Aurora Davidson - CFO and EVP Robert Henderson - CEO and President

Brett Jones - Luzich Partners Joseph Reagor - Roth Capital Partners Stephen Ottridge - Vancouver

Thank you. Welcome to the Annual and the Fourth Quarter 2017 Investor Conference Call of Amerigo Resources.

I am Aurora Davidson, Executive Vice President and Chief Financial Officer of the company. Before we begin the presentation, let me caution you that our comments and discussions will include forward-looking information within the meaning of applicable securities legislation.

Forward-looking information will include, among other things, forecasts and projections about our copper production for the year, which involves known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from such forecast and projections. Therefore, although we believe that anticipated future results, performance or achievements expressed or implied by the forward-looking information are based on reasonable assumptions and expectations, you should not place undue reliance on such forward-looking information.

We direct you to our press release issued on February 21 on our other documents that have been filed with the securities authorities in Canada, including our annual information form under the heading, description Of The Business Risk Factors. This document describes the material factors and assumptions that were applied in drawing the conclusions and making the forecast and projections as reflected in the forward-looking information and the material factors that could cause actual results, performance or achievements to differ materially.

Except as required by law, we undertake no obligation to update or revise any forward-looking information made in this presentation. Rob Henderson, the company's President and Chief Executive Officer, will now provide an operational and corporate update.

Thanks, Aurora, and thank you, everyone, for joining the call today. I'll just walk through my press release.

Amerigo had an excellent year in 2017, and we see achieved record production, record safety and return to profitability. Our share price corresponded appropriately, and our market capitalization approached USD 150 million mark.

So I believe the foundations for our future are now well-established, and I would like to thank the team at MVC for their excellent work. The resurge in copper price has enabled us to continue paying down debt and build out cash reserves.

Amerigo generated net income of $8 million in 2017 and ended the year with $27.5 million in cash. Our project, the second phase of the Cauquenes expansion, commenced construction on schedule and has planned to take us to 85 million to 90 million pounds of copper per year by the end of 2018, so at Q4 this year.

The copper price continues to be the biggest driver of Amerigo's profitability. In 2017, the copper price maintained its upward momentum and increased from $2.60 during the year at about $3.20 per pound.

MVC's average copper price for the year of 2017 was $2.83 per pound, about 26% higher than the 2016 average price of $2.25 per pound. MVC's operating cash flow in 2017 was $26 million, some 176% higher than the 2016 cash flow of $10 million.

This very strong leverage to copper price, combined with our growing production profile, is the reason that I believe that Amerigo is the preferred investment vehicle in the copper space today. Analysts continued to be optimistic on the future of copper and the fundamentals of supply and demand for the metal support their forecast of higher prices.

As we can see, the demand from copper -- demand for copper is steadily growing, and we all know it's going to take years to build the new mines needed to meet this demand. MVC's production in 2017 for the year was a record 62.5 million pounds at a cash cost of $1.64 per pound, which was well within our guidance of 60 million to 65 million pounds at a cash cost of $1.60 to $1.75.

Also, MVC's annual molybdenum production was a record at 1.6 million pounds. For the year of 2017, MVC produced 39 million pounds of copper from the historic Cauquenes deposit, 22 million pounds of copper from El Teniente's fresh tailings and 1.5 million pounds from the toll treating material from Maricunga.

In the last quarter, in 2017 Q4, MVC produced 15.6 million pounds of copper at a cash cost of $1.66 per pound and generated some $7 million in operating cash flow. This year, in 2018, MVC expects to produce 65 million pounds to 70 million pounds of copper at an annual cash cost of $1.45 to $1.60 per pound.

MVC also expects to produce 1.8 million pounds of molybdenum. The first half of the year, we'll see slightly lower production from Cauquenes as the mine plan extracts lower-quality surface material.

The second half production access is the deeper material, and it's going to go up. The Chilean peso has also recently strengthened with the increased copper price, and this is expected to put pressure on MVC's costs.

Cash costs for the first half of the year are forecast to be approximately $1.80 per pound, dropping to $1.45 per pound on the second half of the year when the additional copper from the expansion project comes online. As I mentioned, the construction of the Cauquenes expansion project is proceeding well, and we are on schedule and on budget.

At the end of January, the project was 39% complete, and MVC had committed about $26 million of the $35 million budget. Concrete foundations are now being poured, and proceed -- plant equipment has started to arrive at site.

The months of March and April, we'll see a big spike in contract activity at MVC as the mechanical and electrical installation teams get to work putting the equipment in place. Construction is planned to be complete by August this year and in Q4, we expect the project to be delivering 85 million to 90 million pounds of copper per year.

MVC is also updating the moly circuits, and this project is planned to be complete in Q4 this year, and we'll see moly production increasing up to about 2 million pounds per annum. So in summary, our key objectives in 2018 are, first, to deliver on guidance, which is 65 million to 70 million pounds of copper at a cash cost of $1.45 to $1.60 per pound.

And keep in mind that the second half of the year is expected to be significantly stronger than the first half. Second, to complete construction of the second phase of the Cauquenes expansion project in Q3, ramp up smoothly to full production in Q4.

Once the bank project completion tests are complete, we will then be in a position to distribute cash in the form of dividends. Thirdly, we have to ensure MVC's liquidity and continue to pay down debt.

Over the last three years, we have made a substantial investment into MVC during the low in the copper price cycle, and I believe that we are now very well-positioned to take advantage of future increases in copper price. I'll now hand you over to Aurora to discuss the financials in more detail.

Thank you, Rob. As Rob commented, 2017 was a strong year for the company operationally and financially.

We had a combination of record production levels, strong copper prices and control costs that translated into what should be the most important number in a set of financial statements, cash flow generated from operations, which was $26.4 million compared to $9.5 million in 2016. Rob also spoke about the company's leverage to copper price.

This is very evident as the 10% increase in copper production and a 26% increase in MVC's average copper price resulted in an increase of 176% in cash flow generated from operations. At December 31, the company's cash position was $27.5 million after having made debt repayment of $18.7 million to banks in El Teniente and $5.4 million in deferred royalties that we're repaying the year.

The successful implementation of the first phase of the Cauquenes expansion by the MVC team allowed us to obtain financing with our existing vendors in 2017 for the second phase of expansion, which is underway. And this leads me to provide you with a quick recap of our debt profile.

We started 2017 with three blocks of debt, the Cauquenes Phase I loan, $5.4 million in deferred royalties to El Teniente and a $17 million loan with El Teniente, which originated at the copper price support loan. The $5.4 million in deferred royalties were repaid in full in the year, as I mentioned earlier.

With respect to the $17 million loan with El Teniente, we started making repayments at a rate of $1 million a month in May 2017 and repaid a total of $8 million in 2017. We will continue and have continued making this repayment schedule, which will have us making the final payment of that loan on September of this year.

The Cauquenes expansion Phase I loan was originally for $64.4 million, which are payable in equal semi-annual installments over six years from 2016 to 2021. In 2017, we made repayments of $10.7 million on this loan.

The balance of the loan at year end was down to $43 million. In 2018, scheduled annual repayments of $10.7 million will continue.

Then, as mentioned before, we obtained financing for Phase II of the Cauquenes expansion in the form of additional bank debt of up to $35.3 million, which is the CapEx of the Phase II project. We expect to draw close to or the full amount of this facility.

The repayment terms are over three years from 2019 to 2021, also payable in equal semi-annual installments. So the scheduled repayments on the Phase I and the Phase II loans should run to the end of 2021, at which time the company, all other things being equal, would be debt free.

However, the loans have prepayment terms under a cash sweep mechanism, where essentially 50% of the cash available to be distributed by MVC would be used for additional debt repayments, potentially accelerating the time at which the company would again be debt free. Completion of the Phase II expansion is required before this mechanisms of distribution cash sweep come into place, and the Board of Directors of the company will continue to monitor the company's capital structure and the best utilization of surplus cash.

The company's return to profitability, posting income before taxes of $12.8 million and net income of $8 million in 2017, also means a return to paying taxes. The company's income tax expense in the year was $4.9 million, of which $3.5 million are current or tax absolute payable, and $1.4 million are non-cash deferred tax expense that is an accounting element of the financial statements.

Income tax is paid in Chile at a rate of 25.5% in 2017 and 27% as of 2018. Sebastián Piñera, who is returning for a second term in office in Chile next month, has spoken about potentially reducing the corporate tax in Chile into 24% to 25%, which would not occur this year.

In 2018, Amerigo expects to continue to generate strong cash flow, reduce debt and complete the Phase II expansion in the third quarter. We continue to be unhedged and fully exposed to current strong copper prices.

Rob and I will now take questions from call participants.

I just want to congratulate you on the progress you're making. I had a few call -- a few questions.

One, can you clarify the economics of the moly expansion? And I just want to confirm that you guys are not having any capital outlay for the project.

Sorry, Brett, that's for the molybdenum plant?

Yes, molybdenum expansion. Can you just kind of clarify the economics and confirm that there's no actual--

Correct. We've got a contractor currently running our moly plant.

We plan to refurbish and update the plant using the same contractor at a cost of about $7.9 million, but we're going to pay that back to the contractor through a build-to-own operate-type contract, and we will pay him back with capital over a period of seven years. So there's no direct financing of that capital required from us.

Okay. And can you just briefly touch on the economics of the project, how that compares to what it is now?

Right now, we're producing about 1.5 million pounds. Cost is around about $6 per pound of moly.

So we're going to be increasing it to about 2 million pounds. Cost is going to stay around about $6.

So those are the margins. Moly price, we've seen go up from about $8 a pound to about $11 a pound.

So moly continues to be a strong contributor to our total revenue, but it's still in second place to copper, but it is a significant contributor now.

Good. That seems like a great deal considering you're not -- since the cost are staying the same, but you guys aren't really spending any sound CapEx.

Right.

Then second question is, I just want to confirm that you guys are intentionally judging lower grade materials in the first half of the year so when Phase II comes online, you guys will be dredging up high-grade materials.

Yes. We extract all of the material from Cauquenes and as you well know, the top layer has got more oxidized and more fine material compared to the bottom layer, which has better recovery and better grade.

So it's always a balance of how much top material they take out and how much bottom material, and we try and make it as even as possible. But we're in the process of putting a new sunk into Cauquenes.

And as a consequence, the mine plan ends up with an oversupply of low-quality material in the first half of the year and an oversupply of good quality material in the second half of the year. So it's slightly imbalanced this year, but it's -- the average grade is still what we expect.

Okay. That makes perfect sense.

Then given the current copper price of $3.20 a pound, we believe that Amerigo will be able to pay that -- its debt by the middle of 2019. At that point in time, projecting that Amerigo will be doing $85 million EBITDA in roughly $62 million free cash flow, this would imply that Amerigo's trading at 2.5x EBITDA in the 38% cash flow yield which, in our opinion, makes the stock extremely cheap.

Assuming Amerigo's historical dividend policy of 35% of net income, Amerigo should be able to pay a cash dividend of roughly $0.12 a share, which would equate to 11% dividend yield at current stock price. Given the lack of capital go -- given the lack of go forward capital needs and along with the differential between depreciation and actual CapEx spend, I would assume that this type of dividend payout ratio is overly conservative.

If copper reaches $3.60 by the end of 2018 as Goldman Sachs predicts, Amerigo would be trading at roughly 2x EBITDA, 46% cash flow yield, and conservatively pay out 15% per share dividend, equating to 14% dividend yield at current stock price. Do you agree with this type of analysis?

The numbers are certainly compelling, and there's no doubt copper price holds out. We're going to be in a pretty strong position in the next few years.

And what we do with that cash is certainly a question on everyone's mind. And MVC, as you know, there are no other projects there that are in the pipeline right now.

So the sustaining CapEx is relatively minor at $5 million a year. So yes, in an answer to your question, we will -- provided copper price stays high, we will be in a very good position to pay out dividends, and our current dividend policy is to pay out 1/3 of our earnings in dividends.

So I believe our share price should improve, and I think we -- I need to do some more work on the IR side to get our name up there a little bit more to the institutional investors who, I don't believe, are fully supporting us yet. So I do expect our share price to increase and the metrics you mentioned should become more in line, but dividends are certainly in the plan.

Just two things. I guess, first one, perhaps maybe a little bit more detail, if you guys could, on what you're expecting as far as the magnitude of grade shift from the first half to the second?

Yes. It's not significant.

I mean, I think I did mention that the cash cost is -- so our costs are pretty steady throughout the year so when you divide it by the -- when you divide it by the copper price, and I mentioned that our cash cost is expected to be $1.80 in the first half and then down to $1.45 in the second half. So do the math on that, and that's the kind of expected swing in grade.

It's not a big swing at all, but it does -- you do see it in the cash cost. It looks pretty high in the first half.

That plus the additional recovery with the additional expansion, right, should make a big difference as well?

With the expansion on the line, yes, the second half goes down substantially. So we're at about $1.60 now at an equivalent kind of cash spend, and that's going to go to a $1.80.

So what's that, a 10% drop in grade?

Okay. And then another previous caller talked about debt free, but is there a certain amount of debt you guys would like to carry from the standpoint of a leverage point-of-view?

Or is your goal get debt free?

I expect there's going to be some financing discussions coming up. I don't think it's our goal to be debt free.

Certainly, now we're paying down debt as fast as we can, but I expect we would be in some position where we'd look at financing some more portion of it. So we will continue to monitor the situation, but certainly, the goal is not to be debt free by the middle of next year.

A couple of things. The news release that accompanied the Q4 numbers did not say that U.S.

dollars were -- was used throughout the news release. I know your financials say U.S.

dollars, but not the actual local news release.

Good catch. They all are U.S.

dollars. We always report in U.S.

dollars...

Yes, I know you do. But normally, as I say, with the annual numbers, you got U.S.

dollars there mentioned. But in the news release, you don't comment on that, so some people might be surprised.

Those notes, I bet, they definitely are U.S. dollars.

Okay. The other thing was it looks to me, comparing Q4 to Q3, that you didn't do quite so well.

Just looking back at the quarterly releases and then taking the year-end numbers and subtracting out, I came out with Q4. You had a net $3.1 million and in Q3, you had net $7.9 million.

The main driver of that is our quotational carry of the M+3. Maybe Aurora can explain that in more detail, but the copper price we get doesn't necessarily correspond with the quarter.

Stephen, you will recall that in Q3, we had $5.4 million in positive settlement adjustments to Q2 sales. We didn't have that change, that's in quantum of adjustments in Q4.

Okay. That's where that came from.

Okay.

We had big increase in copper price from Q2 to Q3, so we've got big positive settlement adjustments. We didn't get such a big leap in Q4.

Just as a comparison to that, the Q2 price was $2.59. Q3 was $3.

So that was almost a $41 jump, the jump from Q3 to Q4 was $0.10.

Okay. That makes some sense there.

The other question I had, I know you had very exact percentages of how much copper you recovered from old tailings and the new tailings. And exactly how can you work out such exact numbers?

The plant's been working a very long time. We've got a very good material balance in the plant, and we have separate flotation circuits for the fresh and the historic tailings.

So then we combine them all into one concentrate at the end of the day. We do keep track of the metallurgical performance down through the circuits, so we can back-calculate pretty accurately how many pounds of copper come from each source.

So even though they are combined at the end, we can't actually weigh the copper. You can do some mathematical calculations to pretty accurately determine the number.

Okay, and obviously, with the Cauquenes expansion, you're going to have more copper coming from there. There's no sort of capital being invested in processing fresh tailings other than just maintenance, though.

Is that right?

The fresh tailings will benefit because we're creating more flotation residence time, and we're pulling a lot more material out of the existing circuit into the new circuits. So the fresh tailings will see an increase in residence time, but their curve is not as dramatic as Cauquenes.

So we do expect to see a few percentage increases in fresh tailings recovery, but Cauquenes is the main benefit because they are -- respond very well to increased flotation time. So in a nutshell, both will benefit.

Cauquenes will benefit more.

And then one final thing. You mentioned the molybdenum expansion.

If I understand what you're saying correctly is you are not putting any capital into this molybdenum expansion. It's the contractor that's doing it all and [indiscernible]

Yes. We don't need to finance the capital, so we will pay back the contractor over a period of seven years.

Thank you. We appreciate your interest in the call and having participated in it, and we will report back in approximately three months to provide results for the first quarter of 2018.

Thank you.