CA - Amerigo Resources Ltd. (ARREF) CEO Aurora Davidson on Q2 2022 Results - Earnings Call Transcript
Amerigo Resources Ltd. (ARREF)
Q2 2022 Results Conference Call
August 04, 2022 02:00 PM ET
Company Participants
Graham Farrell - Harbor Access IR
Aurora Davidson - CEO
Carmen Amezquita - CFO
Conference Call Participants
Stephen Ferazani - Sidoti
Terry Fisher - CIBC World Markets
John Polcari - Mutual of America Capital Management
Presentation
Operator
Good afternoon. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Amerigo Resources Q2 2022 Earnings Conference Call.
[Operator Instructions] Mr. Graham Farrell of Harbor Access Investment Relations, you may begin the conference.
Graham Farrell
Thank you, operator. Good afternoon, and welcome, everyone, to Amerigo Resources quarterly conference call to discuss the company’s financial results for the second quarter of 2022. We are delighted to have you join us today. This call will cover Amerigo’s financial and operating results for the second quarter ended June 30, 2022. 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.
Aurora Davidson
Thank you, Graham. Welcome, everyone, to Amerigo’s earnings call for the second quarter of 2022. We remind you all that dollar figures that we report in this call are U.S. dollars, except where we specifically refer to Canadian dollars. After 7 consecutive quarters reporting net earnings, we are reporting a net loss this quarter of $0.03 or CAD0.04. EBITDA was $6.7 million. The loss was due to the confluence of weakness in copper prices and our annual maintenance shutdown quarter. The impact of earnings of realized lower copper prices was $5.1 million and the effect on quarterly earnings from lower production due to the shutdown was $2.9 million.
As we mentioned in our production report, operations at MVC are strong following the shutdown and proceeding according to plan. We continue to trend over guidance. Copper production was 14.9 million during the quarter. 61% of this came from processing fresh tailings and the remainder from the historical tailings at Cauquenes. We have continued to successfully increase the percentage of fresh tailings we process, which is minimizing our water use and extending the length of our research at Cauquenes.
During the second quarter, copper from fresh tailings processing was positively impacted by higher tonnage, grade and recoveries. In Cauquenes, we had higher grade and higher recoveries. These positives were mitigated by the fewer operating days associated with the maintenance shutdown. We had no operational issues during the quarter, and operations continued without any disruptions due to COVID-19. MVC reported good safety performance. There were no environmental incidents and plant availability was 99.2%. CapEx projects are proceeding on time and budget.
Water reserves are trending in the right direction, with stored water of 5.6 million cubic meters at the end of July, which is 14% higher than we reported in the last earnings call. We monitor our sources and uses of water very closely and maintain detailed projections for the next 18 months ahead of us. At present, we have no indications of needing to adjust our plans to preserve quarter.
Amerigo continues to show excellent control of its operating costs despite the highly inflationary environment in Chile, where the inflation rate was 3.4% in the quarter and 12.5% over the last 12 months. Based on our latest cost modeling, annual cash cost is trending towards $1.96 per pound, which is only 3% higher than guidance, and this is attributable almost entirely to lower molybdenum by-product credits from lower-than-anticipated moly production.
Amerigo’s performance continues to provide a solid foundation, supporting our capital return strategy, which I discussed last quarter, and we’ll now give you further details on. In the second quarter, Amerigo returned $13 million to shareholders, $4.1 million were paid through Amerigo’s regular quarterly dividend of CAD0.03 per share and $8.9 million were returned through the purchase of 6.9 million common shares for cancellation through Amerigo’s now completed annual normal course issuer bid.
Cash is still making its way into Amerigo shareholders accounts as promised. As was announced yesterday, Amerigo’s Board of Directors declared another quarterly dividend of CAD0.03 per share, which will be payable on September 20. The company’s return of capital strategy has 3 pillars: regular quarterly dividends, share buybacks and flexible performance dividends. The goal of this strategy is to maintain comfortable but not excessive levels of cash on the balance sheet. We will return the excess cash to shareholders to deploy in the most effective way they see fit.
The quarterly dividend is a fundamental pillar of Amerigo’s return of capital strategy and Amerigo shareholders can count on the quarterly dividend in their portfolios. Based on Amerigo’s end of quarter share price, this represents an annual dividend yield of 9.68%. We have also been very active on the second pillar of share buybacks. Amerigo’s number of shares outstanding is down to 166 million shares compared to 182 million shares 1 year ago. In total, $21.1 million have been used in share repurchases to reduce the outstanding share count by almost 9%.
The third pillar are the flexible performance dividends, which the company has yet to declare. These types of dividends will depend on several factors such as the company’s financial performance, the copper market outlook and cash balances. It may be paid in any amount at any time and as frequently as the Board sees appropriate. These types of dividends are to be paid in addition to, not instead of the company’s regular quarterly dividends. This mechanism gives us the flexibility to maintain safe quarterly dividends and not leave more cash than necessary on the balance sheet. This mechanism also allows the company to distribute excess cash more quickly, flexibly and frequently venture buyback programs or quarterly dividends.
As I described in our last quarterly call, performance dividends will be a very powerful component of Amerigo’s overall yield during periods of high copper prices. We have guided the market as a cash balance of $25 million is a comfortable level to run our business with, and our current unrestricted cash balance is $53 million. As copper prices start to rebound and our operations continue to perform as they have, the total yield potential for Amerigo’s shares is tremendous.
Because of our current and potential yields, we’re actively transforming the way we tell the Amerigo story so that we may introduce ourselves to additional types of investors. Our story is based on the strong capability of sustained higher copper prices and Amerigo’s insulation from the factors and events that negatively impact the world’s copper miners. This is because Amerigo is not a copper miner. Amerigo a simple industrial company whose product is copper.
Let me elaborate a bit further. Amerigo is not a copper miner. I see us as a copper manufacturer. We have 2 streams of someone else’s waste material coming into our plant. We process those streams and recover copper, which would otherwise be lost to the world. In fact, we are providing additional copper without any additional mining activity. We have an industrial process, not a mining one. And our ESG credentials, unlike so many other companies are bonafide and transparent.
Our clearly defined industrial process is conducive to an extremely efficient business model that generates stable and excessive cash flows at strong copper prices. This transforms Amerigo into solid yield investment, which is how we should be known in the market and why we are expanding the focus of the type of investors we’re addressing. The necessary element for a successful investment in Amerigo are not aspirational. They are in place now. We have seen lower copper prices starting in May this year.
As I have mentioned before and will mention again later in my comments, we believe in a sustained period of strong copper prices. This does not mean, however, that there will not be volatility in the copper market from time to time, as we have recently seen. In recent months, copper prices are factored in fears of a recession, high inflation, higher cost of capital, a slowdown of Chinese economic activity and the shock wave of the Ukraine-Russia conflict. However, historically, low metal inventories and supply shocks to global copper production have provided reasons for sentiment shift. It is unclear whether copper’s traditional function as an inflation hedge has started to take effect. But when it does, it will provide additional support to copper prices.
Let’s look at 2 fundamental points to understand the strength of copper prices going forward. It is really a simple growing demand, shrinking supply story. Demand growth is expected, mostly in response to the energy transition, but also from conventional demand. Supply on the other hand, will continue to be stressed out by the complexity of permitting, building and operating copper mines. Put together, these 2 market forces are expected to create a substantial and chronic gap between worldwide copper supply and demand. This shortage will support copper prices.
Many industry associations and experts predict an annual supply gap of anywhere from 4.7 million to 10 million tonnes by 2030. It is important to remember that these shortages will start to show themselves well before 2030, and we’re already in the second half of 2022. It is also important to understand the magnitude of these tonnages. When we speak of a 10 million tone supply gap that is almost 50%, 5, 0 of current global copper production.
Filling a gap of this size will require monumental efforts. It will also require higher copper prices to restrain demand and incentivize new production. The complexities of finding significant copper deposits and then permitting, financing and building copper mines are huge. These processes span years and require billions of dollars of investment. Once built, the miners then face the challenges of operating a copper mine. This includes continued investment to maintain the life of mine, declining grades, water supply issues, growing environmental requirements, resource nationalism and social scrutiny. These factors all translate to copper supply challenges.
And let me give you an example. Chilean copper production has declined this year by 6.4% compared to the same period in 2021. This is much worse than what was seen in 2021 when Chilean annual copper production dropped by 1.9%. However, Chilean copper production was originally expected to grow 4.7% this year. So at this stage, we are seeing an 11% delta between actual and expected mine copper production from the world’s biggest copper producer.
How can a huge projected supply gap we met with current production? If production is significantly falling behind despite elevated copper prices, to solve the supply gap, even higher copper prices will be required, and this will, of course, benefit Amerigo and our shareholders. Amerigo will benefit from rising copper prices but will remain immune for most of the problems facing the world’s mining companies. This is because, as I said before, Amerigo is not a copper miner, but a waste stream processor that recovers copper that would otherwise be lost. This is a particularly powerful story in today’s world of ESG investing.
It is also a powerful story in an inflationary environment where investors are searching for yield and copper prices have historically been a tremendous hedge against inflation. We are excited to explain this to the market. It is a unique story that combines the strength of copper price with a simple manufacturing business model that produces stable cash flows and guarantees a strong yield for investors.
Carmen Amezquita, Amerigo’s Chief Financial Officer, will now discuss the second quarter financial results. Carmen, please go ahead.
Carmen Amezquita
Thank you, Aurora. We are pleased to present the Q2 2022 quarterly financial reports from Amerigo Resources and its MVC operation in Chile. Amerigo had a net loss during Q2 2022 of $5.1 million, loss per share of $0.03 or CAD0.04, EBITDA of $6.7 million, negative free cash flow to equity of $10.7 million and used operating cash flow before changes in non-cash working capital of $4 million.
The 2022 second quarter financial results were impacted by reduced copper production during the annual scheduled maintenance shutdown of MVC, which we have estimated at $2.9 million and by $5.1 million in negative price settlement adjustments to prior quarter copper sales because of low copper prices during the second quarter.
On June 30, 2022, the company had cash and restricted cash balance of $57.2 million and working capital of $10.9 million compared to a cash and restricted cash balance of $64 million and working capital of $24.6 million at December 31, 2021. Amerigo’s provisional copper price for Q2 2022 copper sales is $4.10 per pound. A 10% increase or decrease from the $4.10 per pound provisional price used on June 30, 2022, would result in a $6.1 million change in revenue in Q3 2022 in respect of the Q2 2022 production.
Because Amerigo’s financial performance is highly sensitive to copper prices, I would like to walk you through the real life example of how our first quarter’s prices were finalized in the second quarter and to familiarize you with the mechanism that is used.
Amerigo’s has an M+3 price convention for its copper sales where the final copper price for any given month will be the average LME price for the third month following the delivery of our copper to Codelco. From the time of sale until 3 months later when the final price becomes known, we use the monthly provisional prices, which we take from the price curve between the published LME monthly average M and M+3 price. This is a mark-to-market mechanism. In this example, at the end of Q1 2022, the final prices for January, February and March sales were not yet known. However, by looking at the March 2022 LME average M to M+3 prices, we could determine a mark-to-market price of $4.64 per pound for the first quarter sales when closing the March 2022 financial statements.
Then as we advance through Q2, the January, February and March monthly prices became final. So the April average price was applied as the final price to January sales. The May average price was the final price for February sales and the June average price was the final price for March sales. With some of these adjustments to Q1 sales resulted in negative final adjustment of $5.1 million to revenue booked on the Q2 financial. Because we do a full financial close each month, we follow the same mechanism to record adjustments to same quarter revenue, and this resulted in negative adjustments to same quarter production of $2.8 million in Q2, which were not yet final price adjustments as the final prices will become known in Q3.
Following the same mechanics, the final prices for our April, May and June 2022 sales will be the average prices for July, August and September 2022, respectively. The Q2 2022 sales were provisionally priced at quarter end using the June 2022 LME price curve at $4.10 per pound and will be adjusted during Q3 as the average prices for July, August and September become known. I hope this illustration of our pricing mechanics is helpful for your analysis. Today’s copper price is $3.47 per pound.
Revenue in the second quarter of 2022 was $33.6 million compared to $50.5 million in Q2 2021. This included copper tolling revenue of $31.4 million and molybdenum revenue of $2.2 million. Within the copper revenue, the gross copper sales were $63.7 million, and there were negative settlement adjustments of $7.9 million, which included $5.1 million in final adjustments, as I mentioned before, and $2.8 million in same quarter provisional adjustments.
Then deducted from revenue, we had $18.3 million in royalties to DET, smelting and refinery costs of $5.8 million and transportation costs of $0.4 million. Total tolling and production costs, including depreciation, were $32 million. This compares to tolling and production costs of $31.4 million from the comparative Q2 2021 period at essentially the same production levels despite inflationary pressures.
Under other expenses, general and administrative expenses were $1 million compared to $0.9 million in the prior year quarter. This included salaries, management and professional fees of $0.5 million, share-based payments of $0.3 million and office and general expenses of $0.2 million. Other losses during Q2 2022 were $2.9 million compared to other losses of $0.2 million in the prior year period. The main difference between the expenses period-over-period was a foreign exchange loss of $2.9 million recorded in Q2 2022 compared to a foreign exchange loss of $0.1 million in Q2 2021. The foreign exchange loss was mostly of an unrealized nature and came from mark-to-market foreign exchange rate adjustments at quarter end for amounts held in MVC that are denominated in Chilean pesos. These adjustments were affected by an all-time load to Chilean peso at the end of the quarter.
The company’s finance expense in Q2 2022 was $0.3 million compared to $2.1 million in Q2 2021, which includes interest on loans, leases and bank charges of $0.7 million and a positive fair value changes on an interest rate swap of $0.4 million. On June 30, 2022, the balance of the term loan net the transaction cost was $27 million.
In Q2 2022, the company recognized an income tax expense of $3.3 million compared to $4.3 million in Q2 2021. Although the company incurred a loss during the quarter, there was current tax expenses. The current tax expense recorded during the period included taxes triggered by the repatriation of cash from Chile to Canada for distribution to shareholders.
It is important to note that the new Chilean government has announced a complete tax reform, which is currently underway. Based on our analysis prepared by our tax advisers, the changes introduced by this reform would have no impact on MVC. Income tax rates for MVC has not changed and neither with the tax treatment on dividends from Chile to Canada.
In respect of cash flow in the quarter, cash flow used in operating activities before capital -- working capital changes during Q2 2022 was $4 million with cash generated of $2.7 million after working capital changes. Year-to-date cash flow generated from operations before working capital changes was $26.7 million, and after working capital changes, there has been cash flow generated of $24.1 million.
Cash flow used in investing activities during the quarter was $3 million, which related entirely to the purchase of plant and equipment. Year-to-date cash flow used in investing activities have been $5.4 million. Cash used in financing activities in Q2 2022 was $16.6 million. Most of this related to the $13 million in cash that was returned to shareholders in the quarter with $4.1 million paid to Amerigo’s increased quarterly dividend of CAD0.03 per share and $8.9 million returns through the purchase of 6.9 million common shares for cancellation through Amerigo’s normal course issuer bid. There was also $3.5 million in debt repayment during the quarter.
Overall, there was a net decrease in cash and cash equivalents of $16.9 million in Q2 and an ending cash balance of $53 million. Additionally, the company held $4.2 million in restricted cash.
We will report the Q3 2022 financial results in November 2022, and I want to thank you for your continued interest in the company. We will now take questions from call participants.
Question-and-Answer Session
Operator
[Operator Instructions] And your first question will be from Stephen Ferazani at Sidoti.
Stephen Ferazani
Just want to ask first about the raise to production guidance for the year. What generated that? And is the higher production related to the grade of copper? Are you getting more efficient at the plant? Is that just more El Teniente production that’s allowing you to increase fresh tailings? Can you provide a little bit of color around the raised guidance?
Aurora Davidson
Yes. Thanks for the question. It is a combination of factors. We are performing very efficiently in respect of fresh tailings. We’re processing more. We have good grades coming in from El Teniente and we’re also recovering more copper. We’ve done tune ups in our plant, changed our grinding profile to devote more grinding power to fresh tailings. This is giving us good results. And to the extent that we’re getting these good results from processing more of the fresh tailings, we are -- as you may have noticed from our production release, adjusting downwards the processing from Cauquenes. So we essentially are not only meeting but surpassing guidance mostly without having to tap into the resources of Cauquenes to the extent that we had projected. So this is -- the benefit is double benefit for the year, but also on a long-term basis by lowering the depletion rate of Cauquenes.
Stephen Ferazani
Great. When I think about your weighing capital allocation and you introduced the idea to top up dividend fairly recently, obviously, that’s before the recent decline in copper prices. By our model, you’re still above the $25 million in cash or a good margin by the end of the year. At the same time, I imagine the market volatility and the swing down has to affect the thoughts. How do you weigh that plus weigh the importance of the share buyback, which you could renew the end of the year versus trying to make a payment in a market that hopefully is better by the end of the year? If you can just sort of consider those factors?
Aurora Davidson
Well, I think that -- and that’s a good question. The fundamental answer, the short answer to that is that we will do whatever we need to do to protect the quarterly dividend. So yes, we probably would have triggered a performance dividend already, given the cash balances that we have on the balance sheet had it not been for the volatility that we have seen in recent months in copper prices, right? So that introduces a level of observation, a level of conservatism. We will not go out and drain the resource and put that quarterly dividend at risk, but as conditions continue to improve in respect of copper prices that view will change. But we fundamentally are preserving the viability of that quarterly dividend until conditions in the market are looking a little bit better in the short term. There is that volatility that you alluded to. I alluded to that in my comments as well. It’s unavoidable. It exists in all markets, but we’re not thoroughly concerned about it from a more long-term midterm analysis. But in the short term, we have to factor that in.
Stephen Ferazani
I’ve asked this in the past, it’s very hard to model and maybe you can help out a little bit in terms of just timing of cash repatriation. Because obviously, we didn’t model in the tax expense this quarter given the expected operating loss. How do you think about timing of cash repatriation? And should it be -- is it off of buyback, when you’re going to be making buybacks? I’m just trying to figure out, think about -- I’m sure others want to sort of think about how to be considering when you’ll see that higher tax expense due to repatriation to return that cash?
Aurora Davidson
Yes. It’s normally on the second quarter of the year. We have the free cash flow determination done in March of every year and then we return capital in the second quarter of the year. Just as a side note, because I don’t want to complicate your modeling too much, but we didn’t return all the capital that we needed from Chile in one go just out of forecasting internally. So there is still cash in Chile that will need to be returned later on this year, but most of it was already returned in Q2.
Stephen Ferazani
Fantastic. And then in terms of the settlement of the receivables, obviously, it was higher this quarter than you might have projected just ongoing mark-to-market quarter-to-quarter. There was that extra $2.8 million. Help us out on how that can reverse based on the way prices move? Or can you help us out on that extra $2.8 million?
Aurora Davidson
Yes. You have to be an accountant to understand that we try to simplify it as much as we could and got to the point of, I think, Carmen did an excellent job in trying to explain it. Look, if we only report it or if we only did our financial statements on a quarterly basis, you would only be seeing the $5.1 million, right, because you wouldn’t have had any adjustments. Those additional $2.7 million adjustment would have gone to revenue. What happens is that if we have sales, for example, in July, and they are mark-to-market in July and then that mark-to-market has to be done again for those July sales in August and then in September. So we captured some of that adjustment within the line. This is just a line that we referenced to note, it’s not -- it doesn’t affect the top revenue line at all. But it’s not just that the settlement adjustments refer only to the prior quarter sales. They also refer to the intra-quarter adjustments from 1 month to the next, just because we want to be busy and do financial statements every month.
Operator
Next question is from [John Whittier at C3].
Unidentified Analyst
I have just a quick question about -- you alluded to some of the no income tax change as a part of or income tax effect as a part of a change in the constitution. Is there anything in that draft of the constitution, whether it’s production levels in the future or anything else? Is there anything that’s unexpected that can be added in or changed in the last minute, that gives you any cause for potential concern at the present time?
Aurora Davidson
Thanks for the question. Let me just clarify that. The tax reform that was launched in Chile a couple of months ago and that Carmen alluded to in her comments, is through the normal channels that are not part of the constitutional reform. So this is just normal business government, irrespective of the constitutional referendum. We do not anticipate any changes in, for example, higher income tax rates. We had anticipated that those could be a possibility, but they didn’t come through. So everything is good on that front.
With respect to the changes that could come as a result of an approval of the constitutional referendum, we do not see any immediate changes from a taxation perspective that would have an impact on our operations in Chile either.
Unidentified Analyst
Okay. With just -- and maybe I can ask you about this offline as well. But another just related comment or question is within the future, do you believe that there will be a fiscal stability agreements with -- and just with anybody having to do with copper production going forward? Or is that something that you don’t take in this new government that, that is something that the existing ones, they will expire, but there won’t be any new ones?
And the reason I’m asking the question is, as it relates to negative implications from any change that would just come up next month with the constitution, if it were to pass. The question I have is with Codelco being your JV partner, the question is it doesn’t seem like it would benefit them to put in place negative legislation or consequences that would lead to negative results for Amerigo. So is there a benefit necessarily to you because of your existing relationship with Codelco or do you not view it that way?
Aurora Davidson
I don’t think that there would be an impact coming in from an approval of the new constitution that would have a tax effect on us or a tax effect on Codelco.
Unidentified Analyst
Okay. I just want to make one comment and it has to do with the -- and I’ll be quick with the gentleman’s questions that preceded me, and I’ll just make this comment that you are the only stock in our portfolio that when your equity goes down for us as long-term shareholders, it’s exciting. If you execute -- and you might not view it that way and -- and candidly, some of the larger shareholders might not who are performance oriented in the short term might not view it that way. My comment is just driven by this. It is the simple -- and not asking for you to validate this, but the 7 strong quarters that you had, we think, when we look back on this company’s overall performance and return to shareholders in the next 10 years, it was those 7 quarters that trailing quarters, absent this last one, fundamentally changed the long-term outlook of the company.
And we can look no further than if you just take your trailing 12-month absolute performance and look at what you did and you mirror that going forward and you -- I don’t think you can hold the stock price constant, but if you were to mirror that going forward, you’re all of a sudden, if you have those same performance going forward in terms of how you return shareholder value, at the end of 2026, you’re just above 100 million shares outstanding and that -- with the same $16 million capital outlay to the regular dividend, you’re already unusually high 9% yield if you’re looking at where we are today, it’s 15%. And it’s just -- so it is one of these things I’ll say, in a very difficult outcome. Congratulations on your quarter.
Aurora Davidson
Thank you for your comments.
Operator
Next question will be from Terry Fisher at CIBC World Markets.
Terry Fisher
Okay. Well, I missed the first part of the call, I’m sorry. I’ve been dealing with COVID actually, almost over it. I don’t believe there’s a replay of the call.
Aurora Davidson
Yes, there will be one.
Terry Fisher
Okay. Fine.
Aurora Davidson
We always have the scripts, and we always have the replays on the website. It takes about 2 days for the provider to give it to us, but they will be available.
Terry Fisher
Okay, on the website. Okay. Well, the only question I had, you’ll appreciate this because way briefer than usual. My source in Chile tell me that the snow pack in the Andes is building up pretty well this year. Do you have any intelligence on that?
Aurora Davidson
Yes. It’s building up very nicely. It’s the biggest snow buildup that has been in the region in 3 years. So it’s boding well for El Teniente and for us in respect of water.
Terry Fisher
And also for the vineyards, which I care deeply about.
Aurora Davidson
Me too.
Terry Fisher
Congratulations.
Operator
[Operator Instructions] And your next question will be from John Polcari at Mutual of America Capital Management.
John Polcari
A couple of quick questions. By the way, we all think an excellent job being done by you and staff. First, just ballpark, how many remaining months of water supply would you say are available going forward without any significant changes -- maybe 18 months, 20 months, 24 months, something like that?
Aurora Davidson
Look, we work -- John, we work on an 18-month forecast just to have numbers in front of us. It doesn’t mean that the curtain drops magically at the end of 18 months, and certainly, we don’t have water. It just means that we are sharpening our calculations to ensure that at least for the next 12, 18 months, we know what’s going on. So there are no red flags at least for that period. It could be longer than that, but we work on that basis of 18 months, which is a good enough period of analysis for our people in Chile to be focused on.
John Polcari
Great. On the labor front, I believe, is the contract renewal coming up this fall. Am I correct on the date or...?
Aurora Davidson
That is correct. We have the MVC Union of workers’ contract is coming up for renewal at the end of October.
John Polcari
And have negotiations have been initiated, what were you…
Aurora Davidson
Legally, negotiations begin on the last week of August.
John Polcari
I see. Any reason to think that it would be any different than prior -- it’s a 3-year contract, I believe?
Aurora Davidson
It is a 3-year contract.
John Polcari
And so all things being equal, that would be the ultimate renewal term 3 years with whatever bonus might be negotiated?
Aurora Davidson
Correct. We don’t expect any major surprises. It’s just a normal negotiation as has occurred in the past.
John Polcari
And then 2 more quick questions. Do you have a specific -- I think it’s very difficult to determine what price level to buy the stock back in. The markets is volatile, copper is volatile, prices benefit volatile. But are you looking at any particular metric in terms of when you buy the stock back? I know you’ve used your allocation for this year. But I believe at the end of the year, you can start again. Is there a particular metric again that you’re looking to target before you buy more aggressively?
Aurora Davidson
Yes. We announced during our last news release that we are going to be seeking approval from the TSX to reinitiate the normal course issuer bid on December 2, which is when we can go out to the market again. We like the mechanism of the normal course issuer bid because it’s market prices, it’s an immediate activity on the market. So there are no -- you’re not working with a fixed price as would occur in a substantial bid. And yes, the metric, we have our own internal metric. We know that our shares are undervalued. We have not run into a period where we see that we are nearing the price where it wouldn’t make any sense for us to buy our shares. And that’s what I can share with you, John.
John Polcari
I’m sorry. You are nearing a price where you would buy them back?
Aurora Davidson
Yes. I mean definitely, we haven’t ever been in a place yet since we started repurchasing shares where we feel the price is too high, we shouldn’t be buying this back.
John Polcari
Understand. And lastly all in, assuming that molybdenum price credits are where they are now all in for smelting, transportation, the royalty [hoops and nuts], could you ballpark where the free cash flow breakeven point would be for standard guidance on production in terms of a copper price? In other words, just to pick a number, at $2 would the free cash flow would be about breakeven all in for all cash costs? Or would it be a little bit higher perhaps? Again, assuming the literal credits don’t change, just assuming the royalty is what it is as it fluctuates, assuming transportation smelting costs are where they are, even though they might escalate?
Aurora Davidson
You can refer to our EBITDA guidance and our free cash flow to equity guidance on our website. We have all the different ranges of copper prices there. You can see that there are periods in which free cash flow to equity is not being generated at lower copper prices, and that’s why we have the cash reserves that we have at hand, right? So until we see that there is no change on the short-term outlook of copper, we have to maintain the necessary surplus cash to maintain that sustainable dividend when free cash flow through equity would not be generated as such in a quarter.
John Polcari
Understand. Now I did look at the website, and I assume that those tables that are included, include everything, the royalty transportation, smelting --
Aurora Davidson
They include everything, yes. They include all of the costs that have to be considered.
John Polcari
Okay. At the current guidance for production, correct?
Aurora Davidson
Correct.
Operator
At this time, we have no further questions registered. Please proceed with closing remarks.
Aurora Davidson
Thank you. If we don’t have any further questions, we will close the call now, and we will be back in about 3 more months, reporting the third quarter results of the year. Thank you all for your interest in Amerigo.
Operator
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
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Amerigo Resources Ltd. (ARREF) CEO Aurora Davidson on Q2 2022 Results - Earnings Call Transcript