Q3 2021 Lundin Mining Corp Earnings Call
Yeah.
Good day, and thank you for standing by welcome to the Lundin mining third quarter 'twenty 'twenty. One results conference 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 the session you will need to press star one on your telephone please.
Be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Ms Marie Inkster, President and CEO.
Yeah.
Thank you operator, and thank you everyone for joining lundin Mining's third quarter 2021 results call.
I'd like to draw your attention to the cautionary statements on slide two as we will be making several forward looking comments throughout the course of this presentation and in the Q&A.
On the call to assist with the presentation I'm sure to answer your questions excellent. He Mcgee, our senior Vice President and Chief Financial Officer, Peter Richardson, Our senior Vice President and Chief operating officer, and last but not least Peter rocking dialed presently our senior Vice President of corporate development, and Investor Relations and the incoming CEO of Lundin mining.
In early September the company announced that I'll be stepping down as president and CEO.
Was a difficult decision for me, but one that I could take with the confidence that the company will continue to do well and knowing that I am leaving the company in a strong and healthy stage with considerable breadth and depth that the many talented people and teams across our organization, we have a fantastic asset and our culture. So much the company will continue to grow and be successful.
I'm excited that the board has selected Peter I'll conduct to succeed me as President and CEO. Many of you know Peter well not only from this time as when the mining but also through his prior leadership positions in the metals and mining capital market experience and reputation in our industry and within the company make him an IV.
<unk> spent to lead lundin mining.
Thank you Marie I'm extremely excited for the opportunity to lead our team and continue building on our success.
I've been working closely with Murray and his senior leadership team for the past three years and the recent transition has gone very smoothly and the <unk>.
Last few weeks I've had the opportunity to spend valuable time with Jakarta, <unk> Corvo zinc irvin with respective site Mds Senior management employees and a member of the unions.
This month I believe you're spending time, a candle area and the Eagle.
I've also been working with my colleagues in the recruitment of key personnel to complement our existing technical team. We look forward to providing more details on that in the new year.
During the next quarter I look forward to connecting with many of our shareholders hopefully in person where possible.
With that I will hand, the call over to Jamie to talk to the quarters results.
Thank you Peter.
On slide four third quarter production of copper zinc and gold in concentrate all improved over last quarter. This performance is more impressive in the context of planned downtime for major maintenance activities at a candle area and never Chicago operations.
We produced over 115000 tonnes of base metals, and approximately 60 46000 ounces of gold in the quarter.
We also sold 100000 tonnes of base metals, and approximately 42000 ounces of gold on a campbell basis generating revenue of over $755 million.
We remain predominantly leveraged to copper with the metal generating nearly 70% of the quarter's revenue.
Nickel ankles, each contributed 8% to 9%.
Slide five presents a summary of the third quarter results compared to the same period last year, we benefited from significantly higher base metal prices this quarter compared to the third quarter of last year.
We realized a copper price of $4.02 per pound below the average market price in the quarter, mainly reflecting a nice and per pound of prior period adjustments.
Period adjustments for zinc nickel ankles, or less impactful with lower volatility and relatively small quarter over quarter changes in price details of the price adjustments are in our MD&A.
Third quarter revenue of over $750 million increased more than 25% below the same quarter last year and the first three quarters of this year consolidated revenue has reached over $2 $3 billion.
It's triple net earnings from operations were 24 cents per share and adjusted earnings were <unk> 23 per share for the quarter, both are substantially greater than the third quarter of last year and the first three quarters of this year, we have generated nearly $540 million of adjusted earnings details of the adjustments are broken down there a M D N a as well.
We generated adjusted EBITDA of over $410 million in the quarter and through the end of September had generated adjusted EBITDA in excess of $1 2 billion for the year.
Cash flow from operations was over $520 million for the quarter. This was positively impacted by working capital changes driven largely by trade receivables that candle area, where sales that occurred in the second half of Q2 were collected in the third quarter.
Adjusted adjusted operating cash flow before changes in noncash working capital items with nearly $300 million or <unk> 40 per share.
In the third quarter, we generated a record free cash flow of over $400 million.
Bringing the total generated in the first three quarters to over $760 million.
Under the company's dividend framework, the regular quarterly dividend of nine cents Canadian per share and an inaugural semi annual performance dividend of nine cents Canadian per share. It was declared and paid during the third quarter.
Again yesterday, our board of directors declared a regular dividend of nine cents Canadian per share in total dividends annualized with 54 cents Canadian per share for a total yield of approximately 5%.
The company remains in a very strong financial position cash and equivalents approached $430 million at quarter end, even after more than $110 million of dividend and stock repurchases and repayment of $100 million of debt.
The company's financial position has improved further since we ended the quarter net cash is now approximately $405 million with cash and cash equivalents of $445 million I will now turn the call to Peter to discuss our operations.
Thank you John starting with candle area on slide six the operations performed in line with expectations.
Nearly 36000 tons of copper and approximately 20000 ounces of gold at a cash cost of $1 62 per pound copper, we successfully completed two plant major maintenance down which impacted overall throughput for the quarter, so tons milled ore grades and recovery rates achieved were in line with plan.
Similarly cash costs were also what plan compared to the second quarter. They were impacted by planned maintenance slightly higher than forecasted magnetite gold and silver byproduct credits fully offset modestly greater than plan operating costs.
We have reiterated candidate has production guidance of 150 to 155000 tonnes of copper and 85 to 90000 talent.
<unk> thousand ounces of gold at a cash cost of $1 55 per pound of copper.
Given the production of the first three quarters. This implies a strong finish to the year.
We forecast the average copper feed grades to increase meaningfully this quarter and we have been realizing this thus far.
With only one planned maintenance down mid this quarter, we expect to achieve greater throughput quarter over quarter as well.
Key driver to production this quarter is achieving the necessary mining rates of the high grade ore from phase 10 of the open pit to maintain the overall peak rate near the current levels.
Full year capital expenditure guidance has been reduced by 20 million to $345 million, mainly on deferral into 2022 items, such as some underground development and underground mine technology as well as work on the truck shop.
This leaves roughly a $120 million for the fourth quarter.
Moving to slide seven I'll give an update on where we are with initiatives to improve plant throughput and on the next slide the mine to mill grade discrepancy.
We continue to prepare that optimized life of mine plan for all operations as part of our annual planning process.
When our board of directors approves the final plans in late November as per our normal course, we will provide a three year production outlook and one year's cone cash costs and capital expenditure guidance for all markets.
Crushed pebbles are currently being re circulated to the Sag mills, thereby reducing the amount of fresh ore that can be fed to the plant.
The aim of the Debottlenecking is to reduce or eliminate the return of crushed pebbles to the Sag mills.
Basic engineering is underway on several initiatives. These include modifying the pebble hopper and the loading system to better distribute type.
All of the prostate three crushers to utilize all three of the efficiency and output.
As possible.
And engineering of a partial bypass of the pebble ball mill, such that excess find pebble can be sent directly to the secondary grinding circuits.
Although the plant instead of being returned to the Sag Mills.
Saudi and investigative work is also underway evaluating the conversion of the existing pebble ball mill two of Rodman.
Also be concurrent with our late November annual guidance and outlook release, those studies completed to date emphasize procurement in construction in 2022 would tie us in 2023.
Also to be confirmed total capital costs are expected to be in the order of $10 million to $15 million.
Moving to slide eight on the mine to mill grade discrepancy investigation, we saw an improvement in the third quarter as discussed last quarter preliminary plans being developed Cavalerria consider a mine cofactor, a five 8% for the next few years.
The slides presented a number of the accident that we took in the quarter well within the mine and the mill. Some of these have been completed while others are ongoing.
So on the list of actions and next steps you can see that we're taking a methodical approach to identity to identify and eliminate sources of dilution and discrepancy across the mine to mill process.
One of the more exciting next steps and a good example of the use of technology is the next lower Mcknight deck. That's the Lance analyze at our Panama a trial project. This project is designed to allow a direct grade estimation by each ore source and even by individual truck loading arriving at the primary crusher and will allow for easier and early.
The identification of possible or dilution by force to then develop action plans to address the root causes of the identified force.
Secondary benefit of this.
Knowledge the demonstrator for the ore sorting project with which is identified in the EIA that is currently in a review process with the authorities the.
The project is.
Presently a one year trial equipment construction onsite is underway with the installation of anti and anticipated for early next year.
Moving to Ciabatta on slide nine ships.
<unk> had an excellent quarter copper production exceeded 16000 ton, which is a 43% increase over last quarter. Similarly gold production increased 48% quarter over quarter to approximately 26.
This was achieved primarily on greater than planned throughput and metal recoveries.
A new mill throughput record was set for the second quarter in a row with processing over $6 4 million tonnes and a new monthly mill record, but also certainly in August with over $2 3 million tonnes processed.
<unk> rates of both copper and gold improved significant over the third quarter and were modestly above slab production guidance has been reiterated for both metals considered within guidance is planned mill maintenance during the fourth quarter copper and gold grades and recoveries are expected to remain strong.
Third quarter production cost per ton milled basis were in line with plan, while the cash costs of 62 cents per pound copper was better than expected, mainly owing to stronger production.
We have been experiencing general inflation across the operation cost structure, particularly in areas that would be expected such as fuel ocean freight explosives and other consumables, such as steel, which have which we have been managing well.
All considered our full year cash cost guidance of $1 10 per pound of copper has been reiterated.
Full year capital expenditure guidance has been lowered by 10 million to $55 million, primarily on deferral of some project and some land acquisitions. This leaves roughly $50 million for the fourth quarter.
On the exploration process, we continue to make excellent drilling progress we completed over 20100 meters of drilling in the quarter on near mine targets and in the Permian area.
Having completed over 49000 meters in the first three quarters and with a seventh rig added in late September we are on track to complete 65000 meters for the year expanded from the originally planned 60000.
That's about our primary focus remains on near mine exploration to better understand and define the mineral resource potential and inform our ongoing expansion study.
Eagle on slide 10 had a good quarter.
The photo on this slide is of the team members accept things as Sentinels of Safety Award for both 2019 and 2020 for the smart undergone metal.
This is the second year in a row that Eagle has been recognized for safety performance by the U S National Mining Association and the mine safety and Health administration.
Mill throughput was impact when compared to prior quarters, given mine sequencing that at times limited ore production rates.
Compared to recent prior quarters production of both nickel and copper are reflected.
Nickel and copper grades as expected.
As a result third quarter production of nickel and copper both exceeded 4100 tons at a cash cost of negative 80 cents per pound of nickel.
With minimal capital expenditure of less than $5 million Eagle generated nearly $70 million of cash in the quarter.
First three quarters total cash generation is over $230 million for nearly two and a $45 million of operating cash flow.
Production cash costs and capital expenditure guidance have all been reiterated.
Continuing technical and economic studies evaluating the potential of mining mineralization in what is referred to as the Kyoto.
This don't of disseminated mineralization is lower then that'll vehicle and Eagle east ore bodies are rather given the proximity to the existing ramp infrastructure has the potential to be economically mined the current spot nickel and copper prices.
In addition to the study work we are doing infill drilling along the contact to further delineate there's no five extension targets, mainly off Eagle East have also been identified for drilling from underground likely as part of our 2022 program.
Moving to nervous Corvo on slide 11.
Third quarter production totaled nearly 8100 tons of copper 16000 tons of zinc and 1400 tons of lead at a cash cost of $2.05 per pound of copper.
As previously indicated we had planned downtime for mid August early September for the annual maintenance in the copper and zinc plant and during which we completed upgrades the shaft as part of the zinc expansion project.
This work was completed slightly ahead of schedule and production work is planned for the quarter.
We have reiterated production guidance without interruptions throughput levels are expected to improve quarter over quarter and metal grades and recoveries to remain strong in the fourth quarter.
Operating costs and euro on a per ton milled unit basis were modestly above plan, although were better than plan on a U S dollar basis due to favorable foreign exchange rate.
Cash cost of $2.05 per pound copper was better than plan is higher than forecast zinc byproduct credits offset modestly higher than expected operating costs per pound basis.
Full year sustaining capital guidance has been lowered by 5 million to 60 million primarily on timing of payments. This leaves roughly $30 million for the fourth quarter.
Shifting gears to the zinc expansion project consistent with previous expectations constructions will be substantially complete by the end of the year with a wrap up to a poor over 2022.
Preproduction capital of 430 million remains unchanged as does our 2020, one capital expenditure guidance of $70 million with approximately 30 million remaining to be spent in early 2022.
Slide 12 shows the latest progress on the underground.
During the quarter as mentioned, we successfully completed the shaft upgrades and the catalyst the installation of the materials handling system is now complete including conveyor belt Brooks and we have commenced all remaining excavation works over.
Over the next months.
Underground work is focusing on completing the service water piping you can see a section already compete on the boardwalk and the picture on the conveyor tunnel on the left complete final commissioning of all the electrical rooms, and then commission and handover of the material handling system to the operations team.
The photos on slide 13 shows some of the progress on the surface from the third quarter during the quarter construction and cold commissioning of the new Cyclone station was completed all remaining works on flotation filtration and tailings with started in third quarter third tailings paste thickener was successfully commissioned over.
Over the coming months remaining surface work is to include odd commissioning of the cyclones and hand over to the operations team and Finalization of the all the remaining flotation filtration and tailing works.
Project is well positioned to be substantially complete by the end of the year ramped up over the course of 2022.
On slide 14, <unk>, continuing to perform very well production and increase the cash cost to improve further over the second quarter, primarily on better than forecasted mill feed grades.
<unk> totaled 22900 tonnes of zinc 850 tonnes of copper and 7000 tons of lead at a cash cost of 32 cents per pound zinc.
Operating cost on a per ton milled unit basis were modestly above however, the cash cost was better than planned on a higher byproduct credits.
We have reiterated production and cash cost guidance. It does imply a quarter over quarter reduction in zinc production, we expect the mine and mill to continue to perform well as they have all of this year and are considering an extended campaign a processing stockpiled copper ore this quarter.
Full year sustaining capital guidance has been lowered by 5 million to $45 million primarily.
Ground development savings this leaves roughly $15 million for the fourth quarter.
Exploration continues.
With the focus at the moment on the areas between Brooklyn, and the new dual and robots.
Nearly 5000 meters of exploration drilling was completed in the third quarter, bringing the first three quarters to a total of 16900 millimeters with that I'll turn the call back to Marie to sum up.
Thank you Peter.
Slide 15 provides a summary of current guidance.
As discussed in previous section production and cash costs for all sides are on track to meet annual guidance and so no changes have been made.
We have revised sustaining capital expenditure guidance for all of the operations with the exception of Eagle and aggregate 2021 total capital guidance.
Used by 40 million to $575 million.
The reduction is primarily owed to deferrals and timing of payments for a lot of moving them from this year there should be considered in 2022 forecast.
Your exploration expenditure guidance remains at $40 million, we are well positioned to achieve our target of over 140000 shares of planned exploration drilling here.
And with that I'll hand, it over to Peter rock in Dallas for a few words on our capital returns and his view looking forward for the business.
Thanks, Murray our operations performed well in the third quarter, most notably with quarter over quarter production increases and cash cost improvements, which are patterns zinc rubin with the shaft upgrades and major maintenance complete at both nerves Corvo candle area operations are positioned for the fourth quarter to be the strongest of the year, where we were able to continue to take advantage of the current.
Price environment and set another quarterly record generating over 400 million of free cash flow for our shareholders. We have generated over 760 million of free cash flow in the first nine months of this year.
This free cash flow would have directly returned over 175 million through our dividend framework not including the regular dividend declared yesterday. This positions us very favorably amongst our peers at the same time, we are indirectly returned 36 million through the repurchase of our shares in the open market.
As I assume the executive leadership, creating value by investing in our own assets and remaining disciplined in our approach to pursuing external opportunities will remain core to our strategy.
And with that operator, I would like to open the lines for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.
Your first question comes from the line of Greg Barnes with TD Securities.
Yeah. Thank you a couple of questions first on the pebble crushing Debottlenecking program that cancel area.
Is that going to be enough to get the plant up to the plant capacity that you happen to see them up I believe it's a 5% increase in throughput.
Although you have to do other make up the steps.
Sure. Thanks, Thanks, Peter Richardson.
Yeah, I can address that so.
Sad were primarily focusing on debottlenecking the pebble crushing.
Circuit, which consists of a pebble crusher and a a ball mill. So we have on a number of actions planned to debottleneck that we're in the midst of.
Doing some investigations and also basic engineering.
And we hope to finalize that early next year, and then procure and build during next year to tie in the improvement.
Our late 2022 early 2023, and we have our internal targets for what we what we believe this is gonna be and we're gonna be closing the gap versus the old original Seamark project.
Oh, yeah okay.
Okay.
Yeah Yeah.
Okay.
This is a question for Peter Rocambole directly I've had a number of clients suggest to me that you have.
Appointment of Ceos indicates that Lumpiness is going to ramp up as M&A strategy I disagree with that view, but I I think London has always had an M&A strategy, but it's just like any other perspective on that.
No I think you've got the right answer alrighty and Greg.
Our M&A strategy has not changed you know we spent a considerable amount of time in the last one to two years reviewing opportunities.
Speaking with a number of counterparties that won't change on a going forward basis, a lot of these companies varying size of being considerably larger than us to equal size to some cases, much smaller and earlier.
But we're just looking always to focus on creating value.
All the possible ways that we can do that one thing I will confirm because there was a bit of a confusing article in the paper a little while back is at.
At no point in time would we ever consider getting into the core business. So I can assure you that okay.
But if you look at our track record so they already got in Chicago I think it you know.
From an M&A perspective has been quite positive and.
We will look to continue on that front I don't think my change will.
Affect the timing of that I think it's business as usual.
Thank you I was a bit confused by that cold come up as well in the globe.
Yep.
And your next question comes from the line of Jack O'brien with Goldman Sachs.
Good morning, everyone and thank you for taking the questions.
Just following up on that capital allocation point you mentioned.
Net cash of $400 at the end of the quarter.
If we would choose.
We've got the business back to sort of one times consensus net debt to EBITDA you could buy back probably one third of your market cap today.
Notwithstanding.
So the cash generation through the fourth quarter and into next year.
Today's copper prices so just.
Just interested to hear.
Given an unchanged M&A strategy or competitive environment to pick up new assets.
The extent to which you would be willing to either buyback.
Ooh Ooh Ooh Ooh Ooh virus special distribution with good returns to shareholders that way.
Given your balance sheet strength, that's the first question.
Yep.
Sure. Thanks Jack.
Yes, I'd say, we did purchase shares would be empty at the end of third quarter.
It wasn't a large amount of like one 1 million shares that's just below $9. So.
We did transition the MTR ease from a discretionary to an automatic plan, but with the price threshold. So we'll continue with that on a going forward basis, we obviously you've made some.
Bumps to our dividend in the last quarter.
And we've also put in a performance dividend, which is 40% of the available cash flow.
So if we do not have a use of proceeds I think in 2022, you can see that probably continuing.
That being said, it's not mutually exclusive to be all to have the dividend.
And still look at growth opportunities so.
We will do our best to return cash to shareholders I think.
Uh Huh announcement, we haven't the dividend was extremely well received a lot of investors are asking for returns of capital during the strong commodity money market excuse me.
And if not now then when and so we were quite happy to help.
What I would say probably one of the best dividend policies and strongest yields in our peer group and we look to continue with that going forward.
Thank you.
And just.
Matt.
Wanted to touch on Candelaria, So clearly you'll you'll come back with.
More clarity at the year end.
Regarding 'twenty, two and 'twenty three guidance.
Can I just I mean it.
Is there any scope and youll be for 2022 23 production to be below 2021. If we were just sort of looking to conservatively set all forecast into next year do you think there's any scope for production to be below.
This year.
No.
The simple answer is no.
Okay. Thank you and I want to just follow up just on various feasibility studies because it feels like.
The feasibility studies at Candelaria in a chipotle.
Slightly on the go slow whilst.
Dealing with various operational issues, perhaps you could just touch on whether the thinking has changed that.
Yeah, Peter Rockville, I can speak to this study we continue to work on our expansion options. In fact, there is a group of Toronto.
People, having gone to affect that.
I was also just recently there so the work continues quite positively there the exploration.
The game will likely impact those decisions, we have had some favorable exploration results and that can impact, where we may put infrastructure and some of the size of that infrastructure. So.
If there had been delays it's arguably.
You can make the right decisions going forward, we hope to provide to the market some perspective on where we're heading in the fourth quarter. However, it will likely be the new year before we give greater detail.
Yeah.
Just final final question.
On that Chipotle study my understanding was.
First decision could be made.
Second half 'twenty, two and then.
All guidance well to plan and then you know that could be a potentially in early.
Early 2020 full ramp up that would be the kind of early establish that.
Production could start to pick up at Chipotle.
I think the actual start date, we would have to wait to see what the decision is as far as the project because the size and location and a few other.
Inputs will impact when it actually begins but as far as giving direction to the market I think your timing there right.
Thank you.
That's it for me.
And your next question comes from the line of Orin Bloch Codell with Scotiabank.
Hi, good morning.
Just again on candle area I realize you're you're doing a bunch of studies, but when do you think you would have from a timing perspective have a handle on the grade reconciliation issue.
Yeah, Peter Richardson Yep, So we set out doing.
Late Q2, we put it together an action plan that.
We set out a would follow that rigorously follow up that on a weekly basis, whereas the identification phase and St.
Same time, we're rectifying things along the way that we see them in a cool thing, but we've done a lot of access to the open pit sampling systems in the underground sampling system improved our short term forecasting and or other actions.
Plan same off the mill are we have made a lot of changes to our Sam I think that the procedures that we work are around our tactics that sounds all right I think systems and all of them have on further actions.
To work on we've seen an improvement quarter to quarter.
Discrepancy.
That's good but we still have further actions to go before we finalize that but.
During the first half of next year, we should have a better grip on exactly what we need to do to finalize it.
I'm like okay.
Okay. Thank you for that and then just turning back to sort of M&A.
I realize you're your strategy. It sounds like your strategy is not going to change too much but I'm just wondering if given the current metal price environment, we're in and the strength of your balance sheet and the free cash flow profile.
Weather Lundeen would consider I guess relaxing some of it's very rigid M&A criteria. When it comes to things like jurisdictions or size of deposit development project first producer.
Could you give us your thoughts there in terms of whether you see any change to that profile.
Yeah, So I think youre pretty accurate on that one it's very challenging to <unk>.
Your line, if you will kind of.
As a firm as they have been in the past so we're not looking to go into any.
Jurisdictions, we're not comfortable with.
But would we maybe invest in something.
That.
It doesn't have the same amount of production that we're anticipating still quite large we way would we maybe invest something a bit earlier stage. We would so we may flex one or two of the parameters.
But generally speaking, we do want to stick pretty close to the way we've approached it in the past, but you haven't seen a lot of other companies out there.
I don't think any dimension of a big companies speaking, how they're having to go into other jurisdictions that they were previously not comfortable with we've seen some pretty big companies looking at very small projects. So.
The current commodity price doesn't make the M&A market pretty challenging.
But.
That doesn't stop us from.
Carrying on a conversation with a lot of companies and in some cases, we've had some great.
Interesting conversations.
With parties I don't think people would expect us to be talking to you.
Okay interesting and just a final one for me is do you feel like just given your balance sheet and the outlook for your assets do you think sort of Lundin has reached the point of its evolution, where you'd be willing or interested in perhaps participating in a large greenfield type of copper project or is that still true.
Consider too risky.
Greenfield.
Like it's unlikely we're going to go after something when we don't see a line of sight to production.
If it's something maybe five six years out we've always stated that from the beginning we would look at things.
On that timeline, but going after something that's probably 10 to 15 years out.
I don't think we're there just yet.
Okay.
Thank you.
And your next question comes from the line of anti alcohol with Deutsche Bank.
Thanks, operator, and good morning, and thanks for taking my questions I had a couple of follow ups on kind of the law. Yes. My first question is do you think that bubble the pebble crusher option that you've laid out today is that sufficient to get throughput back to the popular times per day.
Did a chance that you cannot get to those levels. That's my first question.
But as I said.
We have we are working on a number of options to improve there.
The capacity of our pebble crushing circuit. So we have three options that we're working on we're doing detailed engineering and.
Hope to have everything finalized constructed next year Ah.
That will take us closer to the the expectation are there, but the team up numbers that we that we presented a number of years ago and of course, we're gonna be pushing that to beat that going forward. So we will continuously look at other options to improve the capacity of the pebble crushing.
And make sure that we optimize the throughput in the mill.
Got it.
My second question is also on <unk>. So on the mine to mill grid Dystrophin C, which you which is currently being observed can you discuss what's your best guess in terms of this there. This is coming from and also the second part of this question is given that the source of this problem has not been identified is it fair to say that 'twenty 'twenty four plus guidance.
So should we be thinking about you know.
224, plus guidance also if this if there is no potential solution identifies the best in the near term. Thank you.
So on the on the first question.
I would say my my my best Scott, there's operational practices tightening up the way we plan the way, we mined execution of the mining, but also sampling and the whole process around my Minder mail.
And that that is part of all of our action plan. So we've been looking at everything to make sure that there's nothing that we've met.
Let's say if answering my first question could you. Please repeat the second question.
Sure. The second part of this question was.
Given the source of this problem has not been identified is it fair to say that 'twenty 'twenty four plus guidance what is the technical report could also be impacted.
Okay.
Yeah.
Oh beyond 'twenty four.
That is what we're working on our budgets and our long term plans at the moment and those will be presented to the board here end of November and we will we will come back to the next three year guidance.
At least.
Got it and at the moment.
Yeah.
So at the moment, we don't see any any requirement to update our technical reports, but if that's the case, we'll come back to that.
Bye Bye and in November later this year.
Yeah.
Yeah.
Thanks, a lot.
And your next question comes from the line of Daniel Major with UBS.
Hi, Thanks, very much for questions.
A couple just on the numbers to start with.
Could release of working capital sports at free cash flow. This quarter can you give us any guidance on.
How do you expect that to move through Q4 and into next year, you see something will we see any reversal of that release of working capital this quarter.
Sure.
Yes.
Okay.
Thank you.
Strong Q1.
Free cash flow perspective.
And you will see that.
Our guidance.
And so youll see some of you have about 40.
$40 million.
Alright.
Yeah.
So again.
Yes.
Higher capital on the Q4.
So the other thing that you will see is that you know provisionally priced project.
I think that we did agenda Q3, we had about what can be done.
Often times it.
Thanks.
One element.
Sure.
You take that.
And that can be settled let's see it.
And in Q4.
Alright.
Go ahead.
Now the castle on that we may not get into Q1 of 2022.
Again, it would be milk prices.
Sure.
Sorry, just to be clear on that.
Just specifically on the working capital.
Do you would you expect a further build in working capital release of working capital in the fourth quarter.
No that's really tricky to predict.
But the timing.
Sure.
He's trying to do at the end of the theory it could be if we take too long and it can make a significant difference that you just have one or two.
John just miss the timing so that it's really difficult to expect however, I guess did you see.
That metal price is.
In the year.
Q3, then that one January.
Okay.
Yes.
Okay. Thanks, Mike.
Might be a little bit about with John we expect our inventory balances to builds for our consumables and key supply because we have been ordering well in it.
Fans of our usual timelines due to supply chain, so because of that you'll see a modest build in the non U.
The non <unk>.
Trade receivables area.
Inventory.
That arent stockpiles, but that's not in there.
Animals.
Okay. Thanks, and then I know you will obviously provide more detail on capex with the EMA.
Head outlets, but some.
I guess looking at the previous technical report.
And then the deferment of the $40 million of Capex. So there thereabouts in this year.
<unk> pointed to a number somewhere around the $500 million Mark for next year is that a reasonable.
Working assumption at this point.
Yeah.
The capital guidance.
At the end of next month within budget.
But you can expect that.
That's a weird question because we've been.
Unable to execute on some of the project due to Covid restrictions plus we've had to bear ourselves.
Actually speak to the fact that we're trying to actively spend more capex to invest in the business, but had been constrained.
Yeah.
Got it.
Okay.
And then just on Chipotle you mentioned.
Providing some more details to the market in Q4, but don't expect.
I guess full.
43, one on one until next year should we imply from that Youll be publishing some in <unk>.
<unk> drove results, who reserve and resource update what sort of form with that additional information on chipotle take.
Well, we have seven rigs on Japan right now so its pretty active we're just not in the habit of putting on individual hole. So the plan would be to.
Put out.
More fulsome released in Q1.
A whole series of Poles, and hopefully some color around the exploration plan going forward.
Okay and then just.
Final question for Pizza, asking so many questions.
<unk>.
M&A discussion.
<unk>.
Is there any change to your preferences commodity.
Going forwards.
Still very much.
Base metal focused or is there any deviation from that.
Zach in terms of M&A strategy.
No deviation whatsoever.
Still copper focused great. Thanks.
Got it thanks a lot.
And your next question comes from the line of Jackie Chris Foskett.
<unk> with BMO capital markets.
Thanks, very much most of my questions have already been answered, but I wonder as you've probably already touched on this but I'll.
Well I'll ask again, just just so I have some clarity you.
You you've outlined Peters outlines some of the initiatives you're doing it at Kendall area to improve the.
Buffy grade reconciliation in the mill issue there.
You you've already given some guidance for the 2022 guidance are that it's gonna be a bit lower than our previously disclosed can you give any directional indication on 2023 are you expecting that you know versus the guidance that you've previously disclosed for 2023 do you expect that.
You'll be able to recover.
Or should we be bringing our.
Estimates for 2023.
Well from that previous guidance disclosure.
Yeah.
No I don't think yeah, I think the numbers. We gave out previously are where we're targeting and we will give more clarity on that in the latter part of November when we come up with the guidance.
Okay.
Wouldn't make I wouldn't make any adjustments to your.
Okay.
The previous ones.
Alright, Okay. Thank you on I'm sure part of it.
I know you just you were talking about the exploration can you maybe talk a little bit about the timing of the expansion plan I think I've kind of lost track of.
When that's due to come out and.
Are you going to continue exploration beyond that so is this should we think of this as sort of an interim plan with more fine tuning to come or are you confident that you'll get all the drilling.
John that you need done.
Well from a drilling perspective, I mean this year I think we're gonna be doing about 65000 meters. So there's a lot of drilling going on as I mentioned earlier, there are seven rigs there at the moment five of those rigs are up in an area called <unk>.
Well as a new zone that will discuss more in Q1.
So the timing is being impacted by the exploration at the moment, that's one of the big impacts.
So I'm, hoping that as I've said earlier call, we can provide some direction.
In Q4, and then we'll look to get some form of more specifics out in the new year.
Okay.
So in terms of sorry, just in terms of the timing on the on the expansion plan should we expect that sort of like.
John next year, that's probably the best way I think about it okay.
Okay, and then and maybe one last question just to circle back on the M&A scene.
With the comments Peter that you just made about you know.
Oh copper focused in something that has been I'd say site too.
Production I mean, some of the other smaller.
These are smaller companies within the lung gene group what is it that's all pretty well.
Is that totally off the table to look at something within the lending group of families are or is that something that would be potentially.
You know potentially of interest to you guys I know in the past you've said.
You know you are trying to avoid appearance of a conflict of interest but is there a way that you could you could kind of.
Okay got it.
To combine them somehow.
We would treat them like we would any other company. So if there was an asset that was in a another company we would we.
We would take a look we would do the due diligence arguably more due diligence than we would normally.
Historically, our work has been focused on the deal was kind of like candle area he'd gone at it.
But we have also looked at as I mentioned earlier on the call. We've had discussions with a couple of companies significantly larger than us where there is interesting opportunities to unlock value and then we have looked at situations that are earlier stage of much smaller.
As you say, we would treat a one of those companies no different than we would any other company.
He has just been announced who's going to who's going to 60.
Head of the corporate development team at London.
No it has not yet.
Okay. Thank you very much.
No problem. Thank you.
And your next question comes from the line of Stephen Ireland with core Mark Securities.
Okay, great. Thanks, guys I'm, just curious actually on Eagle I'm, just with the ongoing exploration there do you have any sense of.
Sort of how far out you might be from converting some of that exploration working to potentially extended mine life or is it still kind of early days to talk to talk on that.
Yeah, we've discussed in the past if theres an area called kill which we're currently working on and it is not included in our mineral resource at the moment, but.
The mine has been designed to provide easy access and positive commodity.
Price environment.
Arguably in the strong nickel market right now I think that that would.
It would certainly give us the ability to expand the operation. So I believe we're going to be in a position to come out with a decision Q1 Q on Q Q Q1 of 2022, we'll have a decision there.
Also five new extension or targets underground that we're focused on and historically, we have not been doing a lot of exploration.
So in addition to this keel area. There are some underground targets that we're now starting to.
Garner further interest in.
So I think theres a lot of potential for positive news in 2022 out of Eagle.
Okay. Okay, great. Thanks, very much guys.
And your next question comes from the line of Yamana, Ms. Paula <unk> with Morgan Stanley.
Thanks, very much for the presentation most of my questions have been answered.
Two left the first one on cost inflation.
Overall unit costs were pretty good in the quarter and you reiterated guidance, but.
Could you talk about the underlying cost inflation.
Are there specific parts of the business.
<unk> seen more of it and how should we be thinking about.
Cost development into next year, both in terms of unit cost, but also capex.
<unk>.
Okay Jin Houston following this very closely.
A great topic.
All right.
Great.
As we said we had there.
Sure.
Okay.
I would say mainly.
Steel prices in Ocean freight at this point.
Hum.
Where are we seeing the most impact in Brazil.
And.
With inflation, we can't be over 10%.
Inflation, the government has increased interest rates as well to try to come back but.
Overall.
Well, let's say a fuel price it dmitry I would say, 40% or so and ocean freight.
Significantly, but in Brazil, where we are seeing the most inflation. We are also getting that benefit.
Lisa.
So that is having a significant impact.
So in the cash cost guidance that we have for <unk>.
Forgive me here of the year it does take into account these inflationary impact.
And you.
So we feel confident in the cash.
Got it.
Got it.
I guess going forward.
Good question and what we expect in 2022.
We will be providing additional guidance on that next month and.
I'll provide more clarity on that.
And same thing with Capex.
Yeah.
Yeah.
Thank you that's clear thank you and the second question going back to M&A.
We have seen a number of transactions this year and blending housing housing participated there.
Was it mostly a function of price or were there other considerations so restrictions such as the ownership structure.
Europe's fictional exposure or any other elements that could.
To restrict your opportunity set there going forward.
Yeah, I think we are aware of the most recent two transactions that have been announced in the marketplace. We would have been extremely familiar with both of them.
But at the end of the day there are certain criteria.
It didn't work for us, but I don't think.
I'm happy for the new orders or have the assets.
So I won't speak to what our.
Our conclusions were on our due diligence.
Understood and maybe just a follow up here, we're seeing potential for new entrants into into the base metal space, maybe more so on the nickel side to some extent.
Coming from either either downstream companies coal coming from companies in the precious metal space do you see that this real stride in terms of.
Great bidding competition in the years to come or PCR.
He is not really a concern when you when you look at the potential targets.
Right now and maybe into 2022.
I think in the areas that where we've been focused over the last two years from an M&A perspective, we haven't run into any competition from those types of entrants.
Great. Thanks very much.
And our final question will come from the line of Dalton <unk> with Canaccord capital.
Thanks, Good morning, guys lots of questions on M&A today.
I wanted to start by asking about.
Chile, and just what the latest you're hearing there in terms of the fiscal regime.
Sorry, So do you want to question that would be about the political situation or about investing in Chile or a combination.
Well, let's start off with the political and the.
The overall fiscal regime and I've got a follow up on the investing side.
Okay, well why don't I talk about political and in London.
Peter Rock.
Speak to that.
Our investment in M&A, so on the on.
On the mining royalty of course as political golf, it's a slow go it seems to be mired in the Senate right now and clearly what was raised from the lower house earlier is not going to be.
Accepted by the current tenant now we don't expect anything to happen before the election, they may come out of it and it happens all the time, whether or not they should legislate, but I don't believe that it would be.
And what the final legislation would look like a believe there still.
Debating whether it would be a profit based royalty.
Which would be an amendment to the sliding scale that we already have on mining.
And or whether it would be a revenue base royalties so.
We don't expect anything to happen on that end of things until after the elections and probably not until the new year, because we anticipate that there'll be a runoff on the election side.
Constitutional Assembly.
It started really last week.
He has he been content to somebody that they've just been really discussing all the border. So that's asphalt protests, but theres still anticipating they'll have something by next August.
Much of the people.
The presidential election that we've seen in many other countries have become extremely polarized centrist candidates, both central left with Hunter right.
Following after the debates and what has emerged as a very far left in the very far right candidate as the.
One two so.
With a lot of undecided voters, so it's really difficult to call at the moment and that'll be a pretty interesting November but we do anticipate that you know on the original action on November 21, there will be no clear winner and that we would have a run off just slightly before Christmas. So there won't be a clarity on that for some.
I'm sorry.
But anyway on the on the investment climate.
Climate I'll hand, it over to Peter just talked about investment in Chile.
I think.
There's always I mean, we see Chile is a great place to do business, but as far as further investments I think we're inclined to see how things play out during the elections and any any changes that come from those election results.
Got it Okay and then maybe just a broader question then on M&A Peter you know.
The company's strategy historically has been to basically block on lots of stuff on the back of other people's coverage, but I'm just wondering in the current environment are you seeing more or less interest in people cleaning out the coverage and trying to surface value from these assets.
I think as you get into a higher commodity price environment does get more difficult to find value in that approach.
And if you look at our assets that we've acquired historically, there's usually dinner.
Good reason why they feel their head to get too we're not a good reason, but unfortunately, they had to sell in terms of their own issues.
That's probably going to be unlikely in this environment.
So most of the things that will surface. During this time, we are probably not going to appeal to us.
If there are if they're coming from another company I don't think they're going to be financially distressed put it that way.
Okay.
Thank you.
Great. Thanks, very much and I won't look forward to the next call cause they won't be here for that one but the team does look forward to the next call and getting most importantly, our new guidance O T. In November with our three year I'll look for production in one ear and cat that can cash cost so that so the next thing coming.
And yes after 53 quarter ends with lundeen. Thanks, all of you for your support and the team will be happy to receive questions next time.
[laughter].
Thank you.
And thank you. This concludes today's conference call. Thank you for your participation you may now disconnect.
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