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ARG: Strong Production Results Despite Shutdown; Increasing TP

What you need to know:
• Q3 copper production came in at 14.6Mbs, below our 16.6Mlbs estimate, due to a 10-day suspension of fresh tailing following the El Teniente accident, which lowered fresh tailing throughput through August.
• Management has decreased annual guidance by 2-5% and maintained its cash cost guidance of $1.93/lb. Amerigo remains on track to eliminate its debt by year-end.
• Cash costs came in at $1.80/lb, below our estimate of $1.91/lb.
• We are increasing our target to C$3.50/share based on expanding multiples across the sector.

This morning, Amerigo Resources (ARG:TSX, ARREF:OTC) reported its Q3 production results, which came in below our estimates due to an accident at Codelco’s El Teniente mine that temporarily disrupted fresh tailings supply. MVC did not receive any fresh tailings for ~10 days, and throughput has yet to return to pre-incident levels. Despite this, daily production has remained stable since late August, with September output closely aligned with the Company’s monthly targets. ARG lowered its annual guidance by 2-5% but still remains positioned to take advantage of the rising copper price and eliminate its debt by Q4. We are maintaining our BUY rating and increasing our target price to C$3.50/share (previously C$3.00/share) on ARG.

Q3 Production Highlights
• Copper produced came in at 14.6Mlbs (-11% YoY) compared to our estimate of 16.6Mlbs. The miss was due to lower fresh tailings throughput following an accident at the El Teniente mine. MVC did not receive fresh tailings for 10 days in August while mine operations were suspended. Management indicated that El Teniente’s operations continue to ramp, but fresh tailings have not yet returned to pre-accident levels. Despite this, MVC’s daily production remained stable since the last week of August as the team focused on historical tailings, with September output aligned with its original monthly production budget.
• 92.6Ktpd of fresh tailings were processed during the quarter (-28% YoY) across 82 operating days, along with 50.9Ktpd in historic tailings (+55% YoY) across 89 operating days. The grade from the fresh tails was 0.180%, in line with historical averages. The historic tailings grade increased to 0.252%. Copper recoveries were 22.2% for the fresh tailings and 30.9% for the historic tailings.
• Cash costs came in at $1.80/lb, below our estimate of $1.91/lb, attributable to MVC’s plant availability of 98.3%. This places YTD cash costs at $1.93/lb.
• Moly production for the quarter came in at 0.35Mlbs, beating our estimate of 0.30Mlbs and the 0.33Mlbs produced in Q3/24.
• During the quarter, ARG returned $3.5M to shareholders via its quarterly dividend. This brings YTD capital returns to $15.6M ($10.5M from quarterly dividends and $5.1M in share buybacks).
• ARG reported a cash position of $28.0M (plus $3.1M of restricted cash) and outstanding debt of $7.5M. ARG remains positioned to eliminate its debt by Q4.