Acg Metals (LSE:ACG) — H1 Financial Results

0:00 Good afternoon, and welcome to the ACG METALS LIMITED Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review your questions submitted today and publish responses what is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like

0:32 to hand you over to the management team of ACG METALS LIMITED, Artem Patrick. Good afternoon. Thank you so much, and welcome, everyone. Appreciate you taking time to listen to us. Today, it's, Patrick and I, presenting. I'm Artem. I'm founder of China, CEO of ACG, and Patrick is a chief financial officer. Happy to give you more background on ourselves, but the purpose of this call is to talk about our h one performance. Just to remind everyone what ACG METALS is, it's a company which essentially is just a year and two weeks old. Over the time, we have grown to a stable cash producer with a healthy balance sheet, net debt of 46,000,000,160,000,000 cash on balance, halfway through transitioning from production of gold to production of copper.

1:34 Last year, 90,000,000 in free cash flow. This year, between 65 and 75 according to our guidance of 36,000 to 38,000 ounces of production. Once we complete our sulfide expansion, we shall be producing around 20,000 to 25,000 tonnes of copper equivalent per year. Our key asset, a starter asset, is a high grade, low cost, open pit, polymetallic mine in Turkey, currently producing gold with the first quartile cost positioning, moving into into production of copper, which will improve our EBITDA to about 115,000,000 on average at consensus pricing.

2:26 Gedetepa, our asset on the Western Side of Turkey, is a very high grade mine, as you can see here. And that certainly helps with with the cost management, but it's also open pit. And we have an excellent operating team on-site, which have managed to reduce costs in the first half of this year, as Patrick will explain.

2:49 Given our cost position in production of gold moving into production of copper, we are very highly cash generative. Even after the recent share run, we're still trading at a significant discount to peers when it comes to the cash flow multiples. And, essentially, we are producing more cash per as it relates to the market cap than any other copper company listed on the London Stock Exchange. There is still a very significant upside from current levels. As I said, yes, we had a good share run as we have started to introduce this story to a broader group of investors over the last three months.

3:36 But an upside from these levels is still very significant. We're trading below three times free cash flow. The peers in our group are trading at eight. We are trading at half price to NAV. The multiple is more attributable to a developer. We're actually generating revenues and cash now. So as we rerate to peers, as far as the liquidity come into shares, we shall see that gap closed in the coming months. From the operational standpoint, what the most important to me personally is the fact that we we haven't had any any accidents over the last eight hundred days.

4:21 So we are LTI free, which is a very, very good achievement on the team on the site and a demonstration of the strong policies that we set at the asset. I'll pass over to Patrick to talk about the operational and financial achievements of the first half of this year. Thanks, Artem. Yeah. I I can just repeat what Artem said, but I think we're really, really proud of the LTE freight free days. Since the mine inception, there was no LTI, and it's continuing despite a lot of more workers on the construction site being on-site. We have about 250 to 270 on our existing site plus about 400 construction workers now, and there's still zero LTI.

5:09 On the gold production in the first half from the ops results, you've seen it. We produced about 22,300 ounces of gold. We had obviously a very strong gold price environment already in the first half year with a realized price of close to 3,000 and silver at 32. And most importantly, we really were able to reduce the cost, especially also the ISIC

5:38 versus the inflationary environment that you see in Turkey, that's a big achievement by the team. When we look at the stats, and that's just a hint to the comparison versus last year, I think we're up on the production side. We're up on the gold price. Obviously, the market helped. And if you look at the bulbs, we are guiding to 36 to 38,000 ounces for the full year. So we have a bit to go, but we already delivered more than expected in the first half. And, obviously, the current gold price is significantly higher than the realized price we had in the first half as well. On the cost side, the significant improvements we talked about already. Looking at the sulfide expansion, obviously, the most important project for us at the moment, as you know, we've fully financed that already in January. So the $200,000,000 bond that we raised covers this project, the old financings that we refinanced plus a buffer, and everything is going to budget and to to plan.

6:43 You see some pictures here from the site works. First concrete pull happened. First steel works are already in progress. We even had the first equipment pieces already sent to site. And, basically, q four q '3 and q four will be mainly dictated by getting the equipment on-site and starting the assembly. Coming to the financials, we're looking at the income statement of the first half that we just published on Monday yesterday. You see the revenues of 70,000,000 versus cost of sales, etcetera, coming to an EBITDA of $36,000,000, which is a pretty healthy margin for the whole group. That's obviously including all corporate g and a, etcetera.

7:30 And then a profit after tax of 16,000,000, you know, that's a very good achievement versus where we were, you know, half a year and a year ago.

7:41 At the balance sheet, it's a really healthy balance sheet. We have a total assets of 396,000,000, just below 400,000,000, total equity of more than 90,000,000 already now. And, obviously, the bond plus the coupon that we were paying only after the half year results, So that's still included here, but, obviously, it's been or has been paid in July as we announced to the market. Overall, the net debt ratio to the EBITDA as well as to our cash flows is really healthy,

8:13 and it's just getting a bit healthier because we are benefiting from the increased gold prices now in the market as well. Looking at the cash flow statement, you know, we started in '24 with a 10,000,000 balance on on our balance sheet. We raised a $200,000,000 bond, but also we really delivered some operating cash flow from the side, from the oxide. And then we were able to repay the heritage loans from the sponsors, but also from the acquisition. We were able to invest more than 30,000,000 already in the project. That's been really tightly managed by our project director on-site. So we see that, obviously, a lot of the CapEx spend will come in the second half of the year, but it's been really on progress. So, you know, when equipment pieces get delivered, etcetera, when the final tick the boxes happen, then there will be the final payments. So we're keeping it really tight until we pay the the contractors for really delivery and performance.

9:17 And, ultimately, we had a 160,000,000 in cash still on the balance sheet for June 30, and that's obviously providing us with a significant buffer to finalize the construction and be ready for the next stage of this project transitioning to copper. Looking at the cash cost curve, we noted that we were 13% reduction on the ICG that actually puts us right now on the global gold cost curve in the first quarter, really well within the first quarter, meaning, obviously, that a lot of other projects would run out of out of business before it would affect us. So we're well positioned here. When we look at 2027, that's the first full year of copper and zinc concentrate production.

10:05 Even there, we will be a first quartile asset and, again, providing us for a very significant benefit versus our competitors. In the team, we did this analysis just looking at all industries, given we get a lot of interest from generalist investors. If you look at other industries, you'll you'll see that the EBITDA margins are significantly less than in the mining sector, in the gold mining sector, but also ACG, given its low cost in in Turkey, plus, obviously, the market environment we faced in the last year, we see a really excessive EBITDA margin versus others on-site level. And the PE mismatch is still there despite our recent, yeah, share run. We are still trading at four times PE, which is significantly below the other industry standards as well as our own industry on average.

11:00 Martin?

11:02 On a strategy, it's it's all very simple. Find a good asset, do a good deal, raise funding, invest and improve as we're currently doing with GetaTepper, repay debt if any taken, and repeat the cycle, returning excess cash to the shareholders. So it sounds simple. In reality, it's all about execution, and we have the team now to execute.

11:29 So the asset is on time, on budget for the gold to copper transition. Remind you, even if we're gonna produce copper and zinc concentrate, we'll still be producing about 15 to 20,000 ounces of gold in the copper concentrate, so we'll continue to be copper gold producer essentially. And as we look forward, we are looking to add other assets to our portfolio in active m and a discussions on a number of targets across the Tasiastian copper Belt, but also we have the opportunities in Central Asia, African copper Belt, and South American copper belt. In m and a, nothing is done until it's done, so I will prefer to discuss m and a when we announce a specific transaction.

12:20 But my own personal experience on that is is very simply, I need to work on three to five to get one done. That with given the fact that we're working on about 10, we have confidence that some of them will come across the finish line. Thank you very much. I think we're pretty clear on our vision to build a much bigger company. First, we'll come rerating of the current business, and then we'll have value creation from the next acquisition. Let me pause here and go to the questions

13:03 unless, Patrick, you want to add anything?

13:09 No? No. Thanks. Alright. First question, has any progress made with finding a technical solution for the treatment of the intermediate ore? Yes. Thank you very much. That's our top priority. We are essentially mining an old prehistoric volcano where the top layer has been oxidized and it's easy to process through the existing heap leach facility. The main body of the deposit is sulfide, and you need the flotation process to extract copper concentrate and zinc concentrate, and that we are currently building. In between the oxide and sulfide, there is a intermediate or enriched ore, which is currently treated as waste.

13:59 And we will have 4,000,000 of that waste mined out and stored on our site when we start production from the sulfide. So we have been working with our team to develop a technical solution to process this high grade waste. It has the same copper, gold, zinc, and silver metals as as as the rest of the ore body. We are finalizing our technical solution. We know what it is. We're just doing optimization, you know, which, you know, for how many years we can process it, what's per year, what the CapEx required, which will be pretty small, what the operating costs are, etcetera. So we're not there yet to make an announcement, but we're making a very good progress on this front.

14:49 I'll read the next question. With copper at the the growth priority, can you comment on expected cash costs and margins for copper zinc concentrates versus current gold silver operation? And what are the means for EBITDA margin post 2026? Patrick, perhaps that's for you. Yeah. Sure. And thanks for the question. I think, you know, obviously, we've shown the ACG for the copper phase going forward, and maybe some of you may recall the bond presentation we've done and published pre our bond race. But what we see is actually not a kind of not a a big deviation from the EBITDA margin. They may be slightly lower because in the copper and the zinc concentrates, you have a couple of more cost of sales, including the TCRCs, etcetera.

15:46 But most important is what happens to the free cash flow margin. And I think it's pretty interesting if we have a $1.90 per pound all in sustaining cost on the copper, zinc, sulfide production, basically. And currently, we are seeing copper prices at $4.50 or higher even now. It obviously shows that we have a very strong free cash flow margin post that expansion, and we are well positioned on the cost curve. And, you know, in Turkey, we see that the depreciating lira has a benefit to us. We're having revenues in dollar. We're having costs in Turkish lira. The inflation is in the big cities, but not really in the rural vicinities where we operate. So hence, we actually see that is another benefit of of operating in Turkey and actually keeping our margins stable.

16:36 So we see really positive development for the margins and in actual numbers as you've seen in the presentation. It's more than a 100,000,000 in free cash flow. Yep. Thanks, Patrick. And I would remind everyone that $100,000,000 free cash flow is average for the life of mine based on consensus pricing, which is lowest today's spot price. On spot, it's likely to be higher by, whatever, ten, fifteen, maybe more. Plus, it doesn't include any further improvements that including the treatment of the enriched ore that we discussed. So I see a question here. How about your thinking about about further operational improvements at Guided Tepe beyond sulfide expansion?

17:24 So number one, obviously, sulfide expansion on time and on budget as we're currently doing. And then fine tuning it after we start full commercial production to optimize the recoveries, etcetera. And we have the the the team right for this task. So once you have started the operation, the next task will be to optimize that, continue to reduce cost and improve recoveries, get the optimal oil mix, etcetera, etcetera. Number two, as I have mentioned already, it's a processing of the enriched oil, which is currently treated as waste, which means $0.00 cents, $0 of potential proceeds from the sales of the metal from that ore is not included in a $100,000,000 free cash flow Patrick mentioned. So that will be on top of that. And the third element is to while we are processing this enriched or is identification and discussions with other owners of sulfide of oxide properties around us.

18:33 We're already in three discussions with a view to ease by a property outright, do a tolling process of the oxide ore in our heap leach facility, or just buy the ore, and those things would also improve the bottom line at at the operation. The next two questions relate to the investor marketing and investor relations. So number one, have you seen any interest from investors in The US since the listing? And number two, the Saudi the story sounds great. How come ACG is still trading at discount to peers despite recent share price increase?

19:20 How will you sell the story to new investors? Those are two parts of the same coin. As you look at our share price, you see it hasn't really moved since the company in the third of September last year until about mid June when it started to climb. And you also see concurrent increase in liquidity by about 300% since since mid June. So we started our investor marketing in mid June on the basis of Berenberg and Canaccord publishing their research reports. In August, counterfederal in The States also joined the analyst group that cover our company, and that does gives us a good basis for additional investor targeting.

20:11 The question is, have you seen any interest from investors in The US since listing? Yes. We have. And and I've been in New York doing investor roadshows, and I'm pleased to say that some orders have already come through. But, certainly, we are in the beginning of of of this long road. And the reason we are trading at discount is very simply we are a new kid on the block. The company been in existence for a year. Yes. Unlike many other companies of our size and our sector, we actually generate very significant cash flows. We're fully funded, and we are developing our operations at a record pace.

20:58 But you need time to introduce the story to investors. That's what we've doing for the last three months. 80% share price increase over this month is a testimony to the fact that the story does find interest in among investor community, but we just started on this road. We understand the key task for us is to improve liquidity and shares, and that will pave the way for the further rerating. And we're working hard on on that. Yeah. I'm just saying, if I may add, I mean, we we we also building a track record. Right? I think, you know, our bonds are trading now at a 108.75. So, you know, our yield to maturity on the bonds has significantly decreased.

21:47 So investors get more confidence. They see we're delivering on what we're saying. And our one presentation was on very conservative assumptions. The analyst reports in the beginning were also on very conservative assumptions. And, you know, we could show an outperformance with the h one results now, and we're trying to keep on that path. And, obviously, we'll deliver more than what we're saying in the market. Thanks, Patrick. Can you actually take the next two questions on the oxide deposits if you can? Yeah. So there was one is this 11? Right? Yeah. Twelve and thirteen. Yeah. 12. So can you set out the next steps and timeline for developing satellite oxide deposits, permits, resource drilling, feasibility studies, etcetera.

22:36 And then there's another question about the three discussions we're in with owners about other oxide properties. So I'll with the with the process, but, I mean, we have an we have already an an exploration asset on the oxide that we own. It's about a 100 kilometers away from our Gettytepe mine. We have not really talked about this much. We are initiating an exploration program there. We see really good interesting data coming there, but it needs further verification. So we will update the market as and when proper. But that's obviously something that we own already, we know the permitting process, the the drilling permit, the feasibility process, etcetera, obviously, from other assets that Artem and I worked on in the past.

23:25 But also with our key shareholder, Lydia, we have a very strong partner in Turkey to really make this process much more efficient. And, hence, it is not a 100% priority. We're focusing on the sulfide. We have a focus on the transitional ore, but we are still keeping an eye on this exploration asset as well. When it comes to other assets in the property, we are aware of every tender about a license or an area that is going on in the region. We have a very good geology team as well on the ground on the site that is aware of these things and will analyze and assess, and they can go take samples. They can really do proper work in order for us to assess should we participate in the tender or not.

24:12 So we have all the right precedents to actually look for other properties in the vicinity. But, again, the focus is for us on cash, building the sulfide, doing the transitional also solution, and then we look further as and when we can. About the three owners, I don't know if it's three or or other, but, basically, we are talking to other people within the vicinity, but also a bit further away given the gold price and where it's run. There is even economic delivery to our side from a bit further areas. So we obviously keep an open mind. We have good ongoing discussions, but in the end, it needs to make sense for us to take that or treat it and then sell it or actually think about acquiring some deposits.

24:59 It's really an assessment, you know, discussion per discussion. So I don't really can comment on the three that you're mentioning, but, ultimately, we have multiple, and we assess it deal by deal. Yeah. I mean, the the way to think about it is our number one priority to continue utilize the oxide plant, which is a heap leach and Merrell Crow facility, is through the treatment of enriched ore. That's step number one. That will give us time to conclude discussions with the owners of oxide properties with whom we are having those discussions to enable a longer term production of gold and silver dore from the oxide plant. I see then, yeah, a new question when will gold production from the heap leach end in your base case?

25:55 Do you have stockpiles to add ounces through in 2027? So if you look at our competent person report, which published last year, it's on our website as well. It assumes that the gold production will stop at the end of the next year, stop at the end of two thousand twenty six. That's what we say conservative base case. So once we announce to the market and and publicize our finding on a potential treatment of the enriched transitional ore that will add further production to this. And then if there's discussions with the other oxide deposits nearby, we'll add further ounces.

26:44 I cannot, at this stage, comment whether we'll have stockpiles to produce by the end of two thousand twenty six. It depends on our rate of production. We will have a better view on that when we provide guidance for the next year. But what I can say for sure that we are not going to throw away the kit that previous owners invested $90,000,000 in oxide facility. It can be operated independently of the sulfide facility, and we have full intention to continue running it and produce gold and silver well beyond the end of two thousand twenty six, which the current mine plan assumes when we we stop doing so. It will continue to do so for years.

27:38 Any further questions? Well, look, guys, I believe you have addressed all those questions. Artem, Patrick, thank you very much indeed. And of course, the company can review your questions submitted today. We'll publish those responses on the Investor Me company platform. But Artem, before I redirect investors to provide you with their feedback, which I know is particularly important to the company, could I please just ask you for a few closing comments? Thank you very much, and thanks everyone for your attention. Listen, ACG is a very simple story. We're new kid on the block, and that's the reason that we're still trading below peers. But we are producing significantly more cash flows than any of our peers listed in London.

28:25 We are halfway through our expansion to produce even more cash. That's what the mining company is supposed to do, produce lots of cash, and that's what we are looking to do. Thank you very much for your attention, and look forward to further interactions. Fantastic, Art and Patrick. Thank you once again for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of ACG METALS LIMITED, we would like to thank you for attending today's presentation, and good afternoon to you all. Thank you.