. Thank you and appreciate the answers.
Thank you, John.
Your next question comes from [ Stephen Ridgeray ], private investor.
Aurora, very comprehensive rundown, if you like of the whole company, I was very impressed. Question for you. El Teniente is expanding quite considerably over the next few years, that is presumably going to increase the flow of fresh tailings to you? And what will that mean to your processing?
[ Stephen ], we are already seeing that and that's one of the things that I mentioned in the presentation, fresh tailings tonnage has gone up starting last year. We're seeing that consistently now. We have received the 5-year production plan from El Teniente. Of course, we cannot disclose that -- it's information that's presented on an operational basis to us. So the impact of production ramp-ups in El Teniente results in higher throughput coming to MVC from fresh and that's why fresh tailings are representing right now 49% of our production. That is good news because to the extent that we process more fresh tailings, we are processing less of Cauquenes, and we are depleting Cauquenes in not such an accelerated way. So that's a positive for MVC.
Okay. That's good. I guess you're not free to comment on the individuals that were selling Amerigo shares?
Ross Beaty -- Rick Rule.
Your next question comes from Nick Toor from BlackRoot Capital.
Aurora, a couple of clarifications. Under your existing -- or your of your new bank facility, is the covenant for return of capital, $35 million pull a 60% of free cash flow or is it the higher of $35 million or the lower of $35 million and 50% of free cash flow?
We can return 60% of free cash flow every year provided, we maintain $15 million for operating cash.
Right. So you can return some of your free cash flow, plus the $35 million, that is above $1 million minimum?
I don't know where you're getting $35 million from Nick.
Okay. So just -- you have $50 million of cash, right, roughly $50 million of cash?
Yes.
And you have to maintain $15 million out of that $60 million, so the difference is $35 million.
Yes. There are 2 parts to that. There was an initial cash sweep at inception that's done, and that's all that we're going to be sweeping for this year. As of next year, we can do a cash sweep based on annual -- the metric for 2020 performance. 60% of free cash flow can be returned to shareholders provided we always keep at MVC $15 million for operations.
Right. So under that framework, you can return 60% of your free cash flow and any cash above $15 million? Or is it either or?
Either/or.
Either/or. So it's not likely $35 million plus 60%. It's typically the lower of $35 million or 60% of cash flow?
Correct.
Okay. Got it. And in terms of the definition of free cash flow, I think that you guys gave a definition but just if you can illustrate, if you looked at your second quarter results, what was the free cash flow number that would have been used in the definition of free cash flow?
Essentially, free cash flow is defined as EBITDA less any tax payments, less CapEx, less changes in working capital.
Right. No, no, I got that. I was just wondering if you can tell me the number, that would be great. The only -- I think I assume that in the EBITDA, you include the reconciliation for copper prices going up or down in the subsequent quarter and I wasn't sure if the definition of EBITDA included that reconciliation or is it just booked at the quarter?
It is because that's reflected in the financial statements. That's a mark-to-market revenue and so therefore, because it's already contained within revenue, it would be contained within the EBITDA.
Okay. And then final clarification on this point. Do you -- in the disclosure, it says that you have to look at the previous fiscal year, is it the previous fiscal year or is it over the last 12 months that you make the calculation to be for 60% off of?
In the disclosure, we're referring to which 12 -- I'm not following your example here.
So in your disclosure, you basically say that we can use 60% of the free cash flow.
Okay. It's on the prior fiscal year. So, this will start as of 2022 in respect of 2021 MVC financial statements.
Okay. So it's not the last 12 months. It's not rolling a.
No, it's not a rolling thing. No, no, no. It's based on annual audited financial statements as MVC.
Got it. Okay. And then is there -- any color you can give us on the opportunities that you had mentioned last time, and you mentioned in this call on potential additional tailings that might be able to be flowed through MVC?
No, nothing to update on that. No specifics to be provided at this call.
Okay. And last question. Do you know are Ross Beaty and Rick Rule, are they out of the acquisitions? Or do you know to which extent they're out of it?
Rick Rule is fully sold, and we have a guesstimate in respect of Ross.
Can you share that or is that?
No, I don't think I can share that. Below 10%. It's below 10%, so it's not public information.
We have a follow-up question from Terry Fisher from CIBC.
Yes, just a point of clarification Aurora about the increase in fresh tailings that are coming from El Teniente. It's my understanding that, that also is beneficial for you from a water point of view as the slurry comes down, more water comes into your processing system and it takes less -- takes some strain off of your own water resources?
Yes, fresh tailings are single most significant source of water.
Super. And is this likely -- are we just seeing the beginning of a rise or is it just up at a higher run rate and is going to stay there? I know you can't get into the numbers.
Yes, you can see that from our production stats starting in Q3 of last year.
And we have a follow-up question from John Polcari from Mutual of America Capital Management.
Quick question. In light of your last comment about the distributions being based on prior year's positive financials, I would assume then that would mean there wouldn't be any significant repurchase or distributions until 2022 based on order numbers for 2021, would that be accurate?
Except that we were able to do an initial cash sweep of excess cash at MVC when we entered into the facility. So, we have already done a distribution for this year or we already have reserved cash for distribution secured, John.
There are no further questions at this time. I'll turn it back to Jonathan for closing remarks. Oh, actually, I'm sorry. We have one more from Nick Toor from BlackRoot Capital that just came in.
Aurora, just a clarification to the last question you said you had already reserved through the cash sweep what you can potentially use for distributions. Could you give us what that number is?
In excess of $35 million.
Okay. So it is the $35 million. And then next year, you can have 60% of audited free cash flow for the previous year?
Correct.
Okay. There are no further questions at this time. I'll turn it back to Jonathan for closing remarks.
Thank you everyone, for dialing into our presentation today, and we look forward to presenting our Q3 results later this year. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.