Q3 2019 Earnings Call
This conference call at this time, all participants are in listen only mode. Following the presentation. We will conduct a question and answer session to join the question Q You May Press Star one on your telephone keypad should you need assistance during the conference call you may signal operator by pressing star zero I would like.
To remind everyone that this conference call is being recorded today November 12 at 10 am Eastern time, I'll now turn the conference over to can desperately director Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to Hudbays 2019 third quarter results Conference call.
<unk> financial results were issued yesterday and are available on our website at www Dot Hudbay dotcom, a corresponding Powerpoint presentation is also available and we encourage you to refer to during this call.
Our presenter today, it's Peter could kill ski <unk> interim President and Chief Executive Officer.
The company Peter for the Q and a portion of the call will be David Bryson, Our senior Vice President and Chief Financial Officer.
Cashel Meagher, our senior Vice President and Chief operating Officer, and your daily our senior Vice President corporate development strategy.
Please note that comments made on today's call may contain forward looking information and this information by its nature is subject to risks and uncertainties and I've such actual results may differ materially from the views expressed today.
For further information on these risks and uncertainties. Please consult the company's relevant filings on SEDAR and Edgar.
Documents are also available on our website.
A reminder, all amounts discussed on today's call or in U.S. dollars unless otherwise noted.
Now I'll pass the call over to Peter can kill ski Eater.
Thank you Candice and good morning, everyone.
Thank you for joining us before we get into the quarterly results I thought I'd start todays call with an update on to current items that have been the focus for investors.
Permanent CEO search and the status of the Rosemont litigation.
In October the board appointed Stephen line as a chair about board of directors, Steve US over 40 years of experience in the mining industry, including engineering development and operating experience.
Steve current focus ism identifying a permanent CEO .
It has advanced a comprehensive search process, which I expect we'll be concluded in the next few months.
Meantime, we are making all the necessary decisions to advance the business and then show we are delivering on our strategic objectives.
This brings us to the second by something I'd like to address which is the current status of the Rosemont litigation.
In late August we made the tactical decision to filed a motion for reconsideration of certain issues in the district quotes July 31st decision.
Among other things we believe the district court went beyond its authority by assessing the validity of Rosemont mining claims and we asked the court to reconsider its judgment in this respect.
The motion for reconsideration was the first step in our appeals process as we seek to correct. The courts misinterpretation of current mining laws and regulations that govern mining activities on public lands in the United States.
Although the district court denied our motion it was important to put these issues on the record prior to filing an appeal to the U.S. ninth Circuit Court of Appeals, which we anticipate could take approximately two years to conclude.
We remain fully committed to Rosemont as we believe me there's a high quality high return Papa development project that both benefit stake holders and compliance with applicable laws.
We believe Rosemont permits will ultimately be upheld on appeal as a district courts unprecedented decision contradicts several decades of mining regulations in the U.S. and has the potential to seriously disrupt the United States mining industry.
I will now move onto a review of our consolidated results for the quarter together with an operational review and highlights of various optimization and growth initiatives in both group and Manitoba.
In the third quarter Hudbay continued to deliver solid operating results with record quarterly mill throughput at Constancio and strong cost performance in both Peru and Manitoba.
We produced over 36000 tons of copper in the quarter.
20% increase compared to last quarter due to higher grades and recoveries that constancio, along with record quarterly throughputs at the Constancio Mills.
Consolidated cash cost natural byproduct credits was 98 cents per pound of copper, 23% improvement compared to the second quarter up 29 team.
This cost improvement was the result of lower unit operating costs in both Peru and Manitoba.
Andrew achieved its lowest unit costs, eight quarters, and Manitoba unit cost stabilized at a lower level following the ramp up of lot or during the first half what yeah.
Similarly, all in sustaining cash cost net of byproduct credits decreased to $1.90 cents per pound of copper in the quarter.
16% improvement over the last quarter, driven mainly by the strong unit cost performance in the operations.
Earnings and earnings per share in the third quarter were affected by several one time or non cash back to.
The first was a noncash impairment of rosemont carrying value, which reduced earnings per share by 93 cents.
Following the court judgment on Rosemont and impairment test resulted in an off to tax impairment loss of $242 million.
The second factor relates into a dividend withholding tax incurred with the repatriation of fines by way of a onetime intercompany dividends.
This was holding tax reduced earnings per share by approximately three cents per share.
The third notable factor was noncash deferred tax adjustments, which reduced earnings per share by one cents.
Despite these onetime adjustments we are inline with expectations.
During the quarter the copper mining Cardoen group continued to see heightened political activity around other companies mining projects and operations.
This included large protests against the granting of a permit for another companies mining project, the Tia Maria project, which caused rocks to access to the port in July and August .
Stancik continue to operate at full capacity. Despite these restrictions and the team actively managed concentrate logistics to overcome these challenges.
However, sales volumes were slightly lower this quarter, reflecting the temporary build up of copper concentrate inventory as a result to the restricted access to the pools.
This caused lower revenues and low operating cash flow during the quarter, but we expect that to improve once inventory levels normalize.
[noise] since the end of October these protests have resumed but haven't affected access to the port of Massarany.
We will continue to monitor the situation and actively manage logistics around any potential impact.
I think it's important to know top Caribbean teams impressive ability to navigate through these recent external logistical challenges in Peru.
Maintaining strong relationships with our communities and partners in the region, we've been able to continue to operate at full capacity without any significant interruption to our business I'm extremely proud of the performance about Peruvian team.
Cash and cash equivalents decreased to approximately $400 million at September Thirtyth 29 team.
This reflected a number of unusual movements in cash, including seasonally elevated sustaining capital expenditures the semi annual cash interest payments on our long term debt and lowest sales in Peru.
Taking a closer look at their results from our South America business units Constancio continued to perform well and is on track to achieve 2019 production and cost guidance.
During the quarter Constancio produced 31000 tons of copper.
15000 ounces of precious metals, and 262 tons of molybdenum.
Copper in precious metals production was significantly higher than the second quarter due to higher grades and recoveries. In addition to the record mill throughput levels achieved this quarter.
Body production during the quarter was slightly lower than last quarter due to reduced availability of key reagents required for the Marty circuit that up transported by shift through the ports of Massarany.
Since access to the Port was restored in August the body parts has returned to normal operating levels and we are on track to achieve annual production guidance of all metals in Peru.
Those copper grades in the third quarter were higher than the second quarter.
Mill throughput was 7% higher than last quarter, a quarterly throughput record, averaging just under 90000 tons per day, reflecting higher parts availability through the continued successful implementation of optimization initiatives.
Recoveries in the third quarter improved for all metals compared to the second quarter.
The increased recoveries were results of continued metallurgical improvements and while recoveries vary from quarter to quarter, depending on the complexity in grade of the ore feed we are pleased with the sustained improvements we are seeing as the results of these initiatives.
One of these initiatives continued integration of an automated advanced process control system in the grinding and bulk flotation circuits, which allows us to automate many factors in the circuits to optimize the output.
This system was installed at the end of last year I had initial choosing was completed in the first quarter of trade you 19, with a second round of refined tuning in third quarter, which corresponds to the two quarters of the highest copper recoveries since constancio has been operating as shown in the graph on slide five.
We have also implemented flotation improvements such as optimizing the water recovery in the tailings thickener and the installation of enhanced equipment and the rough the circuit.
We're pleased with the results from these initiatives and the performance of the mill yesterdays, achieving targeted throughput copper grades and copper recoveries 2019.
Constancio combined men mine mill and Gionee units operating costs in the third quarter <unk> daughters, and 63 cents the lowest quarterly unit costs reported in the past eight quarters, reflecting our focus on cost control and throughput optimization initiatives.
During the fourth quarter.
Four days semi annual maintenance shutdown of the Constancio mill is banned and production then combined unit costs are expected to reflect correspondingly lower ore throughput.
In addition to regular semi annual maintenance work, we plan to install new up equipment relating to the ongoing throughput and recovery optimization initiatives that constancio.
The maintenance shutdown is consistent with a full year plan for Constancio and as mentioned earlier, we continue to expect production and cost guidance to be met for the full year 29 team.
Cash cost natural byproduct credits for the third quarter was $1.26 cents, representing a 23% decrease from the second quarter.
Sustaining cash cost native byproduct credits in the quarter was $1.73 cents, a decrease of 17% from the second quarter.
The decline in these cash costs reflects lower operating costs and stronger production in the quarter, partially offset by higher sustaining capital expenditures in the case of the sustaining cash costs.
We continue to advance discussions with the community of Geo Australia.
And access agreement for the pump a conscious satellite deposit.
These discussions are progressing and we continue to expect to be mining ore at pump a country in 2020 .
We are continuing to advance permitting community relations and technical activities required to access and drove the satellite targets northwest of Constancio on the land we acquired last year.
On one of those properties, we're nearing the final stages of obtaining drilling permits and we expect to be drilling that targets in the coming months.
Switching to Manitoba.
We saw similar trend with low operating costs during the quarter.
Ore mines in Manitoba was lower than the second quarter as the result of lot or five year maintenance requirements.
We're pleased with the performance we've seen from Lauro since the maintenance was completed and the mine output has been returns to the 4500 tonnes a day level.
We continue to maximize production from the Triple seven mine as we saw high tonnage out at the mine as the results of the implementation of management system is designed to improve mobile equipment availability in key performance indicators for drilling blasting and backfilling processes.
These improvement initiatives continue to keep triple seven mining costs at or below the Canadian $80, a time level since the beginning of 29 team as seen on slide seven.
[noise], Manitoba operations produced approximately 29000 tons of zinc.
5000 tons of copper and 26000 ounces of precious metals.
Full year production of all metals is expected to be within the annual guidance ranges were 29 team.
As seen on slide seven Manitoba combined unit operating costs continued to trend lower in the third quarter, reflecting the stabilization of unit costs at a lower level. Following the ramp up of law during the first half of the.
While third quarter unit costs are well below the levels reported in the first half of the year end all within the guidance range between 19, we expect full year combined unit costs to be at or slightly above the upper range of guidance for Manitoba.
Manitoba cash cost net of byproduct credits in the third quarter was negative 68 cents per pound of copper.
These costs were lower compared to the second quarter, primarily as a result of low treatment refining and freight costs and the higher byproduct credits on pounds of copper basis.
Sustaining cash cost net of byproduct credits in the second quarter was $2.40 per pound capa, which is higher than the second quarter due to increased capital development expenditures at lower and lower copper production.
New Brittania motor mill refurbishment activities are progressing in line with the development schedule laid out in the February 2019 mine plan.
Detailed engineering is on track to be completed in the first quarter of 2020 and environmental permits are expected before construction begins in mid 2020 .
Construction activities will continue until the third quarter of 2021 with plant commissioning and ramp up during the fourth quarter of 2020 one.
Once the new Brittania Mill is commissioned average annual gold production from Snow Lake is expected to be approximately 140000 ounces. During the first five years asset sustaining cash cost national byproducts of approximately $450 per ounce of gold.
Exploration activities on the regional deposits in Snow Lake continued to progress with a potential to add additional future feed to both the store base metal concentrator and the new Britannia Gold mill.
Slide nine highlights the regional deposits that currently container defined resource estimates.
The whites pause represent based middle material and the red bars represent potential gold material.
February 2019 mine plan is based on current law or reserves, only which totals approximately 14 million tons.
The regional deposits at another 4 million tons in the indicated category and an additional 15 million tons in the inferred category all within trucking distance of the two mills.
We continue to advance feasibility studies on the recency discovered 91 deposits, which contains an initial inferred resource estimate of 2.1 million tons at 9.67% zinc as announced in August 2019.
Drilling on the 91 deposit continues to test the size of the deposit.
From the presence of gold and copper gold mineralization and upgrade the mineral resource estimate to a higher category.
Recent underground drilling on lens 17 that law has confirmed the information in the past surface drill holes and an inferred estimates on lens 17 as expected with the annual mineral reserve and resource estimate update in March 2020 .
I'd like to conclude with a highlights of our strong project pipeline and summary of our near term catalysts, many of which have already been discussed.
Since 2010.
We have continued to execute on our consistent long term growth strategy, leveraging our core competencies of exploration project development and efficient operations, allowing us to create the world class pipeline, we have today.
Our exploration team discovered three new deposits in the recent past lowering 27.
In 2012, and the 91 deposit in 29 team.
We have demonstrated our project development expertise through the successful construction and commissioning of the Constancio and Lalor mines in 2014 and are committed to replicating the success at the Rosemont project.
We havent proven track record of efficient operations with Constancio being one of the lowest cost open pit copper mines in South America, and Lawler on track to becoming one of the lowest cost gold mines in Canada.
We have been opportunistic in pursuing low acquisition cost potentially hydrotreating opportunities such as the land consolidation to the northwest of Constancio and the and Mason property in 2018.
We are proud of our portfolio of assets and our strategic core competencies, which position us well for delivering on our robust pipeline of near term catalysts of course, we are always looking to improve which is why we will continue to seek operating cost efficiencies in all of our operations regardless of commodity price.
While we have already achieved many significant catalyst yesterdays, we believe we still have a number of meaningful near term catalysts.
In Manitoba, we will have an updated reserve and resource statement for Snow Lake late in the first quarter, which will incorporate the results from the infill drilling to upgrade lalor inferred resources and the exploration drilling at the law in mind targets, such as Len 17.
The updated reserve and resource statement will also include results from the ongoing work to upgrade win.
Two and new Brittania zones to a reserve classification.
Throughout 2020 , we will advance drilling and feasibility work on the 90 to one deposit and we will continue to explore our large land package to provide potential additional feed to our store and you Brittania mills.
In Peru as mentioned earlier, we expect to be drilling at one of the satellite targets to the northwest early next year, we continue to make progress on discussions to reach a community agreements on Concho, which will allow us to bring the pump a concept pits into production in 2020 .
Potential brings an additional 40 million tons into the mine plan over approximately four years at an average grade of 0.6% copper and significant precious metals content.
We continue to believe that Rosemont is one of the world's best undeveloped copper projects delivering strong returns.
We intend to appeal the court's decision to the US ninth Circuit Court of Appeals as we evaluate next steps for the project.
We have plans to drill high grade targets and Mason with a focus on enhancing project economics, along with advancing exploration activities on our other prospective grassroots exploration properties.
Overall, the third quarter has been a solid quarter.
Our operations in Peru in Manitoba continued to deliver and we advanced our pump for Concho discussions with the Geoffroy community.
We also set the stage for our appeal of the Rosemont decision, where we are confident permits will ultimately be upheld.
Includes my presentation portion of the coal and we're pleased to take your questions.
Thank you ladies and gentlemen, we will now begin the question and answer session to join the question Q You May Press Star one on your telephone keypad, you will hear atone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pricing any key.
Withdraw your question. Please press star to once again to ask a question. Please press star one at this time, we will pause for a moment as colors join the queue.
Our first question comes from Greg Barnes with TD Securities. Please go ahead.
Yes. Thank you.
Peter a cash all that the recoveries that constancio, obviously that bounce back up again like I understand it will change with the all type, but you again it gets a point where you have more consistent recoveries in the mid 80, 80% range.
Hi, Greg Cashel here.
Yes, I think so I think we're looking at being in the mid Eightys and we do have some improvement initiatives that we believe that there might be a few points left over the next couple of years.
So you get into the mid to high Eightys you think.
Yes, I think so especially when.
We get into a higher portion of height. The gene later on I think we'll have more consistency in your feet invest a lot of our optimization processes will bear more fruit.
Okay.
And just on the list of catalyst Peter on the Nineteena One zone.
It looks like you could make a development decision on that next year and the how.
The high level, how quickly could you be into the zone and actually mining it and then where would the or go snow Lake often fun.
Greg.
Not progressing the freedoms feasibility work on 90 to one.
The current thinking is that the zinc rich material could be processed install and the gold which material process that you pretend umo, which would result in incremental production to law and ultimately lower overall cost per ton do economies of scale.
Does that address your question.
Do you have enough capacity installed to take 91, plus lay Lauren North Dakota Flin Flon.
Cash and there is there's an opportunity with some low capital intensity to increase throughput install.
To be able to accommodate 19 on one conceptually.
We're still looking at what's best for the business to understand when 19 on one and the associated golds discovered there might be incorporated into the life of mine.
And I think.
Probably we're doing a rounded drilling anyway. This winter and so probably mid next year, we'll be in a better positioned to know when and where and how it.
Okay. Good thank you.
Our next question comes from Dow, Tim Barretto with Canaccord Genuity. Please go ahead.
Hi, Good morning, guys I just want to touch on this rosemont impairment loss here I think your disclosure says that the pattern was driven by three years later I think a 2% increasing the discount rate just wondering kind of how you guys came up with those two metrics and why don't you changed anything else in project valuation estimates.
The Delta and its David Bryson.
So.
We sort of ran with the mine plan that was in the last technical report for Rosemont. So no changes to production assumes capital costs operating costs. We have no reason to believe that there are any substantive changes at this point in time. So as you pointed out is really driven by the assumed.
Okay and the change in the discount rate assumption. So we are sort of assuming a restart of construction in 2023.
We think that that provides a reasonable allowance for the conclusion of litigation as well as and remobilization.
In order to sort of get back to a point, where we could start construction. Obviously, that's an assumption that we had to let choose for the purposes. The analysis as it relates to the discount rate we used 7.5% at the end of 2018, when we had.
What we thought was very clear visibility into the permits and.
Sort of expectations as to how the.
Court process is going to play out obviously the decision that we received.
Summer was a surprise to us and we think and many others said were observers of the process and so just given that decision we felt it appropriate to add some additional risks discounting and that that in the discount rate and we think thats pretty consistent with what many of the sell side analysts have done with respect and just.
Can't rates that they're using to value Rosemont.
Okay.
Sure. Yes go ahead.
So now it's Peter I was going to say that you know just in addition to look to what David said we are.
Are you confident that.
The court's decision will be overturned by the so could quote, but we do anticipate that that process will take up to a couple of years.
Right, Okay, and then maybe I can ask a follow up thanks glasses on can stance, yet, but obviously but side.
Hi, My estimate if I take up the maintenance downtime you're running at around 89000 tonnes a day pretty consistently do you expect that to continue going forward as the or tax change actually been pop culture.
Yeah, we still we expect to continue at the same run rate. There's no reason why don't you should assume obviously there'll be a little bit of variability in all types, but the throughput should remain constant.
Got it and maybe if I can ask one last question what can you share in place now are you anticipating any change in strategy at all going bald.
So in fact that that's a good question Dalton.
I would say in general notch, we have been taking a hard look at our strategic plan, especially in the context of the Rosemont decision.
Its a healthy thing to do we do it periodically in any case and I think it's fair to say that the range of choices ahead of us remain very consistent with the strategic plan that we've disposed in the past.
Perfect Thats often get thank you.
Our once again, if you have a question please press star one.
Our next question comes from John Tumazos with John Tumazos is independent research. Please go ahead.
Thank you.
Scares me that I have haven't read the us court decision.
Could you just summarize.
The judges reasoning.
Probably criticizing the regulatory agencies concerning the project.
And could you update us on your relationships with the royalty streaming companies.
Thank you are Augusta had taken cash that they would have advanced cash into later stage closer to construction.
Thank you.
Good morning, John .
Basically what you view judge made spaces decision on was a validity of mining claims now typically it's the agencies that rule on variety of mining claims and this judge ruled that we did not entitled to.
Based waste rock and tailings on.
Some mining claims that the partially service I felt that we work. So it's just a question melt.
We made an application to the quarter reconsidering based on our sands that that was.
Craig judgment.
On the question of royalty, we have not drawn anything against our royalty from Wheaton precious metals.
Thank you very much.
Our next question comes from Pierre Valin chord with Haywood Securities. Please go ahead.
Peter Cashel.
If you could elaborate a little bit on the the nature of discussions with Charleroi just because.
Yes.
Consistently pushed back and.
Maybe just identify the issues and whether we can really count on on a startup in 2020 or is this going to be.
Dragging on potentially longer.
Good morning, Thanks for the question look I think that.
There is no change in the tone of the conversations I think I mentioned in our loss in Hong Kong.
Conference call that we had sort of we would now in those stage or.
Negotiation with the community of Julia.
That remains correct. So this isn't negotiation now.
Which really has is on the part towards closure.
We previously talks about how in the past there was some items.
That was sense it to which the community with sensitive that had been addressed prior to the end of the last quarter. Now we are in advanced negotiation with the community and we expect those community those negotiations to be concluded in the near term. So that we can in fact.
Start production at punch.
In late 2020.
So really no change, but we're making very very good progress.
Okay. Thanks.
Welcome.
This concludes the question and answer session I would like to turn the conference back over to Candice relay for any closing remarks.
Thank you operator, and thank you everyone for participating today.
Please feel free to reach out to our Investor Relations team. If you have any further questions. This concludes our colleague interconnect disconnect your lines at this time.
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