Cdm investor presentation 3 q13 2013 12 03
22
1 COBRE DEL MAYO Investor Presentation December 2013
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Transcript of Cdm investor presentation 3 q13 2013 12 03
1
COBRE DEL MAYO Investor Presentation December 2013
2
Disclaimer
COBRE DEL MAYO 2
The following information contains or may be deemed to contain, “forward-looking statements”. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The future results of the Company may vary from the results expressed in, or implied by, the following forward-looking statements, possibly to a material degree. Cobre del Mayo, S.A. de C.V. (“Cobre del Mayo”, “CDM”, or the “Company”) undertakes no obligation to update or revise any forward-looking statements. The information contained herein is solely the responsibility of the Company and has not been reviewed or authorized by the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores) (the “CNBV”). By its acceptance hereof, each recipient agrees (1) that neither it nor its agents, representatives, directors, officers or employees will copy, reproduce or distribute to others this document, in whole or in part, at any time without the prior written consent of the Company, (2) that it will keep permanently confidential all information contained herein and any oral information provided in connection with this document not already in the public domain and (3) that this document will be used by the recipient solely for the purpose of evaluating an investment in the Company.
3
Agenda
I. Company Overview II. Industry and Commodity Overview
III. Historical Financial Performance
IV. Conclusion
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12
16
21
COBRE DEL MAYO 3
I. Company Overview
5
Piedras Verdes Advantaged Location and Access:
Cobre del Mayo Snapshot § Cobre del Mayo is a Mexican mining company that operates the Piedras Verdes open-pit copper mine in Sonora,
Mexico.
§ Began commercial production in 2006 and operations stopped during 4Q08 due to low copper prices
§ Purchased by Invecture in mid 2009
§ Produces LME Grade A copper cathode and sells refractory and vein type ore for processing into concentrate
§ Third largest copper mine in Mexico as measured by production
§ Mineral resources of 1.7 million metric tons with estimated remaining mine life of 17+ years
COBRE DEL MAYO 5
Huatabampo
Chihuahua
Sinaloa
PiedrasVerdes Alamos
Navojoa
Sonora
CiudadObregon
Guaymas
BajaCalifornia
P
C
Deep Water Port
Commercial Airport
Railway
Rail Station
Major Highway
Private Airport
C
P
n All infrastructure is in place
n Easily accessible by air, road, rail and ports
n Extremely competitive transportation costs for off-takers given Piedras Verdes’ location and nearby infrastructure
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
n Water: CDM holds 16 titled water concessions with a combined tested industrial water totaling ~8.1 Mm³/yr while the requirement for the operation of the PV Mine and flotation plant is ~5.5 Mm³/yr
6
0
500
1,000
1,500
2,000
2,500
3,000
Jan
Feb
Mar
A
pr
May
Ju
n Ju
l A
ug
Sep
O
ct
Nov
D
ec
Jan
Feb
Mar
A
pr
May
Ju
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ug
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ct
Nov
D
ec
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Feb
Mar
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pr
May
Ju
n Ju
l A
ug
Sep
O
ct
Nov
D
ec
Jan
Feb
Mar
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pr
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Ju
n Ju
l A
ug
Sep
O
ct
Nov
D
ec
Jan
Feb
Mar
A
pr
May
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l A
ug
Sep
2009 2010 2011 2012 2013
Conversion of Piedras Verdes Mine to a Stable Operation Key initiatives implemented by the new management:
§ Changed from contract mining to owner operation and purchased the former contractor’s equipment fleet
§ Purchased, re-engineered and installed a crushing, screening, conveying and stacking system
§ Conversion from Truck Dump Run of Mine to a primarily crush-conveyor stacked heap leach
§ Undertook the successful recharacterization and modeling of alternative styles of mineralization
§ Developed new mining and processing plans and implemented an effective ore quality and grade control system
COBRE DEL MAYO 6 16
Monthly Production Evolution (kt)
Acquisi-on by Invecture
7
78.2
197.7
238.2 253.0
197.6
67.3
0.0
45.0
90.0
135.0
180.0
225.0
270.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2010 2011 2012 LTM 9/30 9M'13 3Q13
Cathode (kt) Sales
Cobre del Mayo Today § The PV Mine has been transformed into a high quality copper producing asset.
§ Since January 2012, Piedras Verdes has been operating on a sustained basis at its design capacity of 87 tpd of copper cathode with strong EBITDA and cash flow generation
— LTM (09/30) Copper Production of 30,773 t generating US$247.3M of sales
— LTM EBITDA (09/30) of US$101.5M
— Strong credit metrics1: • Leverage is 2.12x Net Debt / LTM EBITDA (09/30)
• Capitalization is 54.9% Debt / Total Capitalization
— 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
COBRE DEL MAYO 7 13
1. Considering total debt of $225.0M (interest rate of 10.75%/yr, YTM 11.0%) and $10.0M of Cash and Equivalents. 2. Does not include copper contained in ore sold for concentrate
26.0
65.6
105.7 101.5
78.1
25.4
33.2% 33.2%
44.4% 40.1% 39.5% 37.7%
0.0%
7.0%
14.0%
21.0%
28.0%
35.0%
42.0%
49.0%
0.0
20.0
40.0
60.0
80.0
100.0
120.0
2010 2011 2012 LTM 9/30 9M'13 3Q13
Cu Cathode Production2 (kt) and Sales (US$M) EBITDA (US$M) and Margin (%)
8
3.63
2.69 2.08 1.91 1.81 1.62
0.00
1.00
2.00
3.00
4.00
2010 2011 2012 LTM 9/30 9M'13 3Q13
Declining Cash Cost Driven By Low Risk Operations and Processes § Over US$225.0M in capex has
been invested since 200 with limited maintenance capex going forward
§ 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
§ Result is an increase in both production per unit mined and significant reduction in cash costs
— During 9M’13, cash costs of US$1.81/lb
— Ore sales to Kupari Metals, have enabled a reduction in cash costs to $1.62/lb in 3Q’13
COBRE DEL MAYO 8 16
Historical Cash Cost (US$/lb)
Ore for Flotation
9
Competitive Cash Cost Profile
COBRE DEL MAYO 9 16
-50
50
150
250
350
C1
Cas
h C
ost c
/lb
Cumulative Production
Source: Wood Mackenzie
Including By-Product Credits Quartiles
2013 Estimate Global Copper C1 Cash Cost Curve
>$1.23/lb >$1.58/lb >$2.06/lb
CDM 9M’13 = $1.81
CDM 3Q’ 13 = $1.62
10
Extensive Mine Life Supported by High Quality Reserve and Resource Base
COBRE DEL MAYO 10
§ 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
§ Management has significantly increased mineral resource estimates based on successful exploration and drilling programs
§ Overall pit shape used to define the minable resources is based on a $2.50/lb copper price
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Mine Plan & Resource Evolution (Total Cu, Mt) Summary of Estimated Mineral Reserves and Resources
1,242
1,713
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Mar. '08 Dec. '09 Dec. '11 Sep. '12 / Current
Reserves Resources
Estimated ReservesOre (kt) Grade (%) Total Copper (t)
Estimated Reserves (provenand probable)……………………………………………………………………………………………………………..477,778 0.260 1,241,708
ResourcesOre (kt) Grade (%) Total Copper (t)
Measured……………………………………210,738 0.264 557,000Indicated…………………………………….326,205 0.243 793,404
Total Measuredand Indicated………………………………………536,943 0.251 1,350,404
Inferred……………………………………147,658 0.246 362,638Total Resources………………………684,601 0.250 1,713,042
11
Strong Track Record of Safety, Environmental and Labor Relations
COBRE DEL MAYO 11
§ Safety, Environmental compliance and Labor relations are key areas of focus of CDM
§ 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
§ CDM has obtained all necessary permits for the construction and operation of the mine
§ Piedras Verdes complies with all applicable environmental standards that are among the world’s most advanced
§ 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 (unlike SNTMMSSRM)
— No work stoppages in the history of the Piedras Verdes Mine
§ 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
28
II. Industry and Commodity Overview
Jefferies LLC August 2013 /
--
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
2010
2009
2008
Actual
2010 LT 2009 LT
2008 LT
2007 LT
2006 LT
2005 LT 2004 LT 2003 LT 2002 LT 2001 LT 2000 LT
2011 LT
2011
2012 2013 LT
Cop
per P
rice
(US
$ / l
b C
u)
Long Term Price (as forecast during Q4 of year indicated)(1)
Actual Copper Price Broker Consensus (as forecast during Q4 of year indicated)
2012 LT
Source: Broker Research, Bloomberg. (1) Except 2013, where forecasts are as of 24 October 2013.
(1) Except 2013, where forecasts are as of 19 August 2013
i COBRE DEL MAYO 32
Copper Price Forecasts Over Time
n The market has consistently underestimated the copper price when forecasting long term
13
Jefferies LLC August 2013 /
14
Incentive Price Drives the Value of Copper
COBRE DEL MAYO 14
§ 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
§ Although short term copper prices are unpredictable, according to the chart below, copper must ultimately trade above US$3.23/lb for global mine copper supply to be maintained
Source: Wood Mackenzie, Goldman Sachs Global Investment Research , LME.
Incentive Prices for Major Projects
Sen
tinel
B
uena
vist
a S
X/E
W
Res
olut
ion
Peb
ble
Sie
rra
Gor
da
Chu
quic
amat
a
Los
Bro
nces
H
aqui
ra
Oyu
Tol
goi
Waf
i Gol
pu
Que
llave
co
Cer
ro V
erde
To
rom
ocho
Rad
omiro
Tom
ic
Esc
ondi
da
Con
stan
cia
Cas
eron
es
Esp
eran
za S
ur
Enc
uent
ro
Cob
re P
anam
a
Ayna
k
And
ina
Gal
eno
Rel
inch
o
Que
brad
a B
lanc
a
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000
Ince
ntiv
e P
rice
for 1
5% R
isk
Adj
sute
d IR
R (U
S$/
t)
Cumulative Production (kt/a)
50th Percentile: $7,117/t (US$3.23/lb) 25th Percentile: $6,317/t
(US$2.87/lb)
75th Percentile: $8,242/t (US$3.74/lb)
Jefferies LLC August 2013 /
15
Cu Pricing Considerations
COBRE DEL MAYO 15
n Copper has traded in the market at a premium to the 90th percentile of the C1 cash cost curve
C1 cash cost (direct cash cost) as estimated by Wood Mackenzie
Source: Wood Mackenzie, LME. (1) 90th percentile as estimated by Wood Mackenzie. LME prices for 2013 YTD through October 10, 2013.
C1 90th Percentile Costs vs. Cu Price (1)
1.11
1.62
2.57 2.55 2.39
1.67
3.42
4.00
3.61
3.17
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
2005 2010 2011 2012 2013YTD
C1 90th Percentile Average LME Cu Price (High, Low)
III. Historical Financial Performance
17
78.2
197.7
238.2 253.0
197.6
67.3
3.28
3.91
3.57 3.39 3.34
3.21
1.50
2.00
2.50
3.00
3.50
4.00
0.0
50.0
100.0
150.0
200.0
250.0
300.0
2010 2011 2012 LTM 9/30
9M'13 3Q13
26.0
65.6
105.7 101.5
78.1
25.4
33.2% 33.2%
44.4% 40.1% 39.5% 37.7%
0.0%
7.0%
14.0%
21.0%
28.0%
35.0%
42.0%
49.0%
0.0
20.0
40.0
60.0
80.0
100.0
120.0
2010 2011 2012 LTM 9/30 9M'13 3Q13
3.63
2.69
2.08 1.91 1.81 1.62
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2010 2011 2012 LTM 9/30 9M'13 3Q13
83.5
130.8 134.0 131.1 125.9
31.7
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
2010 2011 2012 LTM 9/30 9M'13 3Q13
Summary Historical Financials
Sales (US$M) and Realized Cu Price ($/lb) Production Costs1 (US$M)
COBRE DEL MAYO 17
EBITDA (US$M) and Margin (%) Cash Costs (US$/lb)
34
1. Production Costs include mining costs, crushing costs, high grade system costs, processing costs and other production costs.
18
(49.7)
49.5
74.3
54.2 45.4
12.9
(60.0)
(40.0)
(20.0)
0.0
20.0
40.0
60.0
80.0
2010 2011 2012 LTM 9/30 9M'13 3Q13
75.7
16.1
31.4
47.3
32.7
12.5 0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
2010 2011 2012 LTM 9/30 9M'13 3Q13
Summary Historical Financials (cont’d)
Capital Expenditures (US$M) EBITDA less Capex (US$M)
COBRE DEL MAYO 18 35
19
Ample Liquidity to Withstand a Downturn
COBRE DEL MAYO 19 24
n We expect the PV Mine to continue to generate positive EBITDA should there be a commodity price disruption
Notes: (1) Assumes historical 3Q 2013 performance and excludes hedging (2) Base average sale price of CDM Copper product
3Q13 Sales (US$M)
3Q13 EBITDA (US$M)
+ 0.50 $79.4 $37.5
+ 0.40 $77.0 $35.0
+ 0.30 $74.6 $32.6
+ 0.20 $72.2 $30.2
+ 0.10 $69.8 $27.8
$3.21 $67.3 $25.4
-0.10 $64.9 $22.9
-0.20 $62.5 $20.5
-0.30 $60.0 $18.1
-0.40 $57.6 $15.6
-0.50 $55.2 $13.2CD
M C
hang
es in
Rea
lized
Cu
Pric
e (U
S$/
lb)
20
Conservative Financial Policies
§ Hedge: Entered into a 12 month forward sale agreement in June 2013
— 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)
— Cash settlement, no margin
§ Operations are all primarily exposed to the U.S. Dollar
§ Given limited capex program and no planned dividends, CDM is expecting to reduce leverage on a net basis
— US$100.0M unsecured committed credit line with Banco Azteca
— Available through 2021
— Rate: Libor + 6.50%
§ Insurance policy coverage for commercial loss / operational stoppage
— Policy underwritten by Allianz with general coverage of between US$130.0M to US$200.0M for losses from business interruption / stoppage
COBRE DEL MAYO 20 44
VI. Conclusion
22
Conclusion
Stable operation led by experienced management team
with proven industry track
record COBRE DEL MAYO
C1 cash costs in the 65th 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
Long life asset in favorable
jurisdiction and fully developed infrastructure
COBRE DEL MAYO 22
Strong cash flow, modest leverage,
low capex commitments and
ample liquidity
46
www.cobredelmayo.com
