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.
At this time, all participants are in listen only mode.
Following the presentation, we will conduct a question and answer session.
She joined the question Q you May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an 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 am Eastern time.
I would now like to turn the conference over to Candice prelate director of Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to Heidi.
Second quarter results conference call.
These financial results race, you'd yesterday in our available on our website at Www Dot has stayed dotcom a corresponding powerpoint presentation is available and we encourage you to refer to during this call.
Center today, Peter could kill deep deep President and Chief Executive Officer.
Company Peter for the Q any portion of the call will be Steve Douglas or recently appointed senior Vice President and Chief Financial Officer, Cashel, Meagher, Senior Vice President and Chief operating Officer, and Eugenie, Our senior Vice President corporate development and try to.
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 such actual results may differ materially from the views expressed today for further information on risk and uncertainties.
The company's relevant filings on SEDAR and Edgar.
Documents are also available on our website as a reminder, all amounts discussed on today's call or do you have dollars unless otherwise noted and now I'll pass the call over to Peter kills me Peter.
Thank you Candice.
Good morning, everyone. 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 dynamic on our operations.
We remain focused on the health and safety all of our employees families and communities in which we all close be tied while engaging with local stakeholders and public health authorities to ensure the effective implementation of our response to the pen damage.
Today I'll touch on the highlights of our second quarter financial and operating results along with updated guidance for all Peru operations.
I will also explain how the recent mine Chino, one upgraded resource estimate 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 retiring the mill refurbishment and the timelines to first production expected in 12 months.
But before we jump into all of that.
Take a moment to thank you gene for stepping into the role of interim CFO, while we advanced our search for permanent CFO.
And I'm pleased to introduce Steve Douglas, who was appointed to the road effective June Thirtyth.
So 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 and senior finance leadership experience to our team.
Over the last several weeks Eugene and Steve I 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 size and I have no doubt that Steve will bolster our team welcome Steve.
No beginning on slide three Hudbays second quarter results were boosted from another solid operating costs in Manitoba, even with strict adherence to covert protocols that have been 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 low gold grades and record gold recoveries at stole.
Copper production declined by 27% from the first quarter due to the temporary suspension of Constancio until mid may.
However, consolidation copper equivalent production only declined by 12% as the results of higher precious metals and zinc production in the quarter.
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 copper driven by the same factors affecting cash cost along with reduced sustaining capex in Peru from the temporary suspension.
Operating cash flow before changing noncash working capital was $50 million during 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 noncash 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 other 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] [noise], we exited the quarter with $391 million in cash and equivalents and continue to take prudent steps to manage our balance sheet.
In the second quarter, we entered into discussions with the syndicate of banks in our 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 seem to syndicate received credits approval to amend the facilities on the proposed terms and the transaction is expected to close shortly.
As a results of the amendment total available borrowings under the credit facilities were 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 drawdown. 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 plant during the second quarter as shown on 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 and 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 it all metals quarter over quarter.
The enhanced precious metal production was driven by higher gold and silver grades at Lalor as a result of prioritizing resources within the higher value portions of the base metal lenses.
Developments in the gold, which lenses 25, and 27 advanced ahead of schedule and production from these areas is expected the head of the new Brittania mill restart as lore transitions to a gold mine.
The triple seven mines or higher ore grades during the second quarter, which were expected and consistent with stopes sequencing outlined in the mine plan, including the mining of higher grade copper stopes during the quarter.
Combined mine mill and Gionee unit operating cost in Manitoba was slightly higher than the first quarter, but in line with expected annual guidance ranges.
Slide five outlines the enhanced performance we've seen at the store model as a result of our focus on continuous improvement.
The throughput 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 throughput 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 store mill also achieve record gold 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 pond stability juice grade control and the processing of all with intrinsically higher recoverable gold content.
Turning to our Peru operations on slide six.
After an eight week temporary mine suspension, we successfully achieved the efficient restart of operations at Constanza in mid May with increased government support of covert 19 health and safety protocols in place.
The mine achieved normal mill throughput levels on maybe 18th within 48 hours 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 stockpile all following the restart of operations during the quarter.
Despite milling activities being suspended for eight weeks the care and maintenance activities performed proactive mine restart planning during the shutdown facilitated an efficient ramp up and steady performance of the mill after ramp up.
Over the period when they're mill was fully operational during the quarter average daily throughput was above 95000 tonnes per day.
Milled 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 costs in the second quarter was 17% load in 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 plans maintenance shutdown from may to the third quarter as a result of proactive plant maintenance completed during the eight week temporary suspension.
I would like to commend our Constancio team, who have done a tremendous job ramping up operations, while adhering to enhanced 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 pandemic and the resulting temporary suspension of operations at Constancio earlier. This year, we suspended our previously issued twentytwenty guidance for crew operations.
Following a full resumption of Constancio mining and milling operations. We are now in a position to be able to issue updated twentytwenty guidance for Peru.
The situation in Peru, However remains fluid.
State of emergency first declared by the government in response to the covert 19 pandemic unlocks 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 on Constancio is operations.
The updated annual production and operating cost guidance, along with capital and 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 year, 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 for Peru reflects a reduction of approximately 15 to 20000 tons of copper and 20000 ounces of 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 year and the resulting deferral of some higher grade ore into Twentytwenty one.
Precious metals production also reflects the revised expected pump a punch of production start date of early Twentytwenty, one compared to the second half of Twentytwenty previously.
This is due to the cobot 19 related government declared state of emergency in Peru, and the resulting impacts on the consultant privia consultation process.
Peru sustaining capital of $80 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 our snow Lake 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 mill was the optimal processing solution falls go door.
It was through this first phase that we reposition 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 Lawlers 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 lows life of mine gold production by 41% and extended the mine life of the Snow Lake operations to 18 years.
Slide eight also highlights the third phase of boss Snow Lake Gold strategy focused on further expansion potential and I'll touch on this in a few moments.
Slide nine demonstrates that 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 prepay transaction.
This transaction fully funded the new Britannia refurbishment costs and positioned us well for continuing to execute on our plan.
In preparation for the restart of the new Brittania Mills in the first half of Twentytwenty, We commenced underground development and early mining of the gold zone.
Gold production from lower is expected to be 74000 ounces in Twentytwenty and 102000 ounces in 2021.
In Twentytwenty to upon completion of the new retaining a mill refurbishment average annual gold production from Lawler is expected to increase to over 150000 ounces at cash costs and sustaining cash costs natural byproduct credits of approximately 480 and $655.
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 install a new Britannia mills, which could create additional value for the regional deposits. We have in snow Lake such as the 91 deposits.
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 current planned 1500 tonnes per day.
We expect to complete these economic studies in the first half of 2021 as we execute the third phase of our snow Lake Gold strategy.
Slide 10 highlights the progress we've made at the new Brittania middle over the last two months.
Detailed engineering is currently approximately 90% complete procurement is 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're 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 retain you install mills continues as planned.
We broke ground at the new Britannia site with the start of construction for the new copper flotation building in May.
Also repairs to the new pretending mill building are underway and this includes items such as repairs to the carbon in leach tanks demolition of stairs 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 one.
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 code 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 offers investors an attractive balance between growing gold cash flows and a stable low cost copper business through the other key assets in our 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 over $240 million at the current spot gold price of approximately $1900.
Given that lorries located in one of the best mining jurisdictions and is a high quality low cost asset already in production there remains significant opportunity to unlock further value for snow Lake gold within Hudbay.
Floor 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 is value potential and we believe as we continue to execute our snow Lake Gold strategy, we will create value for all of our stakeholders.
This quarter.
We also announced an updated resource estimate for the 19, a one deposits which was discovered in February of 2019 and is located near the lower mining Snow Lake.
This resource update was planned as part of phase three of our snow Lake Gold 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 Tuesday encourage lenses.
You will recall that 90, no. One is located halfway between the former chisel North mine and allow 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 of both the store and new Britannia 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 zone.
The 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% lower 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 120000 122000 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 91 mineral resources is identical to the approach we use for the lower mine, which constrains the resource within a stope 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 19, a 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 have also identified additional exploration drill targets located between 90, no one and lolo deposits that remain to be tested.
In addition, recent drilling has identified several high grade copper gold zones that have not been included in the current resource estimate due to limited drilling density.
Looking at the many minds, 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.
The 91 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.
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 retaining a mill refurbishment milestones and new gold zone and upgraded resource estimates at the Nineteena one deposits the store metal recovery improvement program and the potential to expand the new Brittania mill beyond 1500 tonnes per day.
As mentioned earlier, we are making significant progress on Pampacancha and anticipate mining early in the new year, 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 the kinship community in early 2019, and subsequently completing their consult a premier 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 go into north property.
The 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 edge of the current constancio fit.
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 ninth Circuit Court of Appeals in relation to the July 2019 District Court decision.
Both high Bay and the U.S. government emphasized that current low broadly authorizes mining related activities, such as all processing and tailings storage to be conducted on open forest service lands.
The district court's determination that the forest services mining regulations do not apply to mining activities unless those activities are conducted entirely on valid mining claims is contrary to plain language reading of the general mining law.
It also contradicts forest service regulations, which explicitly allow for mining related activity to occur on land not covered by any mining claim.
As expected that a decision at the ninth Circuit Court of Appeals will be made before the end of 2021.
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 for Lalor with our annual plan.
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 twentytwenty was a year of investment at high Bay and these high return investments will pay off next year as we increased cash flows and create value.
For all of our shareholders.
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.
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Our first question comes from the Hot theory of Credit Suisse. Please go ahead.
Hi, Good morning, Thanks for taking my questions, 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 Zack.
Patrick Thanks, very much for the question. It's so you know it's a good question. So we're not ready yet to to provide numbers on that.
We are advancing were pretty significantly and we expect to have a lot more information on these 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 Mel itself is a refurbishment, whereas the copper flotation building is a new build and we saw the opportunity.
With Vance in the schedule the completion of 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.
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 answer of what we had previously disclosed as 2021 ounces produced at a Manitoba it will be increased and we'll be able to give you that in the next quarter.
Amount it will increase.
Okay, and maybe just switching gears to Peru, I can stand share.
My understanding is now positive corporate cases, right now the Peru. Unfortunately, it seems to be a bit of a hotspot for coated and even among.
Some of your mining appears to other theres been some outbreak. So I'm wondering if you hit the government or too.
Impose further restriction that.
Essentially 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.
I'm not sure how how much work, it's going to get improved through is as you know is a pretty bad right now and.
We have very very very strong.
Portions in place in order to prevent the year pandemic from coming to the mine I think you're aware that Oh, we hotel all of our personnel in either crisco, 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 the requirements the Caribbean 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 in similar form to the previous one because we would stop moving at that stage, if we required to shutdown.
With that the stockpiles are.
A little bit higher in zinc and lead which is effectively what constrains or reduces the recoveries that we experienced.
But of course those stockpiles are are limited cash will do you want to 7 billion.
I think that that covers most of it Peter.
Make maybe I'd add that those precautions, we have with coal but to date have worked extremely well in fact, we increased our workforce over the last couple of weeks to accommodate shutdown maintenance work and that.
It's completed successfully.
And we now sort of have.
A system whereby the workers themselves our on site for longer ship rotations and so we've mitigated a lot of this a lot of our peers to also have done this.
It took a while to be able to manage to this current sort of new normal we call. It a new normal and we're operating under those parameters.
That's it for me thank you.
Our next question comes from Orest welcome though.
Scotia Bank. Please go ahead.
Hi, Good morning in February you issued a multiyear guidance and I'm just curious at the time you.
This year 2021 production guidance for Constancio.
80000, 200000 tons of copper and that 85 to 100000 ounces or total precious metals I'm. Just wondering how that may have changed with some of the delays have pampacancha 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 would suggest that they still are because you know so effectively what we're doing we just pushing off the planned by a couple of months.
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 core continuing to run out 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 part of advancing that strategic move.
RF Soi is a good question look.
We very much a business in transition and we're in execution mode right now.
And our 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 four for our shareholders.
The investment in the new but in your but generates a 25%.
After tax IR at 5100 old. So we just think thats the right thing to do stay focused on that absolutely focused on on that and deliver on it and we will find value by doing that and we'll worry about what to do the ads with.
It's a little later point.
Okay, and then just finally I don't skier environmental provisions terms of liability on the balance sheet has increased materially again next quarter is that a year to date increase is that purely a function of just lower discount rates are 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 F. TD Securities. Please go ahead.
Thank you Peter or Cashel is there an optimal pointing the mine plan when Nineteena one.
Okay.
Yes.
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 zinc plant the answer to that is no because we need to complete the pre feasibility work in the news couple of years of.
Development work to be done.
So that means if you would be shipping and come out from 19 at one when you get to that kind of multi producing commitment.
Hey, it's lower grade zinc and it's not enough based saying kind of Waller combined with 19, a one to continue Unfortunately perpetuate the life of zinc plan.
Plus which is still slated for sometime mid 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 zinc zones themselves would go through the stalled mills 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 adding new per tanja 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.
To the Lawler or like the minus providing an extra workplace with multiple headings and increase the overall production of gold copper and zinc out of the snow Lake complex.
Thanks, guys. So by the middle of next year, we're going to have a better sense of what the ultimate.
Production rates gold to copper zinc income sounds like again to be.
Yeah, I think that's exactly what it is 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 you'll 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 it leaching of tails to increase the gold recovery from it because we still get quite high gold.
Goal the entails from stall. So that's one potential prefeasibility. The other prefeasibility is increasing throughput at you brittania from the 1500 to the 2200 tonnes a day and then how exactly 19, 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 public charter catalyst.
He has extensive mill expansion in my watch what that all of that.
Well.
What we see is we see some potential to be able to put more throughput through constancio. One of the things were challenged with of course at Constancio is 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.
Near long term car 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 mine is not the constraint. So the constraint has spanning a little bit in there the the grinding and we believe there are some ways we're working.
And on to be able to increase the throughput. There now there is some some some constraints on it with respect to permitting but we believe we can get it up.
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 Kash.
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 it's hard for Concho are.
Yeah, I'm pretty confident that this will be done in Q3, just wondering.
In or do you think Kobe could delay that the thing.
That running negotiations are present, a RASK or anything else.
Thanks for the question Matt No.
So the real impact on a pump contract has been.
The pausing.
Our interaction by the government with a community as required by the consulted privia process.
Because of the highly.
Sort of personal contact nature of the process.
If a pause in the government dictate a state of emergency, but the government is very very keen to get.
Get mine's, a up and running again and to get to increase a little to expedite the approval of projects 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 consulted pravia process completed this year and that means that we will be mining or or early next year. The other element that you're touching.
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 a we're in the process now are finalizing a agreements with all of the tenants of the land or possesses of that and so.
So that so we get access to that and 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 a in the third quarter. So we don't expect that too.
But our access to two pampacancha at all so we're pretty confident we have access to early next year.
Okay, and the land clearing thats referred to in your press release, what does that involve.
So the term clearing perhaps is we just need to get a the folks and their facilities often and so they are some informal minus who'd been mining on the land they need to get their equipment off the line. There's some folks who have been a grazing livestock on land they need to get the livestock offline that's what it amounts to.
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, just circle back to Manitoba.
Congratulations to the team there for a phenomenal quarter I know you made some comments.
Comments in your earlier remarks about.
Why production was was so strong there higher gold grade increasing recoveries install can you maybe give us a little bit more color on.
On what exactly.
Done there since it has such a terrific resolve and can we expect to see some of that.
Carrying forward into the second half a year I know you haven't changed your guidance there, but is there is there any color opportunity to exceed that was so with strong.
Activities for the rest 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 short that said thats whats there what has happened at its really principally at the stole processing facility itself.
They've been able to increase their throughput, which gives us the benefit of a lower cost because we're not shipping the excess or that Waller hoists to.
I wouldn't want 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 mail itself and they've done a phenomenal job.
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 is.
They've 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 as 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 what is really what we what we've noticed is actually that maintenance practices Nbn has contributed.
Good to the optimization of our reagent utilization.
In the end has increased probably our recovery gold at stall from what we had forecasted before it 55% gold recovery closer to the low 60, 61, 62, and we believe that is sustainable as you've sort of noted going forward.
That's fantastic.
I think the other question, maybe I'll ask us on consultant for the I know you guys have talked about it with respect to public Anja and a and it sounds like things are going very well for you.
I'm going to what's your this over the K K and Joe.
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, Kevin retail Christa Quarles some of those other ones or is that.
Consultants on via process back on track or is it still are still on hold.
Yes, Jackie so we are not at the consulted privia stage, yet a full Murray 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. While we were resolving surface rights for Pampacancha with a community of churn Roya and all eyes are on 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 are.
Is the community, who with whom we negotiate for Maria Arena and cover Ito. For example is very very motivated to get an agreement in place with US now so that we can infect start the consultant, maybe a process and move towards permitting I said, we can.
Get access to start drilling those properties. So that's the steps that remain to be taken our secure surface rights agreements with the community of what Chicago on coupled Ito and Maria Arena.
Following which are the Consultive Pavia process and are the environment in fact, the environmental processes will follow.
That sounds like that's maybe a couple of years away before you'd have access to drilling on those loans.
We are pretty hopeful that it'll be less than that.
You know what you stated previously is that the process is a pretty complex and it's exactly the same as the process for getting.
The permitting phase in order to mine.
And the government recognizes that it needs to be X to be a streamlined and so the government is ahead well certainly before the endemic it was on track to start simplifying that process, we think that with the pandemic now they will be even more motivated to simplify that process. So I don't think that.
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 and again, congratulations on a great quarter in and welcome Steve.
So it's great great additions to your team.
Thank you.
Our next question comes from Matthew Fields of Bank of America. Please go ahead.
Hey, everyone.
Just wanted to ask a couple of that that the new credit facilities thing is the those aren't posted yet so.
The total facilities are down to 400 million from 550 is that for the entire life of the facilities or is that for this couple of years of covenant.
Relaxation or what and then how is that split between Peru in Canada.
I think the put into context, Matthew thanks for the question.
I think you put into context, the removal or the downsizing from five if you to 400 is really not a reflection of any.
Lack of confidence or or a demonstration in our ability to service those it's really a.
Reassessment and what we needed from a size perspective, yeah, I think yet to stay anchored 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 didnt seem to us to be effective use of our capital.
And.
We we take a look at all the things Peter 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.
Our 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 cash flows sorry, the kind of a credit requirements, we will look like.
And I think.
From a split perspective, we've done similar things maybe 152 right. That's what I thought so were onefifty 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 core pre pay.
It is not treated that debt for the purposes of that net debt covenant calculation.
However that it's obviously a financial liability on your on your balance sheet, New this quarter can you.
Sort of get that down and start delivering gold before January 20 to 22 or make any kind of financial payment to sort of reduce 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 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 what are your thoughts about that.
Again, I'll go back to my anchor on or what I said around the the changes in cash flow clearly, it's incumbent on us demand monitor the market.
And you're absolutely right, both on a macro and micro level with respect to our name we have seen our potential spreads tightening immensely the windows there the high yield markets remain very strong.
But we're in no hurry, 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 our 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 NRG.
On this and this side of their balance sheets to drive down our cost of capital.
And that's what we'll look at Duke and I'm not going to say you know clearly the most the easy button would be going refinance some 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 Rollouts, one does that 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 and I think we've talked about this internally and we all agree a and it's a continuation of the strategy I think Eugene adopted we are in a rising cash flow markets are bearing 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 visa be our options in our cash flows and we do have turn I think the rushed to finance it is really driven by outside influences.
We do have term and I don't foresee a hurry at this point.
As a matter of policy I can tell you.
I think I've always believed that an organization should always be in a position.
The strike in a market should the opportunity arise and that's right.
What I see no reason to print the number today, that's 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 fronts.
Okay, great. Thanks for all that color I appreciate it.
Thank you.
Our next question comes from Oscar Cabrera see RBC. Please go ahead.
Well, thank you operator, and good morning, everyone.
Yes, I was just wondering if you can remind me.
You need the numbers you provided for constants in 2021, when do you have started stripping the.
Susan and then when do you.
I'll do you think you can start putting them or from pump and chat and in the concession now.
Morning, often look I.
I think what to do that we.
The one in the first we looking at the first quarter of.
2021, a likely fall.
All of that work.
I would anticipate that we start Oh, so predevelopment work early in the new year and that by the end of first quarter, we are actually feeding the process.
Okay.
I thought your comments on consolidating or interesting.
Can you provide context, how long this alternatives that the government approval may be considering.
The crisis.
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 ministry all both motivated towards finding better solutions and the solutions that they looking for hopefully entails minimizing human contact.
Right.
And then just more I'm, calling on the same subject I can appreciate your providing elsewhere.
The amount of land that you have rights for now which is how I believe.
<unk>.
For the remaining third like are you negotiating with 10 people.
You know because you can you provide context around that.
Uh Huh, certainly with the exact number of people that mean negotiating with but it's a into this is not a lot. So we've got two thirds of those agreements if I remember right there was something like.
80 individuals.
And so.
They call. It two thirds of one one third of that so probably 25 or so folks.
Okay.
Okay.
Okay that numbers if that's helpful. Maybe it's more like a there are several people you need to negotiate with but the actual land 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 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 or.
Already voted in assembly individually.
To grant the rights for sale to hide 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 that liberating biopic entre and making it available for.
Mining, we also haven't dispersed funds for the original agreement and that is one of the options to the community that if they do 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 then a negotiated process.
Okay, Great now that that's helpful Castle. Thank you [laughter]. Then lastly, you know your your growth initiatives and the bullets are helpful. Justin.
Context around.
Just thinking about things that well it's interesting that.
Mason is non white, we haven't heard about.
Thanks, a lot.
I would just wondering I just stand here today with metal prices, where they are in your views on.
The market.
What did you start to say that money felt like so like.
First priority then followed by close ties and then Rosemont gets were sold were great and but maybe we can think about it as being.
Something that come out.
For school craftsmen 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 your 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 contract for example.
We think it's something that we committed to delivering and we got a deliberate.
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 learned 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 proper sort of a P.A. can be done on it and we can determine what the next steps are 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 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.
Right no great asset Peter and.
Congratulations on the strong performance on the current environment. Then you know there's wishes to younger families and stay very helpful.
Thanks, Thank you very much off to from muscle.
Our next question comes from Lawson Winder of Bank of America Merrill Lynch. Please go ahead.
Hi, Good morning, everybody and thank you for taking my my question here I'm, just one follow up.
On the consult the criteria.
Oh Gosh, you again, there's a lot of detail here and I wonder if it would be a stretch to incur.
That.
The state of emergency were extended.
Theres now long process is put in place that they put out the krehbiel can still only nevertheless would that be fair to say.
Lawson. Thanks, a question I think that that is fair to say, yes.
Okay. That's very helpful and then.
The second half or.
For.
The or that will the mill.
Tackle perhaps perhaps you could then provide some guidance on expected split to bind or.
And.
Outdoor I don't think but to the now.
Yes, well any loss and thanks, yeah, we the stockpiled ore 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 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 will be back to sort of normal like 90% will be mine feet and we might get 10% from the stockpile feed but we're back to managing.
The deleterious parts, so that we can optimize and improve our recoveries and optimize an improved throughput and we see us back to ignore our new normal like I said in an earlier question. This is a new normal and we sort of gone 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 of the a high maintenance going to take him well that Luna complete shutdown of vital.
Yeah, It's just stay a two weeks and yes, the mining will be a shutdown 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 been underground on the ground traditional linear cycle.
Yeah, I was under ground I want to say three weeks ago at all or isolated myself and northern Ontario, and that means that was deemed acceptable to like citizens of Manitoba.
So I went underground.
Solved 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 with 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 increasing trade unless you're Sars.
Thank you Laurie.
Our next question comes from Stephens. Your line of Cormark Securities. Please go ahead.
Great. Thanks, guys just any following up on Greg's question just on the.
Pasadena Constancio is and as noted in the press release that during the days at the mill was actually running now you're averaging 95000 tonnes, a day, which was great to see that's a reflection of some of that stockpiled ore, maybe just being a bit softer or was it what is the mill actually just operating even that much better and then beyond that you know I I think we talked about in the past.
Then it was alluded to earlier today that you know the kept the capacity I can Sanchez impart limited by permit 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 in the say the second half this year versus the night life.
1000 tonnes a day that was you know at least partially running during Q2.
Definitely it's a so so.
The average that in terms of our pivot is about 90000 tons a day, okay. 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 and what you're saying.
Yeah. So that the bucket is 31.1 million tons, that's why not occurring this idea of losing Gregs question that were looking for any I a modification in the future to increase again, we believe that we can do that.
But this year there is one phase of a phase two I believe that it's 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.