Good afternoon. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amerigo Resources Full Year and Q4 2021 Earnings Call. At this time, note that all lines have been placed on mute to prevent any background noise. After the formal remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then number one on your telephone keypad. If you would like to withdraw your question, please press star then number two. Thank you. Mr. Graham Farrell of Harbor Access Investor Relations, you may begin the conference.
Thank you, operator. Good afternoon, and welcome everyone to Amerigo Resources Investor Conference Call to discuss the company's financial results for the full year and fourth quarter of 2021. We are delighted to have you join us today. This call will cover Amerigo's financial and operating results for the year ended December 31st, 2021, and will also refer to the financial results for the fourth quarter, along with a discussion of recent highlights and goals for 2022. Please note that all dollar figures quoted in this call are U.S. dollars, except as 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 by 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, Graham. Welcome everyone to the Amerigo Resources earnings call to present 2021 financial results. A kind reminder that all dollar figures reported in this call are U.S. dollars, except where we specifically refer to Canadian dollars. 2021 was a transformational year for Amerigo and its shareholders. The company posted its strongest financial annual results on record, including revenue of $199.6 million, EBITDA of $90.1 million, and net income of $39.8 million. Earnings per share were $0.22 or CAD 0.28. Without question, the robust copper prices of 2021 were instrumental in Amerigo achieving these results.
The average LME Copper price for the year was $4.22 per pound, and our operation in Chile, MVC, had a copper price of $4.25 per pound, compared to an average copper price of $2.94 per pound in 2020. However, I really want to give credit to our team of 292 workers in Chile for meeting our 2021 production and operational goals. MVC produced 63.4 million pounds of copper at a cash cost of $1.75 per pound, outperforming our guidance for both production and cash cost. Copper production in 2021 was 13% higher than the year before. In 2022, we expect to continue to have strong operational results.
We have provided guidance to produce 61.9 million pounds of copper and 1.2 million pounds of moly. That everyone is aware, the annual plant maintenance shutdown at MVC in El Teniente is currently expected to last eight days and take place in April. MVC's operations continued through 2021 without any disruptions due to COVID-19. Our plant availability was 98%, which compares very well with other traditional copper concentrators. MVC had no environmental regulation infractions and had an excellent safety record. Water supply risks continue to be properly managed. Despite another year of drought in Chile, we maintained adequate water reserves in Colihue, which at the last monthly count were 5.4 million cubic meters, which is a healthy level.
To monitor MVC's sources and uses of water, we have in place an 18-month rolling forecast, which currently shows no need to curtail operations as a result of reduced water availability in the next 18 months. MVC incurred CapEx of $9.4 million in 2021, which is higher than our target sustaining CapEx of around $6 million a year. The projects undertaken ensured we had full operational continuity and were also associated with a strategic shift to capture more fresh tailings. This shift directly contributed to higher production levels in the year, which we expect will be maintained going into the future. As a result of the shift, the contribution to total production from fresh tailings increased from 45% in Q1 to 55% in Q4. The change is an important strategy change for various reasons.
One, we're capturing a significantly higher flow of fresh tailings to the plant, which is important to us and to El Teniente. Two, we are not depleting Cauquenes as quickly, which means our reserves are extended. Three, we are using less water as Cauquenes is a water-intensive operation. I believe the importance of this is clear to everyone considering the drought. In 2021, MVC also completed the core work to optimize its three water recovery thickeners. The first thickener is now fully upgraded, the second is scheduled for the upcoming April plant shutdown, and the third will be opportunistically scheduled. The thickeners are an important part of MVC's efficient use of water. 2022 will be another higher than normal CapEx year for MVC, as we have indicated in our production guidance already.
In addition to 29 sustaining CapEx projects expected to cost $6 million, we will undertake two additional projects for $4.7 million. These projects include an upgrade to the aerial tailings channel in response to the higher levels of fresh tailings throughput. Capitalizable maintenance is expected to be $2.8 million. Inflationary pressures are becoming evident, and we expect that cash costs will increase, as we have already indicated, from $1.75 per pound in 2021 to $1.90 per pound. The single most significant driver is our treatment and refining charge for an expected increase of $0.06 per pound. Treatment and refining charges are a benchmark cost and the impact is industry-wide and not specific to Amerigo.
We also expect an increase in steel prices of approximately $0.04 per pound of copper, lower moly by-product credits of $0.02, and another $0.02 for all other inputs. This is an aggressive cost target, but we will particularly considering cost escalation worldwide, but we will do our best to achieve it. Let me point out that the targeted cash cost of $1.90 per pound does not include the effect of signing bonuses to be paid this year by MVC to its 200 unionized workers. Signing bonuses are paid in Chile upon signing of collective agreements, which have a three-year term, and MVC's agreement expires on October 21st. We do not know the size of the signing bonuses, but they are not token amounts, and they are correlated to the price of copper at the time of signing.
As a reference, to sign the current operator's contract in October 2019, copper prices were $2.60 per pound. NDC paid $2.1 million in signing bonuses. These bonuses must be expensed when incurred, so there will be a significant impact on cash costs in the period in which they are paid. In our opinion, the market outlook for copper remains strong. In January, the average copper price was $4.423 per pound, and as of today, the average copper price in February has been $4.50 per pound. It could be possible that in the year we reach the upward limits on the royalty agreements with El Teniente. I went over this topic on the last call, but want to touch on it again.
The contract with El Teniente states that if the average monthly LME Copper price goes over $4.80 per pound for fresh tailings or $5.50 per pound for Cauquenes for two consecutive months and projections indicate the permanence of those higher prices over time, NDC and El Teniente will need to negotiate the upward continuation of the royalty scale. The purpose of the renegotiation would be to maintain the same balance of the business split between NDC and El Teniente as that which we currently have in place within the established price band. This would not be a clean slate negotiation. Based on prior experience, we expect that potential future discussions on copper royalties outside of the current price would be uneventful.
Moving on from the topic of MVC operations, I would now like to discuss the company's balance sheet and capital repatriation strategies. Amerigo ended the year with a strong balance sheet with more cash and less debt. Net cash at year-end was $33.6 million compared to negative net cash of $39.7 million at the end of 2020. Carmen will elaborate further on these topics, as I want to use some of my time to talk about what this means for Amerigo's shareholders. In my view, the strength of operational and financial results in 2021 resulted in three important wins for Amerigo shareholders. Reduction in debt and capital repatriation in the form of share buybacks and dividends. Reducing corporate debt is the benefit to shareholders who are the residual owners after creditors. In 2021, Amerigo's debt was reduced by $23.4 million.
This represents a net debt paydown yield of 11.6%. In 2021, the company also completed a substantial issuer bid and initiated a normal course issuer bid. A total of $8.8 million were used to repurchase 8.5 million shares, which were tendered for cancellation, representing a buyback yield of 4.4%. While we're talking about the buyback programs, let me give you a brief update on our significant shareholders to perhaps clear up some confusion. One of Amerigo's large historical shareholders was Geologic Resource Partners, led by George Ireland. Originally holding more than 23.4 million shares of Amerigo. Geologic is in the process of winding up as a fund and distributing its holdings to its investors.
Most of the investors opted to receive their Amerigo shares in kind and not in cash, and this included George Ireland, who increased his personal position in Amerigo by 8.7 million shares. In addition, more than nine million shares of Amerigo are now held by a top five U.S. university endowment, and another 2.7 million shares are held by new individual investors, all of whom were investors in Geologic. We are grateful for their continued support. Now on to the dividends. In Q4 2021, Amerigo reinstated a quarterly payment of dividends to shareholders. The objective of Amerigo's dividend policy is to have a steady, safe quarterly dividend that can gradually grow over time. In fact, you've already seen this happen. On November 1st, 2021, the board declared a quarterly dividend of CAD 0.02 per share.
On February 22nd, 2022, the board declared an increased quarterly dividend of CAD 0.03 per share. Based on Amerigo December 31st, 2021 share closing price of CAD 1.46, this increased quarterly dividend represents an annual dividend yield of 8.22%. The board considers the quarterly dividend to be secure, and Amerigo shareholders should be able to count on that dividend yield in their portfolios. We do realize, however, that this prudent policy from time to time could end up leaving a pile of undistributed cash, which is not our goal either. To resolve this, the board has decided to periodically pay an annual dividend in addition to the quarterly dividend. The annual dividend will depend on several factors, such as the company's financial performance, the copper market outlook, as well as ensuring that appropriate levels of cash are maintained for operations.
Currently, we estimate that the appropriate cash to retain after the payment of an annual dividend would be in the range of $20 million-$25 million. I was reading a recent market commentary from Bank of America. This commentary followed the release of annual results for Rio Tinto, and the title of the report was Capital Return is Paramount. Investors worldwide are focused on capital returns as interest rates remain stubbornly low. In my opinion, Amerigo now has one of the best-in-class return of capital policies available to investors anywhere. To close my remarks, I will mention Chilean politics, as I am often asked about this. On March 11th, Gabriel Boric will be sworn in as President of Chile. Gabriel Boric is 35 years old and was the left-leaning candidate and ended up winning the race as a result of one strategic change.
He significantly tempered down the tone of his political offering to reach the traditional center-left of Chilean politics. This more rational and inclusive approach was successful and has continued to date, including in the selection of his cabinet. The business community and foreign investors have welcomed this approach. Separately, the Constitutional Convention that is charged with preparing a draft of a new constitution has generated some controversial proposals, all of them still at the committee level. It is more likely than not that Mr. Boric and his government will infuse the same spirit of rationality, common sense, and logic that they have so well used on the members of the Constitutional Convention.
Most observers believe that a radical proposal for a new constitution will most likely not be accepted by the people of Chile. Regardless of the tone of some of the proposals and the press coverage they may get, the fact that Codelco is a company owned by the State of Chile makes us interested observers of these topics, but we do not see them as risk factors to our operation in Chile. Now I will ask Carmen Amezquita, Amerigo's Chief Financial Officer, to present in detail the 2021 financial results. By the way, we thought it would be better to have the earnings calls on Monday rather than on Fridays when research shows everyone's mind is on the weekend. Carmen, please go ahead.
Thank you, Aurora. We're pleased to present the 2021 annual financial report from Amerigo Resources and its MVC operation in Chile. The company had a strong financial performance throughout 2021. Amerigo posted a record net income of $39.8 million, earnings per share of $0.22 or CAD 0.28, EBITDA of $90.1 million, and operating cash flow before changes in working capital of $69.5 million. Q4 2021 financial results included net income of $8.9 million, earnings per share of $0.05 or CAD 0.06, EBITDA of $24.9 million, and operating cash flow before changes in working capital of $18.3 million. The strong results in 2021 were due to higher metal prices during the year and an increase of 13% in copper production over the prior year.
On December 31st, 2021, the company had a cash and restricted cash balance of $64 million and working capital of $24.6 million, compared to a cash balance of $14.1 million and working capital deficiency of $6.1 million at the end of 2020. Total borrowings decreased from $53.8 million- $30.4 million. This change is the result of the repayment of debt and the debt refinancing completed during the year. Amerigo's financial performance is highly sensitive to copper prices. Amerigo's average copper price for 2021 was $4.25 per pound, 45% higher than 2020's average copper price of $2.94 per pound. Another factor affecting earnings are the changes in copper price from one period to the next.
This is so because of our M+3 price convention for copper sales, where the final settlement price is the average LME price for the third month following production of copper concentrate. At December 31st, 2021, MVC's provisional copper price was $4.32 per pound, and final prices for October, November, and December 2021 sales will be the average London Metal Exchange prices for January, February, and March 2022 respectively. A 10% increase or decrease from the $4.32 per pound provisional price would result in a $7.2 million change in copper revenue in 2022 in respect of 2021 production. Today's copper price is $4.52 per pound. Revenue in 2021 was $199.6 million, compared to $126.4 million in 2020.
This included copper tolling revenue of $181.4 million and molybdenum revenue of $18.1 million. Within the copper revenue, the gross copper sales were $269.4 million, and there were positive settlement adjustments of $13.1 million. Deducted from revenue, we had $78.4 million in royalties to DET, smelting and refining costs of $20.6 million, and transportation costs of $2 million. Total tolling and production costs, including depreciation, were $127.5 million. This compares to tolling and production costs of $111 million from the prior year. In 2021, there were general and administrative costs of $4.8 million, compared to $2.8 million in the prior year.
The $2 million increase in general and admin expenses relates to an increase in salaries and management fees of $520,000 and an increase of $450,000 in legal and tax advisory fees associated with cash repatriation and costs associated with various share repurchase initiatives of 2021. Share-based payments increased by $546,000, and office and general expenses increased by $487,000, mostly in connection with the company's rebound in investor relations activities. The derivative to related parties had an expense of $821,000 during the year, compared to an expense of $20,000 in 2020, which in 2021 included actual amounts paid or accrued to related parties of $1 million and a $200,000 decrease in fair value.
This difference in expense year-over-year is mostly related to the $1 million fair value adjustment recovery recorded during 2020, which was related from the fluctuation of metal prices and discount rates. Other losses were $2.2 million, compared to $766,000 in the prior year period. The increase relates mostly to the changes in foreign exchange recognized with a loss of $1.4 million recognized in 2021, compared to a gain of $1.5 million in the prior year. The Chilean peso weakened during 2021 after strengthening during 2020, causing a swing in the FX gain loss that was recognized year-over-year. Finance expense was $3.8 million compared to $5.2 million in the prior year.
This included $3.5 million in finance and interest charges and $300,000 in fair value adjustments to interest rate swaps. In 2020, the finance expense included $3.7 million in finance and interest charges and $1.5 million in fair value adjustments to interest rate swaps. The company uses interest rate swaps to manage risks related to variable-rate debt. On December 31st, 2021, the balance of the term loan was $30.4 million. The interest on the term loan is synthetically fixed through an interest rate swap at a rate of 5.48% per annum for 75% of the facility.
The remaining 25% of the facility is subject to a variable rate based on the U.S. LIBOR six-month rate, which on December 31st, 2021, was 0.35438% per annum, plus a margin of 3.9%. Quite importantly, in 2021, the company recognized an income tax expense of $20.7 million, compared to $476,000 in 2020. Tax expense includes both current tax, that 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 statement of financial position and on December 31st, 2021, were $8.3 million. Current taxes for 2021 will be paid in April 2022 by MVC.
The balance sheet also shows a deferred income tax liability of $35.8 million, which is the balance that tracks timing differences and does not represent taxes outstanding or due by the company. In respect to cash flow in the year, cash flow from operating activities before working capital changes during 2021 was $69.5 million, $93.1 million after working capital changes. Cash flow used in investing activities was $8.1 million, which includes the purchase of plant and equipment of $12 million, offset by $3.9 million received from the sale of investments held by the company during the year. Cash in financing activities was $36.8 million.
This is made up of the repayment on borrowings of $57.8 million, as well as the repurchase of shares of $8.8 million, dividends paid of $2.8 million, and lease repayments of $1.2 million, all 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 $48.2 million and after accounting for the effect of exchange rate changes on cash, an ending cash balance of $59.8 million. Additionally, the company held $4.2 million in restricted cash. We will report the Q1 2022 financial results in May 2022 and wanna thank you for your continued interest in the company during the year. We will now take questions from call participants.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. Should you wish to withdraw yourself from the question queue, please press star followed by two. If you're using a speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you do have any questions. Your first question will be from Steve Ferazani at Sidoti & Company. Please go ahead.
Afternoon, Aurora, Carmen. Appreciate all the detail on the call. Wanted to ask a little bit about uses of cash. Obviously, you've shown a real commitment to return cash to shareholders with the return of the dividend, already increasing the dividend, the buybacks, and now the annual dividend. I'm trying to think of how you weigh returning cash to shareholders versus investment in the facilities and potentially the opportunity to invest in the facilities to expand annual throughput.
Steve, that's a good question. Thank you for that. Let's start with a very simple premise. The first priority is to ensure that we have an operation that continues producing and generating returns to shareholders. We cannot take, and we've never taken a position where we would prioritize a return of capital without first having assessed what the capital requirements are at MVC, but we have already done that. We indicated that we have, essentially, in addition to our sustaining CapEx project of $6 million, we're allocating an additional $4.7 million to risk mitigation projects that we feel are important to have in place. That has already been factored in.
I don't know if that answers your question, but you really have to prioritize attending to your operation and ensuring that your operation is in good shape before anything else.
I guess the follow-up is how you're thinking about based on your guidance for, and I know, you know, production, your processing is tied to El Teniente production, but just thinking about investments that could increase throughput, you know, volumes where you could have a larger amount of both historical versus and fresh tailings or are you at your current facility at basic capacity or is it the water usage that would limit it?
I think that the basic constraint that we have is that you have to see our operation as a closed circuit or closed loop operation adjacent to El Teniente, right? To the extent that we receive more fresh tailings, there is more capacity to take in the downstream channel that goes from MVC to the tailings deposit of Carén. So, you know, we cannot go in and artificially increase the amount of material that goes down from MVC to Carén. We have to be respectful and mindful of the environmental limitations that are in respect of that. We have already done a substantial amount of work to capture as much of the fresh tailings as we can.
We weren't processing all of the fresh tailings that came to MVC before. Essentially a significant amount of fresh tailings were going out of the plant or being deposited without processing in Colihue. We have moved away from that by increasing our capacity to process more of the fresh tailings. Those opportunities have already been taken care of. Cauquenes is not a resource that if we don't process today, we're losing as is the case with the fresh tailings, right?
When I mentioned that one of the benefits of processing more fresh tailings means that we maintain the same level of production, the same level of recoveries, the same level of efficiencies without depleting Cauquenes at the same higher rates that we were doing that before, that's a benefit to the company, right? That basically means that we have more of the benefit of working with both fresh and historical tailings in future periods, rather than working on the basis of gradually extinguishing Cauquenes and only being left with processing the fresh.
We appreciate all the insight, Aurora. Thanks. I'll turn it over.
Thank you. Next question will be from Aaron Dunn at Keystone. Please go ahead.
Oh, hi. Thank you for taking my question. Just wanted to expand on the last question a little bit. I was curious to know what are the opportunities for acquiring other facilities either inside or outside of Chile and expanding your processing production capacity that way? If you could just talk about maybe the size of potential opportunities and timing, if that's something that you're looking to do.
Yeah, that's, I appreciate the question. We're essentially not looking at acquiring facilities. I mean, excuse me for being as precise in the wording. What we're looking for is the opportunity to have access to tailings that we can process, right? So it's not as if there's another facility out there that we would be acquiring to produce copper. What we do is, and our expert advantage is in processing tailings. Now, all the mines have tailings, and all the mines could potentially have a tailings processing operation such as the one that we have at MVC processing the El Teniente tailings. There are several factors to consider there. One is how many tailings do you have?
Whether they are fresh tailings, that's current production, or whether you have historical tailings or whether you have both. Where are those tailings located? In the case of MVC, we get the fresh tailings essentially at no cost by virtue of them being transported down by gravity from El Teniente to a tailings deposit. We're just in the middle of it all and receive those tailings free of charge. Water availability, when you're talking about processing old tailings where you have to essentially break down solidified material in order to create a slurry, that's a water-intensive operation. There are a number of factors.
I would just mention location, the size of the deposit, and the ability to establish a partnership with the owner of the tailings, where they would continue being the owners of the tailings and where we get to process the tailings for them through a similar arrangement as what we have with El Teniente. Those would be some of the considerations to have when considering future projects. We're looking at other projects. We have been discussing similar projects with Codelco under other mines for a number of years. You know, this is all work in progress, but with no definitive timeline of deliverables that we can share at this time.
Okay. Just so I understand. In terms of just production capacity for the near term anyways, you foresee yourself as more or less being maxed out at that kind of 61 million-63 million at MVC. Is that correct?
Yeah. 61 million- 63 million, 65 million, depending on where we are processing Cauquenes. Cauquenes has different grades throughout the deposit. You know, from time to time, we could be working on a higher grade area that would give us that additional delta of two million tons of copper in any given year.
Okay. Okay, good. Excellent. Thank you for taking my call.
Sure.
Thank you. Next question will be from Nick Toor at Blackroot Capital. Please go ahead.
Hi, Aurora. You had mentioned that you want to consider the two buybacks or additional dividends or the additional annual dividend based on, you know, copper prices and general market conditions to bring your cash balance down to the $20 million-$35 million level. At current copper prices, what is your expectation of how much cash the company would generate in 2022?
We don't provide a type of guidance, Nick. We have provided a guidance based on our budget. Our budget was at a more conservative copper price of $3.90.
Yeah.
We have provided guidance and EBITDA. I think that one of the aspects, particularly now that we have spoken about this dividend policy, and we're gonna be incorporating that into our investor materials, will be to move away from EBITDA guidance to free cash flow guidance and start incorporating that in the discussion so that people can get a more concrete feeling of what the potential for that additional room be it of share buybacks or an additional dividend would be. But it's not something that we can discuss it in the context of this call right now.
Okay. In 2021, how much cash did you generate? I think it's roughly around $50 million, but correct me if I'm wrong.
In 2021, well, Carmen was just providing all of that information. We generated from operations before changes in working capital, $69.4 million.
Right. That was not your free cash flow because then you have CapEx.
No, no. That's essentially the cash generated from operations. After that, you have to calculate your CapEx, debt repayments. In this case, once you start factoring in a level of dividends at a quarterly rate that we don't want to have to cut back from, well, that becomes part of that free cash flow, right? I mean, you're not-
Right.
Considering zero dividends. You would consider the amount of $0.03 per share on a quarterly basis as part of the committed funds that the company has already factored in.
Right. I think, you know, on current run rate, you're paying $16 million in dividends. If I just sort of, you know, look at, you know, cash flow from operations last year, which was roughly $70 million, and then you think about CapEx, you know, you had structured around $10 million, so you're now at $60 million, and then, you know, take out $15 million for dividends. You're roughly around $50 million-$55 million of cash generated from, you know, operations after paying all your expenses.
You're not considering their taxes. We're actually, as Carmen mentioned, we're essentially paying in 2022 for the taxes that we accrued in 2021. That's just the normal term of paying the taxes, right? That's going to be something significant that we didn't have before.
Which is, I think you mentioned about $8 million.
For last year, yes.
Obviously that number may. I'm just saying based on last year numbers. If you take that out, you're roughly around $40 million-$45 million. You currently have a $65 million balance. If you assume that conditions are the same as last year, you would roughly end up with you know over $100 million worth of cash after paying the dividends. If the guidance that you're giving is that above $25 million whatever cash is left, my estimate is around $100 million, you would then dividend that cash out?
Well, we said a combination of dividends and share buybacks, right?
Right.
Share buybacks are not limited to the normal course issuer bid that we have in place. In general terms, the discussion is or the conclusion is we don't want to end the year with a substantial amount of cash.
Right.
Considering all the factors and all the obligations that the company may have, a combination of a higher annual dividend or share buybacks are definitely considered in order to maintain appropriate cash but not excess cash on the balance sheet.
Yeah. No, I think that's a smart policy. I'm just trying to get my arms around the numbers. I think it's my rough math, and obviously things can change based on copper prices and other factors. If 2022 looks like 2021, you would have roughly, you know, $75 million to either give out as a dividend or for share buybacks or a combination of both. That's sort of your guidance, is that at the end of the day, you'll bring your cash balance down to $20 million-$35 million.
Yeah, I think that is what we stated, and that's the idea. The calculations that go in the middle of that to get should not change the conclusion, right?
Right.
You mentioned the critical part. Depending on copper prices and other sets of circumstances, right now everything's looking good. We keep our fingers crossed if that is the case.
Okay, great. That's my question. Thanks.
Thank you, Nick.
Thank you. Next question will be from John Polcari at Mutual of America. Please go ahead.
Thank you. Assume the interest expense is in U.S. dollars, correct?
Yes. Everything that we report is in U.S. dollars except our dividends.
The expenses, I assume most of the expenses pre-translation are in local or in pesos.
Some of them are in pesos. Yeah, some of them are in pesos, some originate in U.S. dollars.
The majority, such as labor and benefits, et cetera, are in local currency?
That is correct. Labor, services, subcontract work, all of that is the Chilean peso. Power, U.S. dollars. Steel, U.S. dollars. TC/RCs, U.S. dollars. Lime, we have both U.S. and Chilean pesos.
On balance, as the U.S. dollar has strengthened over the last year and perhaps might continue to strengthen, on balance, is that a positive or a negative in terms of expenses to the company? Or is that too difficult to assess at this point because of the use of power, et cetera?
No, in general terms, we have a natural hedge because our revenue is in U.S. dollars, right? When we get a benefit out of foreign exchange, it is essentially through a weakening of the Chilean peso.
Okay. On balance for 2021, you did have a positive effect. Obviously it was a positive effect, to simplify it.
It was a positive effect.
Right. What is the current corporate tax rate? Not that you're paying, but the top rate in Chile, subject to any changes with the new political situation. At present, what's the corporate tax rate?
The Chilean corporate tax rate is 27%. When you repatriate funds out of Chile, as is the case when dividends are declared from MVC, you get another 8% nominal. In practice, what we've seen is that once you factor in all the taxable differences, the cost is about 11% of additional tax on repatriation.
Okay. That would move the total tax rate north of 30%. Okay.
Yeah.
On the royalty, should we be fortunate enough to see the current copper price stabilize or even move higher to the point where the royalty had to be adjusted because of higher prices exceeding the current cap, is the entire agreement recast, or does the existing agreement stay in place and just pricing above $4.80 change?
The existing agreement stays in place, and it's only the royalty, which is one of many clauses in the agreement that would change.
Okay. The royalty would only change above, for instance, on the historic tailings, above a price of $4.80, correct?
Correct.
Any existing royalty structure on new or old tailings up to the current cap that's in the agreement stays in place going forward. Okay. Can you tell us what might have been repurchased in terms of shares so far for the first two months of 2022?
Absolutely. We have that information on our website as well. We have repurchased 2.2 million shares in total out of the Normal Course Issuer Bid. We repurchased 1.4 million shares in December. We repurchased 0.8 million shares in January. That was all the way up to January 24th. On January 24th, we started our blackout period, and during a blackout period you cannot do repurchases under the Normal Course Issuer Bid. We reinitiated the repurchases today after we came out of the blackout period. 2.2 million shares out of the Normal Course Issuer Bid have been bought, and we have 8.55 million shares to go.
That would have to be reapproved, I assume, at the end of the year for 2023. You have to file again for another,
The earlier of the expiry date or the date in which you finish buying the 10.75 million shares that we have approval to buy for repurchasing, to buy for cancellation.
Got it. Theoretically, you could actually reconstitute the repurchase agreement at a date earlier than year-end?
That is correct.
Okay. My last question.
That is correct. John,
Yes.
We can also put a pause on the normal course issuer bid and do a substantial issuer bid. We cannot do both concurrently, but we can pause the normal course and do a substantial issuer bid.
Great. Thank you. My last question is simply on any special dividend that may or may not happen. Would that be also a qualified dividend as the existing dividends are, or would that be some other form of return of capital or?
No, that would be an eligible dividend in the same form as the normal dividends are. We wouldn't call it a special dividend. We would just call it a top-up dividend, but an ordinary dividend.
As an ordinary dividend, it wouldn't necessarily be at a permanently higher level. I know you've been-
Correct. Correct.
We appreciate you being conservative in terms of escalating the dividend too and maintaining a sustainable level, but-
We wouldn't call it a special. We would just call it a regular dividend at a higher annual rate.
Okay, not necessarily a permanent higher annual rate, just a.
No, that is not what we intend to do. We want to have a consistent record of quarterly dividends that people can count on and then use an annual dividend precisely as a mechanism to return additional cash, excess cash the company may have generated in the period or that is sitting on the balance sheet.
Thank you. Thanks for clearing that up. Again, that would be as the other, as the dividends have been so far, a qualified dividend for tax purposes.
Yeah. It's called an eligible dividend in Canadian tax terms. Yes.
Okay. Great. Thank you. That's all I had. Steady as she goes. We appreciate the excellent management. Thank you.
Thank you.
Next question will be from Terry Fisher at CIBC. Please go ahead.
Yes. Aurora, congratulations again. I'll be mercifully brief, since this has gone on a long time. First of all, I again had trouble trying to find the MD&A and financial statements on the website. I was able to get them on SEDAR, but I'll just point out that maybe people are looking for them. It'd be good to have them on the website or maybe I'm just incompetent enough not to be able to find them there, but I gave it a pretty good search. Secondly, question-wise to follow up on, the last two calls were dividends. I'm just interested in timing.
If you're gonna pay a special dividend in addition to the quarterly one which just got raised, and I think that should get the market's attention, I would assume that that's the way other companies do it is at the end of the year, they take a look at where they are, and it's sort of declared, sort of at the end of the year, maybe even after year-end, out of the annual results as opposed to some interim period during the year. In other words, you rarely ever see more than one special dividend, and it tends to be at the end of the year. Anyway, that's one question. Related to that is the timing on the normal course issuer bid is ongoing.
I guess it's a management decision that the board needs to take in managing the process of getting capital out to shareholders as to the timing of which of those you do. I would think the share price also might factor into that. If it shoots up, you'd pay a special cash dividend rather than buy shares back. Like, I don't know what the calculus is there, but right now what I'm asking about more is the timing. What I'm expecting is you're gonna keep buying shares back under the NCIB during the year, and then at the end of the year, there may be a special dividend. Is that correct?
Yeah. I don't expect that the board will be declaring that higher annual dividend in Q2 of 2022, just to give an example. The normal course issuer bid is ongoing. The board assesses where things are in respect of share price, what's the adequacy of continuing with share buybacks or for example, as I mentioned with John before, initiating a substantial issuer bid. I think there are a number of factors that come into play, Terry. Yeah, normally the annual dividend is declared after the review of annual results. I don't think that necessarily you're set to do it then.
I think the company and the board may have the flexibility of declaring that annual dividend not necessarily always at the same time. It will not be a special dividend. That's just to clarify that. It will be what we'll call a regular dividend. We will not call it a special. We're just not. A lot of companies that have annual dividends call it just an ordinary dividend as well. They do all the necessary disclosures to include that that is a dividend that is being paid at a higher annual rate, but it is not. There are not going to be five dividends in a given year. There are going to be four.
Okay. That's good clarification. Thanks. I certainly misinterpreted it. Anyway, we will accept the dividend whenever you and the board choose to pay it out. Again, congratulations. Thanks. We're looking forward to another really good year, and good luck.
I'll send you an email with the paths for the MD&A and financial statements. They're all on the website.
Oh, yeah, I'd like that because I couldn't find them.
Yeah, I'll do that. Thank you, Terry.
Okay. Bye-bye.
Thank you. As a reminder, ladies and gentlemen, if you do have a question, please press star followed by one on your touch-tone phone. Your next question is from John Whittier at C3. Please go ahead.
Hi, Aurora. I have a follow-up to all the questions as far as uses of cash. We haven't really dialed in yet on, with some expenses coming in the second half of the year. Is there any thought right now on. You did an excellent job with restructuring your debt, spreading it out and getting it to the point where there's no prepayment penalty.
Is there any thought at this point because copper has stayed where it's been now for a prolonged period of time, and that has such a huge magnitude of effect on what's going on with your company? Is there any thought on, I mean, at a minimum, with, you know, all expenses, including interest expense mattering, cutting that in half or even zeroing that out based on the strong quarterly free cash? If you could, can you tell me again, can we review your credit line? Your credit line is $15 million. Just how long is that in effect for? Is that a 2022, 2023 thing or
What are the terms of that if you ever draw down on that credit line, and is it a possibility of taking out the debt and expanding the credit line, and is the net savings of that beneficial to the company?
Yes. That's a good question. When I mentioned that the benefits to shareholders in 2021 were three, the first one that I mentioned was a reduction in debt. You know, to the extent that is available to us, it's something that would be considered. At the end of the day, we still have some provisions in respect of the repatriation of funds that have a cap. It's not a small cap. It's a substantially ample cap that would still allow us to return a good number of a big number of cash to shareholders.
To the extent that we don't wanna have that, then we can always go back to the drawing board with our lenders and see what needs to be done with them to either remove fully all of those conditions or we could move on into, as you mentioned, partial or full debt repayments. We do have that line of credit. We haven't used any of that as we disclosed on our financial statements. I think that the line of credit has an availability, correct, I'm just checking out here, to June 2023, if I'm not mistaken. The terms of disbursement, yeah, June 30, 2023.
It would be subject to basically the same rates that we have on the current loan, which is not protected by the bank. It's a LIBOR plus a margin.
Okay. I just wanted to compliment you again for you're blessed and everyone's blessed with where copper is and where it may go and where it may stay for the foreseeable future, measured in many years. You're blessed by that. What you've done on the ESG and the cost savings and the production side has progressively just gotten better, and it's super impressive. I wanted to pass that along. I also wanted to tell you that I know everybody appreciates the transparency in providing, especially inter-quarter, your monthly buyback numbers, which I think is a very important, you know, element for people to understand.
Because it's very clear based on your January ongoing buybacks that the market volatility, not the copper volatility, because there really wasn't any for any significant period of time, but the market volatility is this company's friend at this kind of out of touch, inefficient valuation. The fact that this is just a comment. I was not impressed at all with the results of the dutch auction. I am super impressed with, you know, the effectiveness and the commitment that you have on an ongoing every day, at least it looks that way, ongoing buyer of your shares.
It's comforting to know, with how strong your balance sheet is now, that in this kind of market, that this is, you know, the most comforting thing is that there is a bid at a certain point, and it seems like it's a regular one from the company. I compliment you for that. I will, if there is anybody else, I'll pass it along, but I just, I do absolutely wanna be the contrarian here and just offer up again. I'm not gonna say what I've said to you before. I think it's fantastic that you have now very inexpensive, ridiculously inexpensive stock that has more than an 8% dividend yield. It won't stay that way. It's just not going to. That is what it is.
That's been great. The contrarian comment is, I for one hope that there's no special dividend. I am the guy who sits here and I don't quite understand why, based on history, with you know, an interest in taking out the debt, why you wouldn't carry large amounts of cash into the new year. I wanted to tell you, if you do that, you know, companies get criticized all the time for being lazy, having low share prices and high debt or high cash balances. You're new to that neighborhood, and it's a cool club to belong to.
If you happen to change your position and carry major cash balances at the expense of, you know, there's a different word, but one time type of dividends.
Yeah.
Fine with me as a shareholder. Anyway, thanks very much and great numbers. I appreciate everything you do for the company.
Thank you, John. I think that we have used all of our hour. Everybody else has to return to their normal day. I really appreciate all of you being here with us today. As Carmen said, we look forward to reporting Q1 results in about three months' time. Thank you all.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.