Q1 2020 Earnings Call
Good morning, ladies and gentlemen, thank you for standing by welcome to the Hudbay minerals Inc. first quarter 2020 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 then one on your telephone keypad.
Should you need assistance during the conference call you may signal, the operator by pressing star and zero.
I would like to remind everyone. At this conference call is being recorded today may 15th 2020 at eight am eastern time.
I'll now turn the conference over to Kansas Burley Director of Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to Hudbays, 2021st quarter results Conference call.
These financial results were issued yesterday and are available on our website at www Dot Hudbay Dot com.
A corresponding Powerpoint presentation is available and we encourage you to refer to it during this call. Our presenter today is Peter could kill ski Hi, just Hudbays, President and Chief Executive Officer.
The company Peter for the Q and a portion of the call well be Cashel Meagher, our senior Vice President and Chief operating Officer, and Eugene Lee, Our senior Vice President corporate development strategy and interim Chief Financial Officer.
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 as 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.
These documents are also available on our website.
As a reminder, all amounts discussed on today's call or in 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 thanks for joining us [laughter] I'd like to start off by saying that I hope everyone has been able to stay safe and healthy during this truly unprecedented time [noise].
[noise] being closely monitoring the rapidly evolving environment and taking steps to protect all people their families and communities in and around which we operate well we implement majors to minimize the overall impact all this pandemic on our operations.
I will go into more detail about how specific actions, including all the work we've done to improve our financial strength off to briefly touching on all first quarter financial and operating results.
Following that I'd like to take you through highlights of our snow Lake Gold strategy.
Hudbays first quarter results benefited from a solid operating quota in Manitoba.
<unk> achieved record mine production with an 8% increase over the fourth quarter, averaging 4632 tons per day in the first quarter and exceeding targeted levels.
Similarly, the stole my achieved to hurt results this quarter with a 19% increase from last quarter, averaging over 4000 tonnes per day, which is yet another record quarter forestall.
Actually not.
Manitoba combined mill mine and Gionee units operating costs continued to decline quarter over quarter and a currently tracking below the annual guidance range and the results of the company's focus on operating efficiencies and cost normalizing. After the successful production ramp up to 4500 tonnes per day.
At Lalor and 29 team.
I'm very pleased to see the continued strong operating performance production and cost control in an environment of increased constraints from covert 19 related protocols.
I'd like to publicly thank the Manitoba team for their strong me if it's in the Chipping These outstanding milestones, while adopting adapting to this challenging external environment and changing the way they work to keep themselves in those around them safe and healthy.
In Peru, we temporarily suspended mining and processing activity that constancio off to the Peruvian government declared a state of emergency on March the 15th.
The Peru team did a tremendous job in ramping down the operations in a safe and orderly fashion. They actively manage the situation during the shutdown to perform care and maintenance activities optimize our critical supplies inventory levels and successfully manage the safe movement of people.
The team has also implemented various preparedness planning activities in order to facilitate a quick and efficient ramp up.
Prior to the mine suspension constancio with achieving targeted mill throughput and unit operating cost performance during the quarter.
In addition, the mine continued to ship concentrates up until the day the shutdown commenced.
On May the 14th we received recognition and approval from the Peru Ministry of energy and mines for restart protocols, which I will touch on shortly.
As a result of the lower copper production and sales volumes, coupled with the lower copper and zinc prices caused by the covert 19 pandemic operating cash flow and earnings in the first quarter were lower than the previous period.
Oh financials were also impacted by several onetime items such as the write down of inventory stockpiles in Peru, resulting from current low copper prices as well as some fixed overhead production costs that were expensed during the quarter it rather than capitalized due to constancio as temporary shut down.
We expect it will be a similar charge for fixed overhead costs during the mine suspension period in the second quarter.
Despite these extraordinary impacts the business had strong cost performance with cash cost and sustaining cash costs improving over the fourth quarter of 29 team.
We exited the quarter with $306 million in cash and cash equivalents. In addition to $446 million available and undrawn under our revolving credit facilities.
We continue to take prudent steps to manage our balance sheet and maintaining a strong liquidity position.
In February and prior to the pandemic, we proactively renegotiated the covenants about revolving credit facilities that included the facing total debt to EBITDA with net debt to EBITDA to allow us greater flexibility to allocate capital to our low risk high return investments in our business. This yeah.
This resulted in an increase of $443 million in liquidity available as of March 31st subsequent to the quarter, we announced the gold prepaid transaction that generated $115 million in cash proceeds to further improve our liquidity position and prefund the growth expenditures in Manitoba, which are.
Describe in more detail shortly.
The team has done a tremendous job managing our balance sheet and we believe we are well positioned to meet our liquidity needs for 2020 and prudently grow our business.
I'd now like to spend a few minutes talking about our business response efforts.
In light of covert 19.
Following the onset of the pandemic.
We began monitoring the situation very closely and we kicked off our business response planning in January.
As the virus outbreak wasn't globally, a companywide crisis response plans what activates it in early March as part of our crisis management protocols.
The plans were established based on two tiers of crisis response.
First tier is the corporate level with a focus on ensuring overall business stability continuity and coordination.
This includes planning for the possible need to reduce or suspend operations and for the restart of suspended operations as well as appropriately managing the company's liquidity.
The second tier is that the business unit level, where the response plans are developed based on the dynamics in context of the local situation.
Business units engaged with local communities health authorities governments and other stakeholders in each of our regions.
Each of the business units has worked to develop site specific measures to limit and identify cobot 19 exposure and transmission and maintain a safe environment for its workers and its communities.
Site specific measures include but are not limited to pre screening protocols quarantine periods for incoming workers.
I used physical distancing protocols adjustment of work rotation schedules deferral of certain project activity and working from home for office stuff.
These measures will continue to evolve as the status of the state of emergency changes in each of our operating regions and we adapt all measures to the latest regional health authorities restrictions and guidelines, including reopening protocols.
Well, we recognize the situation is dynamic we're extremely pleased with the extensive efforts our sites have taken to mitigate the risks of covert 19.
In Peru, as I mentioned earlier, the government dictate a state of emergency on March the 15th which remains in place, but issued a degree on may the third indicating the mining sector would reopened in may.
While hudbay operations remain suspended until may the 14th we were able to take several additional measures to ensure and efficient restart.
These include mine plant optimization activities.
Continuous supply chain management to ensure sufficient levels of critical supplies.
And logistics and workforce planning initiatives, including successfully completing workforce shift changes during the suspension.
We are happy to report that yesterday.
To answer your received approval for its restart protocols and mind restocked <unk> activities are underway due to proactive ramp up planning.
The mill is expected to reach normal levels over the next week and we expect to provide an update to peruse guidance with our second quarter results.
In Manitoba, we continue to operate and ship concentrate on zinc metal. Despite the pandemic. The leadership team is actively engaging with employees contractors local communities and public health authorities to manage the evolving situation and continuously adapt and implement its.
Business response plan.
We have also been working closely with various groups within our communities to identify where we can help those they need and I'll touch more on these initiatives later in the presentation.
Given the strong first quarter operating results. Despite the challenging environment, we are affirming our twentytwenty, Manitoba production operating cost and capital expenditure guidance.
Manitoba Twentytwenty precious metals production is expected to benefit from the sand mining of approximately 90000 tons from the gold zones as part of stopes sequencing in preparation for the restart of the new Brittania Gold mill.
Which will match well with the strong gold price environment.
[noise] in Peru.
Due to the temporary suspension of operations at Constancia and the ongoing uncertainty around in Cobot 19, we have suspended our previously issued twentytwenty guidance.
It is important to note that Peru sustaining capital expenditures are expected to be approximately $25 million lower than previously anticipated due to the temporary mine suspension and re sequencing of capital activities, such as tailings and capitalized stripping.
Gross capital expenditures in Peru related to the public contract community surface rights payment and project development capital have been impacted by the state of emergency.
The majority of the pump a contra growth expenditures will be spent once the negotiations with the land users have been completed and the alliance has been vacated.
Due to the state of emergency. These negotiations have been put on hold and therefore, the payments have been delayed and as I already mentioned now that Constancio has received approval for Orbitz Restocked plans, we expect to update our Peru guidance without second quarter results.
On may the seventh we executed a gold forward sale and prepaid transaction in which we received cash proceeds of $115 million as I noted earlier.
This further improves our liquidity position and prefund the entire investment for the low risk high return you Brittania Gogo refurbishment at attractive terms and a low cost of capital.
Under the pre pay we have agreed to deliver a total of 79954 gold ounces in 2022, and Twentytwenty, three which were valued at the gold forward curve prices, averaging approximately $1682 per ounce at the time of the transaction.
The transaction off at an attractive cost of capital of approximately 5.95% per annum at the average forward price or an implied cost of capital of approximately 2.7% using current consensus gold prices for 2022 and twin.
The 23.
The delivery ounces only represents approximately 25% of lower forecasted annual gold production in each of 2022, and 2023 and approximately 3.6% of total snow Lake Gold reserves.
Under the revolving credit facilities and note indenture the gold pre pay will not be considered as debt. This is meaningful since the gold pre pay adds to our cash balance and will be accretive to our credit facility availability under the recently renegotiated net debt to EBITDA covenants.
We are prudently managing the business and the impact of the pandemic through approximately $150 million incremental liquidity. This yeah from $115 million in cash proceeds from the gold prepaid transaction that 25 million dollar deferral in perused, twentytwenty sustaining capex and identified company.
Wide discretionary and input cost reductions of approximately $10 million.
In addition, our forecasted cash flows are expected to benefit from the Canadian dollar cost structure of our Manitoba operations and the anticipated increase in cash flows from lalor due to higher precious metals production expected. This year based on current commodity prices and foreign exchange rates.
Last month, we executed an amendment without streaming partner Wheaton precious metals that extends the target date for mining 4 million tons of all from public controlled by six months to June Thirtyth 2021.
This extension is another example of action, we are taking to manage our business and liquidity during this time of uncertainty.
The extension delays the potential penalty payment if the minimum tons arms mind, and we were glad to have our long term partner agreed to this extension and continue to believe in our ability to execute and deliver on the development of pump a kunszabo.
I would like to personally thank weekend for this consideration along with a generous the nations to our communities for covered related really.
Now I'd like to walk you through some of the highlights of our recently announced phase two about snow Lake Gold strategy.
We have demonstrated significant value and also like gold business, which offers investors and attractive counter cyclical hedge to our base metals business in these volatile markets.
Turning to slide eight.
One thing that I could that can be underappreciated is the size of our precious metals business that had bay.
The Lalor mine and the snow Lake operations contribute the most exposure with 170000 ounces of precious metals expected in 2022.
In Peru, a precious metals production is expected to more than double by 2020 to 218000 ounces and 50% of the gold remains on streamed at Constancio.
Similarly, looking at our resources, we have approximately 5 million ounces of contained precious metals to our account in our portfolio that amount is not insignificant and is comparable to some standalone gold producers.
Another way to view the meaningful size of our gold business is on slide nine which shows that by 2022 precious metals are expected to account for one third of our overall revenues.
Offering investors a unique investment vehicle with significant leverage to copper and growing counter cyclical gold exposure.
Slide 10 summarizes the highlights from our announcement on March Thirtyth in which we announced the 35% increase in snow Lake Gold reserves to 2.2 million ounces and extended the mine life to 18 years.
We also released an updated mine plan for law that increased life of mine gold production by 41% compared to the previous 2019 mine plan and more than doubled the average annual gold production to more than 150000 ounces over the first eight years after the new Brittania mill is refurbished.
Laterals gold and copper gold zones are expected to be processed at the nearby new Brittania Gold mill, which capitalizes on existing infrastructure and the 115 million dollar refurbishment costs is a short payback high return investment opportunity.
The new Brittania mill is expected to achieve gold recoveries of approximately 93% compared to current gold recoveries of approximately 53% at store.
This significant improvements in gold recovery unlocks increased reserves and increases the potential for future conversion of resources to reserves due to the increased value per ton of all [noise].
[noise] the Pos to our snow Lake Gold strategy has been well planned and executed over the past several years.
First phase of our strategy was announced in February of last year, but we saw a 65% increase in laws gold reserves, which transformed law or into a gold mine.
The recently announced second phase demonstrated significant growth in the size of the gold reserve and resources and further increase the annual gold production as I previously mentioned.
Based on the 2020 updated reserve Laurel will remain a low cost gold mine with cash costs and all in sustaining cash costs net of byproduct credits of approximately 480 and $655 per ounce respectively. Over the first eight years why do you have brittania is in production position.
Turning lower in the lowest quartile on the global cost curves.
On slide 14.
The new Brittania mill refurbishment activities are underway with detailed engineering, approximately 60% complete and timelines on track with the original project schedule.
Orders have been placed for long lead items and early works construction has commenced including the construction of the pipeline between the new Brittania install mills.
The civil contractor for the flotation building has been mobilized and construction is expected to commence next week.
Construction and refurbishment activities are expected to continue until August 2021, with plant commissioning and ramp up occurring during the second half of 2021.
The low cost high margin nature of Snow Lake gold and the meaningful annual gold production position Snow Lake gold favorably compared to other underground gold mines as shown on slide 15.
And on slide 16, utilizing the average trading multiples for gold companies and the projected gross margins from Snow Lake Gold you can see that there is incredible value in this gold business.
There remains another phase of potential value creation that snow Lake called the third phase our strategy, we'll look at several areas of potential upside.
We are examining the potential to expand the new Brittania mill beyond the currently plan throughput rate of 1500 tonnes per day.
The mill historically operated in excess of 2000 tonnes per day. So there remains the opportunity to increase the production, which is compelling given there remains approximately 1.3 million ounces of gold in inferred resources in snow Lake and further exploration upside exists boats at Lalor and in the regional goal targets.
As part of Phase three we are also examining the potential to further optimize the gold and copper recoveries at the store mill through the implementation of Martin Metallurgical technologies Tradeoffs studies are underway.
The updated resource model at lower into its 4.4 million tons of inferred resources, which have the potential to extend the lower mine life.
You may recall that we use a more stringent approach to resource reporting for underground deposits and this conservative approach has resulted in a high historical results to reserve conversion ratio of greater than 80% at Laura.
As shown on slide 17 at 18, a new copper gold lens called lens 17 was included in the updated inferred resource estimate for lateral.
Glenn 17, another lens that law, including the copper gold lanes 27 remain open down plunge and offer opportunities to further expand laws resource base.
Once suitable underground drilling platforms have been established over the next two years.
Slide 20 highlights the additional gold deposits.
The additional gold with potential at the recently discovered 19, a one deposit.
The 90 to one deposit is located approximately halfway between the format chisel North mine and they'll all ore mine at a depth between 500 meters to 700 meters and within a thousand meters of the existing haulage ramp to lower.
The 90 to one deposit could provide additional feed for the processing facilities in snow Lake.
Since publishing the initial inferred resource estimate in August 2019, we have considered various options to develop the 90, you know one deposit and we have completed a drill program aimed at converting a significant portion of the inferred resources to an indicated category and to define an initial inferred resource.
Estimate for the gold mineralization previously intersected between two zinc rich lenses.
We intend to provide an update on the mineral resource estimates and development options for the 901 deposit with our annual reserve and resource update in March 2021.
In 2020, and 2021 additional technical studies and exploration activities will be conducted to confirm how the law in mine exploration targets and the regional gold and base metal satellite deposits could be incorporated in the consolidated business plan of the snow Lake operation.
Yes.
Having now being with Hudbay for 10 months.
I've seen that this company is truly an iconic Canadian mining company.
There are two key elements that make a quality mining company in my view assets and people and yeah, we actually have both.
I thought it would be worth spending a few moments talking about the strategic advantage that Hudbay office, which can be summarized in six elements as shown on slide 21.
First we have long life assets located in mining friendly jurisdictions in the Americas.
We have a proven track record on operational excellence and low cost mines that sit favorably on the global cash cost curves.
We have a strong focus on free cash flow generation and prudent capital allocation through prudent balance sheet management and disciplined near term investment in high return short payback opportunities within our portfolio.
We have a world class management team with proven mining industry experience.
Weve demonstrated strong U.S.G. performance, which is especially important during troubling times like these.
And our diversified organic growth pipeline offers investors a unique opportunity of leverage to copper with increasing gold exposure as we discussed earlier.
Our near term priorities include refurbishing, the new Brittania mill to increase gold production.
Delivering free cash flow from pump a contra.
And drilling Lalor gold to add reserves and extend the mine life.
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 our Rosemont and Mason properties in the United States.
Test the Constancio regional exploration targets.
Optimize value from snow Lake gold and pursue accretive acquisitions and partnerships that fit our strategic criteria, while never losing focus of prudently managing our balance sheet.
Our strong track record and he is GE is just as important as our technical track record Slide 23 highlights a few of our achievements and important initiatives in each of the environment, social impact health and safety governance areas.
I think it is important that during these times, we remember to recognize the struggles going on all around us whether at site the communities around our operations or the cities. We live in every one is facing unique challenges right now.
We are working closely with the stake holders within our communities to identify where we can help close immediate gaps and needs.
In Manitoba, the company and our partners have donated to the local food bank. The Salvation Army family Resource Center, and the women's Safe Haven resort services, or who are providing various and much needed forms of support to families who are struggling during this time.
In Peru, we have donated biomedical equipment and supplies to regional hospitals, including electric clinical beds with mattresses metal baskets for hubs hospital bedding masks and surgical aprons. We have also donated more than 20 tons of basic needs, including rice.
Sugar in new doors to seven rural communities interim because which will support hundreds of families.
In Toronto, we support multiple charities and have implemented additional matching incentives.
I'm also pleased to have our valued partners join us in coordinated relief efforts, including the generous donations from Wheaton precious metals to various community initiatives in Peru in Manitoba and from Rts minerals to a community service provider in Flin Flon, Manitoba.
In closing these recent times have no doubt been challenging for all of us and the way. We operate has changed and we'll continue to change, but the strength of our business model and the continued prudent management of our balance sheet has demonstrated we have the ability to adapt and overcome these challenges.
We believe we are well positioned with a quality pipeline of assets at several different stages within our portfolio and this unique pipeline provides significant growth potential.
I know you've heard me say this before but it's more true today than ever we have the right team and core competences competencies to execute on our leading growth pipeline deliver on our strategic priorities and create real value for all of our stakeholders.
So please be vigilant take care of yourselves, and others and stay safe and healthy and with that I'd like to open up the lines of questioning.
Thank you ladies and gentlemen, we will now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad, you'll hear a tone acknowledging your request.
If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then too to join the question can you. Please press Star then one now.
Our first question comes from the Hot topic of Credit Suisse. Please go ahead.
Hi, good morning, Thanks for taking my questions.
First on paper can check can you talk about the timeline now to get to the high grade I know previously it was ending 2020 and I see the extension would Wheaton can you just talk about what that means for accessing the high grade ore and the timing of it.
Sure.
Obviously, there's there's a delay that's been associated with the suspension of activities in.
At Constancio due to the state of emergency in Peru.
So.
With a two month a suspension of activities clearly there has been no.
Activity related to either the consult a privia process undertaken by the government of Peru or by our negotiations.
With the uses of the land belonging to the community of tiara.
Once the state of emergency is lifted we anticipate it'll still takes some time.
For the government to Remobilize.
The folks involved in negotiations remember that a button negotiations in interaction with the community and remember that this interaction is of an intensely personal nature acquiring human contact so until social distancing protocols are relaxed it.
We'll take some time to complete the consultant Pravia process at the same time, we continue we'll continue with our negotiations with the possesses or uses of the land.
And we'll continue with that in parallel with a consultant privia process. So I think it's fair to say that we will not be.
Producing ore mining pampacancha until the beginning of next year.
That's helpful. Thank you and just switching gears to gold. So it's it's clear that gold is becoming a larger part of this strategy and composition or revenues, particularly given commodity prices right. Now can you talk about like beyond.
This year and next year, what's there longer term strategy with the gold exposure what would you be open to streaming opportunities or royalty opportunities are doing more prepaid any color on how cold starts and over the medium term that would be helpful. Thanks.
Sure. That's a that's a great question and is one that we are more frequently asked.
Than ever before since we.
And onstar updated resources and reserves in March.
You know, we like our increasing exposure to gold it offers a counter cyclical hedged for the volatility of.
Of the base metals environment.
We believe that is remains enormous value to be a unlocked at snow Lake gold and the way that you unlock that value. If you delivered the refurbishment of new Britannia and the completion of the related infrastructure between you bridge and the stole mill and only when you have done that.
And you can demonstrate that you are actively actually producing at the levels that we say, we gonna do and you have all of these reserves, which will likely be much more than we have today ahead of you then you've really unlock value and you have the optionality of what you do available to you now I believe we have lots of alternatives.
Available to us with respect to creating an optimizing value of at our gold business, we actually don't need to make a decision with respect to that right now because we are focused razor sharp on delivering new breed refurbishment and during that period between now and then we will.
I'll take a really close look at what it means to us and will how it implies our business might look going forward after completion of refurbishment.
That's great. Thank you.
Our next question comes from Orest Wowkodaw of Scotia Bank. Please go ahead.
Hi, good morning.
A couple of questions for me I first of all with the second stance. Yeah. So it's great that you got permission to restart there can you give us an idea are there any constraints that you see in terms of receiving required consumable from I guess various distributors and manufacturers with in Peru like are you ready to basically restart firm.
One.
[noise] wanting or a stand a really good question. So you may remember that right at the point the state of emergency was announced in Chile.
We made the decision to suspend operations for one primary reason and that was in order to preserve our ability to ramp up quickly once the state of emergency was lifted.
And a key component of that was to preserve the inventory of supplies that we had on hand and during the period. The intervening period a of our suspension. We have in fact I'm undertaken a lot of activity in order to ensure that we had more than adequate supplies to allow us to offer.
Great for at least a month during which time, we will be able to make sure that we work on strengthening the supply chain, making sure that we have access to everything that we need so in a nutshell, we have everything they need in terms of supplies to be able to operate a for over a month at constancio.
Okay. That's great. Thank you and in terms of that the balance sheet.
Nice you you renegotiated your debt covenants are earlier this year, but at current copper pricing.
In my estimate G, which still probably haven't net debt to EBITDA that's above the the current threshold.
Perhaps later this year into early next year I guess my question was can you give us an idea of what the what definition of EBITDA, it's being used for the covenant is it the adjusted EBITDA is it just a grocery EBITDA I'm just wondering how to think about that.
Hi, Good morning is that Eugene here with respect to to the availability under under revolver.
We renegotiated we proactively renegotiate those covenants in Q1 as you'll remember that was us different copper price environment.
To 75.3 dollars rather than to 75 going towards $2. Since then we then we that bolstered our liquidity by doing the prepay and that gives us additional access that revolver in terms of the eat the EBITDA calculation. It that it is an adjusted EBITDA calculation and we can take that offline. We do we do believe that we have.
More than ample liquidity and cash balance to sustain our business even into a sub two dollar environment. So we think we have them, we feel confident with the with the prepay announcement and and the result in effect on on the revolver that we can we can actually operate.
On July 190 environment without additional liquidity measures.
Okay. So Eugene I guess, it's the right way to think about is that your.
Sure.
Thank you might go through a short period of time, where the revolver is not available, but you don't actually think it matters because you have enough cash on hand.
You could interpret that way and we haven't drawn on the revolver and over four years.
It's an undrawn on available I think M. R. Our ideas not add more debt to the balance sheet here in this time and so is that it's a nice rainy day fund that we that we can drop on that we expect to have availability, but the.
The the goal here is not too it's not too bad debt to the balance sheet at this time and that's why we did that the proactively renegotiate those covenants that allowed us to do that prepay.
Okay, and then just finally I was anticipating that your environmental provision liability would have decreased this quarter because of the the significant mine life extension that you put on a Manitoba.
Can you give us and why it didnt.
Why that liability didn't go down in <unk> is that a timing issue or in terms of when that's reevaluated or am I missing something there.
The the actually the liability Inc.
Two there's two and adjustments to that the Aro liability. The first one was on was actually with because of lower discount rates. It actually increased liability by by $40 million because of the lower discount rate used in that calculation and that was offset partially by the stronger Canadian dollar, which which netted that impact bye bye bye bye.
So the increase was not 20, but it was there are two factors that and one was discount rate and the other one the moderating factor was what the Canadian dollar.
Okay, but what about I thought I'm, just adding the eight years of mine life.
To lay low or you know would push out the closure costs there on environmental liabilities that is that not the case.
It's a it's a complicated calculation and I would again, we can take we can take that offline. The the eight years of mine life does extend the closure liability overall for port, where Manitoba, but given the lower interest rate environment there.
Theres, a lower discount rate [laughter] calculated that that kind of overwhelm that for this quarter, obviously has as a as interest rates change over the over the course of the year that that can be reversed.
Thank you.
Our next question comes from Greg Burns of TD Securities. Please go ahead.
Yes. Thank you gene question for you as well following up on what Orest Arse question about the credit facility.
So I have similar numbers to Rs. Later this year in terms of the covenants, but does that mean the availability on the line shrinks wont does the availability disappear completely on the line. If you go to the covenants.
It it will decrease in it as as you know we set the second quarter here with Constancio shut down for at least half the quarter, we'll have a significant impact on on our EBITDA on the the way that that the covenant calculation is done is that there's a multiplier effect on an EBITDA that's actually greater than.
And then the speed that I can add cash the balance sheet. So.
I can add cash to foreign half times that rate. So it will it will decrease but we expect that given our success at a in negotiating.
The covenant that package earlier this year in a different environment that we will create some availability.
But it will it will likely decrease but we don't expect to have to draw upon it.
Into that and until we can to an average copper environment kind of in the 190 range. So we think we've done suspended this add to the point, where we don't need it but certainly we would we expect will get.
We will get increased access with some renegotiation, if we need it beyond that 190 level.
Okay fair enough.
And just again following up on techniques question earlier on about the gold business and in my experience anyway gold.
Section within a base metals company, just simply doesn't get it got multiple even a fraction of it so.
As you grow the gold business, you're not going to get full value in the market for it in my views, which would imply that probably has to be divested of spinoff somehow.
Is that along the lines that you are thinking as well.
Thank you know as I said to turn it can be our focus is not so much on on delivering a future optimization of the asset it's on actually delivering the value.
And in the Meanwhile.
Well, you 18, and taking a look at what opportunities they offer us there a multitude of alternatives available to us and as some of them or what you mentioned and of course, there are others, but I think in order to to reach that target, we really have to deliver on this project and delivery in this project involves not only a construction and the the commission.
Activities, but it doesn't mean, it's dependent on everything that we do on the mine and in our business and how we structure things I.
I I, just think that worrying too much now about how we maximize value post completion of the Newbridge refurbishment is a distraction and a we'd so he just going to continue to roll endlessly to pursue execution of that strategy and of course, they will come a point at which we have to decide how.
Based to optimize a maximize value.
But we don't have to do that right now.
Fair enough. Thanks.
Our next question comes from Jackie Please blocky of BMO capital markets. Please go ahead.
Thanks very much.
<unk>.
Okay.
Beginning about expanding.
Oh.
What you just said to Greg.
To be two distracted but.
Hello.
Right.
Multiple see subsequent these expansion you mentioned.
Sometimes today, it's where the plant.
Is that sort of a cap.
Where you think that plant could run.
Sure.
Can you give us a little bit of assessing what the timing would be for the way you're thinking about.
Subsequent to the new Britt.
Jackie I'm going to let the cash will talk to that because you'll be more intelligent than I am but in basically new brands in the past used to run at over 2000 tonnes per day, but casualties more familiar with it yeah. The installed grinding capability is between 2000 2200 tonnes a day, we have and engineering study.
Commission to be able to evaluate that.
Our focus though is on the delivery and execution on the current project, which we have label. This 1500 ton today I would say, though that it's an integrated production area the whole snow Lake camp.
And we have an internal evaluation underway.
There's there's there's sort of batteries pre feasibility level right now and we look forward to being able to give more detail on it in the future, but the optimization at the stall mill will add considerable number of ounces also so between the two we see opportunity to increase.
Recovered ounces out of those snow Lake reserves in the future.
So one criteria, we sort of looked at to evaluate whether or not stall would be a good opportunity is simply the difference between the recovery we get.
When flon for gold.
In our copper concentrate versus what we get installed stall historically is in and around 55% gold recovery and when bonds in and around 65% recovery. So we know that there's an opportunity to increase gold recovery there.
So I think between those two engineering projects that are.
Being managed by Peter Am along soon and our Vice President Technical services.
Those two projects will yield higher opportunity for gold recovery in the future at the throughput at stall.
But at a new brand and the increase gold recoveries at stall and I would mention.
Obviously, we're really encouraged by stall this last quarter with its increased throughput that it demonstrated over the quarter.
It sounds like it could be a couple of years before before we see.
Potential.
That they're looking at least a couple of years.
No I think the engineering studies would dictate that we would be good forecasts and foresight into it probably within the next year, but maybe the execution of it would be phased in with stall improvements over probably 2021, and then yes, whatever increases that happened.
Two new brittania would be implemented and the capital would be allocated after the commissioning of new brittania.
That's great.
That's really helpful and just another question.
I know you mentioned earlier in the call that consensus planning a ramp up fairly soon and then it sounds like you can ramp up fairly quickly.
Can you maybe give us a little bit of.
Color into your thought process for why.
Guidance hasn't been updated yet I guess you said.
Q2 earnings, which is which is still I guess a quarter away from now Oh, what else do you need to see before you're comfortable.
Yeah. That's a good question Jack you look I mean, there's still it's still quite a bit of uncertainty in Peru, and that uncertainty really relates to how the pandemic is going to play out and how the government reacts to that so we spoke I mentioned, a little bit earlier, what you've done with respect.
To sort of firming up a availability of supplies to ourselves so the next month or so.
But we really do have to make sure that the the supply chain doesn't become a bottleneck.
It has the potential to do that because.
The complexity of what the government has it has to do ahead of it and the coordination amongst the various levels of government, it's pretty intense and that leads to to some some uncertainty. So it's very very difficult for us to be able to predict.
What uncertainty or uncertainties will face in the months ahead of us, but as we progressed through the remainder pandemics in the second quarter, we'll get a much better idea of exactly what it's going to take I believe that we have the most resourceful mining team in the business over there they have been incurred.
Ratably incredibly skillful at making sure.
That we maintained relationships with all of the communities Don's supply chain. So that we do have access.
But I believe that they are going to be tested in the months ahead and while they are being tested I think it's premature to be able to offer guidance.
Okay. Thanks, very much Peter Incapsula, Jim that's that's only question. Thanks.
Our next question comes from Oscar Cabrera of CBC. Please go ahead.
Well, thank you have greater.
Morning, everyone.
Well, you're finally that yourselves for <unk>.
Uh huh.
Peter said unprecedented times.
I can get back to coincide yep.
Peter you mentioned in one of the previous questions that you expected to be lined up.
Hi, John.
And early next year.
Can you remind me because it both topics for before Provident ideal started.
You had $70 million oil growth Capex was that all public on shelf or.
Can you just remind me what the different parts of that $70 million.
Yes, sure Ah Oscar and thanks. Thanks for your comments the the Capex of $20 million is pretty well almost entirely associated with control and the two there's two components of it. The one is the payments the community.
For access to that end and the other piece of it is the actual development costs. So we actually do anticipate spending that that capital this year.
The capital that we do not expect to spend all of this you of course is a sustaining capex most of which is associated with capitalized stripping and of course, we've taken a two month outage on a.
Mining activities and we got to be processing stockpile material material. Initially so we'll probably take a you reduce the a sustaining capex by a roughly three months.
Okay. Thank you and up and so they did $25 million your.
During the.
Oh that you talked a lot in your press release.
Then considered it out to be spent in the second the second holidays, yet, but the beginning of next right at this time I know.
Yeah, that's correct.
That's correct.
Right and then on in terms so.
I was wondering if you can give us a sense. So they have the liability on the revolving credit facility.
We get into that scenario.
Well.
New Jean mentioned, the one night.
How much of the credit facility.
Would you have available to yourselves.
Hi, Oscar the the credit availability the revolver availability is as a function of two things both.
Those are our current debt balance and also an EBITDA and EBITDA is really what do you predicting for the for the copper pricing how much are we going to produce.
At you know if we were going to run out this year and Constancio, we're kind of what's going to continue to produce it would obviously at these prices would obviously reduce that that that availability, but again as we've shown earlier. This year. We believe we can get access to a two it to some of it by by renegotiation with banks and feel confident that we can do so but I think.
I'd go back to my earlier comments about proactively adding cash the balance sheet. The best the best availability is actually cash on your balance sheet and we've got at that without adding adding debt. So I think we think we can attack it that way. Meanwhile, having the revolver availability and as a as I as a back as an ultimate backup if necessary.
Right, Okay. Thanks very much.
Our next question comes from Stephens. Your line of Cormark Securities. Please go ahead.
Thanks, very much and great to see the gold strategy unfolding with the prepaying stuff just maybe more of a housekeeping question. Just you mentioned has that basically today the balance sheet has about 370 million a cash on it just wondering.
Presuming that includes a 115 million pre pay and have you got she's had a chance to sort of do any sort of deep spending on the new can you know yet or is that sort of any willing to give a weekend since that announcement I'm or is that still to come.
Yeah, So youre presumptions correct.
And I'll just make sure that Eugene can confirm that but the we have got done any deep spending on new breadth yet because most of our work has been associated with the a engineering and procurement face, but the spending is about to stuff.
Okay, Okay, Jane energy for the cautious just that the spending this year for four new Brett is $80 million and so I would say approximately 10 of that has been spent to date and so there's about a 70 million. If you want to if for port from a modeling perspective and add new correct, a 170 million approximate balance includes.
The for sale proceeds from the pre pay which we got last Monday.
Okay, great. Thanks, very much guys.
Welcome.
Our next question comes from George topping of Industrial Alliance. Please go ahead.
Thank you alternative Hello, everyone I'm I'm, just wondering with the the southern dropped and.
Base metal prices, if you have any flexibility at all it either operation to increase the mine grade.
New through the year.
[noise] wanting George.
Look I think that you know we subject to various constraints of course, but a them. The guide to the mine are pretty I would say a creative whether that is really opportunity to increase grade or not I think it's limited a andrew wouldn't certainly wouldn't want to make any promises with respect to us.
And if you do that but the guys. It resourceful and they typically tend to optimize we'll do what we can but I would say that to be able to make any predictions associated with increased improved grades are a.
That's very practical at this point.
George I would add that a in our mine plan. This year there were mining 19000 tons of gold and that's back end weighted so given prevailing gold prices you will see some nice tailwind from that as well as the current Canadian U.S. dollar exchange so.
There are there are things inherent in our current on our mine plan that that will be beneficial given the current environment, which Ah you know combined with a lower base metals prices. There. There are other county counter effects like the higher power gold price and a lower Canadian dollar that that are offsetting to that to add.
Got it environment.
Yeah understood.
And then secondly, the worker response to the a the cold bought two operations.
How does that go in I know, it's only a dan but everybody come but no problems not the asking for extra money then jump the et cetera.
George we Ah so we actually planned for this a substantially in advance and we have incredibly detailed protocols in place in order to manage exposure to the virus now.
One of our employees want to work and and if you can imagine it.
Constancio as Ken is probably one of the safe places to be in Peru, right. Now is the accommodations or adrs proper social distancing available. There you don't have dense pockets of population.
And we take enormous proportions with respect to hygiene protocols et cetera people coming up to sites are actually.
Hotel for seven days before they come to site. They are tested for covert so people that we bring up to site all cobot free.
There will also subjected to a isolation protocols onsite so everybody wants to come now clearly a availability our personnel going forward will be an area that is challenging because everybody is looking for personnel and it's not so much where the personnel.
I want to come to work its whether you have <unk> personnel going back or back to cities a as they go on Lee from through their rotations getting infected.
So those are some of the risk that we face a but we have all the personnel on site that we need remobilize them in advance of a being given permission to resume production. So we're in good shape right now.
So they all came at no additional demand.
No.
Good to know thank you.
Once again, if you had a question. Please press Star then one.
Our next question comes from Brian Molly of Barclays. Please go ahead.
Hey, good morning, everyone. Appreciate you are sitting in any area.
Maybe a couple of follow ups for you gene there again at apologize, but it won't be dead horse, but you know I think I think part of the issue needs.
Obviously, you guys don't report specifically you know EBITDA I appreciate that the definition it sounds like some change from on total net and we can sort of run the numbers, but is there is there something around how EBITDA as defined as you think about even compliance from that perspective, obviously, you've got a few questions on this so I'd love to extend our.
Okay. That's fair just in terms of understanding how that availability.
Stage, even and even more dire scenarios and then I had one one follow up.
Yes.
The definition of EBITDA has it hasnt change and as it is consistent from when we.
Reported D.
Well, we did the high yield offering in 2016, so I I just want to be reassured that there's no doubt change in definition I get the definition of the of the revolver Covenant has changed and that is now a net debt to EBITDA, rather than that and a total debt to EBITDA.
Yes, I guess and it just didnt anatomy <unk> typically these covenants.
Something where does it.
Is it based on availability is it only if you'd have drawn a certain amount I guess, that's again part of that the question I think people agrilogic, if you're above that covenant for some.
Period of time, when you have to measure against it does the entire revolver availability go away and again, we've seen it to find a bunch different ways in different credit agreements I think that would be helpful. For the group. It there's talk about that sure. It's it's it's measured on a on a quarterly basis. So.
The numbers that we state and in this quarterly release at the 446 available steel you'll know that the revolver has its 550 million in total.
And we have 446 available based on current calculation and that sat that will persist until till we report next quarter.
Got it but it is something where if you're above it it as it does have an issue in terms the entire availability. If you were to be above the covenant is that is that actually correct.
The covenant limits calculates what's available so depending on where your EBITDA, those and I can't predict where our EBITDA will be end at Q2 at the moment.
Right, Yes, it's loved it's not it's not a it's not a you have all available your no availability it floats the numbers as a calculated number.
Interesting okay.
Then I guess my second follow up if I may is just understanding to your point again appreciate the answer on on the new bread Capex. That's left 70 do you mind working or walking through excuse me you know somebody other kind of key cash flow items that you you'd want to make sure we're modeling correctly.
Obviously, the Peru Capex is has been suspended but yes, I think as people are working through their numbers. You know we can all figure out around on copper prices and EBITDA, but you know just making sure we have the right cash outflows as we think through a your liquidity and if there's a way to do that at a high level. That's all for me. Thanks, so much.
Sure I think we're we're pleased to reaffirm our Manitoba guidance and that May until the guidance of a production operating cost and and capital both on sustaining and growth and are clearly outlined in our guidance from two months ago. We are we're on track on not on all those measures as Peter in cash outline the.
Apps DC the guidance for Peru is temporarily suspended we expect to reinstate that by the end of the quarter, but now it for we wanted to be.
Responsible and prudent and help the at the analyst community with capital and we want to highlight the there is expected to $25 million reduction and success.
In Peru, and additions that suspension. So I think that's that's really the guidance that that we can provide.
On on pro at the moment that that we expected to be a minimum $25 million lower the rest of the spend as as them as Peter outlined a with respect to pop contract will be dependent on the on those Nick on the negotiations and the ramp up Oh.
The activities to get a pop culture and into mine plan.
Got it thanks, using but happy to discuss any other numbers offline. If there's some modeling numbers that that you're missing.
Sure well what might be great. Thanks appreciate it.
Our next question comes from Matthew Fields of Bank of America. Please go ahead.
Hey, everyone Hope you in your families are doing as well as can be expected.
Just a housekeeping one first so you ended the quarter cash balances of three or six.
You got a 115 million from the gold pretty pay and now you're at Threeseventy. So is that correct in that the first six weeks of a quarter you burned up about 51 million in cash.
Yes, that's that's that's about that's about right and some of that would relate to to the temporary that Karen maintenance charges and in Peru, and some little relate to spending related to.
The gross initiatives that we've outlined and and have reaffirmed in Manitoba.
Okay, great. Thank you and then you know second I don't want to beat a dead horse on this revolver and the covenants, but it seems like.
Especially for a lot of equity investors covenants or a scary word and it's going to be something you're dealing with as you go throughout the year you have got a decent amount of secured capacity right now why not do a second lien issue.
Boost liquidity you can chip away at your 23 maturity, a little bit and just not have to deal with us revolver uncertainty and equity investors kind of worried about you know reaching covenants, which.
You're not them first mining company to got Covenant relief, you won't be the last but seems to be an overhang at least based on the questions on this call.
I think we boosted the cash balance, which which is more important than revolver availability 'cause actually in the bank and and with respect to two to.
Doings secured debt that just adds to debt balance and reduces our availability. So I think if were to do a secured offering today it would be at a higher rate than our current 23. So we've been paying a bunch of fees out to refinance debt and the for short term and and use up secured.
Capacity that we don't need to it at this point, so I don't think that that would actually improve our liquidity that would actually Rick.
Increase our leverage on a negative basis and I don't think that that's what investors would like us to do.
Well you have capacity outside of <unk> revolvers, that's all I'm sorry.
We do but that still at the they see the covenants our debt to EBITDA, so if you're adding debt new debt to it it actually it.
Reduces the availability thought it would have going forward and your and all we're doing this pay more interest.
So it's not that now but okay. Thank you very much.
Right Okay.
Sorry, operator I'd also note that we have increased gold production this year and looks like gold is flying so.
The little bit of a upside there too.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to candidate for life for any closing remarks.
Thank you operator, and thank you everyone for participating today, please feel free to reach our Investor Relations team. If you have any further questions. This concludes our call you can now disconnect your lines.
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