Q4 2019 Earnings Call
Good morning, ladies and gentlemen, thank you for standing by welcome to the Hudbay fourth quarter 2019 results 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, an operator by pressing star zero.
I would like to remind everyone that this conference call is being recorded today February 21st 2020 at nine am Eastern time.
I'll now turn the conference over to candidates for late Director Investor Relations. Please go ahead.
Thank you operator, good morning welcome.
2019 fourth quarter results conference call.
Hi, <unk> financial results for issued yesterday.
Our website.
Hi.
A corresponding Powerpoint presentation is available and we encourage you to refer to during this call.
Hi, Peter can kill ski President and Chief Executive Officer.
Turning Peter for the Q and a portion of the call will be even.
Our senior Vice President and Chief Financial Officer.
Our senior Vice President and Chief operating Officer, and Eugenie, Our senior Vice President corporate development strategy.
Please note that comments made on.
Forward looking information.
By its nature is subject to risks and uncertainties.
Actual results may differ materially from the views expressed today.
Further information on these.
Certainty please consult the company's relevant filing.
Sure.
Documents are also available on our website.
As a reminder, all amounts discussed on today's call.
All or otherwise.
Now I'll pass the call over to Peter guilty Peter.
Thank you Candice good morning, everyone and thank you for joining us.
I'm sure you're all aware.
Recently been appointed as President and CEO of to serving in the interim role since July of last year.
I'm honored and excited to take on this role and to continue working with an extremely talented team.
Hudbays, an iconic Canadian public company that has been around over 90, yes.
Built an exceptional pipeline of low cost long life assets in mining friendly jurisdictions and intend to utilize our core competencies of exploration mine development and efficient operations to continue to execute on our strategic priorities and generate value for all stakeholders.
We announced yesterday that David Bryson, Oh, CFO will be retiring at the end of March after 11 years with a company.
She has made the personal decision to take an extended sabbatical away from work before considering what you'll do next.
This transition has been plan over yes, as David indicated his intention to make this change.
The transition was postponed in order to ensure an orderly transition of the C O role and I greatly appreciate the time, we have spent together since I joined the company.
Conducting an executive search to consider all available candidates.
The meantime, Eugene Lee will provide continuity and a steady hand as interim CFO until the search process is completed.
Gene is expected to return entries corporate development and strategy roll off towards.
We also announced that Alan Haven Board member and form aboard Chen who stepped down from the board.
[noise] change is consistent with the plan that was put in place when outboard was refreshed and we are grateful to adding for his contributions to hudbay success. During his time on the board.
I'd now like to turn off focus over to our corporate achievements and challenges in 29 team.
By an overview about production and cost outlook.
I'd also spend a few minutes, describing what I believe all the hudbay competitive advantages and will conclude with a discussion of my strategic vision for the company and all strategic priorities.
2900, yes, all solid operating results due to a if it's on a continuous improvement of mine performance well implementing various improvement initiatives across the business.
We achieved full year production and units cost guidance in both Peru, and Manitoba, continuing a trend of achieving copper production guidance every year for the past five years.
Constancio mine in Peru achieved record mill throughput and record copper recoveries in trenching, 19, ads, where you're seeing that benefit [laughter] several metallurgical enhancements at the mill.
The lot ore mine achieved record output in 2019 due to the successful mine ramp up to 4500 tonnes per day early in the yet and the Triple seven mine significantly increased mine output from successfully implemented efficiency initiatives.
These achievements in Manitoba resulted in zinc production exceeding the top end up with the guidance range.
Not only always pleased with our operating performance in 29 team. We're also proud about continued strong U.S.G. performance I'm, especially proud of the Manitoba business unit for their towards sustainable mining leadership award in 2019.
And the per room business units overcame substantial external challenges during the year that severely affected our peers and our operation wouldn't have been successful without the team's strong partnerships with our local communities.
In early 2019, we announced a significant increase in reserves and an updated mine plan for a lot or which is projected to more than doubled the annual gold production from the mine.
Through the refurbishment of the nearby New Brittania gold mill and related infrastructure upgrades and store Lake lowers annual gold production is expected to increase to approximately 140000 ounces at all in sustaining cash cost of approximately $450 per ounce starting in Twentytwenty true.
I believe that lower is on track to become one of the best gold mines in Canada.
Hudbay exploration team also discovered a new deposits in the Snow Lake region in trends you 19 pulled the night you know one deposit and we successfully defines an initial resource estimates a miss six months later, along with advanced drilling activities focused on defining the gold potential at the deposit.
After receiving the long awaited final federal permits and Rosemont in early 2019, we acquired the minority joint venture interest in the project and the box on a plan for early development activities for the project.
However, those plans came to halt in July Altra, U.S. District Judge issued an unprecedented routing against the federal agencies and the issuance of the permits at Rosemont.
We are obviously deeply disappointed and frustrated by the decision which appears to over two decades of central mining law in the United States.
Both hudbay and the federal agencies have appealed the decision with the U.S. ninth Circuit Court of appeal, which could take two years to conclude.
In 2019, we also refresh the board appointed a new C O and with these new developments behind US. We're now moving forward with a focus on executing our strategic priorities as we embark on a very promising future.
We've started off the yes strong from a strategy execution perspective with the recent announcement of the pump a conscious surface rights agreement.
We made significant progress on the negotiations with the community during 2019, which paved the way to successfully reaching an agreement in February positioning us well to be mining the high grade satellite deposit before the end of the yet.
Our patient and prudent approach to community engagement was validated through this success with agreement and we believe this approach is what differentiates hudbay in Peru reinforces the strong relationships, we have with a community and is essential in building a sustainable long term business in Peru.
We were pleased to provide our annual production and cost guidance with our results yesterday.
New this year, we have introduced a longer term three a production outlook to our guidance disclosures as shown on slide nine.
In Twentytwenty.
Consolidated copper production is full cost to be between 98, and a 117000 tons of copper.
Lower than 2019 levels due to planned lower copper grades constancio inline with the mine plan.
As we have had a recent strong performance from the mill.
Upper end of Peruse range reflects the mills full yet throughput limits imposed by its operating permits.
With the addition of the higher grade pump a conscious satellite deposits total copper production is expected to increase by 18% from 2020 to 2022.
Production of zinc contained in concentration Twentytwenty is full cost to be another strong year with a twentytwenty guidance range slightly higher than the range in 2019.
That trend is expected to continue into 2021 with lot or maintaining steady production that 4500 tonnes per day and the company continuing to maximize the output from the Triple seven mine as it near the end of its mine life in the second quarter of Twentytwenty too.
Consolidated production of precious metals contained in concentration Twentytwenty is full cost increased by approximately 4% compared to 2019 production.
Primarily due to higher precious metals production that lot or from the plant mining of approximately 90000 tons from the gold zones in Twentytwenty as part of stopes sequencing in preparation for the restart of the new Brittania Gold mill.
By 2022 consolidated precious metals production is expected to increased by 67% through the restart of the new Brittania gold million, Manitoba and the addition of the pump a contra high grade satellite deposits in Peru.
Total plan sustaining capital expenditure in 2020 are expected to slightly decreased from 2019 levels due to lower spending in Manitoba offset by higher planned spending in Peru, primarily related to higher capitalized stripping costs.
In Manitoba, we continue to implement improvements on the legacy fund flung tailings impoundment area as we proactively incorporate higher industrywide tailings dam standards.
This spending is expected to be approximately $20 million per year from 2020 to 2022, but these expenditures will not impact sustaining capital expenditures since they are associated with the updated decommissioning and restoration liability and therefore will be accounted for as a drawdown of the liability.
Manitoba growth capital spending of $18 million relates to a significant portion of the new Brittania mill refurbishment costs as construction activities are on track to commence in the second quarter of Twentytwenty.
The new Brittania mill refurbishment costs are expected to total approximately a $115 million over 2020, and 2021 higher than the original estimate of approximately $95 million as we are introducing new instruments expects it to further improve mill efficiency, but also.
Pacing labor cost inflation, and some cost escalation on equipment.
The capital investments in the new Brittania Middle Office high returns in the short payback period based on current reserves at lot or.
Once the new Brittania Goldman is an operation by 2022 gold will account for over 60% of revenues at Lalor with annual gold production expected to grow to approximately a 140000 ounces at a sustaining cash cost of approximately $450 per ounce over the first five years.
A root gross capital of $17 million includes initial expenditures for developing the pump a consumer deposits and acquiring surface rights from the local community.
This figure excludes the costs associated with recognizing the current uses of the land by certain community members, which are subject to pending agreements with those individuals.
As I mentioned earlier Hudbays patient approach to community negotiations has proven successful demonstrating our strong relationships with a neighboring communities and positioning us well to unlock future value on a other regional growth targets in Peru.
The $20 million allocated to be Spansion, Arizona is intended to support ongoing efforts on the Rosemont project and advanced preliminary economic studies at the Mason project in Nevada.
Our exploration portfolio of owned or option to mineral properties consists of approximately 850000 hectares across Canada, Peru, the United States and CIT it.
Hi, Twentytwenty exploration budget of $25 million, which includes option payments will be focused on exploration near existing processing infrastructure in Peru and Manitoba.
We will provide further details of our exploration plans when we publish our annual reserves and resources updated at the end of March.
Combined unit cost for Manitoba in Twentytwenty, a full cost to be similar to 2019 levels as long as cost of normalized off to the ramp up to 4500 tonnes per day.
Combined unit cost will Peru, and Twentytwenty are also expected to be similar to two Mg 19 levels as the phones continues to operate at full capacity.
I'm going to spend a few moments talking about this strategic advantage of that Hudbay office, which can be summarized in six elements as shown on slide 11.
Long life assets located in mining friendly jurisdictions.
A proven track record of operational excellence and low cost mines.
The focus on free cash flow generation and prudent capital allocation.
The World Class management team with proven mining industry experience.
Strong U.S.G. performance.
And copper focus with the diversified organic growth pipeline.
Hi, based key assets all have total mine lives of greater than 15 years, which ensures our stakeholders reap the rewards through several commodity cycles during the mine life.
This coupled with the fact that our assets are located in the first quartile of attractive mining regions in the world.
Positions us well to provide a stable low risk vehicle for investors.
We are especially proud about proven track record of operational excellence.
We have a strong history of achieving or exceeding copper production guidance over the past five years.
We are well positioned on the cash cost could reflecting our corporate focus on cost control operational efficiencies and continuous improvement at each of our operations.
This low cost profile enables hudbay to continue to generate positive cash flows even in lower commodity price environments, while enjoying significantly higher cash flows in stronger commodity price environments.
The Prime example of our focus on cost control and operational efficiencies as seen through Constancio unit cost benchmarking.
As shown on slide 14, I'm proud to say that Constancia is one of the lowest cost open pits copper mines in South America.
Isn't the largest or the mines shown on this slide and therefore isn't benefiting from economies of scale.
These costs demonstrate the teams focused on being as efficient as possible in all aspects of the operation, including mining milling and logistics, well never being satisfied and always looking for ways to continuously improve.
The benefit of low cost and efficient operations is that the business generates free cash flow in all stages of the commodity price cycles.
Looking back over the past four years Hudbay has generated sufficient significant EBITDA and positive free cash flow during this volatile copper price environment.
This is also a testament to our prudent management of the balance sheet as seen through reducing net dipped by more than 50% and investing in low capital Pirates and brownfield projects with short paybacks on our invested capital.
Both the public Kunshan development and the new Brittania Gold mill Refurbishments are examples of these prudent investments.
I've said many times too many people since I've joined Hudbay that this company has a disproportionately talented team for a company of its size.
We truly have some of the best mining specialist in the industry and the bench strength is impressive.
We have strong expertise in all aspects of the mining cycle exploration project development and operations.
We have divest strengths in both open pit and underground along with experience across several commodity types and global jurisdictions.
Our exploration team has been highly successful in growing the reserve base at our two flagship operations Constancia and lalor, both seeing greater than 90% growth since the initial reserve estimates.
Lawler was an enhanced geophysical discovery on our wholly owned land using our innovative exploration techniques and is the largest vms deposit found in the snow Lake region to date the.
A lot of deposit was founded in 2007 construction of the main production shaft was approved in 2010 and it was completed on time and on budget in 2014, one of the fastest fastest time lines of discovery to first production in the industry.
As I highlighted earlier, the Manitoba exploration team discovered a new deposit in early 2019 and successfully developed an initial resource estimates image six months later.
Team has also been busy building an exciting portfolio of 850000 hectares of land in Peru, Chile, Canada, and the U.S. and we look forward to continuing to replicate our exploration success.
From a mine development perspective.
Team is one of the best having experience in both large scale open pit and underground mines.
We acquired the Constancio deposit in 2011 sanctioned full project developments in 2012 after completing our own detailed engineering studies and achieved commercial production in early 2015.
The mine was completed on time with one of the best Capex cost controls in the industry at that time.
In addition can stances commissioning schedule was the fastest ramp up time line achieved in the industry at five months versus the peer average of 17 months as seen on slide 17.
Other global mining companies have recognized this achievement and use constancio as a benchmark for the owned mind commissioning schedules.
Not only are we proud of this success at Constancio, but we also achieved this success, while simultaneously building the law and read mines, which both came in on time and on budget.
Our strong track record in East GE is just as important as our technical track record.
Slide 18 highlights a few of our achievements in each of the environmental social impact health and safety and governance areas.
As a member of mining Association of Canada, we follow the towards sustainable mining, what TSM program and we are implementing TSMC updated tailings management protocols at all of our operations.
We are proud of our strong TSM tailings ratings, the Manitoba and proved business units maintained that she is it are embracing doubleday and single eight respectively across all the tailings management indicators in the 2018. She is in progress reports.
From a social impact perspective, we have been successfully operating in Manitoba over 90 is having a positive impact on the surrounding communities through the discovery operation and reclamation of over 25 mines.
We are recognized for our leading community relations expertise in Peru, and this is best demonstrated with the success of the recent pump a conscious surface rights agreement with the local community.
We are proud of our strong local employment numbers and pride ourselves on the significant investments we make into the communities in which we operate.
We believe our strong social license to operate Hudbay competitive advantage.
We are a leader on health and safety in Peru, with the best safety track record of all the Peruvian copper mining companies that said, we're always looking to improve and the setting clear targets for twentytwenty.
I would like to recognize the sustainability efforts of our Manitoba team.
In 2019, Hudbays, Manitoba operations received the mining association of Canada's towards sustainable and mining leadership award for achieving a level a ranking in their results across all six areas of performance.
The performance areas, all Aboriginal and community outreach.
Crisis management.
Safety and health.
Tailings management.
Biodiversity Conservation management, and energy use and greenhouse gas emissions management.
We are extremely proud of this achievements as it further demonstrates the company's commitment and successful track record of strong environmental social and governance performance.
From a governance prospective.
We havent fully refresh board, including three female directors and have ranked favorably in recent covenants ranking surveys ranking sevens highest out of Canadian mining companies and the only base metals mining company to be ranked in the top hundred of old Canadian public companies.
The last strategic advantage is we are a couple focused company with a diversified organic growth pipeline.
A primary source of revenue is from copper and the fundamentals for copper remains strong with expectations of a significant long term supply and demand gap.
Copper demand will benefit from increasing demand for power from renewable energy sources, and driving adoption of electric vehicles, which both requires sustainment substantially more copper than legacy alternatives.
And as the world moves towards de carbonization relatively small carbon footprint of copper production compared to aluminum will position copper as a vital component of the green <unk> future.
Despite copper being up primary metal hudbay off as the unique opportunity of growing exposure in both copper and gold as we discussed earlier in the presentation.
This commodity diversification provides the right balance of upside exposure and potential downside risk protection as we've seen the gold price strengthened recently as copper prices have been weaker.
From a strategy perspective, the team and I have spent quite a bit of time over the last several months reviewing our strategic plan.
This included discussions with the board and we have reaffirmed key elements of our strategic vision with a focus on coffee in mining friendly jurisdictions.
We'll be will have a greater focus on capital allocation and risk adjusted returns looking at opportunities that leverage the four key areas of our competitive advantage and value creation I've discussed today.
That is exploration mine development efficient operations and E.S.G. excellence.
In light of this refresh strategic vision, our short term priorities include delivering free cash flow from pump a culture.
Turning all or goals to add reserves and extend the mine life and refurbishing the new Brittania mill increase gold production.
We are a disciplined growth focused company and as we look to deliver the second stage of growth at Hudbay, our priorities over the medium term will be to unlock value at the Rosemont and Mason properties in the U.S.
Yes, the Constancio regional exploration targets.
Maximize value from lower gold and pursue accretive acquisitions and partnerships that fit our strategic criteria, well never losing focus of prudently managing our balance sheets.
I've touched on several of our pipeline assets throughout the presentation today, but I would like to close of the quick snapshot of our leading organic growth pipeline on slide 21.
We believe we are well positioned with strong assets at several different stages within our portfolio. We believe this unique pipeline provides significant growth potential for hudbay and we have the right team and core competencies to execute on this pipeline deliver on our strategic priorities and create value.
All of our stakeholders and with that.
Please take your questions.
Thank you ladies and gentlemen, we will now begin the question and answer session.
During the question Q you May press Star one on your telephone keypad, you will hear tone acknowledging your request if you're using a speakerphone. Please pick up your handset so far pricing any key to withdraw your question. Please press star too we will pause for a moment as colors join the queue.
Our first question comes from Orest Wowkodaw with Scotia Bank. Please go ahead.
Hi, good morning.
Thanks for your comments Peter question about your Capex spending and the free cash flow outlook.
Your your guidance is calling for a fairly significant step up at spend this year at 385 million in that scenario based on your production cost guidance.
From my perspective, it looks like you're gonna be fairly significant negative free cash flow in 2020.
Im curious how high you are willing to take that net debt to EBITDA ratio. This year, because I suspect it's going to go way up.
And as a follow up I'm curious how much does the capex spend fall or decline I guess in 2021. Thank you.
Thanks, very much or look I think that my primary comment is going to be that we are going to be absolutely prudent with respect to management of our balance sheet that that will be a huge area of focus for us but to provide a little bit more specific commentary with respect to exactly what we intend to do I'm going to Pos.
The Aussie Eugene to comment.
Yes.
We have and.
And did modernized our covenants in our revolver to allow us to.
Increased flexibility to make those investments that Peter mentioned, there well with the investments and the spending are well within.
The covenants.
More recently amended to allows that flexibility to make these are high return low capital investments and we believe the payback to investments. Please short so.
Within the realm of what we can do.
Okay and can you give us some commentary on what the profile looks like for next year I mean, how quickly does the capex come off.
Of the other $385 million that you mentioned, a 170 its growth capital and that that's significantly the bulk of the investments that are needed at both new Britt and add to pop contract to to realize on those investments. So you can you can take home 170 off the top for that for the following.
The sustaining capital.
For Peru, and Manitoba.
Hundred million dollars each.
Will drop in 2021 more and more in line with one day 43, one on one thing.
Okay. Okay. So we should expect a significant drop off that in Capex and 21.
Correct.
Okay. Thanks Eugene.
Oh, Yes, I'd also mention that to you know you have slightly higher capex in 2020 or sustaining caps kept skin 2020, it improved because of.
Differ a lot.
Of some of the capitalized stripping that we would have done in 2019.
Okay.
Thanks Peter.
Our next question is from Matthew Murphy with Barclays. Please go ahead.
Hi, I saw in the release the comment that part of the a maintenance AD Tech Constancio was.
Taken to also make sure you comply with the full year permit limitation on through but I didn't realize that you're up against that I guess.
Can you clarify what the limit is and what it would take to move it if you want it to do so down the road.
Yeah. Thanks, Matt look I mean, we're in the process of outstanding in evaluating potential debottlenecking opportunities for the bonds.
And that includes some of the permitting that's required in order to increase our.
Our throughput.
Cashel do you want to comment specifically on some of the elements of that the limitations.
Yes.
Ups up around 31 point.
31, and a half million tons process.
Per annum is what our Permian allows.
There are facilities going forward for amendments of that permits.
We're pursuing what those opportunities are.
And costing of how to how would how to best meet all of them.
So if we go through a modification of our Sian.
Something we can provide more clarity to sort of in the second half of this year.
Those timelines and costs might be.
But we see the capacity in the mine to be able to put more throughput through and we think this would be quite inefficient use of capital.
That it won't require a huge amount of work at constancio to be able to increase capacity.
In the future.
Okay. Thank you.
One other question if I could the.
Tailings dam spend in Flin flon.
Can you just clarify that is a cash flow correct.
Yes, Thats correct. It is a cash transfer.
And it flows through the income statement as an expense.
So they spend that we talked about in the press releases David down that.
Sort of what we did in the fourth quarter was we recognized a additional de Oro associated with those legacy facilities.
And that slate to us being proactive with.
Changes to industry standards around tailings and.
So we're scheduling that work because it's now part of the de our ROE as at the end of Q4.
Neither capex, nor Opex what happens is at the additional de Oro increases property plant and equipment on the other side of the balance sheet any additional he gets depreciated over the remaining triple seven mine life. So thats, how you'll see it show up in the income statement.
And then so theres not kind of indirect impact to the piano charts in direct through depreciation.
And now, but you will see that spending come through the cash flow statement.
On a line that will live here in cash from operations.
Got it okay.
Thanks, David take care.
Yes.
Our next question is from Matthew fields with Bank of America. Please go ahead.
Hi, everyone I'm showing up.
Say, congratulations David as well, it's been a pleasure working with you and best of luck and all your future endeavors.
Thanks, Matt.
You know bigger picture on on on the balance sheet.
I understand the 2020 is going to be sort of have heavier capex year, but.
It seems like you're a little bit overcapitalized at this point.
Is the idea to kind of shrink the balance sheet by may be.
Refinancing those shorter dated notes into a smaller issue.
Until there's more clarity on Rosemont.
What's the kind of intermediate to longer term plan on the balance sheet here.
Sure.
Hi, Matt Eugene here in terms of the balance sheet that this year as as you are currently state there will be a year of investment.
Where we'll be.
Putting money into those high return projects that Peter outlined on terms that in terms of the bonds.
The first tranche.
$400 million isn't due to till 2023, so we're really in no rush to to have to deal with those.
We're world well have that play time to address them as as we always do we monitor the market and we'll.
Well, we'll look at opportunities to lower our cost to capital over the longer term as as as as opportunities present themselves, but we were not feeling any any pressure too.
To address them right now.
Okay, Thanks, very much and good luck.
Thank you.
Our next question is from Greg Barnes with TD Securities. Please go ahead.
Thank you I think my concerns aligned with our assist the heavy capex for this year is there a way to flex that and I'm. The if these lower copper prices stick around for a while.
Hi, Greg.
I think the primary if our primary focus is that new Brits and pump a concho such high return and in fact short a return projects that they are.
No regrets investments for us and given that both of these projects are effectively completed.
Next year, we don't think that it makes any sense in order to defer them at all.
What I will say is that if we continue.
In price environment, or a declining price environment, we will find ways of cutting our costs. In 2016. We did the same thing we took 100 and see a $100 million out of our cost base and we will find ways to do that but I don't think that deferring of either pump a can show when you put it makes any sense.
Okay. Then then I like the second point, Peter maybe perhaps it would be good idea to put in place at cost reduction plan.
Because these couple of prices could stay around for a while and I think you're going to need that flex.
Yeah, absolutely agree.
Okay. Thank you.
Our next question is from Galton Barretto with Canaccord. Please go ahead.
Hey, good morning, guys I'd like to start by echoing everyone else inflation, David Bryson, all the best and also congratulating you Peter on your New ROE.
Thanks, Thank you very much built in Arizona.
So Peter I, just want to kind of touch on your last strategic point that the a that copper focus.
Most of your growth profiles and gold I can you talk a little bit about whether you're comfortable with that and if you're not how do you think about changing that.
That's a great question look.
What I'm really comfortable with his value.
And I think that as I mentioned.
Bold sort of provides a little bit of diversification that provides us with a a fantastic hedge in a slightly volatile copper environment bearing in mind that we think that copper.
Fundamentals full up or are extraordinary.
If you think of it in slightly more in the short term impact country gives us the growth that we need.
But in a longer term, we have massive number of options in our portfolio.
Specifically the regional opportunities around Constancio, then of course is rosemont and as Mason. So we are we remain copper focused but we see that there's an opportunity to daylight extraordinary value in the Manitoba came through gold.
No I'd also that it's not only goals that we are converting or at least get converting in the Manitoba. It is also base metals. So for example, as we drilled in be the 91 deposit to sort of outline the gold component, we will be converting base metals.
Okay, Great. That's helpful. And then just maybe one other one you mentioned Rosemont can you talk a little bit about the implications if any of that recent ruling.
Yeah happy to do that look I think the recent ruling.
We certainly would not surprised by a judge sotos really on the USA case in light of his previous decisions on the Rosemont project, but we believe that his ruling of reminding the biological opinion back to the federal agencies will review use unnecessary as we believe the research in studies all concluded.
That the potential impact to endangered species would comply with the regulation.
The federal permits on Rosemont to issued off to more than 12 years of careful review in study by 17 cooperating agencies. So we are reviewing the decision and we'll continue to follow the duration of the government agencies, but there's no surprise, there and there's no real.
Hod implication, we do think that it potentially simplifies things a little bit for the ninth circuit, but it's not material.
Okay Thats all for me guys. Thank you.
Our next question is from Lawson Winder with Bank of America. Please go ahead.
Hi, guys. Thanks for taking my question, David first off all the best to you. It has been pleasure working with you and Peter Congratulations and thank you for your detailed comments at the start of the call.
Just a couple of questions from me so.
On the the money being paid out to the.
Community.
Could you help us just by giving US an idea in terms of cadence in terms of how that gets paid out I mean.
Are we looking on a lump sum payment in Q1.
Our and also what would that payment amount be or is it something that will be spread out over the quarter snacks.
I'm sure losses look the so so the first the there the payment will not be made until such time as the land.
Has been vacated by folks using it'd be refer to those folks as the possesses so so when all informal mining activity as seized and the possesses have the cases done and then the payment will be made to the community and it will be a lump sum payment.
Okay.
Yes.
And the amount to that payment approximately.
We caution state specifically what that about it but we did we guided you towards an expenditure of about $70 million.
Yep.
Total.
Yeah, that's very helpful and then.
Maybe just.
Around the individual agreements.
Are you able to get US an idea is sort of the quantum of how many individual agreements or our to go in and what that.
You know what we can look at as some sort of guidance on what that amount could be.
Look I think the I would guide you to by saying that it substantially less than what you're paying for them and lease or to the community.
There are so we already have agreements in place with a large majority of those possesses and we expect those agree the agreements to be concluded certainly in the first half of this year.
Okay. So essentially that's okay. That's very helpful and then.
And then just finally on you spoke briefly about reclamation I believe in Manitoba I didn't quite hear comments, there and I was just curious did you mention how much that amount was.
And then sort of like what that sort of annual payment would be on that lunch.
Couple of seven close down maybe you didn't comment on that I apologize if I missed it but.
Yes, sorry that there's any confusing what we're referring to was spending of about 20 million a U.S. per year in 2000, 2021, and 22 associated with the legacy facilities legacy tailings stands with the.
Enhancements to industry standards. So that's a bit of a one off then on the actual closure of the Flin flon facilities. Once a triple seven is done will be relatively nominal than the final reclamation of the tailings the metallurgical complex or provided for energy or.
No, but we wouldn't expect that to be trigger done until a you know certainly beyond Lawlers mine life for any other mines.
We'd expect to be discovered in the northern Manitoba camp in the future.
Okay, great. Thank you David.
All the best you and.
That's a lot going forward you Peter Thank you for taking my questions.
Thank you thanks.
Our next question is from Jefferies. Your line now with Cormark Securities. Please go ahead.
Great. Thanks, very much maybe David just follow up on the answer your last comment there on Manitoba, just maybe a little bit a clarity then it's sort of would it be fair to assume that the current spending on the tailings in Flin Flon, it's sort of in effect, a you know crossing the t's and dotting the i's with regards to.
No eventual closure obligation is obviously in the meantime, keeping everything else sort of you know you know running and or on care and maintenance until much later when naylor closes down is that how I should be looking into this whereas or should we assume this is sort of the beginning.
At the end for lack of of the better word for Flin Flon and and you know had they as a company is probably you know looking at closure versus maybe trying to find more feet for flin flon going forward.
Right.
It's more independent of the timing of Flin Flon closure is weve seen a tailings incidents with other companies in the industry over the last years, there's been a reassessment and a there is a proposed guidance by the Canadian down Association on margins.
Safety to enhance those margins of safety and what we're doing is we're proactively.
Sort of applying that to our legacy tailings facilities in Flin flon.
And we've done the work to identify what needs to be done and we're going ahead and doing that work over the next three years got it. So I mean, yes, I mean hypothetically if the triple settlement is going to go on for into NATO you'd still be doing this work.
That's correct, okay. Okay, great. Thanks, very much guys.
Once again, if you have a question please press star one.
Our next question comes from Oscar Cabrera CBC. Please go ahead.
Thank you operator, and you know like everyone I'd like to reiterate town, maybe directionally help thanks very much.
For the years, David old divesting your retirement and Peter Congratulation as we look forward to working with you.
Thanks, Thanks Oscar.
On the edge I, just you know.
I was wondering if you can provide or just remind me of the covenants that you have now for your debt.
And Dan.
Is this applicable to lines of credit or to the.
The ventures that you haven't your balance sheet.
Sure.
Oscar is a David again, so we laid out the details of the revised bank covenants in our route and DNA and the liquidity and capital resources sections. So I won't sort of go through all of the detail a in the interests of that time, those financial covenants I relate only to our run.
Solving credit facility on the bonds that we have outstanding have no financial maintenance covenants as is customary and at this point, we have no borrowings drawn on the revolving credit facility. So it's really around ensuring that we maintain ample liquidity as we move through this build out and look ahead to.
The growing cash flow over the next couple of years.
No I mean is.
I'm, assuming that's part of that buffer that Peter was referring to when.
And they get the question in terms of what you're doing your debt.
Now in the I. I think I, just sort of supplement that commentary from earlier is that we do think that we have a number of lever is available to us whether it'd be the revolver or other options. If it became necessary. If we found ourselves in a significantly lower copper price environment and a two.
Able to manage liquidity appropriately and you know we don't have any major concerns about that.
Okay and then.
Turning to capital allocation.
I think you know to sometime in the.
And Dave copper and or commodities market currently.
But you know probably better days ahead, but have you seen the.
You know how are you seeing returning cash to shareholders as Youve. After you finish capex spending 2020 versus developing.
On Mason for example.
There you know if you can just provide us with your thoughts on so let me your free cash flow yield increases quite substantially Michelin numbers for 2021, and there's no more project spend.
Look I think as I said earlier I think that 2020 is a and investment here for us and its but it's a and investments you have this focused on a.
Short payback high return projects.
After that and as we move into what I believe will be.
A significantly improve copper price environment, then we'll reassess said every step as we typically do and I would say that do you know focus of course is gonna be on looking what the best use of capital is in the context of.
The business requirements as well as the requirements of our shareholders. So as we will always do is we will take a look at returning cash to shareholders or whether it's through dividends or whether it's through share buybacks or whatever in comparison to all opportunities that are available to us.
But we will be very focused on that and it'll be something that remains dynamic.
And consistent with the environment in which you find ourselves operating.
Okay. Thank you everyone.
You're welcome.
Our next question is from Ralph proceeding with eight capital. Please go ahead.
Yeah. Good morning, Thanks for taking my questions I'm on the Rosemont Capex guidance, how much are you assuming in.
They are contractual obligations that youre sort of attempting or there is room for deferral into later years.
Oh, Ralph we actually are not spending anything on a sitting any capital on commitments BV commitments that you see we had really relates to to contractual requirements that can be deferred well into the future. So so what we've done as weve pared back the cost of carrying rosemont substantially by region.
Using the team and project costs.
But we do have an increase in legal fees with the addition of lawyers specialized in mining law and our appellate lawyers.
As well as we have some smaller expenditure on development of studies for the Mason project. So that is they all know costs that are obligations in terms of a contractual obligations.
Okay. Thank you for that clarity.
If I can switch to Manitoba costs, a it looks like the guidance on unit cost for 2020 coming in and around $135 on at the midpoint I'm wondering is that sort of.
Seems as though that sort of a normalization on costs, because youve telegraphed very well, how 2019 was going to come in at the higher end and I'm just wondering overtime say on this three year outlook.
Is that a good run rate to use as.
As you ramp up and see the denominator changes and Youre going to continue to be influenced by you know pressure on on labor and other inflationary aspects.
Now, it's rough I'd say that unit cost has now stabilized since we've achieved the production ramp up at Lawler.
So our focus now isn't optimizing production.
I think we do expect total Manitoba unit costs to be similar in 2020, and I'd also you know, noting that our cost compared very favorably to.
To appears into benchmarks in the area you could expect that the costs will remain at about this level.
Okay, great. Thank you and once again, good luck, David and congratulations Peter.
Thank you thanks Ralph.
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, thank you everyone for participating.
Yes.
Yes.
Any further.
Yes.
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