Q4 2019 Earnings Call
[music].
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 will now turn the conference over to candidates for late Director Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome I'd be 2019 fourth quarter results conference call I.
I think its financial results for issued yesterday and are available on our website at www Dot Dot com.
Corresponding Powerpoint presentation is available and we encourage you to refer to during this call.
Center today as Peter can kills me I'd be president and Chief Executive Officer.
Happening 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 Eugene Lee, Our senior Vice President corporate development and strategy.
Please note that comments made on state.
Forward looking information and this information by its nature is subject to risks and uncertainties and as such actual results may differ materially from the views expressed today.
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.
As a reminder, all amounts discussed on today's call on U.S. dollars, unless otherwise noted and now I'll pass the call over to Peter can kill ski 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.
Bazan iconic Canadian Corp., a company that has been around over 90 years.
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, our CFO will be retiring at the end of March after 11 years with a company.
He has made the personal decision to take an extended sabbatical away from work before considering what he'll do next.
This transition has been planned for every year since Dave it indicates that he's intention to make this change.
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.
In the meantime, Eugene leave will provide continuity and the steady hand as interim CFO until the search process is completed.
Gene is expected to return to is corporate development and strategy roll off towards.
We also announced at Allen Haven Board member and former Board Chair has stepped down from the board.
This change is consistent with the plan that was put in place when our board was refreshed and we are grateful to Alan for his contributions to Hudbays success. During his time on the board.
I'd now like to turn our focus over to our core predict treatments and challenges in 29 team followed by an overview of our production and cost outlook.
I'd also spend a few minutes, describing what I believe our the hudbay competitive advantages and will conclude with a discussion of my strategic vision for the company and our strategic priorities.
2019 year saw solid operating results due to our efforts on the continuous improvement of mine performance, while implementing various improvement initiatives across the business.
We achieved full year production and unit 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 29 team as we are seeing the benefits of several metallurgical enhancements at the mill.
The lower 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 mind significantly increased mine output from successfully implemented efficiency initiatives.
These achievements in Manitoba resulted in zinc production exceeding the top end of the guidance range.
Not only are we pleased with our operating performance. In 2019 were also proud of our continued strong SG performance I'm, especially proud of the Manitoba business unit for their towards sustainable mining leadership award in 2019.
And the Peru 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 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 a 140000 ounces at all in sustaining cash cost of approximately $450 per ounce starting in Twentytwenty too.
I believe that lower is on track to become one of the best gold mines in Canada.
The Hudbay exploration team also discovered a new deposit in the Snow Lake region in 2019 called the 91 deposit and we successfully defines an initial resource estimates a mere six months later, along with advanced drilling activities focused on defining the gold potential at the deposits.
After receiving the long awaited final federal permits and Rosemont in early 2019, we acquired the minority joint venture interest in the project and embarked on a plan for early development activities for the project.
However, those plans came to halt in July after a 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 settled mining low in the United States.
Most 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 into 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 the successful agreement and we believe this approach is what differentiates hudbay in Peru reinforces the strong relationships, we have with the 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 forecast to be between 98, and a 117000 tons of copper.
Lower than 2019 levels due to planned lower copper grades at Constancio inline with the mine plan.
As we have had recent strong performance from the mill the upper end to Peruse range reflects the mills full year 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 the twentytwenty guidance range slightly higher than the range in 2019.
That trend is expected to continue into 2021 with little 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 forecast to increase 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 Twentytwenty to consolidated precious metals production is expected to increase 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 Twentytwenty 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 Flin Flon 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 middle 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 expected to further improve mill efficiency, but are also.
Pacing labor cost inflation, and some cost escalation on equipment.
The capital investments in the new Brittania Middle Office high returns and the short payback period based on current reserves at Lalor.
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.
Root growth capital of $17 million includes initial expenditures for developing the pump a conscious deposit 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 spent in 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 mineral properties consists of approximately 850000 hectares across Canada, Peru, the United States and CIT it.
Our 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 costs for Manitoba in 2020, a full cost to be similar to 2019 levels as long as cost of normalized after the ramp up to 4500 tonnes per day.
Combined unit cost for Peru, and Twentytwenty are also expected to be similar to 2019 levels as the plant continues to operate at full capacity.
Going to spend a few moments talking about the strategic advantage of that Hudbay offers 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.
A focus on free cash flow generation and prudent capital allocation.
A world class management team with proven mining industry experience.
Strong U.S.G. performance.
And the corporate 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 quarter pile up 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 curve, 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.
A prime example of our focus on cost control and operational efficiencies is seen circumstances 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.
It isn't the largest or the mines shown on the 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 cycle.
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 debt by more than 50% and investing in low capital high return brownfield projects with short paybacks on our invested capital.
Both the potential development and the new Brittania Gold mill refurbishment are examples of these prudent investments.
I've said many times to many people since I've joined Hudbay that this company has a disproportionately talented team for a company of its size.
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 diverse 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 Constancio and lower both seeing greater than 90% growth since the initial reserve estimates.
Lawler was an in house 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 lower deposit was founded in 2007.
Traction of the main production shaft was approved in 2010 and was completed on time and on budget in 2014, one of the fastest fastest timelines 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 estimate Amir six months later.
The team has also been busy building an exciting portfolio of over 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.
Our 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 their own 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 Ts EMS updated tailings management protocols at all of our operations.
We are proud of our strong TSM tailings ratings, the Manitoba and fruit business units maintained at year end ratings, Doubleday and single a respectively across all the tailings management indicators in the 2018 Ts in progress report.
From a social impact perspective, we have been successfully operating in Manitoba over 90 years, 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 is a hudbay competitive advantage.
We are a leader on health and safety in Peru, with the best safety track record auto all the Peruvian copper mining companies that said, we're always looking to improve and the sitting 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 mining leadership award for achieving a level a ranking in their results across all six areas of performance.
The performance areas, our Aboriginal and community outreach.
Crisis management.
Safety and health.
Tailings management.
The diversity conservation management, and energy use and greenhouse gas emissions management.
We're extremely proud of this achievement as it further demonstrates the company's commitment and successful track record of strong environmental social and covenants performance.
From a governance perspective.
We have a fully refresh board, including three female directors and have ranked favorably in recent governance ranking surveys ranking severance highest out of Canadian mining companies and the only base metals mining company to be ranked in the top hundred of all Canadian public companies.
The last strategic advantage is we are a couple focused company with a diversified organic growth pipeline.
Our primary source of revenue is from copper and the fundamentals for copper remained 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 growing adoption of electric vehicles, which both require sustainment substantially more copper than legacy alternatives.
And as the world move towards de Carbonization relatively small carbon footprint of copper production compared to aluminum will position copper as a vital component of the green in future.
Despite coffer being our primary metal Hudbay offers 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 copper in mining friendly jurisdictions.
We will 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 expiration mine development efficient operations and SG excellence.
In light of this refresh strategic vision, our short term priorities include delivering free cash flow from pump a culture.
Drilling all or goals to add reserves and extend the mine life and refurbishing the new Brittania mill to 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, while never losing focus of prudently managing our balance sheet.
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.
For all of our stake holders and with that 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 tone acknowledging your request if you're using a speakerphone. Please pick up your has said before 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 Orange walk down with Scotia Bank. Please go ahead.
Hi, good morning.
Thanks for your comments Peter question about your Capex spending in the free cash flow outlook.
Your your guidance is calling for a fairly significant step up at spend this year at 385 million.
That scenario based on your production cost guidance.
From my perspective, it looks like you're going to be fairly significant negative free cash flow.
2020.
I'm curious how high you are willing to take the 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.
Ill.
Thanks, very much or its look I think that my primary comment is gonna be that we are going to be absolutely prudent with respect to management of our balance sheet 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 gene to comment.
First and we are we have.
<unk> modernized our covenants in our revolver to allow us to.
Increased flexibility to make those investments that Peter I mentioned, there well with the investments and the spending are well within the covenants that that that were recently amended ton miles that flexibility to make these are high return low capital investments and we believe the payback to investments. Please short so.
It's 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.
Others other $385 million that you mentioned, a 170 its growth capital and that that's significantly the bulk of the investments that are needed had both new bread and add to pop contract to to realize on those investments or you can you can take I'll call that the oneseventy off the top for that for the following year.
The sustaining capital.
For Peru, and Manitoba.
But $100 million each will drop in 2021.
<unk> more inline with what they are 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 had slightly higher capex in 2020 or sustaining caps kept skin 20, Tony had been Peru because of a 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 at a constancio was.
Are you know taken to also make sure you comply with the full year permanent limitation on throughput and realize that you're up against that I guess.
Can you clarify what the limit is and what it would take and 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 plant.
And that includes some of the permitting that's required in order to increase our throughput.
Cashel do you want to comment specifically on some of the elements of that to the limitations.
Lastly, it bumps up around 31 point or 31, and a half million tons process.
Per annum is what our permit allows.
There are facilities going forward for amendments of that permits.
Hey, we're pursuing what those opportunities our.
And costing out how to how'd, how to best that may all of them.
So it would go through a modification of our yes, I am I think if something we can provide more clarity to sort of in the second half of this year.
What 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 an efficient 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.
Yeah, that's 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, so David Matt.
Sort of what we did in the fourth quarter was we recognized a additional de Oro associated with those legacy facilities, a and data that slate to us being proactive with.
Changes to a industry standards around tailings and Ah Ah. So we're sort of scheduling that work because it's now part of the de our ROE as at the end of Q4, it's neither capex, nor our packs what happens is that the additional de our ROE 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 that's how you'll see it show up in the income statement I and and so there is not kind of it direct impact to the piano, it's in direct through depreciation.
And now that you will see that spending a come through the cash flow statement.
On a line that will live here in <unk> cash from operations.
Got it okay.
Thanks, David take care.
Thanks.
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 gonna be sort of have heavier capex here, but it seems like you're a little bit overcapitalized at this point.
Is the idea to kind of shrink the balance sheet by maybe.
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 it's a Eugene here in terms of the balance sheet that this year as as you are currently state there will be in a year of investment where we'll be.
Putting money into those high return projects that Peter outlined and terms the in terms of the bonds I'm not the first tranche.
$400 million isn't due to till 2023. So we're we're really a 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 marketing and will we'll we'll look at opportunities to lower our cost of capital over the longer term as as as those opportunities present itself, but we were not feeling any any pressure to to address them. These days right now.
Okay, Thanks, very much and good luck.
Thank you.
Our next question is from Greg Barnes with TD Securities. Please go ahead.
Yes. Thank you I think my concerns aligned with Auris just on the heavy capex for this year is there a way.
Flex that number if these lower copper prices stick around for a while.
Hi, Greg look.
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 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 defining price environment, we will find ways of cutting our costs. In 2016. We did the same thing we took 100 and see $100 million out of our cost base and we will find ways to do that but I don't think that differ.
During of either pumper 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 a 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.
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 oscillation, David Bryson, all the best and also congratulating you Peter on your new role.
Thanks, Thank you very much <unk> [laughter].
So Peter I, just want to kind of touch on your last but can you point that the a that copper focus.
Most of your growth profiles in gold I can you talk a little bit about whether you were comfortable with that.
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.
Old 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 the fundamentals for copper are extraordinary.
If you think of it in slightly more in the short term I'm a country gives us the growth that we need.
I didn't know longer term, we have massive number of copper options in our portfolio I'm specifically the regional opportunities around Constancio then of course, there's rosemont and there's Mason.
So you know we are we remain copper focused but we see that there's an opportunity to daylight extraordinary value in the Manitoba camp through bolt.
Nobody also that it's not only goal that we are converting all or a at least get converting in the Manitoba. It is also base metals. So for example, as we drill in the Tonight, you know one 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, not happy to do that look I think the recent grueling, we certainly would not surprised by a judge sotos ruling 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.
Ladies and Ses will review is 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 a 17 cooperating agencies. So we are reviewing their 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 nine circuit, but it's not material.
Okay, Great. That's all from you 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 on 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 [laughter].
Just a couple of questions from me so.
On the the money being paid out to the Oh 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.
We're looking at a lump sum payment in Q1.
Or and also what would that payment amount be or is it something that will be spread out over the quarter snacks.
I'm sure lawsuit 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 we refer to those folks as the possesses so so when all a informal mining activity as seized to end. The possesses have vacated the land then the payment will be made to the community and it will be a lump sum payment.
Okay.
Yep.
And the amount to that payment approximately.
Hi, we called state specifically what that about is that we gave we guided you towards an expenditure of about $70 million Ah yes of total.
Yeah, No that's very helpful and then.
Maybe just.
Around the individual agreements.
Are you able to give us an idea of sort of the quantum of how many individual agreements or our to go in and what that.
You know, what we can look at or 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 the land 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.
[laughter].
Okay. So essentially that's okay. That's very helpful and then.
And then just Ah finally on you spoke briefly about reclamation.
ALLEVYN in Manitoba, I didn't quite hear comments there.
I was just curious did you mention how much that amount was.
And then sort of like what the there's sort of annual payment would be on that once a.
Couple of seven goes down and maybe you didn't comment on that I apologize if I missed it but [laughter].
Yes, sorry that there's any confusion of all you're referring to was spending of about 20 million a U.S. per year in 2000 2021 at 22 associated with the legacy facilities is legacy tailings dams, a with a the a enhanced.
Since two industry standards. So that's a bit of a one off then 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 in or do euro.
But we wouldn't expect that to be trigger doesn't tell a you know certainly beyond Lawlers mine life for any other route mines that we'd expect to be discovered in the northern Manitoba camp in the future.
Okay, great. Thank you David all the best you and.
Best of luck going forward you Peter Thank you for taking my questions.
Great. Thank you. Thanks.
Our next question is from Stephens. 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 of clarity then is it sort of would it be fair to assume that the current spending on the tailings and Flin flon, it's sort of in effect, a you know crossing the t's and dotting the i's with regards to.
Will eventually closure obligations, obviously in the meantime, keeping everything else sort of you know you know running Andorra on care and maintenance until much later when mailer closes down is that how I should be looking into this whereas or should we assume this is sort of the beginning a of the n. for lack of a better word for Flin Flon and and you know had they as a company is probably.
Looking at closure versus maybe trying to find more feed for flin flon going forward.
I its more independent of the timing of Flin Flon is closure is weve seen a tailings incidence or with other companies in the industry over the last three years, there's been a reassessment and a there is a proposed guidance by the Canadian Damn Association.
On a margin of safety to enhance those margins of safety and what we're doing is we're proactively or you know sort of applying that to our legacy tailings facilities in Flin Flon I have been you know 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 its triple seven was 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, Let's see IVC. Please go ahead.
Oh, Thank you operator, and you know.
Give me one I'd like to reiterate town, David rations help thanks, very much well you'll have to the years, David No divesting your retirement and Peter Congratulation as we look forward to working with you.
Thanks, So they could Oscar.
Yeah, 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 down you know, there's this applicable to lines of credit or to the.
So the ventures that you haven't your balance sheet.
Sure ER Oscar its a David again, so we laid out the details of the revised bank covenants in our right and DNA and the liquidity and capital resources sections. So I won't sort of go through all of that detail a in the interests of fat time those finance.
Actual covenants I relate only to our revolving credit facility or the bonds that we have outstanding have no financial maintenance covenants as is customary and at this point, we have no borrowings said drawn on the revolving credit 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 win.
I get the question in terms of you know what you're doing your debt.
Now and I love the I. I I, you know I think I, just sort of supplement to that commentary from earlier is that we do think that we have a number of lever is available to us whether it be that revolver or other options. If it became necessary. If we found ourselves in a significantly lower copper price environment and I too would be.
Well two I 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 gold commodities market currently.
But you know probably better days ahead, but as you've seen the.
You know how are you seeing returning cash to shareholders side Youve. After you finish capex spend in 2020 versus developing you know animation for example.
There you know if you can just providers what your thoughts on so let me your free cash flow yield.
Which is quite substantially English numbers for 2021, and there's no more project spend.
No look I think as I said earlier I think that you're 2020 is a and investment year for us and its but it's a and investment year that's focused on a short.
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 our capital easy in the context of the business requirements as well as the requirements of our shareholders. So.
So as we will always do 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.
Great.
Okay. Thank you everyone.
Welcome.
Our next question is from Ralph Profiti with eight capital. Please go ahead.
Hi, good morning, Thanks for taking my questions I'm on the Rosemont Capex guidance, how much are you assuming and.
They are contractual obligations that youre sort of attempting or there was room for a 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 reduce.
Seeing 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 pellet 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 contractual obligation.
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Okay. Thank you for that clarity.
If I can switch to the Manitoba costs, a it looks like the guidance on unit cost for 2020 coming in and around $135 done at the midpoint I'm wondering is that sort of it seems as though that sort of a normalization on costs, because youve telegraph very well, how 2019 was going to come in at the higher end and I'm just wondering overtime.
I'd say on this three year outlook.
Is that a good run rate to use as a as you ramp up in say the denominator changes and you're 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 Lalor.
So our focus now is on optimizing production.
I.
I think we do expect total Manitoba unit costs to be similar in 2020, and I'd also you know, noting that all 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.
This concludes the question and answer session I would like to turn the conference back over to Candice relay for any closing remark.
Thank you operator.
Everyone for participating.
Yes.
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