Copper Mountain Mining Corporation

Rod Shier – Chief Financial Officer Jim O'Rourke – Chief Executive Officer Grant Tanaka – Director-Finance

Stefan Ioannou – Haywood Securities Orest Wowkodaw – Scotiabank Alex Terentiew – Raymond James

Thank you, Chris. After opening remarks by management, in which we will review the business and operating results for the 2016 first quarter, we'll open the lines to participants for questions as noted by Chris.

Please note that comments made today that are not of a historical factual nature may contain forward-looking statements. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ material from actual outcomes as noted on our Slide number 2.

Please refer to the bottom of our latest news release for more information on this. For those of you following on the webcast, we will be referring to the page number of supporting slides.

Grant Tanaka, our Director of Finance, will report on the Q1 financial results, as you can hear in my voice – and I'll now turn the call over to our CEO, Jim O'Rourke, for his remarks.

Thank you, Rod, and good morning everyone, and thank you for joining us. Today, we will discuss 2016 first quarter results for the operation at the Copper Mountain Mining and our corporate financials.

I will briefly summarize the financial results and provide an update on the various operational activities after which Grant will provide financial details for 2016 first quarter and Rod will be available to also answer any financial questions. For the three months ended March 31, 2016, Copper Mountain continued to focus on our aggressive cost reduction program that was initiated in 2015 to address the reality of the low copper price environment.

During the first quarter, the company completed a total of three shipments of copper concentrate containing approximately 18.1 million pounds of copper plus precious metals, which generated CAD58.7 million in revenue, net of treatment and refining charges and price adjustments. The average realized copper price was 2.10 per pound for the quarter.

This compared to an average copper price of US$2.64 per pound for the period ending March 31, 2015 in which revenues were CAD71.5 million net of pricing adjustments. The reduction in revenue during 2016 is due to the decrease in metal prices, along with the timing of one last concentrate shipment during the quarter as compared to the same period last year.

Now, I’ll refer you to the slide on Page 3. Production for 2016 first quarter was 23.8 million pounds of copper equivalent, which included 19 million pounds of copper, 7600 ounces of gold and 64,700 ounces of silver.

The copper production was 18.4 million pounds in the first quarter of 2015. Based on the average metal prices received during the recent quarter, the precious metals accounted for 20% of the production value.

I’ll refer you to Page 4 on the slide. Mining activities were mainly focused in the Pit 2 area and the Virginia Pit for the first quarter.

During the quarter, a total of 17.4 million tons of material was mined including 5.7 million tons of ore and 11.8 million tons of waste for a strip ratio of 2.07 to 1. Now, I will refer you to Page 5, the mining statistics.

During the quarter, the mine achieved a new daily mining record of 242,950 tons per day, which was made possible by utilizing a short waste haul opportunity and continued focus on maximizing our haulage truck productivity hours. For the quarter, the mine averaged 192,000 tons per day, about 18% above the mining rate of the first quarter last year.

Mining in the Virginia Pit was initiated during the latter part of 2015, and above 5% of the mill feed in the past quarter came from the Virginia Pit. It's planned that the Virginia Pit will be completed in the latter part of 2016.

Our mining fleet continues to enjoy favorable mechanical availabilities. In 2016, the mobile production equipment averaged over 85% mechanical availability.

Total unit open pit mining costs at CAD1.53 per tonne were 15% below the mining cost during the same period last year. The lower unit costs result from reduced diesel fuel prices, improved utilization of our dispatch system, and the reduced haulage cycle as a result of shorter waste haulage distances.

Modifications to improve the haulage options are a key focus and are continuously being investigated at the site. Now I’ll refer you to Page 6, the milling activity.

The mill processed a total of 34 million tonnes of ore grading 0.312% copper, to produce 19 million pounds of copper; 7,600 ounces of gold; and 64,600 ounces of silver. Copper recovery averaged 81.8%, while gold recovery averaged 63%.

Mill operating time during the quarter averaged 91%, which was slightly below our 92% plan, as a result of an unplanned downtime associated with the SAG mill discharge screen early in the quarter. I’ll refer you to Page 7.

Mill throughput averaged 37,100 tonnes per day during the quarter, a 12% increase over the 33,200 tonnes per day recorded in the first quarter of 2015. We are confident that the 2016 guidance of 37,500 tonnes per day average will be achieved.

Mill throughput has increased 49%, as compared to the period prior to our pre-crushing of SAG mill feed, dating back to 2015. The mine site unit cost per tonne milled were reduced by 12.8%, as compared to the first quarter last year, which is a reflect of the higher throughput, plus the site cost reduction initiative.

Refer you to Page 8. Total cash costs for the three months ended March 31, 2016, were US$61 per pound copper sold, net of precious metals.

Credits – well, site costs were US$1.16 per pound of copper produced, net of precious metal credits. This represents a reduction of 9% and 4% respectively, compared to the total unit cost of US$0.77 per pound and site costs of $0.21 per pound, net of precious metal credits during the first quarter of 2015.

I’ll now refer you to the slide on safety on Page 9. Recently, on March 7, the BC government awarded the Edward Prior Award to the mine for its safety performance.

This is the second consecutive year of our mine team receiving this award with no lost-time accident. Established 50 years ago by the BC Minister of Mines, this award is presented annually to the mid-sized mining operation having the lowest injury frequency rate.

We’re extremely proud of our mining employees for their dedication to safety. The miners continued to work lost-time-incident free for over 2.5 years as of the end of the first quarter.

Once again, this acknowledges the dedication and strength of our operating team and reinforces our ongoing commitment to safety while continuing to achieve new operational efficiencies and also production records. I’ll refer you to slide on the Page 10.

The Company is on track to meet our 2016 guidance level of 80 million pounds of copper for the year. The copper grade is forecast to average 0.33% copper and mill throughput is planned at a rate of 37,500 tonnes per day.

The planned average mining rate for the year is 174,000 tonnes per day. I'll refer you to Slide 11.

During the quarter, supported by all of our stakeholders, the mine's aggressive cost-saving initiatives have greatly strengthened the mine's ability to weather the current global economic environment. The favorable Canadian dollar, lower fuel prices, shareholders' deferral of crusher tolling fees, conduit reuse by our employees and suppliers, plus the deferral of the electrical payments from BC Hydro are significant and greatly appreciated.

I will answer specific questions to any questions you have and answer these during the period later. I'll now turn the call over to Grant, who will speak on the financials.

Thank you, Jim. As noted on Slide number 12, the Company recognized revenue of CAD58.7 million for the first quarter ended March 31, 2016 after pricing adjustments and treatment charges.

This was based on sales of 18.1 million pounds of copper; 6,900 ounces of gold; and 61,200 ounces of silver. The average realized copper price for the first quarter of 2016 was US$2.10 per pound as compared to US$2.64 per pound for the quarter ended March 31, 2015.

Compared to revenues for the Q1 2015 were CAD71.5 million after pricing adjustments and smelter charges. While average realized copper prices declined 21% year-over-year, net revenues declined only 18% for the first quarter of 2016 as compared to the same period last year.

This is attributed to the strengthening of the U.S. dollar, as all sales are settled in U.S.

dollars. As noted on Slide number 13, cost of sales for the first quarter ended March 31, 2016 were CAD57.2 million, which resulted in a gross profit of CAD1.6 million as compared to the cost of sales of CAD64.7 million, which resulted in a gross profit of CAD6.8 million for the first quarter ended March 31, 2015.

The decrease in cost of sales is a direct result of selling less copper during the quarter and the cost savings realized as part of the Company's cost savings initiatives, as well as production efficiencies realized during the quarter as compared to the same period of 2015, as noted by Jim. General and administrative expenses, which include some mine site administrative expenses, were CAD1.8 million for the first quarter ended March 31, 2016 compared to CAD2 million for the first quarter ended March 31, 2015.

Non-cash share-based compensation reflected an expense of CAD0.2 million for the first quarter ended March 31, 2016, compared to an expense of CAD0.3 million for the first quarter ended March 31, 2015. For the quarter ended March 31, 2016, the Company recorded finance income of CAD0.1 million and finance expense of CAD3.1 million, as compared with finance income of CAD0.1 million and finance expense of CAD2.5 million for the first quarter ended March 31, 2015.

Finance expense primarily consists of interest on loans and the amortization of financing fees. For the first quarter ended March 31, 2016, the Company recognized a non-cash unrealized foreign exchange gain of CAD25.1 million, compared with a non-cash unrealized foreign exchange loss of CAD3.2 million for the first quarter ended March 31, 2015.

This primarily relates to the Company's debt that is denominated in U.S. dollars.

During the first quarter of 2016, the Company recognized a non-cash, unrealized loss on the interest rate swap of CAD2.6 million, as compared with a non-cash unrealized loss on the interest rate swap of CAD2 million for the first quarter ended March 31, 2015. This is related to the revaluation of interest rate swap liability required on the Company's loan agreements.

It should be noted that these adjustments to income are required under IFRS and are non-cash in nature, as outlined in the Company's MD&A and statement of cash flows. For the first quarter ended March 31, 2016, the Company recorded a current resource tax expense of CAD0.2 million.

That's compared with a current resource tax expense of CAD0.4 million for the first quarter ended March 31, 2015. This all resulted in a net gain attributed to shareholders of the Company for the first quarter ended March 31, 2016 of CAD19 million or CAD0.11 per share as compared to a net loss of CAD31.8 million or CAD0.20 per share for the first quarter ended March 31, 2015.

As you can see on our income statement, foreign exchange gains and losses can swing quarterly and yearly significantly. Therefore, we really need to look at the adjusted earnings and adjusted EBITDA to decipher this.

If we take out all the accounting non-cash items, the Company reported adjusted EBITDA of CAD7.2 million and adjusted loss of CAD7.9 million, or about CAD0.17 per share for the first quarter ended March 31, 2016; compared with adjusted EBITDA of CAD18.4 million and adjusted earnings of CAD4.3 million or CAD0.04 per share for the first quarter ended March 31, 2015. This is primarily due to the 21% drop in copper prices that we saw in the past year.

As noted on Slide number 14, the Company had a cash flow from operations before working capital changes of CAD15.2 million during the first quarter of 2016, as compared to CAD17.9 million for the first quarter ended March 31, 2015. At the end of the quarter, the Company had cash on hand of CAD1.8 million.

This reduction in cash was a result of timing of concentrate shipments during the quarter in an effort to decrease payables by CAD10 million during the quarter. We have a number of financial levers that we can still utilize should we further see weakening in the copper price, which is up about 14% since the beginning of the year.

In conclusion, we delivered a strong quarter in the prevailing commodity price environment. As noted on Slide number 15, our priorities remain focused on continuing to maximize cash flow and minimize costs.

We look forward to a strong second quarter and remain confident in our 2015 production targets will be met. I would now like to open the lines up for questions that people might have.

Thank you, guys. Great to see the operation doing well and cash costs continuing to come down on a quarter-over-quarter basis.

I’m just wondering can you comment a little bit on where things stand with regards to discussions with your lenders? And then potentially relaxing the debt or covenants underpinning it?

Sure can, Stefan. Part of the process in March is that we have the independent bank engineers up on for a site visit.

Their report is now in, and the next step is we’re updating our financial models for the bank, and so they’ve got all the information in front of them to make that decision by sometime here in the Q2.

Okay. So we should probably see news on that later this quarter then?

Is that the idea?

Pardon me.

We should expect to see news on that later this quarter then?

Yes, our timing was Q2 for that, but don’t forget, the rescheduling of the debt that we were looking for was the December payment. We’re totally on track for the June payment that is coming due.

Okay, okay, great. Thank you very much guys.

Hi, good morning, you mentioned that you have a number of potential levers you could pull to strengthen liquidity, could you just outline what some of those options might be for us? Thank you.

Hi Orest I guess one of the ones that you saw were the BC Hydro program that’s now in place, and we’ve implemented that one where we’re getting the full 75% reduction. That means about CAD22.5 million to us annually, right to the bottom line.

Another example could be our recently new long-term agreement on fuel supply. We’re now sourcing our fuel out of the States against barge stop to Vancouver, stored at the port and the same trucking company is trucking to it.

We’re saving about a nickel compared to what the rate is at Kamloops.

I guess I could also add there that in our operating costs we also have in there our tolling fees, which is the fees paid to the – ourselves and Mitsubishi with regard to putting in the secondary crusher, and that accounts for about CAD14 million per year, and we've agreed that we can defer that, and that would add about another CAD14 million a year to the operation.

Okay. Thank you.

And just as a follow-up, how are you accounting for the BC Hydro deferral? Like do your reported cash cost numbers reflect the accrual of future payments, or are you – do you just run through the lower costs incurred?

Thank you.

No, that – from a cash cost point of view, it's included in that cost, even though it isn't an accrual item. We - this quarter it started effective March 1, and it was included in our current liabilities.

I believe as we go forward here, though, it should be included in more long-term liabilities, because the intent is it would be further down the road to be repaid, so beyond that working capital relationship.

Okay. So it should not impact at all the reported cash cost numbers is that correct?

No, no, it does not. We include the full cost.

Okay. Thank you very much.

Hey, good morning, a couple questions here – your mine rate in Q1, 190 some odd thousand tonnes, well above your 2016 guidance, so does that mean we should see a slowdown in mining for the rest of this year? Or I'm just trying to get a handle on why so much additional tonnes were mined in Q1?

Yes, I think as I've pointed out in my discussion, is that we did take an opportunity of shorter haul, and this greatly helped, but we are projected to have longer hauls during the latter part of the year. But, again, I also mentioned that one of our focuses at the site is to continue to review our waste dump locations and minimize our haulage distances and consequently our cycle times on the trucks.

Our trucks are actually our key item there in terms of productivity.

Okay. So we may see less tonnage being moved, but the cost to move those tonnes up a little bit because of the longer haul, so net-net, impact on your cash flow would be about the same?

That’s correct. Yes.

Okay.

And I guess the other thing, in the first quarter we did move a lot more tonnage. We were trying to get ahead of it on our broken ore as well, so our costs actually, we're a little higher in the first quarter.

Total costs, unit costs were down.

Okay. And just on this BC Hydro program, can you give us any details on which, you know, what copper price triggers a certain percentage deferral?

I think you have said 75%. Is that below $2.30?

And at what prices does that rate go back up?

The graph is a continuous graph starting, I think it was down around $2.10, but they've done it in Canadian dollars, and so it's – as it turns out, it's much to our favor, but initially we thought it was negative. But I'll let Rod talk to that.

Yes, Alex there is a formula that they use, and it's based on the copper – U.S. copper price and the exchange rate at the time, and it's based on the average for the previous month, so at about $2.50.

It would go to about $2.50. I can't remember the exchange rate, but I can get that offline for you.

It was about a 50% deferral at $2.50. And from where we are today at $2.20 and the exchange rate, it's a 75% deferral.

Okay.

And 75% is the maximum deferral you can get.

Okay. Sorry - and that was below $2.25?

No, it was – I said, where we are about today, call it $2.20, and current exchange rate, it works out to over 75% deferral, but you're capped at 75%.

Yes, okay. Okay.

And then with the cash costs, you talked about some of your levers for the BC Hydro, and sourcing fuel from the U.S. versus Kamloops.

What do you think your cash costs should be over the course of 2016?

We came in as, you know, last year in that CAD1.70-ish range. This quarter we were a little bit better.

I would expect our quarter to be similar in nature. Our costs are fairly [indiscernible] each quarter, it just depends on the odd item, if it comes up, because we'll take everything right on the chin.

If we have an engine go in a truck, you just expense it that quarter. I would expect our costs to be in this CAD1.70-ish range, all in, for the year.

Okay. Lastly on the cash costs here, offsite costs have been pretty consistent, CAD0.45, CAD0.47, they're both a pound.

You know, with the pressure up until recently on treatment charges and freight rates generally being low, is there any scope to reduce those by a few cents a pound?

Yes, we're just finalizing negotiations with the smelters now, and it looks like we can probably beat the benchmarks by 10% anyway, and so we're looking for some improvements there. I think we mentioned it last year, we signed a new ocean freight agreement where we dropped our ocean freight by about $10 per tonne of concentrate, so we've made some progress in that area.

Okay. Great.

Thank you, and just lastly, you mentioned the adjusted EPS estimate. I think I just missed the number.

Can you tell me what you calculate that to be?

Yes. Our – on our Q1 results you're talking about?

Yes.

Okay. We've got the adjusted earnings about…

I think you may have said CAD0.04.

Refer you to Page 6 of the MD&A. Page 6 of the MD&A has your adjust earnings per share.

Yes, yes, yes. Sorry, okay.

I just thought there was a different number I was hearing, but I was just – that was last quarter. Okay - last year.

All right, that's fine, thank you.

Thank you.

Thank you very much everyone for dialing in to our Q1 conference call, and as usual, Jim and myself or Betty are available for questions if you have any follow-up questions. Thank you very much, bye.