Q1 2021 Lundin Mining Corp Earnings Call
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[music]. So thank you operator, and thank you everyone for joining lundin mining first quarter 2020 one.
I would like to draw your attention on the cautionary statements on slide two.
That's all from a revenue.
And of course debt.
On the call and it just didn't line.
Answering your question I didn't hear me, Kim our senior Vice President and Chief Financial Officer, and Peter Richardson, Our senior Vice President and Chief operating Officer.
Across Lundin mining, we continue our efforts to stop the spread of COVID-19 and to eight on local communities recover from socioeconomic impacts on pandemic.
The photo on this slide shows representatives from Kendall Ariane send birthday, OSB, who then Christine <unk> to lead our health and safety team here of being recognized last month by the Chilean. Thank the association for the team's high performance in occupational health and hygiene drink staffs in 19 and share from 'twenty.
On slide four as the year begins we are continuing the trend of strong and improving safety performance on almost all leading and lagging indicators. This include cash.
Can you just strong performance in total reportable injury frequency rate as presented on the chart on this page.
We are particularly proud of this achievement other operations actively manage through second and third waves. So it depends on mix.
I would also like to highlight several areas and what funding mining has further advanced our commitment to responsible mining over this past quarter, which include updates to our human rights standard and diversity policy as well as action on board with Noah.
I encourage those interested in additional detail and more information on our approach to visit our website and read our core documents, including our recently issued management information circular.
And as always please reach out to us with any questions.
Our 2020 sustainability report, which will provide a full update on all of our activities. During the year is currently being assembled and we expect to publish the report in late June.
I will now turn the call over to Jim <unk> to run through the summary results from per quarter.
Thank you Marie Jos.
In the quarter, our operations produced nearly 102000 tonnes of base metals and approximately 74000 ounces of cool.
We sold over 91000 tons of paper base metals, and approximately 33000 ounces of payable gold generating revenue of over $680 million.
At the market price of our core metals. We produce continues to increase there was an aggregate positive pricing adjustments this quarter.
Positive impact on revenue on settling a prior period sales with over $22 million.
A large portion of the settlement that occurred earlier in the quarter, meaning that the pricing was skewed to this time.
First quarter revenue was also impacted by the timing of sales with a delay of a basketball that Japan, resulting in a shipment that was scheduled for much daily in the first week of April.
I just had a we ended the quarter with over 18005 mid tons of finished concentrate.
Copper generated 70% other quarters revenue. This is up from 64% in the same quarter last year on a relative basis, mainly depends by increasing copper prices.
Nickel contributed 10% up from 6% from the same period last year on increasing production and prices.
I've seen in the two pie charts on this slide we remain predominantly leveraged to copper and well diversified geographically.
Slide six presents a summary other quarters results.
We benefited significantly from higher based on oil prices this quarter compared to the same period last year, which reflected the onset of the COVID-19 pandemic.
In the first quarter of this year, we realized a copper price of $4.20 per pound. This is above the average market price, reflecting the 22 cents per pound to prior year period adjusted.
First quarter revenue of over $680 million with 80% above that of the same quarter last year and this is despite the delayed sales at chipotle, which held higher than normal inventories at quarter end.
Attributable net earnings from operations were <unk> 18 per share adjusted earnings were <unk> 20 per share for the quarter substantially above the net loss in the same quarter last year.
The adjustments are broken down in our MD&A.
With their operations, performing well and improved base metal prices, we generated adjusted EBITDA of approximately $355 million nearly a 300 per cent increase from the same quarter last year.
Cash flow from operations was nearly $160 million. It was impacted by a building working capital given the lower than typical shipments in the fourth quarter of last year and related receipts this quarter.
Adjusted operating cash flow before changes in noncash working capital was $280 million or 38 cents per share.
Our board of directors declared a regular quarterly dividend of six cents Canadian per share or 24 cents Canadian per share on an annualized basis, an increase of 50% as announced earlier this year.
On the mining isn't a very strong financial position with cash and equivalents of approximately $180 million at quarter end and net debt of only $8 million.
The company's financial position has further improved since the end of the quarter and is now at a net cash position of approximately $25 million with cash on a couple of $215 million.
I will now turn the call back to Marie to discuss our operations and projects.
Thank you Janine so moving on to operations and candle area on slide seven candle area performed well in the quarter. It produced over 34200 tons of copper and 21000 ounces of gold on a cash cost of $1 55 per pound of copper.
Tonnes milled ore grades and metal recovery rates were all in line with our plan.
Or processors over $6 9 million tons and this included the impact of maintenance downtime in February on the crushing and the mill circuit.
As discussed on previous calls from mill feed grade was similar to that of the second half of last year as expected.
We continue to forecast increased production over the remainder of the year, primarily on increasing balance sheet grades.
The first quarter cash cost of $1 55 per pound of copper and well above our guidance for the year was better than our plan.
<unk> production cash cost is forecast to significantly improve over the remainder of the year.
We have reiterated Kindle areas 2021 production guidance at 172200, 82000 tons of copper and 95 to 100000 ounces of gold on a cash cost other dollars 35 per pound of copper.
Our byproduct gold price assumption is unchanged at $700 per ounce of gold, while we have weakened our U S dollar Chilean peso assumption to 700 from 675 previously.
Candle area remains well positioned to deliver meaningful production growth this year on improving copper head grades and achievement of planned processing rates.
Looking ahead, we continue to advance internal feasibility level studies on the candle area on the ground expansion project. These studies are evaluating an increasing the mining rate of the two candle area underground mining to a combined 26000 tons per day from the current 14000 tons per day, we aim to complete these internal studies.
This year.
Moving on to Ciabatta on slide eight.
First quarter production totaled over 9800 tons of copper.
13000 ounces of gold on a cash cost of $1 33 per pound of copper.
The operations performed well on the quarter with tons mined tonnes milled in line with the planned demonstrating a return to full production capacity mill throughput of $5 8 million tons is the second highest quarterly throughput since acquisition.
There is some seasonality at your powder in first quarter production was expected to be the lowest of the year given the planned grade profile on recover expectations of the mill feed blend heavier than normal range also meant that more or less source from stockpiled on planned which impacted our grades and recoveries.
Growth in per ton milled operating costs were better than plan. However, the cash cost from financial results were impacted by lower sales volume due to the timing of sales as discussed previously by Jean heat and this was partially offset by a favorable foreign exchange rates.
You've reiterated your Fad is 2021 guidance of 48 to 53000 tons of copper and 75 to 80000 ounces of gold at a cash cost of $1 10 per pound of copper.
Our gold price assumption for 2020, one remains unchanged at 7900 per ounce, while we have weakened the Brazilian real assumption to 510 to the U S. Dollar from 475 previously.
On the exploration front, we have had an excellent first few months of 2020. One we completed nearly 11000 meters of drilling and had an average of six rigs on site in the first quarter. We're on track to complete our budgeted 60000 meters for the year.
We were very successful on the government land auction not concluded in early April we were able to acquire 23 highly prospective near mine exploration licenses and that represents an 80 per cent increase on our exploration land area. These plans included all of our high priority licenses on cost approximately $6 million.
<unk> 2020, one exploration expenditure guidance has increased to $14 million up from 8 million, reflecting the acquisition cost of the licenses.
Looking on slide nine this view of Jakarta outlines some of the near mine exploration drilling results on the slide you can see the surface expression of last year's measured and indicated mineral resources, which include the proven and probable reserves a subset.
You can also see the inferred mineral resource in other areas, we've been determined to be highly perspective and priority for near mine exploration.
The assay results are from select drilling all outside the current mineral resource estimates with exception of one whole I'm sure that to the north.
Our primary focus remains on near mine exploration to better understand the defined mineral resource potential and inform our ongoing expansion studies.
On slide Slide 10, I said, we were highly successful on the government land auctions and the left hand side of this slide illustrates why.
We acquired 23 highly prospective near mine exploration licenses and as I mentioned, an 80 per cent increase on the license land area.
License areas are shown in Green, we were able to acquire all of those that we determined to be a high priority licenses.
On the right hand side of the slide our select assets from drilling completed on the from meager target on our existing license. This exciting licenses located approximately 15 kilometers to the north of the current plant.
And with that I will turn the call over to Peter to discuss European off the operations and the zinc expansion project.
Thank you Marie moving to another portal on slide 11.
First quarter production totaled over 7400 tons of copper over 14000 from them on the tons of zinc and nearly 1000 walk on the tons on loved.
<unk> costs of $2.61 per pound copper.
Zinc production was impacted early in the quarter by Rodney on realign it.
We scheduled for late 2020.
Ink mill feed grade was also lower than planned as mining was re sequenced from Lam from Lombard President and can make the complete republication book.
Mine development rates continue to improve on the quarter on.
Contractors continue to mobilize resources and between their contracted and there is a causal games development steadily increased month on month.
Operating costs in the aggregate and on per ton milled unit basis, we're directly on that well look I know you and I do wish to other places.
On a cash cost unit basis.
During the first quarter production operating cost per ton on coffee wasn't bolt from partially upset by greater than planned zinc by product credits.
We had reiterated that its mortgage production guidance for the year at 35 hang on for 40000 tons of copper.
Anything other than just anything collagen type of thing primarily on feed grades of both metal per plan to improve.
We have also reiterated the full year cash cost guidance from $2 20 per pound of copper price.
Our revised into byproduct price of pumping on $1 per game cans per pump from on dollar previously.
Cause zinc expansion project debt was officially restarted in early January of this year.
Consistent with our previous guidance on time line construction to be completed in stages over the course of 2021 with commissioning to converge by year end.
Preproduction Taco on $430 million remains unchanged.
Oh 2021 capital expenditure guidance from 70 million from approximately 30 million related to respond in early 'twenty 'twenty, two primarily reflecting timing of payments.
Slide 12 shows from other cargos being weighted underground aspects of the project.
In the first quarter, we restarted underground materials handling construction shaft upgrade engineered flow.
<unk> work on the underground conveyor systems began and contracts were awarded for the material handling which installation system.
Water pipes, and they're shocked upgrades.
Over the coming months underground work as well as the focus on starting installation of the Repopulation system and service water piping.
I'm listening to shop shutdown piece on vacation Korea family on structural and electrical works and commencing construction on the dumping case.
Shocked upgrades to be completed this year currently contemplated for a third quarter timeframe.
He has been reviewed in light of COVID-19, and restrictions on international travel.
Moving to slide 15, These pictures show some of the surface pads on.
The radio factor has been commissioned and in mid January we commissioned a sag mill with the ore to produce the attach rate.
Basic equipment had been fully commissioned however, it is not being utilized at the moment its construction or other.
That'd be uncompleted.
Over the coming months census work is the focus on.
Starting construction of the new paste fill plant expansion.
Bleeding commissioning on the third.
Tailings paste thickener as seen on the photo here on a resumption of construction on the second and third day dislocation on filtration sales.
On slide 14, I think there's I'm continuing to perform very well and as demonstrated by a record 334000 tons of zinc ore processed in the quarter.
In the first quarter production totaled over 18006 on their tons on.
Nearly 480 pounds of copper.
4700 tons of blood on a car.
Ill pass on 76 cents per pound zinc.
Zane can lug mill feed grade was slightly lower than originally planned.
We have a plan to increase modestly over the course of this year compared to the first quarter.
Operating costs in aggregate on on a per ton milled units were in line with the book on a sucking all U S dollar basis.
On a cash Cogs per unit basis first quarter production operating cost per pound of zinc was modestly above plan, partially offset by greater than planned on copper about products on it.
Our 2021 balance was in Q1 is unchanged at 71070 6000 tons of zinc, which we filed on to 4000 tonnes of copper.
Cash costs of 65 pounds per pound zinc.
Exploration efforts continue with a cool because on the expansion of Dolby on the analysts between bulk lump and he's doing other bodies.
Over 6300 meters of exploration drilling was completed on the first quarter.
Or 'twenty or 'twenty, one program remains unchanged with 27000 meters of drilling from other part of about 6 million dollar program.
With that I will turn the call back to Marina to discuss the Eagle from pharma.
Thank you.
Lastly on the operations on Slide 15 Eagle had an excellent first quarter, both the mine and the mill performed slightly above plan.
As a result first quarter production was over 5300 tons on nickel and nearly 5400 tons of copper on an impressive cash cost of negative $1 62 per pound of nickel.
Operating costs in aggregate and on a per ton milled basis were in line with plan.
Cash cost benefited from better than forecast copper byproduct prices and volumes.
With minimal Capex of $3 5 million Eagle generated over $70 million of cash in the quarter.
Considering our strong start to the year, we have increased our nickel production guidance to 17 to 20000 tonnes from 15 to 18000 tons per.
Copper production guidance has been reiterated.
Similarly to.
<unk> 2021 cash cost guidance has been improved to negative 25 cents per pound of nickel from 50 cents previously as a result of the exceptional first quarter and revision of our copper byproduct price forecast.
We are now forecasting $3.75 per pound of copper for the remainder of the year from 295 previously.
We anticipate spending more on this year on underground development and drilling including extra meters on the western extension of the Eagle East ore body. We have increased our 2021 full year sustaining capital expenditure guidance by 5 million to $20 million.
With the production profile at current metal prices and low annual Capex Eagle is well positioned to generate significant free cash flow in the coming quarters and years.
On slide 16 summary of our current guidance as discussed on the operational section in the table on the left as discussed we are making improvements to eagle's nickel production and cash cost guidance and reiterating production and cash cost guidance at all other operations.
We have made a minor addition to 2021 capital expenditure guidance of $5 million, our original estimate of $610 million.
With the $5 million increase on Eagle being attributable to underground development and drilling.
Full year exploration expenditure guidance remains at $40 million, including the early April acquisition of exploration licenses approximately $14 million to be spent at chipotle on the 6 million has been reallocated from corporate and new business development expenditure to the Japan Imagers.
While we have not experienced significant disruptions to production shipments of concentrate or supply chain due to COVID-19, we continue to caution that our guidance does not reflect any potential for suspensions or other significant disruption to operations due to COVID-19.
Turning to slide 17, we have an excellent growing production profile from our current assets with clear exploration potential to expand or extend mine life at almost all of our operations.
We have reiterated our 2021 copper production guidance with a midpoint of 287000 tons.
Production is forecast to modestly increase from 2021 as the zinc expansion project is completed and fully ramped up didn't zinc production is set to increase 65 per cent in 2023 compared to 2020 and be roughly 230000 tons per annum.
Gold production is forecast to be 175000 ounces at the midpoint of guidance for this year of which nearly 110000 ounces are unencumbered and receive full market pricing.
Lastly on slide 18, the investments we have made over the past several years have positioned lundin mining very well benefit from the current commodity price environment with multiple years of strong production, leading cash costs and free cash flow generation ahead.
We are in a strong financial position and expect to finish the year in an even more enviable ones given the current robust metal price environment.
We will continue with our objective to create value by investing in low risk high return opportunities in our own assets.
The core aspect of our capital return strategy as a regular dividend policy aims to ensure regular dividend is sustainable throughout the cycle and can be progressively increased the asset base improves and growth.
We have maintained our six cents per share quarterly dividend and expect to provide an update in July on the conclusions from their review of our dividend policy, which is currently underway.
And with that operator, I would like to open the lines for questions.
Yeah.
Thank you.
The signing of a day to take any questions from my time for us to be.
A reminder, if you would like to ask a question over the phone simply press Star then the number one on your telephone keypad.
Again that would be star then the number one on your telephone keypad.
We have our first question from the line of Greg Barnes from TD Securities. Your line is now open.
Thank you maybe a couple of questions on on the guidance on I know you've reiterated the other.
A fairly weak so all the kinds of areas as expected in Chicago, I guess I'd expected.
You're targeting the low end of the guidance range now or is the high on just a stretch.
I would say in general that we're targeting the mid range as we were at the beginning of the year you know we.
We were performing where we expected to for candle area. You know, we're slightly slightly behind but you know within you know just around 1000 tons of our plan for copper at Chipotle. So you know we were quite confident in the guidance there and so were still would be targeting the mid <unk>.
Range.
So it kind of malaria youre going to have to see a meaningful step up in grade as 0.53 in Q1.
I think to get to the low end of the range on to put in 0.7 from the rest of the years that.
Yeah, so that we shouldn't the range will be backend loaded and we do expect the second half to be considerably better than the first house, probably some modest improvement in Q2.
But really it's the back end of the year, where we've seen a significant increase and I would say that in terms of the grade you know going back to our technical report I think it was a 6465, Peter correct me if I'm wrong.
For the year, which we would currently expect to have something.
In that range. So yes, we do have an expectation for a fairly good grades in the back half of the year.
Okay I just wanted to touch on for me that this new zone on Chicago.
Given the grades there obviously you have no idea how much mineralization is good but in terms of the options you are looking for Chicago.
Could you be looking at them.
The mill or on the additional milk in another location midway between the current planting.
Wherever else he coined.
Cash and tonnage.
Yeah. So right now you know for me that is early stages and it's pretty exciting we didn't really want to release any results. Prior to this because of the land auctions and then the area. That's continuing on trend to the southwestern from me go we were able to acquire that on the auction and that was one of our high priority. So.
We'll obviously do more and have more information on for me got that the current studies are not looking at like a midway type of plant, it's really looking at the existing resource and if you see the you know one of the really key areas that was the number one priority it's hard to see on the map because it looks like.
Just a thin line, but it's the extension of the copper. So it was on a small band of property there that constrained us in terms of the continuation of the south pit.
And so that is removed and we expect that to have a good influence on our R&R for the year.
But right now we're looking at you know the drilling in and around is giving us really good results with the existing so the existing expansion is looking at one of the possibilities is a new plant, but it is located in the rain in the area of the existing footprint.
So that's what we're looking at the moment and you can see you know wherever we put a drill hole there we seem to be finding a good mineralization. So the challenge is to find.
Find places that don't have so that we.
Don't end up putting infrastructure on mineralized zones.
Okay great.
Yes.
Thank you. Our next question is from the line of Jackie Brisbane on excuse me from BMO capital markets. Please go ahead.
I just wanted to touch on the the difference between your production and your sales in the quarter can you talk about.
I think we did.
We saw that should put us on maybe more on the gold side, but it looks like is that a few operations can you talk about on any kind of shipment timing issues are and if we should be expecting to see those being caught up on next quarter or if there's another source for that difference between sales and production.
Yeah. So there will be always some based on pay abilities and in particular for nickel them. When you look at the production versus the sales.
And but in terms of our inventories we were carrying higher than typical inventories at chipotle as you've noted but also at an average I think we had a quite a bigger balance there.
And we did have a couple of shipments go in early April that we had expected to go in March mm for those two operations.
So those were really where we were seeing the inventory levels.
Okay. So so those are essentially have already kind of been resolved I guess, it's the ships have already love.
Ah well, we always target to have low inventories at the quarter end. So I think where we're seeing challenges right now is and the South American mostly Brazil seaborne freight is that the spot prices are quite a bit higher than the long term prices under.
Fact of Affreightment. So you know getting the vehicles into port when you expect them has been challenging just because you know the per.
Buyers are trying to take as many spot.
Spot contracts as they can so that was part of the challenge is the vessel availability for the quarter.
That makes sense. Thanks for that color can I ask another question on.
On Eagle East I think you've mentioned in the preamble a part of the call that you're looking at them more drilling there, especially on the I think you said western extension of Eagle East.
We've been kind of price.
Net Eagle was.
Your your exploration opportunities there were probably exhausted can you give us a little bit more color on what what you do.
Drilling for there and how the new.
New areas sort of came to light.
Yeah. So I think where we are exhausted is on you know the expectation that we would find a considerable regional play or you know something that's gonna double mine life kind of thing, but like last year. You know we continue to drill in on extensions to see if we can add you know a few months here a few months there.
Given the profitability of this location every every little bit adds significantly Peter did you want to give some color on what we're doing there and in the various zone.
Yeah. So.
He said Murray, we're drilling on on the zone.
Just then on ore body at Eagle East on them.
Just kind of identify and find a potential continuation.
And adding tons from as you said Marie months, if you add a month here on the call are profitable. So that's what we're trying to identify it.
We know that there is no there was on a mineralization that we need to identify them and make sure that it.
And now we'd be mineable.
Without.
We're just calling on about the enrollment curriculum.
Okay. That's great. Thank you very much that's all my questions.
Okay.
Thank you. Our next question is from Orange book now from Scotiabank.
Please go ahead.
Hi, good morning could we get a bit more color on for the operational update.
Never Chicago spin.
Specifically around the grade profile on the sequencing for the year. It seem to me that the grades were fairly low in the first quarter and I was wondering if we should expect kind of progressively improving.
Zinc and copper grades as the year go on or whether there's some variation there.
I'm sure and there will be variability another share just depending on which zone. So.
I think you know we'll follow the typical pattern that you see there where we historically have had a bit of a slow start to the year than Q2 is typically good and this is for both of the European operations Q3 is usually a bit of a slow quarter, given you know, especially in Sweden, everybody disappears for the summer and then.
We have a strong Q4, so you know I I.
I would expect to see an increase for Q2 and Q4 and the grades are Peter did you want to expand on.
On any anything there maybe for a first line isn't as well.
No.
We have on our mine plan and we're following that mindset on sequence.
No when we know about the grades aren't.
On a constant on the same or there'll be going up and down depending on the stope sequencing.
Like we said Murray will we should be expecting our plans are higher grades throughout the year.
From Evercore go and also a slight increase on the grade a person crew them.
As well depending on the on the <unk>.
Two questions.
Thank you and if I could also ask just on your corporate strategic priorities I mean, you're already at a net cash position.
You've already mentioned that your the dividend policy is going to be reviewed by.
By July, but I'm, just wondering given that the capacity expansion from call. It a capex perspective still feels like it's a few years away.
How big of a priority is M&A right now for Lundin mining and do you see room to add another asset into the portfolio, perhaps before you're ready to build Chicago expansion.
Yeah. So in terms of our capacity to do a deal we definitely have the capacity to do a deal or M&A or our corporate development team has been working extremely hard and been very busy because there are a lot of different processes and in a lot of interest.
Happening behind the scenes, but for US we don't see anything out there that we could acquire that would be accretive for shareholders or would upgrade or per our portfolio and put us in a better position. So while we have a lot of capacity, we do not see the opportunities.
That we would want to see so you know we don't we don't have anything on the front burner, there so I wouldn't expect.
US to be looking at any acquisition. So we're really focusing on capital allocation dividend strategy and as you say.
And it'll be some time before we have to put money into Japan on expansion and.
And we'll have good cash flows in order to support that so you know M&A right now is not looking like theres opportunities that would add value for us.
Thank you.
Thank you.
Our next question is from the line of that'd be a garhwal from Deutsche Bank. Please go ahead.
Yeah, Hey mining all thanks for the presentation I have a couple of questions. If I may please.
Peter you talked about our action plans to further improve productivity is this a normal startup cost the COVID-19 stoppages or there's something on the line.
Sorry, I was trying to on mute.
The productivity that I was speaking to there was is the mine productivity, so where we have been working hard on improving mine productivity to increase our horizontal development Ah and.
The availability on or and from other something about we continue to work on them and push hard on them.
On the mine.
Got it and one more question if I may please theres been some news spread on disturbances in Chile have you had have you do you foresee any impact from those at Candelaria.
We haven't seen I know that the latest one of course was the stevedoring went on strike at various ports. So some of the ports continue to operate normally some of them did go on I think it was a half day plus plus a day. So five shifts I think it was five shifts that are the ports went on strike there back to normal activity.
After that strike period, or our port workers did not participate in that strike by the port of caldera did which is where we would receive our diesel but you know no no impacts to us from that short duration strikes there isn't other strikes that's been called generally by a worker National Workers Association.
It's called for National strike This Friday Oh.
Our unions are not associated with this group, but we would expect that there would be a.
Disruptions within the communities similar too.
And in November 19, it was a national day of action in a number of groups went on strike. So we continue to expect to see in the lead up to the elections more political activity.
But at this point, we don't see any major disruptions for us.
Got it thank you very much.
Thank you.
Excess from Jack O'brien from Goldman Sachs. Your.
Your line is open.
Great. Thanks, good morning, everyone.
First question just following up on on on the capital allocation I just want to make sure.
Have the kind of.
Mining so obviously, you've got kind of completion is that EEP.
On my rights and thinking the next obviously, you've got a variety of opportunities across the portfolio, but the next would then be most likely to be true.
Chip hotter and then followed up potentially by this.
This expansion on the ground at Candelaria is that the right sort of.
In terms of kind of prioritization of how you deploy your capital is that the right way of thinking about it and then secondly.
Two one of the previous questions on on chip hotter expansion potentially being a few years down the track I mean, when if you were to go ahead with that when would be.
First expected production come through.
Yeah. So in terms of a priority I think that's probably correct I mean, there's not a huge spend what's first up and you know it's it's happening. According to plan easily funded from from cash flow without a with still a lot of excess free cash flow.
And then of course, the studies for Chipotle in terms of the huge of a candle area. We expect to finish those studies this year, but we're not expecting that we would have a go decision on that this year. We do expect to see you know I'm a good viable project there.
But our focus is going to be on.
Taking cash from the operations, we've had a period of heavy investment there are a number of years and so we would like to reestablish a baseline do our post investment review that we do for all of our investments are major investments and focus on cash flow generation and returning cash to the partners. So.
That one will probably put on put on hold and reassess that.
And in coming years, but not as are other.
Point of approval this year two powder, we're working through the studies I think we've guided them consistently that we would be coming to a decision probably early next year, which we're trying to accelerate that but were going through the day steps to do that and then you know we would have to.
To move to I'm looking at the time line is done but.
You know, it's not going to be it's not going to be startup construction in 2021, that's for certain.
Got it okay. Thank you.
Second question a few investors are obviously kind of keeping an eye on.
On the debt.
The tax situation on Chile, and I know, there's not always went on to headlines and.
Per perhaps a difference between reality and on what said, but any comments there.
Yes. So this is one also that we'd been following very closely obviously, there's been more discussion and activity around this we're not surprised in the lead up to elections, we expected that there would continue to be a lot of noise. You know other proposals range back a few months ago.
And a couple of days ago. Obviously, there was a proposal that came from the mining and energy Committee of the chamber of deputies with an extremely punitive tax structure on mining. So you know in it and that's on top of the existing sliding scale, which is the five to 14 per cent depending on your margin.
So I think you'll hear a lot more on this it'll probably go through Finance Committee on Assembly and get raised to Senate and there'll be a lot of rhetoric or our electoral promises and its very politicised right. Now you know everyone wants to curry favor with the electorate. The government has stated it has no plans to introduce new taxes during.
Their mandate, which of course the elections are in November.
So we expected to hear different things coming out.
He believes that the mining sectors contribution is broadly known and appreciated not just by the REIT, but by the mainstream left as well and that it's pretty clear that this type of box scheme would be very damaging to the industry and really make new investment project in Chile very difficult.
No one is going to take on a multibillion dollar Capex project with no potential for upside is just its going to.
Put a lot of projects at risk there.
So you know other countries have tried to learn things like this and want them back very quickly. We think it's a it's a lot of.
Rhetoric at the moment and we expected it but we continue to monitor with the industry groups, where I'm in contact with the mining Council.
And basically you know, we'll watch with interest, but I think the potential harmful effects of this are are very well known I think the finance Minister just gave the finance report.
On the state of the increases in the copper prices combined with the increased economic activity will lead them to about a 6% GDP growth this year and and not the finance you know that.
Revenues coming from copper are expected to be able to to.
Allow them to have a stable debt levels. Despite stimulus spending so I think the industry has worked very hard throughout the pandemic to keep producing and people recognize that's a huge factor in keeping Chile ahead of its neighbours. So you know, we'll continue to watch with interest and as we've said in the past we expect that there would be.
You know there would be new taxes at some point and that there'll be reasonable in and not cumulative to the industry.
Great and one just final brief question.
Chip Potter the old mills during the first quarter you mentioned in the presentation very very strong level.
Just wondering if that say sort of.
Some small level, we can now come to expect going forward or do you think that was up slightly abnormally high perhaps a catch up from the from the fourth quarter.
No I think you know we've got a good operation in the mail there now I don't think we would expect to have any drop off and we've actually just during the quarter of commission the mobile crusher. So.
Peter any color on that.
No I think good snow according to what we plan, so a little bit better than what we planned on.
We aim to force the problems.
So.
Yeah, I think we're suddenly became similar.
Similar.
Great. Thank you very much.
Thank you. Our next question is from the line of Daniel Major from UBS. Please go ahead.
Hi, Thanks.
A couple of questions first one.
That should part of your process more from the stockpile.
Does that mean, you behind on the mining schedule need to catch up.
Due to the range or is it more.
More of a logistical issue that's first question.
Yeah. So it is seasonal there in terms of the rainy season, and it wasn't particularly rainy February.
That meant not only that we would have excess water, but that the amount of evaporation days were less so we were carrying more water than we typically would.
You know so basically.
As we go through the year, we'll be able to access the areas that we didn't have access to.
But our mining rates were according to plan.
Okay. Thanks.
And then second question on source, perhaps asking the same question a slightly different way around the timing of the chipotle.
Expansion, a nice flow et cetera.
So two part.
You mid year on year reserve and resource update on <unk>.
I mean, you're expecting to release, a meaningful increase in reserves and resources on the based on the drilling that you've done.
Today.
For the past 12 months and secondly, you had previously suggested you could release a study on the expansion.
Fourth quarter of this year already next year is there any change to that time line.
No change to the time line.
And we do expect to have from good results to incorporate into our R&R.
And what's important in the R&R is the the near mine and the grade them. So we can add we can add tons, but right now you know it's a.
It's a very long mine life, so adding.
You know adding.
10 years at the end of our 40 years doesn't really move the needle and it'll be important to identify near mine sources that we can bring in sooner than than later and so that's that's where we feel it will have some success.
Okay, Great and then just one more question if I may perhaps.
Perhaps slightly.
On a conceptual one.
The.
Hello.
Stage of the cycle people, calling for some form of regime change on a high forever on a copper price.
How you as a company looking at your assessment of how you review your capital allocation going forward.
Considering following rhetoric and mining.
Putting full Buck 50 on forever.
How are you how are you looking at that and.
What's your process for reviewing how you you feed in commodity price assumptions to impact capital allocation.
Yeah. So we have that we have not you know.
Just put $4 forever until our model and but we will look at you know different scenarios, we typically would run upside downside and base case and at this point, we haven't changed our long term copper price.
[noise] assumption, but when we look at them.
Possibilities, we'll look at different scenarios.
And we're fairly conservative as you probably saw from our you know our F. One re forecast of our C. One byproducts.
375 copper for the year dollar 15 zinc its fairly conservative I think in terms of.
Pricing is compared to where we are so.
We'd like to think it's it's higher for longer.
There's differing opinions on that and and you know, we'll we'll be optimistic but conservative as we typically have in the past.
Alright, thank you.
Yeah.
Thank you. Our next question is from Lawson Winder from Boa Securities.
Yeah.
He lost on you might be on mute.
Can you guys hear me now.
Yes.
Okay, great. Thanks Marie.
Good morning, and thanks for the update just more specifically on the September R&R update.
Would it be fair to them.
So net reserves at that Japan could be replaced first of all.
And then secondly could we expect an initial resource for me get could that.
It would be looking at an inferred or M&A.
The researchers on things.
Ah well on the first one yes, definitely we should be able to at least replace mined unexpected total I expect to do that and on for me day I think it's a little early on on a resource there.
Okay, Great and then.
On the exploration budget Mary you mentioned that $6 million had been reallocated from corporate to Jakarta. So does that mean that chip had as exploration budget for this year is now 14, plus 6 million from $20 million.
No. It's a it's the 14th.
But still the 14th and would you expect spending that by the June 30th our cutoff.
Spending the 6 million or.
The entire $14 billion.
No not the full amount no well will continue with the drilling throughout the year. So.
It'll be an even spend for the rest of the year probably.
It's a little it's a little light in the first quarter, just because of the rain you know it's.
It's harder to get the meters, but we usually pick up kind of mid year and.
And have a very good back end in terms of drilling, but we'll continue to drill there.
And do as much drilling as we possibly can throughout the year and if we can spend more than that budget we will.
Hey, Greg.
And then just one final question on the on the guidance more specifically to gold production, though.
Uh huh.
One could you remind us are the gold grades positively correlated with the copper grades.
And.
Yeah.
Would it be fair to expect a very very material pick up in.
Gold grades.
Q2, three and four.
A chipotle.
Yeah, I wouldn't say, there's a direct correlation I mean, there's areas that are a gold like gold rich in areas that are copper rich. So there's not a direct correlation in terms of the grade.
What we do see is obviously with with.
So it will be a recovery that you'll see the recovery on oxide material will be difficult on both bolt on copper so that's.
That's definitely the case.
In terms of the cold.
I'm just trying to think in terms of the we do have a pick up in the year on the gold grades as well in terms of being better in the back half non it is in the first half.
But that's just it access in different areas. It depends what we do definitely see.
An uptick there Peter or any any color you want to get there.
No.
There's no direct correlation.
But a world growth.
Expecting on an uptick back in second half for the year.
So on Goldberg.
And so that's.
Your confidence in meeting that.
Gold production guidance for Japan.
Sorry, the middle of that gold production.
Yes, that's correct yes.
Yes, okay.
Okay. Thank you very much.
Yes.
Thank you. Our next question is from the fun town New from former please go ahead.
Okay. Yeah. Thanks, guys. Thanks, very much for taking the question.
My questions have been already sort of answered, but just maybe curious on the sort of thinking from an M&A point of view on your <unk>.
And you haven't really seen a lot of accretive opportunities out there. Just wondering can you comment if the focus has been on sort of copper specifically or you know are you sort of sort of.
Metal agnostic and I'm, just sort of thinking about your keeping maintaining a diversified profile going forward with eagle coming off over the next few years, if there's any sort of additional focus on bringing other nickel assets due to mix.
Yeah, I think you know, we we do have a focus on copper and that would be first priority, but we would look at other things as well on we have looked at other things as well whether it be the anchor nickel and but we're just not seeing assets that would be.
An upgrade to our portfolio and be accretive for shareholders.
Okay, Okay I'll leave it at that thanks, very much guys.
Thanks.
Thank you.
The next one is from Dalton Barreto from Canaccord. Please go ahead.
Thanks, Good morning, Gary and team a couple of questions from me I wanted to start by kind of picking up on that Chile, it's out there.
You discussed the proposed tax changes in some detail, but what about from a broader constitutional debt with one perspective are you seeing anything there that gives you concern and how insulated are you by your stability of it that's my first one thanks.
Yeah. So the the elections for the Constitutional Assembly were put off so they're not happening until on me. There originally supposed to happen in a in April but they were pushed back because of the increase in the COVID-19 cases, and there'll be held on may 15th and 16th So we don't.
Any further delay to that timeline nor for November so.
On on that there's kind of a split there's there's basically there's the right candidates, which are center right. There's a center left and then there's a more you know.
Extreme left and.
And we'll really have a better idea after the may elections to understand where that constant constitutional assembly will be.
But.
You know, there's a lot of rhetoric from from all sides are at the moment and so I think you know if it was a month from now I would have a better I would have a better feeling for the types of things that we might see coming out of the discussions but the constitutional Assembly timeline is still the same so does the <unk>.
Actions have been pushed back a month, but the expectation.
Expectation to deliver a new draft constitution and should have it reviewed and voted on is still the same and that won't happen until mid next year, but we should have some kind of indication as to what might be in that based on the composition of that assembly and we won't know that until mid may.
Okay, but from your stability agreement perspective, I guess until you know what's in there it's hard to say what you're insulated against.
Oh, so our stability agreement should protect us against any new taxes until the end of 2023. So you know commencing in 2024, we could be subject to.
No new taxes, there, but we do have protection until 2023.
Okay, Great and then just maybe switching gears a little bit I think your disclosure flag localized COVID-19 outbreaks their commentary on Chicago, how much of the concern of debt.
I would say for us. It's it is a concern it's more of a concern at the moment and in Chicago on it isn't candle area because candle area Chili's made good progress nationwide on there are vaccines. So you know day, they've got half of the population has had at least.
One dose and probably about a third is how the second dose. So we do see them you know that that vaccination program should start to stabilize the case level something we should see them reduce their at Chipotle. It's different the national campaign is moving quite slow and you know not a lot on.
Of doses, given I think only.
Less than 50 per cent of the population right now has a first dose.
And locally.
We're still trying to assist with <unk>.
Getting vaccinations, but the the availability of supply vaccine is not there. So that's the one where we are concerned we have had our site doctor and nurses vaccinated, but.
In large part the community and the work force is not vaccinated, there and and it's uncertain when we might get that.
So that is.
You know, we we don't have any concerns about vaccine resistance people want to receive it and but we're thinking that the general work force right now, it's probably at least second half before we can have on box needed.
Okay, and then I guess my last question I, just want to pick up on something you said on the Candelaria underground eternal fees that Youre looking at I think you said you expect to see you saw a project that you don't expect to move forward on it.
What's the argument for not moving forward on it just given where you put your on your balance sheet debt.
Yeah. So I think there's a few things we have just gone through a heavy investment period in Chile, and we would like to reestablish the base case and to do post investment review on the investments. We have done there are a number of and gin. He could speak to this more eloquently than I, but.
On some tax and withholding tax credits and other tax credits that will disappear them within the next.
There are two that we would like to take advantage of and you know taking advantage of those tax credits and and we feel that with the political uncertainty embarking on a very.
Hi, Capex project.
Not it's not a building, but it's not them it's not on.
Under 100 million either so.
Big Capex project in a time of uncertainty on the tax regime is probably not too.
Good decision and we're not pressed to you know we.
We have good production and we have a growth in other areas. So it's not it's not like we're desperate to to see that increase so you know prudency and I'm, just being careful and taking advantage of some tax credits that are disappearing.
That's great color. Thank you for your good luck guys.
Okay. Thanks.
Thank you there are no further questions at this time I will now turn the call back over to Ms. Thank Sir.
Okay. Thank you very much operator, and thanks, everyone for joining the call today you know in summary, our operations are performing according to plan and we're expected to deliver on all of our guidance this year.
So we feel very well positioned and we look forward to our next update in July thanks, everyone.
Yeah.
This concludes today's conference call. Thank you for participating you may now disconnect have a great day.
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