Q2 2020 Hudbay Minerals Inc Earnings Call
[music].
Good morning, ladies and gentlemen, thank you for standing by welcome to the Hudbay minerals second quarter 2020 results conference call.
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. She didn't need assistance during the conference call you may signal, operator by pressing star and zero I.
I would like to remind everyone that this conference call is being recorded today August 12, 2020 at 830 <unk> am eastern time.
I would now like to turn the conference over to Kansas Greeley Director of Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to hide the 2022nd quarter results Conference call.
<unk> financial results ratios 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 during this call.
Center today, Peter could kill Steve <unk>, President and Chief Executive Officer.
Company, Peter for the Q and a portion of the call will be Steve Douglas a recently appointed senior Vice President and Chief Financial Officer, Cashel, Meagher, Senior Vice President and Chief operating Officer, and Eugenia, Our senior Vice President corporate development and strike.
Please note that comments made on today's call may contain forward looking information and this information by its nature is subject to risks and uncertainties and I saw <unk> actual results may differ materially from the views expressed today for further information on risk and uncertainties.
Companies relevant filings on SEDAR and Edgar.
Documents are also available on our website as a reminder, all amounts discussed on today's call or U.S. dollars, unless otherwise noted and now I'll pass the call over to Peter Picky Eater.
Thank you Candice.
Good morning, everyone and thank you for joining us I'd like to start off by saying that I hope everyone has been able to stay safe and healthy as this public health crisis has evolved over the past several months.
We too have been closely monitoring the rapidly changing environment, while continuing to execute on our business response plan to minimize the overall impact will depend on our operations.
We remain focused on the health and safety off our employees their families and communities in which we are supposed to be tied while engaging with local stakeholders and public health authorities to ensure the effective implementation of our response to the pandemic.
Today I'll touch on the highlights of our second quarter financial and operating results along with updated guidance for a Peru operations.
I will also explained how the recent 90 no one upgraded the loss estimates fits into our plans for advancing the third phase of boss Snow Lake Gold strategy and I will provide an update on the progress of the new between you know refurbishment and the timelines to first production expected in 12 months.
But before we jump into all of that.
I just take a moment to thank you gene for stepping into the role of interim CFO, while we advanced our search for a permanent CFO.
And I'm pleased to introduce Steve Douglas, who was appointed to the road effective June Thirtyth.
Well, those who have not met well spoken to Steve before she is highly regarded by the street and brings over 25 years of resource the industry in senior finance leadership experience to our team.
Over the last several weeks Eugene and Steve I've worked closely together to continue to execute all financial objectives and I've been impressed with how smoothly the transition has been.
I've said it many times before Hudbay has a disproportionately talented team for a company about sized and I have no doubt that Steve will bolster our team welcome Steve.
Now beginning on slide three Hudbays second quarter results script boosted from another solid operating costs in Manitoba, even with strict adherence to covert protocols that are being implemented.
I would like to thank the Manitoba team for this strong if it's in achieving these outstanding milestones, while adapting to this challenging external environment.
We saw strong production and cost performance in Manitoba with an increase in production of precious metals and zinc over the first quarter driven by record gold production from increasing law gold grades and record gold recoveries at stole.
Copper production declines by 27% from the first quarter due to the temporary suspension of Constancio until mid may.
However, consolidates a copy equivalent production only declined by 12% as a result of high a precious metals and zinc production in the course up.
Consolidated cash cost net of byproduct credits was 64 cents per pound of copper a 47% improvement over the first quarter.
Given the significant reduction in Constancio production in the second quarter. This measure is more heavily impacted by Manitoba production, which contains meaningful zinc and gold byproduct revenue components.
Consolidated all in sustaining cash costs also improved from the first quarter two $2.26 per pound of carpets, driven by the same factors affecting cash cost along with reduced sustaining capex inquiry from the temporary suspension.
Operating cash flow before change in noncash working capital was $50 million or the quarter, reflecting a decrease of $12 million compared to the first quarter.
The decrease in operating cash flow is primarily the result of lower constancio production and sales due to the temporary suspension.
However, this decrease was partially offset by higher gold production and sales in Manitoba as well as higher realized gold prices.
We have been planning for the introduction of adjusted metrics for several months.
We're pleased to have Steve support this chain shortly after he joined.
We believe these metrics will provide further transparency for readers into our financial performance after normalizing for one off or non cash adjustments.
During the second quarter, we've adjusted for temporary suspension cost in Peru, and the reversal of a portion of the Peru inventory write down from the first quarter amongst all the items.
Adjusted net loss was 15 cents per share and adjusted EBITDA was $49 million.
The strong performance from the Manitoba operations during the quarter helped offset the reduced contribution from the Peru operations, resulting in minimal change in the quarter over quarter adjusted earnings and only a slight decrease in adjusted EBITDA.
[noise], we exited the quarter with $391 million in cash and equivalents and continued to take prudent steps to manage our balance sheet.
In the second quarter, we entered into discussions with the syndicate of banks, you know revolving credit facilities to restructure the facilities in order to provide enhanced financial flexibility during the development of the new brittania and potential projects.
Each of the banks you must syndicates <unk> received credits approval to amend the facilities on the proposed terms and the transaction is expected to close shortly.
As the results of the amendment.
Total available borrowings under the credit facilities, where rightsized to $400 million to reflect hudbays anticipated business requirements until June 2022, when the credit facilities mature.
However, it is important to note that we do not intend to draw down these facilities for the purposes of achieving our business plans.
We also revised the maintenance covenants to a net debt to EBITDA ratio of less than 5.25, and an interest coverage ratio of greater than 2.50 until the end of 2021, which provides additional financial flexibility.
The Manitoba business units had solid operating performance across the mines mills and zinc plonk during the second quarter as shown in slide four.
In response to the Cobot 19 pandemic Hudbay has worked collaboratively with its health and safety committees and the local health authorities to continue to keep employees in communities safe by implementing a number of layered workplace controls.
As a result, the second quarter, Manitoba operating results were largely unaffected by the pandemic and we are on track to achieve annual production and cost guidance.
Manitoba achieved higher production results in all metals quarter over quarter.
The enhanced precious metal production was driven by higher gold and silver grades at lot or as a result of prioritizing resources within the higher value portions of the base metal lenses.
Developments in the Goldrush Linzess 25, and 27 advanced ahead of schedule and production from these areas is expected to head of the new Brittania mill restart as lore transitions to a gold mine.
The Triple seven mine so high all grades during the second quarter, which were expected and consistent with stope sequencing outlined in the mine plan, including the mining of higher grade puppet stopes during the quarter.
Combined mine and mill and GE and eight unit operating cost in Manitoba with slightly higher than the first quarter, but in line with expected annual guidance ranges.
Slide five outlines the enhanced performance, we've seen that the stolen mill as a result about focus on continuous improvement.
Throughputs of the mills has steadily increased over the last several years and in the first half of Twentytwenty, we've seen an 11% increase in Throughputs to average 3900 tonnes per day.
This is the result of improved maintenance programs, which have increased plant availability run time to an impressive 95% up from 91% in 29 team.
The stole mill also achieve record corporate gold productions in the second quarter, increasing to 62.3% compared to 52.5% in the same period last year.
This is due to improved maintenance programs higher gold head grades improved fonts stability juice grade control and the processing move or intrinsically higher recoverable gold content.
Turning to approve operations on slide six.
After an eight week temporary mine suspension, we successfully achieved the efficient restarts of operations I couldn't stands in mid May with increased government supported covert 19 health and safety protocols in place.
The mine achieved normal mill throughput levels on maybe a teens within 48, Oh is off to restart and continued at these levels for the remainder of the second quarter.
The initial six weeks following the restart focused on milling activities, while processing stockpile.
This was followed by a ramp up of mining activities commencing the last week of June with a full ramp up to normal levels in early July.
Production results from Constancio were lower than the first quarter as a result of the temporary suspension and processing of stockpiled ore following the restart of operations during the quarter.
Despite building activities being suspended for eight weeks the care and maintenance activities performed proactive mine restart planning during the shutdown facilitates it and efficient ramp up and steady performance of the mill off to ramp up.
Over the period when their middle was fully operational during the quarter average daily throughput was above 95000 tonnes per day.
Mills copper grades in the second quarter with flat compared to the first quarter, but the characteristics of the stockpile all that was processed negatively impacted copper recoveries.
Combined unit operating cost in the second quarter was 17% lower than the first quarter, primarily due to low operating costs as a result of constrained activity during the temporary suspension and significantly reduced mining costs during the quarter.
We also deferred a second quarter ponds maintenance shuts down from May to the third quarter as a result, a proactive launched maintenance completed during the eight week temporary suspension.
I would like to commend Constancio team, who have done a tremendous job ramping up operations, while adhering to and caused health and safety protocols in an extremely challenging covert 19 environment in Peru.
As you are aware in response to the uncertainty around the ongoing endemic and the resulting temporary suspension of operations that Constancio earlier. This year, we suspended our previously issued Twentytwenty guidance full crew operations.
Following the full resumption of Constancio mining and milling operations. We are now in a position to be able to issue updated twentytwenty guidance full fruit.
The situation in Peru, However remains fluid.
State of emergency first declared by the government in response to the covert 19th endemic in much. The 15th has since been extended to August 31st and there remains a risk of further disruptions to mining operations.
We are actively monitoring the situation and any potential future impact unconstrained she is operations.
[noise] you updated annual production and operating cost guidance, along with capital in exploration expenditure for costs are presented in the table on slide seven.
The updated Peru guidance assumes we are able to continue to safely operate for the remainder of the while adhering to all existing health protocols required by the Peruvian government.
Manitoba operations are on track to reach to achieve the guidance ranges and therefore, the guidance remains unchanged from previously disclosed expectations.
The revised production guidance full Peru reflects a reduction of approximately 15 to 20000 tons of copper and 20000 ounces, a precious metals compared to the original guidance.
This reduction reflects the lost production during the eight week temporary suspension that Constancio. In addition to revised mine plans for the remainder of the a and the resulting deferral of some higher grade or into 2021.
Precious metals production also reflects the revised expected pump a punch of production stock days early 2021 compared to the second half of Twentytwenty previously.
This is due to the cobot 19 related government dedicated state of emergency in Peru, and the resulting impacts on the consult a privia consultation process.
Peru sustaining capital of $18 million reflects the deferral of approximately $20 million into 2021 due to the re sequencing of capital activities, such as tailings and capitalized stripping.
The revised unit cost guidance for Peru reflects lower mining costs during the gradual ramp up of mining activities in the quarter.
There was no change to exploration guidance.
[noise] peruse growth capital of $70 million includes initial expenditures for developing the pump a country deposit and acquiring surface rights from the local community, but excludes the costs associated with recognizing the current uses of the land by certain community members.
We have made significant progress with these individual end user agreements and have approximately two thirds completed to date with the remaining agreements expected to be completed during the third quarter of Twentytwenty.
Similarly, we have also made progress with the land clearing activities and approximately one third of the land has been vacated and turned over to Hudbay.
As discussed last quarter, we have demonstrated significant value in our snow Lake gold business through executing phase one and phase two of us know like gold strategy as highlighted on slide eight.
Phase one was announced in February of 2019. After several years of detailed drilling and economic trade off studies, which resulted in a 65% increase in gold reserves at Lalor and determined that the refurbishment of the new Brittania Gold medal was the optimal processing solution follows gold or.
It was through this first phase that we repositioned lowers the gold mine with previous with precious metals contributing a majority of the life of mine revenues.
We then spent the next 12 months optimizing Lawler was mine plan drilling the in mine exploration targets and conducting advanced engineering studies on the regional deposits win and three zones.
And in March of 2020, we unveiled the second phase of our Snow Lake Gold strategy, which further increase the gold reserves by 35% to 2.2 million ounces increased laurels life of mine gold production by 41% and extended the mine life of the Snow Lake operations to 18 years.
Slide <unk> also highlights the third phase the boss Snow Lake Gold strategy focused on further expansion potential and I'll touch on this in a few moments.
Slide nine demonstrates the Twentytwenty has been a year of executing our snow Lake gold strategy.
After releasing the enhanced second phase of our plan, we were able to unlock the value of future gold ounces through the recent gold prepaid transaction.
This transaction fully funded the new Britannia refurbishment costs and positioned us well for continuing to execute on all fan.
[noise] in preparation for the restarted the new retain your mills in the first off of Twentytwenty, We commenced underground development and early mining of the goes up.
Gold production from law is expected to be 74000 ounces in Twentytwenty and 102000 ounces in 2021.
In Twentytwenty to upon completion of the new retain your mill refurbishment average annual gold production from law is expected to increase to over 150000 ounces at cash costs and sustaining cash costs natural byproduct credits of approximately 480 and 655 dollar.
As per ounce, respectively. During the first eight years.
We believe there is potential to further increase the annual production and extend mine life through several upside opportunities as summarized on slide nine.
We are examining the potential to further optimize both the stole a new brittania mills, which could create additional value for the regional deposits, we haven't snow Lake such as the 90, you know one deposit.
At the store mill, we are initiating studies to examine the potential to increase gold and copper recoveries and will also be competing studies to potentially expand the new brittania mill capacity beyond the parents planned 1500 tonnes per day.
We expect to complete these economic studies in the first off a 2021 as we execute the third phase of us, though like gold strategy.
Slide 10 highlights the progress you've made at the new Brittania mill over the last few months detailed engineering is currently approximately 90% complete procurement to 65% complete and construction activities are approximately 25% completed to date.
On the procurement side, we have placed orders for 100% of the long lead items and we are pleased to say that there hasn't been any impact on the supply chain due to covert 19.
Construction of the pipeline between the new Brittania install mills continues as planned.
We broke ground at the new Brittania site with the start of construction for the new copper flotation building in May.
Also repairs to the new Brittania Middle building underway and this includes items such as repairs to the carbon in leach tanks demolition upstairs and cladding and placement of the grounding grid for the electric building.
Refurbishment activities are on track to be completed within 12 months in August 2021, with plant commissioning and ramp up expected during the second half of Twentytwenty what.
We're also pleased to report that through our expertise in project development and the advancement of the detailed engineering work, we have identified the potential to produce gold from the new Brittania mill earlier than expected in 2021.
The team is exploring this early gold opportunity and we expect to provide an update in the third quarter.
The significant gold exposure from Hudbays Snow Lake Gold business office invest as an attractive balance between growing both cash flows and a stable low cost copper business through the other key assets you know portfolio.
On slide 11, we sensitized the expected annual cash flows or gross margin from snow Lake gold at various gold prices for example at a gold price of $1600 Snow Lake Gold is expected to generate approximately $200 million in annual gross margin and this would increase to.
$40 million at the current spot gold price of approximately $1900.
Given that lorries located in one of the best mining jurisdictions and he is a high quality low cost s. It already in production there remains significant opportunity to unlock further value for snow Lake gold within Hudbay.
Lora is not unlike other polymetallic mines in Canada, where the Vms deposit is characterized by base metals zones that are mined in the early years, followed by higher valued gold zones that transform the mine into a primary gold assets.
We are excited about these value potential and we believe as we continue to execute our snow Lake both strategy, we will create value for all of our stakeholders.
This quarter.
We also announced an updated resource estimate for the nine to you know one deposits, which was discovered in February of 29 team and is located near the lower mining Snow Lake.
This resource update was planned as part of phase three of our snow Lake bold strategy.
This past winter, we completed the drill program to upgrade the classification of a significant portion of the previously reported 2019 inferred resources and to define an initial inferred resource estimate for the gold mineralization that had been intersected near the two zinc rich lenses.
You will recall that 19, no. One is located at halfway between the former chisel North mine and they'll all ore mine and it is less than a thousand meters away from an active underground ramp as outlined on slide 12.
It is within 15 kilometers trucking distance on both the store and new Brittania processing facilities and the property is 100% owned by us free of any royalties or streams.
The mineralization is similar to law with zinc rich Vms lenses containing high grade gold lenses and indication of a copper gold rich feeders on.
Yeah updated measured and indicated resources for the base metals zone are shown in the table on slide 12, and our equivalent to 100% of the initial tonnage in the 2019 inferred resource estimate.
The zinc grade is 12% Lois, but the gold grade in the base metals zone has more than doubled.
The Twentytwenty drilling program was successful in defining an initial inferred resource estimate for the gold zone of 500000 tons at 6.8 grams per tonne gold.
Total gold resources have significantly increased with 120200 22000 ounces in measured and indicated and 137000 ounces in inferred compared to a total of 58000 ounces previously which continues to demonstrate the gold potential of the snow Lake Ken.
The methodology, we used to estimate the nice you know one mineral resources is identical to the approach we use for the long mine, which constrains the resource within a store optimization envelope.
This conservative approach to resource estimation is expected to lead to a higher mineral resource to reserve conversion factor.
They remain opportunities for extension and additional conversion of mineral resource estimates at the night you know one deposit.
We are actively pursuing engineering activities to develop a robust economic mine plan for 90, no one that could supplement the production from low to take advantage of the future food processing capabilities of our mills in the Snow Lake region.
We expect to complete a prefeasibility study or 90, no one in the first half of 2021.
The northern and eastern parts of the deposits remain open as shown on slide 13. We've also identified additional exploration drill targets located between the 90, you know one and Ludlow deposits that remain to be tested.
In addition, recent drilling has identified several high grade copper gold zones that I'm not being included in the current resource estimates due to limited drilling density.
Looking at the many mines, we've discovered and operated in the Flin Flon and Snow Lake camps, we have a strong track record of significantly expanding the reserves of these vms deposits as shown on slide 14.
A nice you know one deposit is exhibiting the same characteristics as law and we will continue exploring this deposit with another drill program planned for early next year.
And as our history suggests this should translate to increase production and increased mine life for the Snow Lake operations.
[noise] I'll conclude todays presentation with an overview of the low risk high return strategic priorities, we expect to deliver in the next 12 to 18 months as summarized on slides 15 and 16.
We've touched on a number of these catalysts today, such as the new retain your mill refurbishment milestones you gold zone and upgraded resource estimates that the 91 deposits the stole Miller recovery improvement program and the potential to expand the new brittania built beyond 1500 tonnes per day.
As mentioned earlier, we are making significant progress on pump Acentia and anticipate mining that early in the new yet which is expected to significantly increase cash flows from constancio due to higher copper and gold grades.
We also expect to advance exploration activities on our regional properties near Constancio.
After reaching an exploration agreement with ACA Winship community in early 2019, and subsequently competing there consult a privia process. We are on track to commence our plans to drill program in the fall of 2022 test a high grade scan targets on the coincident with property.
Follow up drilling program on the previously disclosed Constancio North intersections continues to test a possible extension of copper porphyry and high grade Skarn mineralization occurring within 300 meters of the age of the current Constancio pits.
We expect to have the results from this drilling program in the third quarter of 20 to 20.
The Rosemont appeal process continues to move forward.
In June we filed our initial brief alongside the U.S. government with the nine circuits court of Appeals in relation to the July 2019 District Court's decision.
Hi Bay, and the U.S. government emphasized that current low broadly authorizes mining related activities, such as all processing and tailing storage to be conducted on open forest service lands.
The district court's determination that the forest services mining regulations do not supply to mining activities unless those activities are conducted entirely on valid mining claims is contrary to claim language reading of the general mining law.
Also contradicts forest service regulations, which explicitly allow for mining related activity to occur on lands not covered by any mining claim.
It is expected that a decision at the ninth Circuit Court of Appeals will be made before the end of Twentytwenty one.
And lastly, we continue our infill exploration program at Lalor to convert additional resources to reserves. In addition to testing areas of potential extension at Lalor, We expect to provide an updated mineral reserve and resource statement follow with our annual plan.
With our annual update in March of 2021.
We have made significant progress advancing our various organic growth initiatives and we believe we are well positioned to deliver on a number of near term and longer term catalysts. We knew 2020 was a year of investments at high Bay and these high return investments will pay off next year as we increase cash flows and create value.
For all of our shareholders and with that I'm not happy 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 then one on your telephone keypad.
You will hear a tone acknowledging your question. If you are using a speakerphone. Please pick up your hands that before pressing any keys to withdraw. Your question. Please press Star then too will cause for a moment as colors join the queue.
Our first question comes from the Hot theory of Credit Suisse. Please go ahead.
Hi, Good morning, Thanks for taking my question, maybe first on Manitoba, you mentioned that there's potential to produce call for me Brittania before 2021.
I'm just trying to figure out what see upside from the 100000 ounces base case next year.
How much more could it be.
Versus that.
Patrick a thanks very much for the question. It's you know it's a good question. So we're not ready yet to to provide numbers on that.
We we are advancing the work pretty significantly and we expect to have a lot more information on these Ah next quarter, but Cashel do you want to provide any other inside.
Yes, so I think the way to look at it is is the new Brittania mill itself is a refurbishment.
There is the copper flotation building is a new build and we saw the opportunity.
To advance in the schedule the completing the refurbishment, which would allow us to mills some of our higher grade Gold zone 25 in advance of the completion.
Of the copper flotation building.
And so as you can imagine with that opportunity we need to change the sequencing of what we might be mining next year to be able to deliver zone 25 earlier.
While it's pretty developed the stope sequencing would be that so in the next quarter, we hope to be able to give a more direct dancer of what we had previously disclosed as a 2021 ounces produced at a Manitoba it will be increased and we'll be able to give you that in the next quarter.
The amount it will increase.
Okay, and maybe just switching gears to Peru, I couldn't stanch Oh, my understanding is no positive cobot cases, right now the Peru. Unfortunately, it seems to be a bit of a hotspot for coal bed and even among a you know some bigger mining peers. There theres been some outbreak so I'm wondering.
If you if the government were too.
Impose further restriction that you know and concerns you have to shut down again, what what are the levels of stockpiles and how did the stockpile grades compared to the fresh or thanks.
Sure. Thank you know.
[music].
I'm not sure how how much with its going to get it grew through is as you know is a pretty bad right now and a it we have very very very strong.
Proportions in place in order to prevent the endemic from coming to the mine I think you're aware that Oh, we hotel all of our personnel in our the Cusco, an era keep a and b tested for cobot during that period of Ah Ah quarantine. So that it doesn't get up to the mine and this is quite consistent with their claims the trubion government.
We feel that it is likely that we will not necessarily we will not experienced another shot down if we do.
It will likely be similar form to the previous one because we would stop moving at that stage. If we are required to shut down.
We the stockpiles are a little bit higher in zinc and lead which is effectively what constraints or reduces the recoveries that we experienced a but of course those stockpiles.
Our limited Cashel do you want to build on that.
I think that that covers most of it Peter I mean, maybe maybe I'd add that those precautions, we have with Covance to date have worked extremely well in fact, we increased our workforce over the last couple of weeks to accommodate shutdown maintenance work.
That was completed successfully.
And we now sort of have a system whereby the workers themselves our on site for longer ship rotations, and so weve mitigated a lot of this I'm a lot of our peers to also have done. This I took a while to be able to manage to this current sort of new normal we call it and you.
Normal and we're operating under those parameters.
That's it for me thank you.
Our next question comes from Orest Wowkodaw of Scotia Bank. Please go ahead.
Hi, Good morning in February you issued a multiyear guidance and I'm just curious at the time you you at issue 2021 production guidance for Constancio.
80000, 200000 tons of copper and 85 to 100000 ounces for total precious metal I'm. Just wondering how that may have changed with some of the delays have pumper concho pushing to their first quarter of 21, I guess, partially offset by some of the higher higher grade material from this year being pushed.
From the main pit into 21 I don't are those guidance range is still valid.
Alright. Thanks for the question I I would suggest that they still are because you know so effectively what you're doing we just pushing off the planned by a couple of months.
You know, we did mine or we did that use a bunch of stockpiled material, which is why you've seen a lower recoveries during the quarter.
But I would suggest that because the pump a can share or is of low grade. Initially we should essentially just be pushing it out a couple of months.
Okay. That's great and then just curious on Manitoba, I mean with coal continuing to brought up maybe except for yesterday does that in any way change your thinking strategically in terms of potentially monetizing Manitoba. What are you know there, perhaps and thought of advancing that strategic move.
[noise] article is a good question look or you know, we very much a business in transition and and we're in execution mode right now.
And I'll focus is 100% on executing our snow Lake both strategy by delivering new brittania.
On time and on budget, which we think generates significant value for us and for our shareholders.
The investment in the new but in you, but generates a 25% or off the tax IR at 1500 old. So we just think that's the right thing to do stay focused on that absolutely focused thought on that and then deliver on it and we've.
Value by doing that and we'll worry about what to do with yet.
It's a at a later point.
Okay, and then just finally I'm I've noticed your environmental provision terms of liability on the balance sheet has increased materially.
And this quarter is that the year to date increase is that purely a function or just lower your at discount rates I'm, just curious whats going on there how much of that as Manitoba. Thank you.
Just a lower discount rates and a exchange rate impacts.
Okay.
Thank you.
Our next question comes from Craig Barnes FTD Securities. Please go ahead.
Thank you Peter or Cashel is there an optimal point in the mine plan when might you know one.
[laughter].
[laughter].
Great. Thanks for that so.
We need to complete the pre feasibility work to understand better exactly where it fits I mean, if the question is or does it extend the zynq product the answer to that is no because we need to compete the pre feasibility work in the news couple of years of a development work to be done.
So that means if you would be shipping zinc con out from 19 at one when you get to that kind of.
Producing from it.
Hey, it's lower grades Inc. and it's not enough based saying kind of Waller combined with 19, a one to continue unfortunately.
Actuate the life of zinc plant.
<unk>, which is still slated for some time made a 2022 to be close however, what 19 no. One does present to US Greg is it gives us the opportunity one to use the grind capacity that exists in new brittania moving it from 1500 tonnes a day to 2200 tonnes a day and provides an extra work place within the.
Wall or mine, where we can produce more gold and more zinc and in fact, a Peter outlined in his presentation that stall has been really hitting record sort of throughput production and those sink zones themselves would go through the stall mill so.
If we see ourselves being able to hoist more maybe next year out of Waller than we have this year, we see ourselves being able to mill in the future more out of new brittania than what we're currently refurbishing it too and we also see let's see the capacity of stall being more than it has been so it fits in quite nicely.
The Walter or like the minus providing an extra work place with multiple headings and increase the overall production of gold copper and zinc out of the snow Lake complex.
Great. Thanks, guys. So by the Middle of next year are we going to have a better sense of what the ultimate.
Production rates gold to copper zinc I'm still likely going to be.
Yeah, I think that's exactly what it is a in fact, we in our normal guidance process and our budgeting process. The team has been working towards incorporating that into it so part of the prefeasibility will be when.
Next year, how that then fits into the wall or life of mine and the complex life of mine. There are several other previously abilities that I mentioned that are in parallel which is understanding maybe what stole of leaching of tails to increase the gold recovery from it because we still get quite high gold.
ER gold the entails from stall. So that's one potential prefeasibility. The other prefeasibility is increasing throughput at new brittania from the 15 hundreds the 2200 tonnes a day and then how exactly 90 no. One in some of these other satellite deposits weve spoken about fit into the life of mine.
Going to be able to utilize all that capacity that's available to us. So I think incrementally there'll be more calories. Some more stories happening I think this time next year, you can expect 19, a wine and exactly how it fits in.
But before that you're going to learn more between.
When we present the guidance what we believe next years the increase of hoisting at Waller will be and also.
You know the earlier gold to be produced out of new brittania itself.
Great. That's helpful. I just a final question on 16 year old doubled shots a catalyst.
He has extensive mill expansion in Milwaukee that'll about.
Well.
What we see is Ah, we see some potential to be able to put more throughput through constancio. One of the things were challenged with of course that can stance years. After the life of mine of topic on shuts the grades decrease quite dramatically and we want to change the dynamic we don't want it to be a Ah Ah.
Near long term caught high cost producer. So we have multiple strategies were evaluating one is obviously, putting more throughput were actually you know our fleet has been quite efficient and the minus not the constraint. So the constraint has spanning a little bit in there the a the grinding and we believe there are some ways we're working.
On on should be able to increase the throughput there now there's some some some constraints on it with respect to permitting but we believe we can get it up.
You know closer to 110000 tonnes a day.
From where we're currently at 90000 tons, a day and that really improves the future economic so it's a it's incumbent on us to do this to be able to get the best value out of our current infrastructure and then of course, our real a home run plan will be to execute on some of these other satellite deposits around constancio to increase.
The feed grade that it has available to it.
That's helpful. Thanks Catherine.
Our next question comes from Matthew Murphy of Barclays. Please go ahead.
Hi, I'm just kind of question on what the remaining risk to your timing at Papa Concho are.
Yeah, I'm pretty confident that this will be done in Q3 and just wondering.
In or do you think Kobe to delay that he is saying.
That remaining negotiations are present, a risk or anything else.
Thanks for the question Matt.
So so the real impact on a country has been the pausing a of interaction by the government with the community as required by the consultants maybe a process.
Because of the highly.
Or sort of personal contact nature of the probably says it if it's got pausing. The government educated state of emergency, but the government is very very keen to get mine's, a up and running again and to get to increase Oh to expedite the approval of project.
And so we have been working hard a with the ministry of energy and mines to design alternatives with which we can approach a consultant maybe a process. We are up pretty confident that with the go with the a ministry support we will get the consulting gravy approach is completed.
This yet and that means that we will be mining or early next year. The other element that you touched on of course is the access to the property because of surface rights. So as you know we have an agreement with the community of cheer ROI up.
We are in the process now of finalizing a agreements with all of the tenants of the land possesses of that and so that so we get access to that end, we have a access to a third of the land right now and we expect to complete a negotiation with the rest of the folks in the third quarter. So we don't expect that to a inhibitor.
Our access to to pump a conscious at all so we're pretty confident we have access to early next year.
Okay and the land clearing that's referred to in your press release, what does that involve.
So Tim clearing perhaps is we just need to get a the folks and their facilities off that and so there are some informal minus who'd been mining on the land they need to get their equipment off the line does some folks who have been grazing livestock on the land they need to get the livestock off the line that's one of the monster.
Got it okay. Thank you.
Welcome.
Our next question comes from Jackie Chris Blocky of BMO capital markets. Please go ahead.
Thanks, very much on most of my questions have already been answered I guess.
Circle back to Manitoba, and congratulations to the team there for a phenomenal quarter I know you made.
Some comments in your earlier remarks about.
Why production was was so strong there higher gold grade increasing recoveries installed can you maybe give us a little bit more color on.
On what exactly it wasn't done there since it has such a terrific resolve and can we expect to see some of that.
Moving forward into the second half a year I know you haven't changed your guidance there, but is there is there any opportunity to exceed that with strong.
[music].
Activities for the rest of the here.
Hi, Jackie Yeah were I don't think we're going to change the guidance the guidance becomes much more prudent now and we have an opportunity to exceed it sure that said that's what's there what has happened and it's really principally at the stole processing facility itself, a they've been able to increase.
Our throughput, which gives us the benefit of a lower cost because we're not shipping the excess or that Waller hoists to us fund bought anymore.
And it as sort of simplifies the process, we haven't and it gives us a lower cost.
The other is is that there's been quite a bit of work in the last couple of years on maintenance improvement practices within the store middle itself and they've done a phenomenal job of incorporating a sort of what some people call it continuous improvement culture, but they're making it part of their job everyday and what they do it.
Really decrease the downtime so higher throughput, but one of the benefits. We got out of this improved steady run time and less maintenance interruptions is we've been able to optimize some of the reagents for using and get a better steady flow through the through the process plant itself and.
It's really what we what we've noticed is actually that maintenance practices. In the end has contributed to the optimization of our reagent utilization, which in the end has increased probably our recovery gold it stall from what we had forecasted before it 55% gold recovery closer to the low six.
61, 62, and we believe that is sustainable as you've sort of noted going forward.
That's fantastic.
I think the other question, what maybe I'll ask us on consultant for the I know you guys have talked about it with respect to public Anja and and it sounds like things are going very well for you.
I'm going to what's your this one but the K K and show.
Property, where you're going to be drilling soon and if you guys, maybe give us a little bit of update on what's the process is for some of the other.
Deposits or targets that you guys were looking at Murray Arena.
Well, Chris Oclaro some of those other ones or is that a consultant pervious process back on track or is it still still on hold.
[noise], but yes, Jackie so we are not at the consulting Privia stage, yet a full Maria arena and for a couple you turn because you'll go.
So for those <unk> for those assets, we still need to compete surface rights agreements with the communities. So you may recall that what happened was.
We were not in fact in discussions with those communities. The while we were resolving a surface rights for pumpkins with the community of Chew on ROI.
And all eyes are on a what happened there so that they would sort of get a view with respect to what it means to them. So the community of Oh, Chicago, which.
Is the community, who with whom we negotiate for every arena and cover you. So for example is very very motivated to get an agreement in place with US now so that we can infect start to consult a pretty good process and move towards permitting I said, we can get access to start drilling those properties.
So this step that remain to be taken our secure surface rights agreements with the community of what Chicago on cover you, So and Maria Rayna, following which Ah the consulting maybe a process and the environment in fact, a environmental processes will follow.
That sounds like that's maybe a couple of years away before you'd have access to drilling on those lines.
We are pretty hopeful that it'll be less than that you know what you had stated previously is that the process is a pretty complex and it's exactly the same as the process for getting.
The permanent face in order to mine.
The government recognizes that it needs to be X to be a streamlined and so the government is ahead well certainly before the endemic kids was are on track to start simplifying that process, we think that with the pandemic nowaday will be even more motivated to simplify that process. So I don't think that its a.
A couple of years away, we had always said that we thought that by before the end of next year, we would probably get access to these properties and I think thats still holds true and I think there's opportunity to improve on that.
Sounds great.
Congratulations on great quarter and welcome Steve.
So it's great. Great addition to your team.
Thank you.
Our next question comes from Matthew Fields of Bank of America. Please go ahead.
[noise] Ah hey, everyone [noise].
Just wanted to ask a couple of that that the new credit facilities thing. It does those aren't posted yet so.
The total facilities there are down to 400 million from 550 is that for the entire life to the facilities or is that for the couple of years of covenant.
Relaxation.
Or what and then how is that split between Peru in Canada.
I think to put into context, Matthew thanks for the question.
I think the put into context, the removal or the downsizing from five to 400 is really not a reflection of any.
Lack of confidence or or a demonstration in our ability to to service those it's really a.
Reassessment and what we needed from a size perspective, the I think yet to standard in the fact that these facilities are not in the context of our current business plan and cash rent needs contemplated even be drawn so sitting there paying standby fees on additional facility is $150 million didn't seem to us to be effective use of our capital.
And.
We we take a look at all the things Peter in and Cashel have been talking about with respect to the redevelopment and cash flow growth initiatives were underway for the next 12 to 18 months I'm, making them more permanent decision on that type of financing, we're going to put into place really isn't necessary at this point in time when you contemplated.
EBITDA is going to go up enormously once those projects are put into place putting us into a very different position vis-a-vis, how we might finance or the kind of <unk> cash flows sorry, the kind of.
Got it requirements, we would require.
And I think.
From a split perspective, we've done similar things.
152, but that's what I thought so were 150 allocated to the proven operations in 252, corporate which is merely nothing more than an administrative allocation that has no bearing on our ability to drive.
Okay, Great and then I know that the 115 gold prepay.
Not treated as debt for the purpose isn't that the net debt covenant calculation.
However, it's obviously a financial liability.
Your balance sheet, new this quarter can you.
[noise] sort of get that down and start delivering gold before January 20, <unk> 22, or make any kind of financial payments to sort of reduced that obligation before January 22, or do you basically have to start delivering monthly and generate 22.
I think the intent is for us to deliver monthly and I'm not sure why we'd extinguish the obligation in any event.
You're correct, it's not treated as a obligation is it's a deferred revenue amount according to our to our presentation, but I'm not sure we would be surrendering that financing anytime soon in any of it.
Okay, and then last one for me obviously, the world's changed a lot in three months since your last earnings call and high yield market has tightened significantly gold is up significantly.
You know it seems like now would be a pretty opportune time to term out those 2023 not to what are your thoughts about that.
Again I'll go back to my anchor on what I said around the the changes in cash flow clearly, it's incumbent honest tomorrow monitor the market.
And you're absolutely right both it on a macro and micro level with respect to our name we have seen our potential spreads tighten in immensely the windows there the high yield markets remain very strong, but we're in November we have the we have the flexibility of as I said those growing cash flows we can function well within our oh, well within our Uh huh.
Current liquidity and cash flow needs and.
We see subject to the risk and vagaries of high yield market, we need to be a monitoring that but I'm not sure. We're in a hurry to perpetuate that structure, just yet again against the backdrop of the the significant cashel changes upon completion of these projects. So it's it's something we're monitoring but I think you know I, we come to work everyday in our job.
On this and this side of the balance sheets to drive down our cost of capital.
And that's what we'll look at <unk> and I'm not going to say you know clearly the most the easy button would be going refinance them today, but again given those cash flow changes, we want to make sure we're maximizing our our potential as an organization.
So turns I mean, I'm sorry, the last one.
I mean, you're sort of more content to wait a little bit see how things play out and maybe refinance something with smaller than 400.
When it comes to that rather than sort of do it now at 400, My Oh My posture in any organization I've been in I think we've talked about this internally and we all agree.
It's a continuation of the strategy I think Eugene adopted we are in a rising cash flow markets bear in a rising cashel situation for ourselves.
I guess, you could say yeah I'm in no hurry, because I do see a lot of ER positive momentum vis-a-vis.
Our options in our cash flows and we do after I think the rushed to finance it is really driven by outside influences.
We do have term.
And I don't foresee a hurry.
His point as a matter of policy I can tell you or I should I've always believed at an organization.
Should always be in a position.
The strike in a market should the opportunity arise and its right, but I see no reason to print the number today that is higher that's a higher carrying costs than what we're paying on it today.
And I think we'll hang tight until something satisfies us on a lot of funds.
Okay, great. Thanks for all that color I appreciate it.
Thank you.
Our next question comes from Oscar Cabrera see RBC. Please go ahead.
Oh, Thank you operator, and good morning, everyone.
[music].
Yeah I was just wondering if you can remind me.
To me the numbers you provided poor constants in 2021, when you have started stripping the and the cost you then and then when do you.
Do you think you can sparkling wine or from pump and chat and in the construction now.
Moving on to look I think what to do that we.
Anyone in the first we looking at the first quarter of Ah.
2021, a likely fall.
One of that work.
I would anticipate that we use thoughts or.
Oh Predevelopment work.
Early in the new year and that by the end of first quarter, we are actually Ah feeding the process.
Okay.
I thought your comments on cost Bray or interesting could you provide context, how long. This I'll turn it lives that the government approval may be considering where the process.
Yeah, and Oh, let's go what the government is trying to do to streamline the process is to see how they can actually minimize the human contact element of it.
So they are designing looking at where the processes can be designed whereby they can interact with a smaller number of people three perhaps a community associations.
And that's what they're looking at so.
Suffice it to say that the communities and and be a a ministry all both motivated towards finding better solutions and the solutions that they looking for.
Hopefully entailed minimizing human contact.
Right.
And then just well I'm, calling on the same subject.
Yeah I can appreciate your providing us with the amount of land that you have rights for now which is how I believe.
But.
For the remaining third like are you negotiating with 10 people.
Could you.
Provide context around that.
Uh huh sitting there with the exact number of people that mean negotiating with but it's a there's there's not a lot. So we've got two thirds of those agreements if I remember right there was something like.
80 individuals.
And so.
Make quoted two thirds of one one third of that so probably 25 or so folks.
Okay.
Okay.
Big that numbers, if that's helpful. Maybe it's more like a there are several people you need to negotiate with but the actual and packages is less than 10 remaining that we need to negotiate so.
Like six or seven I think it is they make progress every day. So the number changes every day on the number keeps going down and just to add to Peter's comments on consultant prep, yet I think what the government is trying to do as a third they recognize that there was agrarian reform they recognize that the community already voted the whole community two thirds.
Already voted in assembly individually.
To grant the rights for sale to high Bay.
For the mineral rights, we are now working with the individual landholders. So while it is two thirds actually we were beyond those milestones and those marks liberating Papa gunja and making it available for.
Mining, we also haven't disperse funds for the original agreement and that's one of the options to the community that if they do you want to get paid then the land needs to be liberated so recognizing that they already have dominion over their land they have title to their land, it's more like a consultant pravia lights.
The government is proposing so it's at more of a administrative process Dinesh and then a negotiated process.
Okay, great known that that's helpful. National. Thank you [laughter]. Then lastly, you know your your growth initiatives and the balls are helpful. Justin.
Contacts around.
Thinking about things that well it's interesting that.
Mason is non white, we haven't heard about.
Thanks on that.
I would just wondering I just stand here today with metal prices, where they are in your views on.
The market what did you say that money felt like so like.
Our first priority then followed by Costar and then Rosemont gets were sole great, but maybe we can think about it as being out.
I think that come out.
Well go across 22.
Okay look I think that ER.
I I don't really think in terms of the initiatives that we have underway. This year is having a relative priorities I think that Ah I I agree with you that a you know progress on a on you've retained yeah is rapidly rising gold price a of course.
Lends a little bit more urgency to it but but we have no intention of letting up or assigning a lower priority to pump a country for example.
We think it's something that we committed to delivering and we're going to deliver it.
Similarly, you know Rosemont is a Ann Mason of as valuable elements of our pipeline or Rosemont is hugely important to us and we believe are deeply believe that we will actually be successful at the ninth circuit next year and that will get rosemont back on track, but.
In the Meanwhile, as we've told you mentioned before we are applying all the lessons learnt that we've learned at Constancia ended rosemont and elsewhere to Mason and by doing that we are finding ways a improving the economics. It Mason and so you know we would like to get Mason rapidly into.
A a form where it is actually where a proper sort of a P.A. can be done on it and we can determine what the next steps off but we think that Mason. He's a very valuable element of our pipeline to its just not as advanced as the others.
So so I don't like to think of it in terms of relative priority I think that I like to think of it in what we have committed to do to you our and our shareholders and get that done without a sense of Ah relative urgency.
Well, great entrepreneur and.
Congratulations on the strong performance and the current environment, then is wishes to younger families. This day.
No.
Thank you very much off but from muscle.
Our next question comes from Lawson Winder of Bank of America Merrill Lynch. Please go ahead.
Hi, good morning, everybody and thanks for taking my my question here I'm, just one follow up.
Yeah consult the pravia.
Discussion you give that a lot of tell here and I wonder if it would be a stretch to incur.
That yeah, the state of emergency were extended.
It is now long process is put in place that they can help the credit could still okay. Nevertheless would that be fair to say.
Thanks, a question I think that that is fair to say, yes.
Okay, that's really helpful and then.
Second half or.
Yes or no.
The or that will the mill.
Tackle that perhaps you could then provide some guidance I'm expecting split between bind or.
And.
Oh, that's held or I don't think put to the now.
Yes, well any watson. Thanks, Yeah, we the stockpile door I mean, we've worked our way quite through it and that's why the second half the year will be better recoveries and will be better or because we've managed a lot of the what we call. It deleterious or is that we were going to blending.
And not impact or any of those sort of recovery now, but a lot of that is gone.
So during the period, we were as high one week, I think 80% with stockpile and 20% was mine and then we reversed it now were like 20% or we were then.
For some of the weeks, 20% sort of.
Stockpile, and 80% mine and I think going forward to be back to sort of normal like 90% will be mine feed and we might get 10% from the stockpile feed but we're back to managing.
The deleterious part so that we can optimize and improve our recoveries and optimize an improved throughput and we see us back to ignore a new normal like I said in an earlier question. This is a new normal and we sort of got into this cadence now and were now producing as we were before.
Okay. That's great and then just two questions for me on Lalor and that'll be it one how long it would be a high maintenance going to take him well that mean, a complete shutdown of lighting.
Yeah, It's just stay a two weeks and yes, the mining will be shut down for that period, it's already complete.
So it went off without a hitch and so they're up and running full steam right now.
And then finally, just on Lawler gold zone that underground.
Ground conditions meeting or cycle.
Yeah, I was underground I want to say three weeks ago at all or isolated myself and northern Ontario, and that deems that was deemed acceptable to the <unk> citizens of Manitoba.
So I went underground.
Solve the zones.
The ground conditions are great. So it's going to benefit from the long hole mining. We had proposed and are we expect yet a good production that is owns 27 and 25 and a as I said earlier, what we're trying to do now is a change the sequence and try and meet with the challenge would put forward and the optimization.
One of bringing the new brittania.
Refurbishment earlier and therefore, the mining from zone 25 earlier, so we can increase the number of ounces we produce next year.
All right that's great color. Thank you all very much. Please enjoy the rest of your Sars.
Thank you Laurie.
Our next question comes from Stephens. Your line of Cormark Securities. Please go ahead.
Great. Thanks, guys just following up on Greg's question just on the at the capacity at can stance. Yeah. It was and is not in the press release that during the days at the know is actually running now you're averaging 95000 tonnes a day, which was great to see that's a reflection of some of that Scott I thought maybe just being a bit softer or was it what is the mill actually just operating even.
Much better and then beyond that.
We talked about in the past enemies alluded to earlier today that you know the kept the capacity I can Sanchez impart limited by permits can you remind us what that level is I think is on an annualized basis, but what it sort of translates into on a per day basis, and a and sort of where you see yourself falling into say the second half this year, but.
Is that I 95000 tonnes a day that was you know at least partially running during Q2.
Stephen it's a so so.
The average that in terms of up and that is about 90000 tons. A day. Okay book as we had the suspension for two months of course, we can exceed that number. So so we've been operating at about 95000 tonnes, a day and I would anticipate that we try and maintain that.
Okay. Okay. So basically you can just sort of given downtime you can you can overshoot when when you're not down to get to that 90 average that's what you're saying.
Yeah. So that the bucket is 31.1 million tons. That's what the current it is I do not losing brings question that were looking for any I a modification in the future to increase yeah. We believe that we can do that.
But this year there is one phase of a phase two I believe that is slightly harder. So we'll see some moderation around the 95000 tonnes. A day. We believe we can run steady at 90, there will be opportunity to make up some of that lost opportunity, but you know obviously, we're not going to make up eight weeks.
Worse so.
We will try and they'll try and but there is some hard or in part of the sequence, but it's not 100% of the feed that's hard or it's only like 10 or 20%.
Okay, and just I mean, just maybe take one step further I mean ore hardness. Aside are you finding you know if you push the mail as hard as you can it started 95000 a day the maximum you're getting out of it right now.
Yeah. Those those are those are the numbers sort of we feel is under the current flow sheet is sort of its capability and it sort of yet hopping on on an instantaneous. So recognize that you know you still have maintenance practices that interrupt for reduction on a normal basis, yes.
Okay, great. Thanks, very much faster.
Welcome.
This concludes the question and answer session I would like to turn the conference back over to chemists Brleight for any closing remarks.
Thank you operator, and thank you everyone for participating today, please feel free to reach out to our Investor Relations.
Now disconnect your lines.
[noise] [noise].
[music].