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Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Copper Mountain Mining Corporation's Third Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note that comments made today that are not of a historical factual nature may contain forward-looking statements. This information, by its nature, is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcomes. Please refer to Slide 2 of today's presentation and Copper Mountain's Third Quarter 2019 Management's discussion and analysis for more information. I'll now turn the call over to Gil Clausen, President and CEO of Copper Mountain Mining.
Good morning, everyone, and thank you for joining us. As you can see on Slide 3, and I have with me Don Strickland, Copper Mountain's Chief Operating Officer; and Rod Shier, our Chief Financial Officer. I'll begin by providing brief highlights on the quarter, and Don will provide a more detailed discussion on our operation, followed by Rod, who will speak to our financial results. I'll then wrap up with an update on our exploration and development efforts and then open the call to questions. Turning to Slide 4. This quarter was a challenging one, given the low copper price environment, coupled with the fact that it was lower-grade production for us as well. In the quarter, we produced 16.3 million pounds of copper, 6,500 ounces of gold and about 57,000 ounces of silver. We experienced lower grade relative to plan this quarter, and Don will go into this in more detail later on the call. Grade and production is planned to improve in the fourth quarter. But as a result of third quarter production, we expect to finish the year at the lower end of our 2019 production guidance range. C1 cash costs in the quarter was USD 2.12, AISC was USD 2.28 with all-in costs, all-in cost at USD 2.67 per pound of copper. We continue to focus on cost containment in the quarter, invest in our business and pay down our debt, finishing the quarter with $36 million in cash. On the exploration and development front, we announced a new resource and completed metallurgical test work on the Blackard deposit, which forms part of our Eva project in Queensland, Australia. Blackard was not included in the 2018 Eva feasibility study, but it will be incorporated into the updated feasibility study we are planning for Q1 2020. We also increased the reserve and resource at the Copper Mountain Mine. We optimized the designs and improved the mine plan, which resulted in a lower strip ratio. Strip ratio moved down to 1.58 from 1.82, and we extended the mine life by about 4.5 years to 31 years of proven and probable reserves. In the quarter, we continued to advance the mill expansion project. However, we're now matching the construction schedule to our cash flow forecast, given the lower-price environment for copper. Since 2020 is a -- really a strong cash flow year for us, we anticipate completing the project in stages during the year. First, a new cleaner circuit will be installed close to the original schedule. Then the ball mill, which is deferred by 4 months with installation over the summer construction season. And that will result in an overall commissioning in Q4 2020 without needing additional financing to complete. I will talk more about these projects later on the call. I'll now turn the call over to Don to go over our operational results for the quarter.
Thanks, Gil. As Gil stated, Q3 was a lower production quarter. Both the mine and mill continued to perform very well. However, the grade was lower than expected. I'll explain the reason for the lower grade and why it was an anomaly. Starting on Slide 6. This slide highlights the areas mined during the quarter. Our strip ratio continues above average as we focus on waste development in the areas highlighted on the bottom of this slide or the south end of the main pit. This is the major waste stripping area that we are advancing to expose higher-grade ore for our 2020 and 2021 production plan. We are progressing well on this plan. Turning to Slide 7. The red-dotted circle highlights the localized area, which experienced lower grades than indicated by the reserve model. This area was located under waste rock that was backfilled in the historical Pit #1. The backfill restricted exploration drill access, thus the reserve model has lower drilling density in this area and relied more on historical drilling. The reserve model has performed well since start operations in 2011. However, during the quarter, we did complete approximately 3,000 meters of infill drilling and reconfirmed the production outlook for the next 18 months. Turning to Slide 8. Our 2019 exploration program was very successful in materially expanding the tonnage of the north pit. This pit has slightly lower copper grade but has higher gold grades. It also has higher recovery, lower strip ratio at 0.85 and the top of the pit actually outcrops on a hill located right beside the primary crusher. All of these items make the economics of the north pit attractive so we're very excited about the material tonnage change of this pit and the impact it adds on the life of mine plan. We are prioritizing the development of this pit. The picture on the bottom of the slide provides good visual of the proximity of the north pit to the primary crusher and mill. We added lower grade stockpiles around the base of the hill as it is located right beside the primary crusher. During the quarter, we removed most of these stockpiles, and we have now started stripping the overburden off this pit, allowing us to advance production in 2020. Along with updating the design of the north pit, we've also updated the Copper Mountain maintenance designs, as Gil has referred to. This has resulted in a lower overall strip ratio and a larger reserve. Turning to Slide 9. The mill continued to operate consistently during the quarter. As shown in the graph on the bottom of this slide, the mill has performed consistently since 2016, achieving high tonnage rates and high operating time. The notable items for the quarter are the lower feed grade and the slightly lower recovery. The reserve model variance discussed earlier was the main reason for the lower grade and 800,000 tonnes of stockpile lower-grade ore was fed to the mill during the quarter, resulting in a 0.26% copper feed grade.Copper recovery was slightly lower than average and some of the lower grade stockpile ore was oxidized. Overall, the mill continues to perform consistently, allowing us to focus on improvement opportunities, including the mill expansion project. Turning to Slide 10. One of these improvements during the quarter was installation of a new SAG screen. Previous screen was operating beyond its design capacity, thus was less reliable and was expensive to maintain. The screen is a new design, which will support the higher tonnage rate of the mill expansion. It is also an innovative design that is more energy efficient. This is a positive long-term improvement supporting a reliable and low-cost operation. So far, it is performing very well. Turning to Slide 11. Subsequent to the quarter end, we commissioned oil-filled transformers on both ball mills. This is a very significant milestone as it completes the installation of oil-filled transformers on the SAG and ball mills. This is expected to resolve the reliability and maintenance issues we have experienced with dry-type transformers over the last 6 years. The SAG mill has been successfully operating on oil-field transformers for the last year. In addition to improved reliability, these new transformers allow us to increase the power draw of the ball mills as we have done with the SAG mill. This is expected to further increase the mill tonnage. This is another positive long-term improvement supporting a reliable and low-cost operation. Summarizing our Q3 operational results. It was a tough quarter, but the reason for the lower grade is understood, and it is a very localized issue. We have successfully commissioned the new SAG screen and oil-field transformers to improve long-term results. We are advancing the north pit for 2020 production. We are now mining higher copper grades in Q4, and our lease development is progressing well to deliver on the higher production plants for 2020 and 2021. I'll now turn the call over to Rod to go over our financial results.
Thank you, Don. Starting on Slide 13. Revenue for the third quarter was $63 million on the sale of nearly 17 million pounds of copper, approximately 6,400 ounces of gold and about 57,400 ounces of silver. Higher revenue in the third quarter was a result of slightly higher gold sales in conjunction with higher gold and silver prices being realized when compared to the third quarter of 2018. Cost of sales for Q3 2019 was $64 million as compared to $70 million in Q3 2018. The decrease in cost of sales is a result of reduced depreciation in Q3 2019 versus Q3 2018. And this resulted from the increased reserve base announced late in 2018, which acts as a denominator in the depreciation calculation. In addition, we allocated $8.3 million of mining costs to deferred stripping in the third quarter as compared to $3.1 million in the third quarter of 2018. And a final note, the third quarter of 2018 included a $4.2 million write-down on the low-grade stockpile to adjust it to the net realizable value as required under IFRS, and there was no such adjustment in the third quarter of 2019. This all resulted in a gross loss of $1.4 million for the third quarter of 2019 as compared to a gross loss of $9.6 million for the third quarter of last year. Continuing on to Slide 14. You see that the company recorded a net loss of $10.6 million in Q2 2019 or about $0.05 per share as compared to a net loss of $5.1 million or $0.02 per share in Q3 2018. Net income for Q3 2019 included a noncash unrealized foreign exchange loss of $4 million as compared to a noncash unrealized foreign exchange gain of $5.4 million in Q3 2018. This represents a differential of approximately $9.4 million, which was primarily related to the company's U.S. dollar-denominated debt. On an adjusted basis, the company recorded a net loss in Q3 2019 of $5.6 million or $0.03 per share. For the third quarter of 2019, EBITDA was negative $3.2 million and adjusted EBITDA was $1.8 million. Cash flow from operations was $400,000 for the third quarter of 2019, which allowed us to end the quarter with approximately $36 million in cash on hand. I will now turn the call back to Gil to conclude with an update on our growth initiatives.
Thanks, Rodney. Thanks, Rod. Let's turn to Slide 16. Last month, we announced the results from the drilling program and metallurgical tests were completed on the Blackard deposit along with an updated resource. The Blackard deposit adds over 830 million pounds of copper to the Eva copper project and at higher grades. The net test work shows that flotation recoveries are expected to be around 90% for the copper sulfide zone and about 63% for the copper zone, which has a lot of native copper in that horizon. Very positive test results, and we believe it'll be a significant additional potential throughput to our design plant at Eva. And given the size of Blackard, it represents a lot of potential to significantly add to that mill feed. We're currently incorporating the Blackard results into a bankable feasibility study, and we expect to announce those results in the first quarter of 2020. While we are and we'll continue to add value to Eva, we are in no rush to build. We will only move the project forward in the right copper price environment. We see Eva as a free option on copper that can be executed on quickly in the right environment. Slide 17. We also continued to advance our mill expansion project at the Copper Mountain Mine this quarter. However, in light of the lower copper price environment, we have rescheduled the project development timing to match the 2020 cash flow generation of the mine. This has us commissioning fully in the fourth quarter of 2020. And most importantly, we will not require financing to complete this project. The first stage of the mill expansion consists of the cleaner circuit upgrade, which involves the installation of Direct Flotation Reactors which will increase our concentrate grade from about its current level of 25% to about 28% copper in concentrate, and that will allow us to pull our rougher circuit a little harder because of the efficiency of those DFRs and improve the overall recovery. Engineering is well advanced, and construction is -- for this is very straightforward. With the improved con grades, we will be able to lower our concentrate transportation costs. Commissioning for the DFRs is expected mid-2020. The second phase of the project consists of pouring the foundation and installing the third ball mill. Project engineering design has been completed to support commissioning in the fourth quarter of 2020. As Don mentioned earlier, we installed the new higher capacity SAG mill screen, and the third ball mill is now on-site and ready to be installed. We continue to drill at the Copper Mountain Mine. And as our reserves are now starting to materially outsize the production rate, we're going to consider further expansion plans and potential studies next year. We see huge potential at the Copper Mountain Mine, and we're committed to realizing that value. And with that, I will open up the call to questions.
[Operator Instructions] Your first question comes from Orest Wowkodaw from Scotiabank.
A couple of questions. First of all, just curious, the pushback on the completion of the expansion at Copper Mountain Mill. Can you quantify what you think that might do to your copper production next year in terms of lost pounds?
Sure, Orest. I would suspect that if you looked at our guidance range that we gave last year. We would anticipate not the feasibility, but the actual guidance, the 3-year guidance that we did in January. We put our updated feasibility study for Copper Mountain, which was the integration plan, including Ingerbelle out in February. And at that time, we never changed our actual guidance, which remained the 3-year guidance. We are going to update that guidance in January, and we're seeing with the work done on the Copper Mountain pits that we should expect some improvement over that. And I think in the past, I've kind of guided that we would be between the feasibility estimate, which anticipated the Q2 construction start for the mill expansion project and the Q4 start, which we are now looking at. So unlike -- I guess, it's going to come out still somewhere between those numbers but very definitely closer to old guidance, and we'll update everything in the first quarter.
Okay. And then just -- Okay. No, fair enough. Because I think the guidance ranges were pretty far apart. I think your original guidance was 86 to 95, and then the tech report was showing 111 if I'm correct?
Yes. And that was the recovery and the throughput being realized in the second quarter going to the full year.
Okay.
So we'll -- we anticipate we may be -- because the plans are changing a little bit but not materially, but we would expect probably slightly stronger than we have guided before but very close to that range.
Okay. Okay. Perfect. And the mine plan calls for a big pickup in the grade next year, I think, to 0.35. Just curious if that is -- if you expect it to be relatively smooth through the year? Or whether we're going to see big variations on a quarter-to-quarter basis to get to that average?
I think what you're going to see is that grade will pick up in the fourth quarter of this year, and it will be materially higher quarter-on-quarter as you go through the next year. But the big push is as we're looking at is the throughput increase that we're seeing in the fourth quarter of next year because of the commissioning of the new mill. So there will be a throughput impact in the fourth quarter. But you'll see great building up to a fairly high level throughout the year. So why is that? It's because we're getting into these materially higher grade areas at the south end of the main pit, as Don talked about in his presentation. So as a higher proportion of our production comes from the south end of that main pit, we're going to see the higher grades. And what advantage that the Copper Mountain north pit gives to us is more on a cost basis because it's literally right beside -- that pit is right beside our waste dumps, and it's right beside the crusher. So the amount of trucks that are required to meet mill throughput and do stripping is very low on that pit, so it's very low cost. So we're in the process right now, just finalizing the adjustments to that as we go through our budget cycle, but it's looking to be a very good year from both a grade and a throughput or cost perspective for us.
Okay, great. And just finally, just on the balance sheet. You mentioned earlier that you expect no financings in 2020 to get the mill expansion over the line. Am I correct in just that you've got USD 45 million of debt maturities due in calendar '20. And I'm just curious what you consider your, sort of, minimum cash balance to be in that analysis?
Orest, I'll take that one, if that's okay. I think one thing that sometimes people forget is that the term facility has been funded and will continue to be funded by Mitsubishi. And so you need to take that out of the equation, and that's about $32 million next year. And we're actually in the lowest part from a dollar value point of view of maturity for the senior facility, which currently sits at $83 million, and that's the only secured debt on the mine. Just remind you that the term loan is guaranteed by Mitsubishi. So when I look at our payments starting in this December, they've now actually gone down to about $4.5 million every 6 months. So the debt maturity is very manageable next year. That's why you're seeing and some people don't quite understand it, when we advanced and Mitsubishi advanced money into our subsidiary, Similco Finance to make those payments, we put them in a 1-year rolling notes. And so unfortunately, under IFRS, we have to include that as a current liability, and that's why you see that due to related parties continuing to grow and sitting up at $106 million. But the net effect is that term loan is just pushed down to the end of the third-party bank debt loan life essentially at a very attractive rate of about 2.88%, so we continue with that attractive financing. And this will allow us then, as Gil pointed out, to use some of the strong cash flow from 2020 to pay for the expansion.
[Operator Instructions] Your next question comes from Stefan Ioannou from Cormark Securities.
Maybe just to follow up a little bit on Orest's questions. We've talked about grade and tonnage going over the next quarter into next year. Just on the stripping, how should we think of the stripping and deferred stripping for Q4? And then as we go into 2020, are we almost through some of that big heavy lifting with regards to waste? Or do we still have another quarter or 2 of that to go?
No, I would say that we're through the heavy load on stripping. And really 2 things impacted that. One was we had -- as Don pointed out, we had some losses of tonnage in actually some of the higher grade categories in that zone in the west end of the main pit that he discussed. And so we started to accelerate. And as we lost some high-grade tonnes in that area, we started to work to accelerate Pit 3, which we have a lot of information on, and that would allow us to bring some grade forward and keep us on plan for 2020, '21 -- '20 and '21, not to mention the fourth quarter. We're now pulling ore grade tonnes out of the Pit 3 area. You should see our stripping ratio drop in Q4, and you'll see a more normalized stripping ratio coming out for the balance of 2020 and 2021.
We have no further questions. I turn the call back over to Mr. Clausen for closing remarks.
Well, thanks, everybody. As you can see, we are setting the stage in 2019. Mine development is well advanced to deliver on higher grades in Q4 and 2020, and we're -- and we will continue to advance the mill expansion, which is in our longer-term production profile. This is a transition year for us as we noted all along, but we expect a strong 2020 and beyond. So again, thanks everybody for joining the call, and we look forward to seeing you all in the not-too-distant future.
This concludes today's conference call. You may now disconnect.