Q2 2021 Lundin Mining Corp Earnings Call
Good day, and thank you for standing by welcome.
Due to the Lundin mining second quarter 2021 results call at this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star 1 on your telephone keypad. Please be advised that today's conference is being recorded.
If you require further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today Marie Inkster.
President and CEO. Thank you. Please go ahead.
Thank you operator before we begin.
Thank you operator, and thank you everyone for joining lundin mining second quarter 2021 results call.
I would like to draw your attention to the cautionary statements on slide 2 as we will be making several forward looking statements throughout the course of this presentation.
On the call to assist with the present.
Resignation and answering questions are <unk>, our senior Vice President and Chief Financial Officer, and Peter Richardson, Our senior Vice President and Chief operating officer. The photo on the slide is our Eagle planning engineer Matthew younger inspecting an impressive high grade phase on 1 of the cut and fill levels will be at least.
On slide 4 we published our 2020 sustainability report earlier this month as many of our long term shareholders know money mining has been reporting on our sustainability performance and Standalone document since 2010.
And this year's report, we outlined many of our sustainable improvements in safety environment and social performance.
In particular, we highlight our proactive effort to monitoring the evolving COVID-19 pandemic, putting appropriate on a protective measures in place while working closely with communities to identify their needs and provide support.
Our best ever total recordable injury frequency rate of 0.55.
Our formal adoption of the global.
<unk> industry standard on tailings management.
And we had no level, 3 or above environmental incidents and a 13% decrease in level 2 incidents.
In 2020, we initiated a cross functional and collaborative process to further advance our sustainability strategy and performance.
This includes a multidisciplinary sustainability working group and executive steering committee and a formal governance structure.
Through these we will continue to define integrate and embed sustainability pillars key themes performance indicators and long term target on.
I encourage those interested in in the additional detail and more information.
<unk> on our approach and performance to read the report and as always please reach out to us with any questions.
I'll now turn the call over to Jim <unk> to run through the summary of results of the quarter.
Thank you Marie during the second quarter, our operations produced nearly 110000 tonnes of base metals and approximately 41.
1 ounces of gold.
The quarter over quarter improvement driven by better performance from many of our mine.
We sold over 103000 tonnes, a payable of base metals and approximately 39000 ounces of pampa goals generating revenue of over $870 million.
As the market price for the metals, we produce.
<unk> increase in the second quarter, there was a positive pricing adjustment again this quarter.
The positive price impact on revenue was from the settlement of prior period sales was nearly $50 million a large portion of these settlements was attributable to copper.
Copper generated 72 per cent of the quarters revenue slightly.
<unk> greater than the 70 per cent of the first quarter and on a percentage basis in line with the same quarter of last year.
Nickel contributed 9% in line with the 10 per cent of the first quarter and up from the 6% in the same period last year on increasing production and prices.
We remain predominantly leveraged to copper and.
Specify geographically.
Slide 6 presents a summary of our second quarter results compared to the same period last year.
We benefited from significantly higher base metal prices this quarter compared to the second quarter of last year.
We realized a copper price of $4.58.
Pets per pound above the average market price enlarge reflecting 32 cents per pound of prior period adjustments.
To a lesser extent, we benefited from positive prior period adjustment for growth and zinc.
Details can be found in our MD&A.
Second quarter revenue of over $870 million with.
Well that 65% above that of the same quarter last year and a nearly 30% increase from the first quarter of this year.
The first half of this year, our consolidated revenue was over $1.5 billion.
It is important to point out that at quarter end, nearly 86400 tons of payable copper.
Nearly sufficiently price at $4.25 per pound.
This is a larger than typical amount remaining provisionally priced and as a result of the timing of shipments at the end of last quarter.
Approximately 30000 tons were settled in July.
Attributable net earnings from operations were 33 cents per share and adjusted earnings were 31 cents.
We made for the quarter, both are substantially higher than the same quarter.
From last year and the first half of this year, we generated over $370 million of adjusted earnings details the adjustments are broken down their M. DNA.
With better operational performance and improved base metal prices quarter over quarter.
Per share rate adjusted EBITDA of over $480 million on nearly 110% increase over the same quarter last year, we generated over $835 million of adjusted EBITDA in the first half of 2021.
Cash flow from operations was nearly $420 million modestly.
Modestly impacted by a build in working capital adjust.
Adjusted operating cash flow before changes in noncash working capital items with over $430 million or 58 cents per share.
We've introduced a non-GAAP free cash flow metric this quarter and details are presented in our MD&A.
We generally second quarter, we generated nearly $300 million of free cash flow a record for the company in the first half of this year the company generated nearly $355 million on free cash flow.
Lundin mining isn't a very strong financial position with cash and equivalents approaching $300 million a quarter and the net.
And the position of over $150 million.
The companys revolving credit facility was fully repaid by quarter end.
The company's financial position has further improved since the end of the quarter net cash is now roughly $190 million with cash and equivalents of $250 million following repayment of approximately $80 million.
Candidly our term loans.
I will now turn the call back to Murray.
Okay.
Thank you did he.
Moving to slide 7 we have adopted a dividend framework to guide the direct returns to our shareholders, while enabling the company to maintain a strong financial position for future growth.
The total.
Dividend is supported by this framework aimed at returning a minimum target of 40% of available cash flow through the combination of the sustainable on core quarterly base dividend supplemented by a variable performance dividend declared and paid semi annually.
Payable cash flow is determined as operating cash flow after capital investments contingent payments.
<unk> distributions to our partners at the table on the slide outlines the calculation.
Our board of Directors has declared a regular quarterly dividend of 9 cents Canadian per share or <unk> 36 per share on an annualized basis and this represents an increase of 50% compared to the most recent regular dividend paid in.
And this year and 125 per cent increase over the dividend paid at the end of last year.
The Board has also declared an inaugural semiannual performance dividend of.
9 Canadian cents per share for the first half of 2021.
In total <unk>.
<unk> per share of dividend.
We're for the quarter, which annualized is 2 Canadian 54 cents per share and a total dividend yield of approximately 5%.
I'll now turn the call to Peter to discuss our operations.
Thank you Maria starting with candidly area on slide 8.
Candidly area performed in line with plan during the second.
Second quarter <unk>.
<unk> over 36000 tonnes of copper and 2004 thousand ounces of gold on a cash cost low tolerance to 2 times per pound copper all improved quarter over quarter.
Operating costs were above plan impacted by extra mine and mill maintenance. So on a cash cost basis were offset by higher than forecast.
Magnetite and precious metal byproduct credits.
Following the 2021 production guidance revisions announced on June 24, we have reintroduced full year cash cost guidance.
<unk> 55 per pound of copper.
Increase over the prior guidance, primarily reflects the lowering of copper byproduct.
Production.
Full year capital expenditure guidance has been reiterated it at 340 million U S dollars with over $150 million on desk and incurred.
Anchored in the from staff.
Moving to slide 9 as announced in our June 2000 from this release, we have adjusted the near.
Term mining in an area on phase 10 of the open pit for the second half of this year to manage production challenges and our localized area.
As can be seen from this photo while nominal in volume small movements have the potential to impact activities on lower levels levels 144, 1% and 112.
Low showed several other measures and actions we have taken to manage risks and this localized area. The photo is our current mining on July 8.
To reduce the risk.
Have implemented new blasting procedures, including smaller glass to manage energy impact.
The 192, and $2.24 levels and on a low in the localized.
All lines area.
Made design changes to increase bandwidth and step outs as can be seen on the <unk> hundred 24, 192 in 1 day levels having.
Have increased equipment on the area to improve productivity as we work through the area further enhanced monitoring process, including time delay response prism and empower satellite imagery.
The forward, adding further technical capabilities, including senior technical mining personnel and enhancing external review and auditing process.
With these additional measures we are confident in the management of the production challenges while mining to this localized area of phase tenant Hill pit.
I'll be happy to take any questions during the Q&A.
I'll turn the call back to Marie to discuss Candela as 2022.2023 production outlook.
Thanks, Peter moving now on Slide 10, we are currently preparing and optimizing our life of mine plans for all of our operations as part of our annual planning process.
In reviewing the plant and mine performance for the first 6 months from this year.
The preliminary plans for candle area are considering our forecast annual protesting rate of approximately 28 million tons from the complex utilizing the existing infrastructure and allowing for our mine to mill copper grade dilution of 5% to 8% for 2022 and 2023.
This compares to the most recent 40.
43, 1 on 1 technical report, which assumes annual throughput of approximately 30 million tons in each year and does not incorporate an allowance for normal dilution.
While further work is required to complete and confirmed the plans on preliminary review production forecast for 2022, and 2023 is expected to be approximately 10% to 15%.
Percent lower than our prior guidance for both of these years.
Alternative plans tradeoff studies and further revisions are being evaluated to improved future year's production.
These include adding and Debottlenecking, our pebble crushing and grinding capacity and improved grade control increased contribution to mill.
From our underground mine and in earlier and increased contribution of phase 11 or.
We aim to finalize our life of mine plans over the next few months and it is approved by the company's board in November as per our normal course of 3 year production outlook, along with 1 year cash cost and capital expenditure guidance for all mines.
<unk> be provided at that time.
Peter and I will be happy to take any questions on elaborate during Q&A I'll turn the call back to Peter to continue the discussion of the operations.
Thank you Marie moving to chip out on on Slide 11 second quarter production totaled over 11200 tons of copper and.
We will begin.
So the goal this represents improvement of nearly 15% on 30%, respectively compared to the first quarter.
The operation performed well and set a new monthly mill throughput record on May processing, $2.3 million tonnes.
Metal recoveries improved quarter over quarter, and we're on plan for copper.
And sort of a better per goal, though remained below those of recent quarters, primarily due to.
As planned lower mill feed grades.
Operating costs and the second quarter cash cost of $1.33 per pound of copper were both in line with plan.
Full year copper guidance has been tightened to 48000 to 50000 tons from 40.
8000 to 53000 tonnes previously.
Gold production guidance range has been tightened and lowered $2.73 to 76000 up from 75000 to 80000 ounces previously on re sequencing of ore sources for the second half.
Full year cash cost guidance of it all the time.
10 per pound of copper has been reiterated.
Our gold price assumption for the second half of the year has increased to $100 out to 17 on a dollars while our Brazilian reais assumption remains at $5.10 U S dollar.
Full year capital expenditure guidance remains at $65 million that we have now anticipated lower.
Price stripping expenditures to be offset by near mine land positions.
On the exploration front, we continue the excellent progress achieved on the first quarter, we completely completed nearly 18500 meters of drilling in Q2, bringing our first half total to over 29000 meters and on track fleet budget 60.
Catherine meters for the year.
$9 million has been expended in the first half of the $60 million full year on budget.
Slide 12 is on Ariel <unk> with several exploration drilling highlights from assays received back during the second quarter on the slide you can see the surface expression of last year's measured and indicated.
<unk> thousand resource, which includes the proven and probable mineral reserves at a subset.
You also can see the inferred mineral resource in other areas, we have determined to be highly perspective priority for near mine exploration.
We are on the late stage of preparation of our annual mineral resource and reserve statement across our portfolio, which we.
We aim to announce early September as in prior years. The R&R statement is we'll have an effective date of June 32021.
It is important to mention that to prepare the geological models for this year's update <unk> assay cutoff date was in the first quarter with his cutoff and the asset delays, we have experienced in the first half unfortunate.
On a much of the recent drilling success.
Primarily this year will not be incorporated in this year's update that we will be announcing a roughly a month's time.
Our primary focus remains on near mine exploration to better understand and define the mineral resource potential and inform our ongoing expansion study.
Moving to <unk> on.
On slide 13 first quarter production total over 10300 tons of copper 16600 tons of zinc and 1300 tons of lead at a cash cost of $1.65 per pound copper.
Copper production increased nearly 40% over the first quarter in line with plan on improved feed grades and increased mill throughput.
Zinc production increased over 10% quarter over quarter, However was below plan and impacted by a lower than planned returning grade.
Mining was re sequence to lower grade areas to make volume with less from hardware Lombardo ore body to complete really have validation work.
Full year copper production range has been tightened to 30.
<unk> 6000.
38000 tons from 35000, 40000 ton, while zinc production guidance has been lowered to 67000 to 70000 ton from 70070.5000 tons.
Operating costs in aggregate and on per ton milled unit sales were better than plan in the quarter both on a euro.
U S dollar basis.
2021 full year cash cost guidance has been improved modestly to $2.10 per pound of copper from <unk>.
'twenty on our first half performance.
This also considers a revised zinc mine product price assumption of $1.25 per pound for the second half of the year from $1.50 previously.
And on a second half euro to U S dollar exchange rate of 125.
Full year sustaining capital guidance of 65.
<unk> has been reiterated with $20 million, having been capitalized on the first half.
Moving to the zinc expansion project.
With our previous guidance on time construction is essentially complete.
And free.
Preproduction capital of 430 million remains unchanged as of 2021 capital expenditure guidance on $70 million with approximately $30 million remaining to be spent in early 2022, primarily reflecting timing of payments.
Slide 14 shows recent progress on.
The underground aspects of the project.
In the second quarter, we commenced construction on a recalculation system.
Find the shaft shutdown with pre fabrication on previously works now underway, we started some calorie and pumping station final supports and initiated construction on the dumping base.
Over the coming months underground work, it's a focus.
Focus on the completion on the electrical rooms with handover the commission being team completion of the shaft upgrade finishing mechanical installation of the material handling system on the hoisting level and installation of electrical on the crushing level and installation of the service water piping system.
Moving to slide 15 these.
As shown on some of the second quarter progress on surface mine.
On the quarter construction began on the expansion on the paste fill infrastructure remaining cyclone construction on work was initiated and all remaining flotation filtration works were awarded increments.
Over the coming months surface work is to focus on completion ventilation on electrical works.
This picture reputation, finishing commissioning of the third tailings paste thickener, and new cycle loans infrastructure construction and commissioning.
Construction is well pushes positions to be substantially completed by year end and ramped up over the course of 2022.
On slide 16, zinc free 1 continuing to perform very well in a second.
Quarter production total nearly 18200 tons of zinc 650 tonnes of copper and 5100 tons of land on a cash cost of 42 per accounting.
Zinc and lead metal production exceeded plan, primarily on better than Catherine mill feed grades.
Full year zinc production guidance.
<unk> has been tightened with the bottom of the range revised upwards to 73000 to 76000 ton from 71 to 76000 tons previously.
Operating costs on a per ton milled unit basis were modestly above plan both on effect on our U S dollar basis.
However, the second quarter cash costs.
We're better than plan on higher byproduct copper prices on volume.
Full year cash cost guidance of 65 on zinc has been reiterated as has the sustaining capex guidance of $15 million less dollars XP.
Exploration efforts continue with a focus on extension on Dolby in the areas between Brooklyn and negative on ore bodies.
Over 5600 meters of exploration drilling was completed in the second quarter, bringing the first half total to approximately 12000 meters. In 2021, we plan to complete 27000 meters of drilling planned as a part of a 6 million dollar program.
The chart on this slide presents the evolution of the zinc and copper mineral resources.
<unk> and reserves over the last 10 years.
The primary message being that we are confident we will be able to continue to extend the mine life I think you on beyond.
Beyond what is presently defined by the approximate 9 to 10 years on mineral reserves total.
It can be seen begin to contribute to the zinc mineral resource initially in 2019, we aim to have is reflected.
On the mineral reserves and fully expect it to continue the tradition of continuous production since 18.57 beyond the next 10 years.
Lastly on the operational front on slide 17 Eagle had a strong quarter yet again.
<unk> performance was as planned while the mine delivered greater nickel and copper grades on forecast.
As a result second quarter production was.
<unk> 4800 tonnes on nickel and over 5200 tonnes of copper at a cash cost of negative $2 on 1 cents per pound of nickel.
With minimum capital expenditure of 5 million U S dollars Jan Eagle generated over $90 million of cash net quarter.
On the strong first half performance Eagle nickel and.
Personnel reduction guidance have been both narrowed with the midpoint raise to 18000 to 20000 tonnes from 17000 to 20000 tonnes previously 2.
2021 cash cost guidance has been improved for a second time this year to a negative $1 per pound on nickel from negative 25 previously.
As a result of.
The exceptional first half and revision of our byproduct copper price forecast, we're now forecasting $4.30 per pound of copper for the remaining of the year from $3.75 previously.
With the remaining life of mine production profile current metal prices levels and low annual Capex Eagle is well positioned to generate significant.
Copper free cash flow in the coming quarters and years.
On what is presently in the mine plan, we are now undertaking technical and economic studies to evaluate the potential on mining mineralization and what is referred to as the Q zone. This zone of disseminated mineralization that is lower than that of Eagle and Eagle east ore body. However.
Given the proximity to the existing ramp infrastructure has the potential to be economically mine at current spot nickel and copper prices. This area will not be included in the upcoming 2021 mineral reserve and resource estimate that will provide significant opportunity to extend the mine life at current nickel and copper prices prevail with that upturn.
Ill turn back the call to Mary to summer.
It's Peter.
On slide 18, we have a summary of our current guidance as discussed on the operational sections annual production guidance ranges have been tightened from the operation Kendall area guidance was updated in late June <unk>.
<unk>, an average carbon zinc production side.
Modest reductions based largely on forecast and they'll see grades while other metals were tightened within their previous ranges.
Yeah.
Full year cash cost guidance for Eagle and average car will have been improved given year to date performance and forecast for continued favorable byproduct metal prices candle area cash cost guidance has been reintroduced.
After the previously disclosed near term mine sequence changes in phase 10 of the open pit for the second half of the year.
Cash cost guidance for <unk> and <unk> driven is unchanged.
Full year exploration expenditure guidance remains at $40 million, we are well positioned to achieve the targeted 140000 meters of planned exploration drilling this year.
Lastly on slide 19, the investments we have made over the past several years and are completing now at an average corvo have positioned money mining well to benefit from the current commodity price environment with multiple years of strong production, leading cash cost and free cash flow generation.
Our operations performed well on the second quarter.
Certainly as our South American mines continue to address evolving challenges of COVID-19.
We were able to take advantage of the current price environment and generate a quarterly record of nearly $300 million of free cash flow for our shareholders. We generated nearly $355 million of free cash flow in the first 6 months of this year.
We.
Particular adopted a dividend framework to guide direct returns to shareholders, while enabling the company to maintain its best in class balance sheet and strong financial position for future growth.
Our total dividend is supported by this framework aimed at returning a minimum target of 40% of available cash flow through the combination of a regular base dividend, which.
As sustainable throughout the cycle and can be progressively increased as our asset base and proven growth and our new variable performance dividend.
We will continue with our objective to create value by investing in low risk high return opportunities in our own assets as we remain disciplined in our approach to unlocking accretive external.
<unk> opportunities.
And with that operator, I would like to open the lines for questions.
Okay.
Thank you speakers participants we will now begin the question and answer session to ask a question over the phone. Please press the star key followed by the number 1.
To withdraw your request you May press the pound key.
Again, Thats star 1 to ask a question or the pound key to withdraw your request.
First question is from the lineup.
<unk> <unk> of Scotiabank. Your line is now open.
Hi, good morning.
Given the magnitude of the guidance cut.
Candle area in 'twenty 2 'twenty 3 can you. Please provide more color on what's driving this just really confused because volume.
My understanding was that you were mining slower through the pulse zone in each to 'twenty, 1 which would have pushed some of that into first half of 'twenty, 2 but I really don't understand the magnitude of the cuts, especially for 'twenty 3.
Any color here I think we'd be very appreciate it.
Or S. Good morning, Yeah, I think I think we were pretty clear in our release about what's driving it and you know the.
On the 28 million tons per annum versus the 30 million tonnes per annum, there's an impact to that and really it's you know 6 months now that we've been running the the Cmos that flow rates.
And we are still having a lot of public from Mr. Dan <unk>.
Not achieving this whole throughput is not where we felt that we would achieve.
And building that into our plan. So we need to do some work to address that on additional crushing and grinding.
In addition, we are seeing some redo.
<unk> engine in the short term plan and so we're accounting for that so those are the 2 things really that are driving it.
Peter I don't know net band on that a little more.
No. It's correct is in February.
The lower efficiency on the team are projects that we expected 4000 tons of extra per day.
For 6 months, we're not seeing that.
On the.
The reason I believe.
Got back from 30 million tons annually to 28 million tons annually, we have on.
A number of investigations ongoing to recover from some of that so we will be making decisions later on this year to be able.
Hello.
Dmitry to your book.
Net.
Meanwhile, as we planned and then also there.
Congrats on Cid between the short term model.
What we're seeing on the mill and that's something that we're.
Constantly working on it I'm not on initiatives to improve.
That we don't share that.
So are these issues limit it to 2022 or 23 or should we would be also taking a hatchet to what's in the mine plan for for 'twenty 4 'twenty 5 and the technical report calls for production of copper production in the order of over 190000 tonnes in those years.
It sounds like what I'm hearing is that these are more structural issue.
Issues that are going to impact <unk>.
A mine not just 'twenty 2 'twenty 3 is that is that correct in my thinking.
I think we're being a bit dramatic where I'm seeing that you're taking on that.
Yes.
Still a good plan and we are working on are on.
Opportunities to increase that you play in.
Theres also.
On some opportunities right now we could improve on the underground degree.
Permian constraints, we actually did newborn stem from the underground. So there are a number of things that we're looking at you know in November we will give a 3 year guidance and.
Give some from future trading them so.
So incorporating.
Those plans in the future years, but.
Yeah, I think zone.
Saying youre going to take a hazard to the plan at this point is a little overdramatic.
Okay. Thank you.
Next question is from the line of Jackie Crucible Lasky.
And low capital markets. Your line is now open.
On the new dividend policy, it's great to see.
You guys are adding our returns to shareholders. There can you maybe talk a little bit about why.
You chose to.
To use a dividend a special dividend framework.
And so what you're thinking on that versus.
The buyback that you already have in place is and I guess as a follow up question how.
How should we think about that buyback is should we sort of assume I guess at this point that.
Your your.
Of blending 2 main things of that nature.
Great.
We are focusing on the dividend is as the main source on the returns to shareholders on a time and we do see that with our production we have.
Really good production good cash costs, and we'll be generating very good.
Not cash flows and so with this policy and.
What it allows us to do is to still.
Retain some cash from growth opportunities, but depending on how we see those playing out to be able to distribute a significant amount of free cash flows you know we set a minute on them a 40.
40%, but.
We will look at that in the future and see whether we're building cash and whether it should be about.
Above that number.
But it will be a minimum of 40% so on the buyback and we will probably continue to do that book not with Us August probably.
Nowhere, we see opportunistic opportunities to use it but it won't be a focus for us. It still is in place and but I think most people would argue would recognize that unless we're going to put hundreds of millions into substantial buyback program, it's really not going to move the needle. So right now were focusing.
On the dividends us low return mechanism.
Thanks, very much I'll leave it there for now thank you.
Next question is from the line of you on this must be list of Morgan Stanley. Your line is now open.
Okay.
Good morning, and thanks for the presentation.
A couple of questions from me again on from Candelaria, and I'll take them 1 at a time if that's okay.
So regarding the outer years beyond 2023 is it fair to say that you will need to make good progress.
Chris from those initiatives are on traditional crushing and grinding.
Possibly as well as great control initiatives to make sure you get close to that.
The projected production numbers that were included in the technical report is that a fair assessment of the situation on any sorts of case could you give us a sense of what.
Sort of associated Capex may be required here for those additional investments are we talking.
The low double digit million dollar numbers or could it be something materially higher than that thank you.
Yes.
From now on your first point, Yes, I think it's fair.
Work that we will need to do some additional work on the on the crushing and grinding in order to see the sell through growth that we would need to do.
On the previous guidance and we are studying those we have been studying those for a little while now and it's about crushing and grinding that we've been looking at other alternatives and.
And so depending on which 1 of those has chosen the capex can be quite different type of course to your question would be much cheaper than the grinding alternatives, but.
I think your order of magnitude on on the crushing is.
The fairly reasonable Peter.
Yes.
To clarify on.
So when we say crushing and grinding pebbles so.
We're producing.
Pebbles on we need to cross before returning them into the other day.
Grinding circuit. So we've been looking on a different options as Maria vein and how to improve both the capacity, but also the real liability.
Oh those systems, so it depending on on a 1.
What alternative we choose no.
Talking mid.
Single digits.
A little bit higher depending on on chosen.
Opportunity.
And these we see some of these initiatives we can.
In our permitting.
Within all from it.
Yeah.
Understood. That's helpful. Thank you and then a second question on kind of malaria.
When you lowered your production for 2021 zone.
You too.
Do we often copa and goals.
But you didn't do so on the preliminary assessment for 10% to 10.23 share.
So how should we think about the gold production.
For the net for those 2 years.
That's because we haven't finished modeling out the goals that we're in the preliminary stages.
Caught behind plan and we have been seems on.
Good improvements in recovery on gold so.
It may not be.
Of the order of magnitude, but we're still looking at that we're still looking at the world.
Okay, Okay understood and then last question.
Of our money on.
The new dividend policy.
Good to see that play out there I should give us a bit more visibility on what to expect from lundin, but.
Could you also comment on whether that changes your mindset at all around M&A is now the bar potentially high on a potential deals on it or are you.
From being out shareholder returns on M&A. The way you looked at the Boston, we shouldn't really assume any changes to your M&A strategy. Thank you.
Yes.
On the dividend doesn't change our views on M&A will still continue to look for opportunities still focusing on copper there.
Look a lot of opportunities out there and you know with the characteristics that we would typically look for in the quality that we would typically look for so we're not seeing a lot right now.
And something that we'll have to discuss with our board is whether we turn our attention to things that may be a little bit longer dated.
Weighted in order to get some growth in the pipeline.
Because typically we haven't entered into those type of situations, but really with the lack of available growth opportunities. If we want to continue to grow we need to do that.
Understood. Thank you.
Next question is from the line of Greg Barnes of TD Securities. Your line is now open.
Yeah. Thank you Peter I think I understand the question issues on the pedal generation I get that I don't really understand the copper grade dilution, which is pretty significant and I would've thought that would've been included in your block models already I Wonder where.
Cool.
Yeah sure Greg Peter do you want on yeah. So.
The correlation between the block model on a long term on.
Sorry to our short term mine mine model it pretty good where we're seeing the discrepancies between the short term.
Share that short term mine model and what we're seeing on the mill. So that's where we're seeing the discrepancy.
And we are on a lot of initiatives ongoing to try to resolve it understanding on resolve it so we've been doing on.
Number of.
Sampling campaigns, the checkout on our staffing systems both.
And the mine both the open pit underground and in the mills.
Using.
Tracers, and especially on the underground mine the Tac potential dilution doing visual checks on the open pit floor.
Dilution risk in context on loans and just working hard on the mill to make sure of samples are often.
And running the assays.
As a system as well and we continue to do balances twice a month now to really keep track on the discrepancy until we can catch it early so.
Theres a lot of so that that's the issue at the moment is that.
This mine.
And our model on what were seeing on the milk is not adding up.
It's surprising that just suddenly appeared out of nowhere there must be something thats changed.
To drive value kind of.
Dilution.
Not sure where that's coming from the on the ground will be up a bit.
No.
Investigating where it where it's coming from we're seeing dilution previously.
And then it's gone it's gone up and it has gotten a little bit of down again.
Now we're focused on minimizing this at the moment right, because it's a little bit higher than.
Short term normal for us.
Okay do you think that from a short term issue.
Sure.
On a long term issue.
We would hope solid it is and that's how we're doing we're investigating identifying and then we're going to be putting measures in place to make sure that it's minimized.
Oh boy.
And just on moving to pad expansion studies that you mentioned in the presentation that you weren't able to get all of the information you would have liked to get into the upcoming M zone.
It's also a day.
Will you be able to get more of that information available for the upcoming.
Marcelo.
Technical study a concept study about what Youre planning to do in Chicago.
In terms of a potential expansion.
Or has that been delayed by these.
Please.
Expansion study is not delayed we're pushing forward with that what we wanted to highlight is that we are because.
We're behind on the assays by a significant amount here.
Not going to be incorporated into the R&R update which.
We expect once we get those assays into be able to have a.
Quite.
No.
Substantial increase in our R&R based on all.
On the drilling that we're doing in the good success that we're having but unfortunately, we don't have the the results to be able to include it in the R&R update but we are now incorporating into the study.
Some of the concepts about where the future ore bodies and what grade profiles there might be so it doesn't affect the timing of the study at all.
Is there anything no somebody who sat on their ongoing in parallel right.
Summary, the study that we are gonna get per room.
On to be on every next year what level is it going to be it's just going to be concept pre fees.
How are you positioning it.
Well, we're hoping to have that hoping by the end of the year.
Okay.
So what level of.
Detail will that be at my level of accuracy.
It's got more of a concept level on pre feasible.
Yeah, it's more scoping.
Sure.
If.
So moving between the conceptual increases.
Uh huh.
Okay.
Thank you.
Okay.
Next question is from the line of Daniel major of UBS.
Your line is now open.
Hi, there.
On a.
Couple of questions first 1.
Operationally at Chipotle.
Coverage, both copper and gold have been comparatively low in the first half of the a M. A C reiterated.
The guidance, but can you give us a steer on the.
Driver of that low recovery rate relative to 2020 on what you're seeing or expecting in second half 'twenty 1 on into 2022.
Hum.
It's really related to.
Mining and.
On the grades as well.
Peter I don't know if we had out there.
Patient.
I expect that in different areas.
So the second half of the year wasn't great.
Both grade and recovery.
On any additional.
And recovery, where we mine it and how much stock we put.
So when we had thought the grade or sorry, the recoveries go down so it's a combination of grade and where its mine, we havent really good lithology model when it comes to the recovery. So we.
And thats based on the different pits on stocks.
On this.
That's where that sits.
Yes, it's a great and allocation I think it typically gets during the rainy season, because their R&D that we have to stop mining because.
No safety issues in the pit when it gets really wet and total you supplement from stocks quite a bit more on the wet months than we would on the drawing months.
Okay. So recovery.
We should be getting back to levels more comparable to 2022nd half of this year and into next year on the eighties for Copa.
Yes, that's correct.
Okay. Thanks.
On.
And you're on nice my other questions have been answered, but have you got any update any comments.
Your expectations around timelines for the Chilean mine.
On a tax debate on how your engagement has been so far have you been.
Been presenting to the Senate for example.
In terms of the the implications of the.
The proposed changes.
And yes, so we have been having seen following very closely and we were invited to present along with a number of other companies so and that should be relatively soon and we know that also.
On Canadian Ambassador was invited to present wood Mackenzie is present.
So we think once it got up to standard.
There was.
Level of sanity that day.
Moving into the proceedings.
Looking at the implications on.
The policy.
How that would affect the industry and foreign investment. So we think it's been positive.
Presenting on.
Positive over the last couple of months.
The positive momentum. We also saw of course with the presidential primaries that the candidates have really moved from the extremes on either right or left and Theyre more center. So we see that as a positive for the country on the.
Markets react.
It very well in Chile as well. So we are following closely and we do expect it to start continue for probably a couple of months, we wouldn't be surprised to see any real action on that in the near term.
Okay. So just to push on that second point do you think it's more.
Later, we will see a resolution from the Senate following the election or do you think we might see some update for clarity before the election.
Uh huh.
I if I was if I was a betting person I probably put it after the election, but I couldn't rule out the fact that they will do something in the fall.
It is from from.
From Canada, sometimes hard data on your finger on the pulse, but we do have good contact free keep us informed on a regular basis and I think it's something that will go on for some time and of course.
On the revenues could outgrow in the taxation revenue that's coming into the country now also.
We will be.
A big plus for the industry and showing the contribution in the existing sliding scale royalty so.
I guess stay tuned.
And.
It definitely won't be anything like that which was originally introduced.
Got it.
Thanks, a lot.
Next question is from wider Abbey Aker wall of Deutsche Bank. Your line is now open.
Thank you good morning, Thanks, a lot for that thanks, a lot from the call.
So I just have a quick clarification on Canada.
So just trying to understand the mechanics behind the behind the production cuts so far.
It's done correctly, the lower throughput is an issue with the Cmos.
There is an issue with the milk and the grid dilution is that a function of faith that but is that something different with you on what you are observing right now.
Yeah sure so correct on the mill, it's really the.
When you when you make improvements you remove the bottleneck might you often find that you create a new 1 on morale and we are seeing.
Seeing that we need more upfront.
Crushing and grinding for those panels, so you're correct on that 1 on there.
On the Green dilution.
Does vary from time to time here.
And on that.
GAAP.
You ask if its face and that's what we're trying to pinpoint where we're coming from we're doing all day.
Ladies and sampling is that from the underground and from Paypal or therefore from Fox.
Too early to say.
Where we're coming from.
If the discrepancy between what we're delivering what we are modeling in the mine on what being assayed in the mill.
Okay got it. So this is okay cool so it's not possible to separate separate fitbit baseband issue because you know this.
But the reason why on Earth.
So my question was because I don't like giving you moved to phase 11 on you know how how should can you be you know that these issues are not replicated with phase 11, but I guess, it's a slightly difficult to answer that question am I correct in thinking that.
Yes, correct.
But 1 last question.
From my side. Please is it possible I appreciate it's early days, but it is it possible for you to separate on what exactly is fixable with better operating practices on what you think is actually structural.
Are you on you are referring to team up to the pebbles.
Yes.
Basically at Camden idea, the the greater lesion plus B plus day Meso, what do you think as you know is that takes a little bit better at operating practices on what you think is potentially a structural issue here.
So on the.
On the crushing and the pebble crushing it.
And grinding.
It's both so we're looking at on modifications.
2 the granting authority that the crushing pebble crushing circuit and also to perpetuate to the grinding circuit, but then there's also some operational.
Upgrades that we need new practices to make sure that we.
We utilize.
Okay.
As much as possible. So we minimize the downtime so it's a combination of low.
Moving on.
On the dilution per.
Yes.
From there.
There is nothing structural in the block.
<unk> model.
As a matter of controlling.
With the dilution that comes into the mill.
Yes.
Very good thank you very much.
Yeah.
Yeah.
The next question is from the line of Lawson Winder of Bank of America. Your line is now open.
Yeah.
Hello, Good morning.
You've recently expressed.
5 year copper equivalent production target of 600000.
Tons and I'm curious.
Curious, what's the developments recently, a candle area does this impact your confidence in that are holding that target out there at all.
No. We will continue to try to achieve that target and I think it's a reasonable target for us to start with <unk>.
Additional.
Activity and we'll continue to try to achieve that.
Now.
In terms of the upgrade that Chile in the past you've said that.
So you weren't interested in investing in Chile.
And as the.
Draft constitutional rewrite process was unfolding.
Now given kind of the more urgent nature of probably trying to address some of these issues that have emerged.
Thinking around that changed are you know willing to make.
Some investments in Chile before that becomes clear.
Chile, we have instituted a policy that we would make investments depending on the pay back period. So if we saw something that had.
Minimal payback period, you would be willing to do that but until there is clarity on the fiscal regime something that would have a long payback period.
We need more clarity.
Alrighty on when that will be before we dive in.
Gotcha, Okay, that's great.
Now you've.
Highlighted some.
Some issues here at Kendall area that.
To me might impact the day.
The current reserve and resource estimate.
And I'm just curious when you have enough information, particularly on the.
Course, and and even the great control associated with this too apply any updates to the reserve in reserve resource update on September 30th and if not you know should we possibly watching for a candle area Standalone reserving resource update with a 3 year guide and from November December.
<unk>. She is on a factor resource to marry her the there's there's no issues with the reason why from the reserve. It is in the amount of testing and and.
<unk>.
Okay, great. Thanks for that and then you also Peter you mentioned that.
There might be some aspects of your of the proposed optimization that might not be within the permits. You said you you said some of them were within each of thing permits which ones would not not be within the existing permits.
Well if for example, if we were to install a brand new larger pressure that you know describing the technical aspects on the permit.
No modifications to the existing circus.
Does allow but if we were to bill.
Say, a new crushing plant.
If there's something that would be on time.
Understood.
Yeah, and we we do have some additional permitting that.
In process right now with Saturday I, a 2040 that does anticipate that we need to do the underground so that would relieve some of the constraints on day underground but.
Probably another year and that I was gonna have somebody I, it's been very slowed from carpet.
K so crushing yeah <unk> is there any throughput work that you can do under the existing permit.
For example, like.
Yeah.
Yeah. So so weird anything that we can do with the existing infrastructure that we have so optimizing.
Crushing circuit that we have a couple of questions that we have are optimizing the pebble grinding circuit that we have that has allowed with enough from it but construction constructing new.
Facility needs to be a permanent.
Okay, Oh, that's great that's very clear and then.
There was.
Some news in the last week or so just on the get the environmental authority and.
Some issues related to candle area can you confirm that.
There is something going on there and just maybe elaborate on what that might be.
Yes. So we have received notice from the SMA that they're looking at 6 charges violation of our per minute.
All 3 of those day would consider a theory uhm 3 are generally more administrative in nature. So we're assessing nose and determining whether or not on the will just need them or whether it's E D or to go forward to uhm, a green per cent of compliance plan.
See it as something that would affect the operation or the material too.
The operation.
Okay. Thank you guys for somebody.
Right on that.
Yeah similar similar net current process that we were working through since 2013 cents a pretty low.
Long process, if you do decide to dispute the the charge. So we're working on the 20th 13.
Recently had uhm ruins in court that were in our favor on those and there's some similar ones on this 1 so we'll have to discuss how we proceed with those but we don't see it on something that's material to the operation.
And of course, thank you we have a lot of stuff to make sure that we are in compliance with our income at sea.
We understand it's very important to have to protest.
To ensure compliance and we continue to have a good track record on compliance with all environmental permits at all operations.
Thank you.
Okay.
On an operator, maybe if we can.
If there's 1 more.
At this time there are no additional questions on queue.
Okay, great. Thank you and thank you everyone for your attention and well.
Provide our our next update with our teacher your results.
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And that concludes today's conference. Thank you all for joining you may now disconnect.
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