Q4 2021 Hudbay Minerals Inc Earnings Call
Good morning, ladies and gentlemen, thank you for standing by.
Welcome to the Hebei Minerals, Inc. Fourth quarter 2021 results conference call. At this time, all participants are in listen only mode and the conference is being recorded.
Following the presentation, we will conduct a question and answer session.
And the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star and zero.
I would like to remind everyone that this conference call is being recorded today February 24th 2022 at 830, a M. Eastern time I will now turn the conference over to Candace Brule, Vice President of Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to <unk> 2021 fourth quarter results Conference call I based financial results were issued yesterday and are available on our website at www Dot Hebei dotcom, a corresponding Powerpoint presentation is available and we encourage you to refer to it during this call.
Our presenter today is Peter could guilty heartbeat, President and Chief Executive Officer.
Accompanying Peter for the Q&A portion of the call will be Steve Douglas, Our senior Vice President and Chief Financial Officer Andre loads on our recently appointed senior Vice President and Chief operating Officer, and Eugene Lee, Our senior Vice President corporate development and strategy.
Please note that the comments made on today's call may contain forward looking information and this information by its nature is subject to risks and uncertainties and as such actual results may differ materially from the views expressed today for further information on these risks and uncertainties. Please consult the company's relevant filings on SEDAR and Edgar These job.
Occupants are also available on our website as a reminder, all amounts discussed on today's call are in U S dollars, unless otherwise noted and now I'll pass the call over to Peter to kill ski Peter.
Thank you Candice and good morning, everyone and thanks very much for joining us 2021 was a year of execution and delivery for HUD Bay as we complete the brownfield investments of approximately $250 million, you know, Peru, and Manitoba operations.
It was a year of focus and dedication as our operations continue to navigate a challenging environment with supply chain and labor constraints caused by the COVID-19 pandemic.
It was a year of value creation as we made a new copper discovery on a private land in Arizona and demonstrated the value you know Mason copper project in Nevada.
We continue to be more focused than ever on maintaining our strong safety culture and ensuring the safety of everyone at our operations and those within the communities in which we operate.
She was presentation today.
I'll go into more detail about our achievements and challenges in 2021 touch on the operating and financial performance of the business and discuss an overview of our production and cost outlook as we execute on our key strategic objectives for 2022.
But before we get into results I'd like to congratulate Andre lows on on his recent appointment to senior Vice President and Chief operating Officer.
Andre joined HUD Bay in 2016, and was formerly Vice President of our Arizona business unit. He has held both strategic and operational leadership roles at the company, including Vice President of the Manitoba business unit.
His appointment reflects both his readiness and he's valued expertise and comes at an opportune time as our operations are embarking on a period of significant production and cash flow growth. Andre is most welcome addition to our executive team.
Further to this Javier del Rio Who's been appointed to Vice President South America, and United States. Javier has over 25 years of mining experience and has been with HUD basins 2010.
He was instrumental in establishing and growing our Peruvian business, including making Constancia one of the lowest cost open pit mines in the Americas and overseeing the negotiation of key community agreements leading to the development of pump Concho.
Prior to joining Hudson Bay have you held management roles in various areas and of increasing responsibility at newmont mining in the United States.
His appointment also comes at an opportune time, as we advance our United States business towards development to position us for the next stage of growth.
These internal promotion served to highlight the deep bench strength that we have at HUD bait.
Now starting on slide three.
2021 was a year of investment for HUD Bay as we completed our short payback high return investment programs at pump a country and new Britannia.
In early 2021, Peruvian regulator has gone to HUD Bay, the final mining permit for the development and operation of the pump a bunch of deposits.
We commenced pre development activities following the finalization of the remaining land user agreements and achieved first production in April .
This was a major milestone for us in the community demonstrating a smooth ramp up and our strong social license to operate.
We're also proud of the team's efforts in maintaining strong operations in Peru during the year. Despite operating in a challenging environment with the recent political changes social pressures and COVID-19 impacts on our workforce. They navigated this environment and achieved our copper production guidance and exceeded our gold production guidance.
In March 2021 we released our annual reserve and resource update along with updated mine plans for our two main operations.
The Constancia updated mine thing reflected an increase in copper and gold production from 'twenty to 'twenty two to 2025 is the higher grades so the pump potential deposit into the mine plan.
It also incorporates as higher grade reserves from the Constancia noted pits extension, which extended the higher grade profile to 2028.
This resulted in an increase of approximately 11% and contained copper and 12% and contained gold over the prior year's reserves.
The Snow Lake updated mine plan released phase three of our snow Lake gold strategy, focusing on expansion and further optimization of operations.
Mine plan enhancements included optimize recoveries and throughput at stall the conversion of additional resources to reserves at La <unk> plans to expand law 250, 300 tons per day by 2023, and the mining of zinc reserves from the 19 O one deposit starting in 2026.
As a result of these initiatives the annual production of gold copper and silver is expected to increase by 18%, 35% and 27% respectively from 'twenty to 'twenty two to 'twenty 'twenty seven compared to the previous mine plan.
Our new Britannia project was completed ahead of the original schedule with first gold production being achieved in August commissioning and startup activities at the gold circuit were completed in July . We also completed the construction of a new copper flotation facility in October followed by a brief commissioning period and first production of course.
The concentrate was achieved in October .
<unk> achieved commercial production in November and the ramp up was best in class when compared to industry benchmarks, which I'll touch on later.
In June we experienced a very unfortunate incident that occurred during underground mining operations at Lalor.
Our work was fatally injured from a fall while working at height. We are still deeply saddened by this unfortunate incident and we're committed to preventing similar occurrences.
We've undertaken an initiative to apply lessons learned from this loss across our business to ensure everyone goes home safely following every shift.
We also took further steps to strengthen our balance sheets in 2021 with the issuance of new senior notes in March that lowered our interest rate by more than 3.5%.
We also renegotiated our revolving credit facilities in October to increase the size to $450 million reduced the interest rate and extend the term which provides significant financial flexibility.
In the United States, We announced the initial discovery of for deposits at Copperweld on our wholly owned private land adjacent to Rosemont in Arizona.
We continued drilling and expanded mineralization to seven deposits later in the year before.
Before the year was out we announced an initial mineral resource estimate that was larger.
And at our highest classification than we initially expected and I'll touch on this shortly.
And Republic started initial P. A formation in April of 'twenty, 'twenty, one, which contemplates a 27 year mine life and production levels that could more than double our production profile.
At a copper price of $3 and 25 since the N. P. V formation is three quarters of $1 billion with an I R. R of 15%.
High quality copper projects in preferred jurisdictions are scarce and we are uniquely positioned with a couple of world Rosemont and Mason copper projects in our project pipeline.
These projects offer incredible leverage to copper and long term optionality for future copper growth.
Turning to slide four.
We began to see increased production and cash flows from our recent brownfield investments during the fourth quarter Q.
Q4, consolidated copper production increased by 21% from the third quarter of 2021 primarily as a result of higher throughput and copper grades in Peru.
Holiday says copper production increased by 18% compared to the third quarter a record for HUD Bates, primarily due to higher gold production in snow Lake with the commissioning of the new Britannia mill in the fourth quarter.
For the full year 2021, we achieved consolidated copper gold and silver production guidance, while zinc production fell short of the 2021 guidance range.
Peru copper production mid 2021 guidance expectations with strong operating performance in the fourth quarter, including the continued ramp up of pump a gunshot.
Manitoba zinc production was below 2021 guidance, primarily due to a higher dilution and mine plan limitations at the Triple seven mine as it approaches closure.
Consolidated cash cost declined from third quarter levels.
18% improvement was mainly a result of higher copper production and higher gold byproduct revenue.
Sustaining cash cost was relatively unchanged from the third quarter as lower cash costs were offset by higher sustaining capital expenditures and royalties.
Operating cash flow before changes in noncash working capital was $157 million during the fourth quarter.
<unk>, an increase of $53.4 million compared to the third quarter, primarily the result of higher realized base metal prices and higher gold and copper sales volumes.
Adjusted net earnings per share in the fourth quarter was 13 cents after adjusting for the impairment charge related to the revaluation of the environmental obligation in Flint flown among other items.
Fourth quarter, adjusted EBITDA was $180 million compared to $119 million in the third quarter of 2021.
Results were higher than the third quarter, primarily due to higher copper and gold sales volumes and higher realized prices, partially offset by higher exploration and selling and administrative expenses.
We exited the year with $271 million in cash and equivalents as well as undrawn availability of nearly $350 million under our revolving credit facilities.
On slide five we summarize our Peru operating results.
During the quarter copper production was 22856 tonnes, a 26% increase over the third quarter due to an increase in throughput grades and recoveries. This was another record quarter for gold production in Peru.
Full year 2021 copper production increased by 6% year over year to 78000 tons, achieving the annual guidance range.
Full year 2021 gold production increased by 306% year over year to over 50000 ounces and exceeded the 2021 guidance range due to increased throughput higher grades from pump, a gunshot and higher gold recoveries.
Total ore mined during the fourth quarter increased by 19% from the third quarter as mining levels were optimized for mill throughput.
Ore milled during the fourth quarter was 15% higher than the previous quarter, while milled copper grades were also higher due to higher grades from the constancia pit in the quarter.
Unit operating costs in the fourth quarter with $10.47 per ton.
10% improvement over the third quarter.
Covid related costs in Peru, with $4 million in the fourth quarter and excluding these costs unit operating costs were $9.96 per ton.
Full year unit costs were higher than 2020, and the guidance range due to higher costs for consumables energy and COVID-19 measures.
Peru's cash costs in the fourth quarter were $1.28 per pound of copper relatively in line with the prior quarter.
<unk> cash cost increased quarter over quarter, primarily due to higher capitalized expenditures.
Peru's fourth quarter production and cash cost performance was strong and represented the best coffee production quarter in 2021 as seen on slide six.
Not only did we achieve out 2021 guidance expectations, but we also demonstrated our mine development and operating expertise as we successfully ramped up the pump a bunch of mine and delivered on our plan in Peru.
Moving to the next slide on Manitoba during the fourth quarter of 'twenty 'twenty. One gold production was 46424 ounces, an 11% increase from the third quarter due to the ramp up at new Britannia.
Copper production was 5342 tons slightly higher than the third quarter.
Well, yeah, Manitoba copper production achieved 2021 guidance, however, zinc gold and silver production for the year fell short of guidance.
Zinc production was predominantly impacted by higher than planned dilution that triple seven as the mine nears the end of life.
Gold and silver production were below guidance, primarily due to higher dilution at triple seven in the fourth quarter and the deferral of some higher gold content or for future processing. It you'd return you to achieve higher gold recoveries.
Mining operations at La or have fully established processes to consistently produce and separate the gold and copper gold ores in feed for the stall and new Britannia Mills.
Production ramp up strategy to achieve 5300 tonnes per day at Lalor by the end of 'twenty 'twenty. Two is underway that includes advancing development for new mining fronts additions to the mine equipment fleet transition of workforce from this triple seven mine upon closure and expansion of change house and office facilities.
Triple seven miners within months of closure and the focus continues to be on safely mining out the remaining reserves by completing the necessary ground rehabilitation to access remnant and Phyllis stoping blocks.
Challenging ground conditions have caused delays in the production sequence and resulted in higher dilution than planned as mentioned earlier.
Combined unit operating costs in the fourth quarter increased by 14% compared to the third quarter, primarily due to higher milling costs at snow Lake with the ramp up of the new Brittania mill in the quarter, partially offset by higher tons processed.
Full year unit cost were within the guidance range.
Manitoba cash cost per pound of copper in the fourth quarter was negative $2.77 lower than the third quarter. Similarly, sustaining cash cost per pound of copper in the fourth quarter was negative 23 cents lower than the third quarter, primarily due to increased gold revenues.
We intend to disclose cash cost per ounce of gold starting with first quarter results in 2022 given gold revenue is becoming the most significant contribution to total revenue in Manitoba for the foreseeable future.
As I mentioned earlier, the construction of the new copper flotation facility at New Britannia was completed in October 2021.
The new Britannia mill achieved commercial production on November the 30th after reaching the required recoveries and throughput in the copper and gold circuits during.
During the fourth quarter, new Britannia processed over 100000 tonnes of ore averaging over 1100 tonnes per day.
In December the new Brittania mill throughput averaged 1200 tonnes per day with gold and silver silver recoveries in line with the metallurgical model.
A number of initiatives are underway to continue to improve the mechanical availability of grinding leaching and tailing circuits.
The new Britannia Mill is expected to average 1500 tonnes per day in 2022 with continued ramp up activities and Rod mill liner maintenance expected during the first quarter and targeted throughput rates are expected to be achieved in the second quarter.
We are pleased with the performance of new Britannia and as shown on slide eight the mill has steadily increased throughput rates since commissioning.
Its ramp up achieved best in class timelines as represented by widely recognized industry fond ramp up curves. The mill has seen several days operating at or above design rates and is expected to achieve sustained design throughput within six months from commissioning this.
This included a one week ramp up of the new copper flotation circuit, which was remarkable by industry standards I frequently say that we have a disproportionately talented team for a company of our size at high Bay and the completion of the New Britannia project was yet. Another example of our strong technical capabilities of our team.
<unk> nine is a compelling slide as it illustrates the inflection point at which we are in terms of increased copper and gold production.
22 represents the first of many years of meaningful production growth with consolidated copper production is expected to increase by 17% compared to 2021 and consolidated gold production expected to increase by 28% in 2022.
Consolidated copper production is expected to further grow to 133500 tonnes by 2024.
The 4% increase from 2021 levels. Similarly gold production is expected to increase to over 300000 ounces in 2024, which represents an increase of 15, 9% from 2021.
This is expected to lead to growing EBITDA and expected future cash flows after completing approximately $250 million in a brownfield investment programs.
We are a primary copper producer with unique complementary exposure to gold and we believe our high quality pipeline of attractive development and exploration opportunities will further add to this growth.
Yeah.
The key focus for Hebei is all Copperweld project in Arizona.
After the initial discovery and early 2021 we completed an aggressive drilling program, which led to an initial resource estimate in December 2021 that is larger and at a higher level of geological confidence than we expected at this stage the.
The initial resource estimate included indicated resources of 272 million tonnes and inferred resources of 142 million tons at 0.36% copper.
We also successfully expanded our private land package after the copperweld discovery and now hold over 4500 acres to support an operation entirely on private land, which is outlined on slide 10.
Yeah.
One of the many attractive characteristics of copperweld is the near surface nature of the deposits with the potential for minerals are minimal waste stripping.
The global resource contains a higher grade zone with indicated resources of 96 million tonnes at 0.57% copper and inferred resources of 31 million tonnes at 0.71% copper as outlined on slide 11.
The high grade resource is expected to be mined earlier in the mine life comprises both sulphide and oxide mineralogy and is potentially amenable to both flotation and heap leach processing methods.
We continue to drill at site with six drill rigs currently turning to conduct infill drilling in support of future economic studies. The P. A for copperweld is well advanced and we are on track to publish the results in the first half of 2022 .
While we continue to await a decision from the ninth Circuit Court of Appeals relating to Rosemont. We are also evaluating the potential synergies between copperweld and Rosemont and our preliminary expectations will likely be reflected in the upcoming P. A.
Exploration, if it's don't stop in Arizona.
As highlighted on slide 12, we continue drilling and scoping studies to evaluate the underground potential at Constancia, Naughty and Peru, and the results are expected to be incorporated into the annual mineral reserve and resource update for Constancia in March this year.
We are also continuing to progress exploration agreement discussions with nearby communities on prospective properties located near Constancia.
Drilling continues at the yoga and copper porphyry target located in northern Peru the.
The confirmatory phase of the drill program was totaled over 7000 meters in 16 holes with two drill rigs continuing to turn at site.
Assay results have been received for five holes with all holes intersecting mineralization.
Pending positive results from this initial drilling phase the second phase will focus on defining an initial inferred mineral resource estimate for yogurt in the third quarter of 2022 .
In the Snow Lake area, we are actively conducting surface and underground winter drilling activities, primarily focused on testing down plunge extensions of the copper gold rich feeder zone at the 19 O one deposit that.
Drilling gap between 19 O one and lens 17 at Lalor and a high priority geophysical target located immediately north of La La.
In addition, we continue to compile drilling results from the 2021 program at Lalor, and 19 O one which are expected to be incorporated into the annual mineral reserve and resource estimates to be published at the end of March.
Earlier this year, we commenced a confirmatory drill program and the tailings facility and Flint flown to support the completion of a P. E on the tailings reprocessing opportunity by the first quarter of 2023.
We're also completing engineering and test work throughout 2022 to support the P. A.
If economic this opportunity could utilize the flint flung concentrated with modifications after closure of the Triple seven mine, creating operating and economic benefits to the Flimflam community.
It could also provide the opportunity to redesign the closure plans increased metal production defer or reduce certain closure costs and reduce the environmental impacts of the tailings facility.
Slide 13 highlights the three year production outlook I mentioned earlier and includes production by business unit and by metal.
The meaningful three year production growth is due to the increase in copper and gold grades expected a pump a country in Peru, and the increased gold production from the Snow Lake operations over the next several years.
This growth is expected to more than offset the lost copper and gold production from triple seven after its closure in mid 2022.
Peru's maintain that's been re sequenced since the publication of the March 2021, Constancia Technical report, resulting in higher gold grade areas in the pump a crunch of pitch being moved from 'twenty to 'twenty two to 'twenty 'twenty, three which is expected to lead to a 41% increase in gold production in 2023 from 2022 level.
Yes.
Manitoba 2022 production guidance reflects continued strong production from the Lalor mine operating at a throughput rate of 40 650 tons per day and ramping up to 5300 tons per day by 2023.
2022 production assumes lower mining rates at the Triple seven mine as the mine approaches closure in June 2022, and the low end of the production guidance ranges reflect reduced output from the triple seven mine to capture the potential for higher dilution and increased variability in remnants stopes.
The low end of the 2023 production guidance range reflects a more conservative project start and ramp up of the storm recovery improvement program.
Production numbers exclude the impact of upside opportunities such as the potential to operate new Britannia above design capacity.
Slide 14 summarizes our cost guidance for 2022 total.
Total capital expenditures are expected to decline by 17% compared to 2021, primarily due to lower expected sustaining capital in Peru, and lower growth spending in Manitoba in 2022.
The growth capital guidance includes $10 million on continuous improvement initiatives in Peru, and $50 million on enhancements and expansions as we execute growth in Manitoba.
We have also allocated $35 million to growth spending in Arizona higher than previous years, as we advance permitting and economic studies at Copperweld and the first half of 'twenty 'twenty. Two we may allocate additional capitals copperweld in the second half of the year pending positive results.
Total expected exploration expenditures of $65 million in 2020 to reflect continued exploration of copperweld and additional drilling activities for brownfield exploration and to test the promising targets in Peru, and Manitoba that I highlighted earlier.
We also plan to conduct an initial drill program at the Mason Valley scorn properties in late 2022.
We're introducing cash cost guidance in 'twenty, two 2022 for each of our operations, including copper cash cost guidance in Peru gold cash cost guidance in Manitoba.
We continue to provide combined mine mill unit operating cost guidance by site and consolidated copper cash cost and sustaining cash cost guidance, even given copper remains our primary metal on a consolidated basis.
In Peru combined unit costs are higher in 2022 versus 2021, as a result of higher consumable cost, including grinding media and fuel higher mill maintenance costs due to general cost pressure seen in the industry and the impact of processing harder ore in the Constancia pit.
Copper cash cost improve our expected to decline in 2022 compared to 2021 due to higher gold byproduct credits and higher copper production.
In Manitoba 2022 combined unit costs are forecast to be higher than 2021 levels, primarily due to the expected cost inflation on materials and consumables and the inclusion of the new Britannia Mill, which is expected to result in higher milling unit cost compared to the Flint flan install knows as disclosed in the snow Lake operations mine.
Plan released in March 2021 .
Manitoba unit cost also reflect the closure of the Triple seven mine in June 2022, and the transition of a portion of the work force to Snow Lake.
Gold cash cost in Manitoba are expected to be 300 to $550 per ounce in 2022 as gold production increases year over year and the operations transitioned to becoming a majority gold producer.
The midpoint of our consolidated copper cash cost guidance range is higher than last year's levels due to the expected increase in unit costs as mentioned, partially offset by expected higher copper production and higher gold byproduct credits.
The midpoint of the guidance range for consolidated sustaining copper cash cost is lower than 2021 levels due to lower sustaining capital expenditures and higher copper production, partially offset by the increase in unit costs.
Slide 15 summarizes our near term copper production growth and a high quality organic copper pipeline. We believe that copper has the best long term supply demand fundamentals in the sector as global copper mine supply will be unable to meet demand from global decarbonization initiatives.
We have the highest near term copper production growth and the highest leverage to copper among mid tier base metal peers, and we have successfully increased our copper equivalent resources per share by more than two and a half times over the past 10 years.
For these reasons, we believe HUD Bay is uniquely positioned to offer attractive copper production growth and long term optionality for investors.
To summarize we are a diversified mid tier copper producer as shown on slide 16, our existing operations off of 17% copper production growth in 2022, and our leading low cost profile, which is expected to generate significant near term cash flows. We also have a world class organic.
Growth pipeline offering medium to long term copper production optionality.
As you've seen through this presentation with the recent execution of a brownfield investment programs. We are now in a position to deliver meaningful copper and gold production growth to generate positive cash flow and strong returns on invested capital.
We will continue to unlock value in Arizona through accelerating drilling economic studies and permitting activities at copperweld and identifying synergies with Rosemont.
In Snow Lake, we plan to execute the third phase of our snow Lake gold strategy by optimizing the new Brittania mill preparing for the ramp up to 5300 tonnes per day at Lalor and initiating the stall mill recovery improvement program.
Flynn flown we are focused on transitioning the triple seven mine mill and zinc plant through orderly closure, while further exploring the potential to reprocess tailings.
In Peru, we will continue to progress constancia, leading efficiency metrics by applying smart technologies to continuously improve operating performance, including sensor based ore sorting and milling flow sheet enhancements. We also aim to reach a community agreement to explore the prospective properties near Constancia.
We will continue to conduct targeted brownfield and Greenfield exploration programs in the Snow Lake region, Peru, Arizona, Nevada, and Chile for new mineral discoveries.
We also look to enhance our E. S. G objectives through the introduction of new greenhouse gas emissions reduction targets in 2022.
And finally, we will remain vigilant in evaluating growth opportunities that meet our stringent strategic criteria that will create sustainable value for the company and our stakeholders and with that we are pleased to take your questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
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<unk>. Please press Star then two.
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No.
Our first question comes from.
<unk> of Scotiabank. Please go ahead.
Hi, Good morning, a question about your cost guidance for Manitoba for 2020 to 170 185 Canadian.
And certainly we've seen a big step up there in cost relative to previous years can you. Please speak to how much of that is.
Relation versus some of the structural changes happening there with the closure of triple seven.
Just trying to understand how to think about those costs be at 22, whether what are theres, just a bump here on a single year basis, or whether that's a kind of a new run rate on a longer term basis.
With Labor day Brett.
Sydney Austin Good morning. Thank you for that question. So what I would say that the 2022 unit costs reflect to reflect the current cost environment and they include the impact of several factors such as the integration of the higher cost new Brittania mill and higher cost of triple saving as we approach closing reduce the output.
So you know these are transition costs and those and there is certainly potential to eliminate those transition costs, but there are some embedded costs that relate to some of the increases that we're seeing in the environment. Currently I do believe though that we will over time be able to eliminate some of these transition costs.
And especially you know I think we've indicated that we have a fairly large components of our contract labor at a at Lalor as we transitioned from triple seven two to Lalor, we should be able to eliminate some of the contracted workforce and thereby reduce reduce costs. So I would say that yes. Some of it is embedded and some of it is.
The transition costs that we will see over the course of the next year, but there certainly is opportunity to improve on those costs.
Okay, and then as a follow up if I may.
Just wondering kind of big picture I mean, this 2022 should be an inflection point for her day with respect to generating positive free cash flow.
Wondering how you're thinking about the next couple of years, whether you've got a certain debt reduction target in mind before you might embark on the next call. It Greenfield project, whether that be copper world of rosemont or or something else.
A great question I, you know I think we remain very very focused on net debt reduction as you know we are unable to to pay back Oh date over the next couple of years, but he certainly target a net debt reduction as we advance towards some of the opportunities ahead of US I think I've always said that you know.
We over time, we aspire to be reliable consistent dividend payers and that remains front of mind for us but in the interim there are a lot of competing opportunities that we need to keep our eye on but net debt reduction as we improve our cash flow statement is a probably priority number one.
Okay, but no specific targets.
Steve.
Sorry, I know and I think we've talked about this before we look at over the course of the cycle. We look at our risks we look at how it is worth it.
Investing our capital and what the structure of that debt would be I'd also point out that this year, we are going to delever. The tune of just under $100 million by virtue of the our initial repayment on the gold prepay.
So we are focusing that I mean, youre looking at that cash will come out, but it is going obviously to a capacity perspective because of the pay down of the debt.
So yeah, I mean Peter's add Peter is absolutely right in the long run I mean, we would want to obviously more structurally address our debt levels in the context of what our cash flows would be given the opportunities to continue to invest and expand the business, but I think your characterization of looking forward over the next couple of years to that next big development for us.
<unk> priority as we've discussed before and I think right now our cash flows and our debt levels remain very manageable relative to what we were looking at doing in that regard and we will tick up ultimately that I think will be a few years away and we do have time to as you pointed out.
Keep the benefits of these.
These investments in the and the cessation of these heavy investments in New Britain bump of Gotcha, and and really move towards hopefully a stronger cash generator.
Thank you.
And then John pricing.
Our next question comes from Dalton Barreto with Canaccord.
Canaccord. Please go ahead.
Hi, Thanks, good morning, everybody.
I wanted to start by asking you about copper rod you've talked a lot about some of the drilling work that's going on there.
I'm wondering if you can give us an update in terms of what youre seeing in terms of some of the metallurgical work that Youre doing ahead. Thank you.
Morning, Dawson and thank you for that night, you know I frankly, I think this is just a great question for Andre to sort of making his debut so I'm going to turn it over to Andre sure.
Thanks for the question Dalton.
So copper world as it is a unique deposit there's a there's a variety of different mineralization styles.
There is copper sulfide, which is very very typical metallurgy to what we've we tested and studied at Rosemont.
Validated that testing with recent studies, there's a mixture of oxides at that we also have in there is two different types of oxides that we're seeing.
Some of the oxides or the more traditional oxides that are related to porphyry, which are low acid generating taper sulfides oxides that are beneficial for heap leaching.
<unk> technologies and we also have some oxides that are a.
A little bit stronger on the Axa, ASIC consumption, where theyre more related with some limestone.
And so we're doing column Leach tests tests as we speak they are learning more about the different types of of mineralization and how they recover in and also the times to achieve those recoveries for possible leaching as well as as milling and those will be reflected in the P. A as we are.
<unk> said in the second half.
Okay, great. Thank you for that just as a quick follow up do you have a sense for the split in the oxide.
The high acid consuming stuff right.
Given where asset prices are today.
So we.
As Peter mentioned in the in the in the original.
Dialogue with.
Do have enough land for private land plan and so the good the good news I think as we've been finding a lot of material and so the split between the oxide and sulfide will become an economic decision around the amount of material. We can place on our private land. So as we continue to find more and more.
Cereal, obviously anymore, we need more land.
The actual split is that is the optimization, we're going through right now is to figure out what is the right mixture thats going to make us the most money.
Okay, Great sorry, My question was actually around.
In the oxides between.
Okay.
Against the high acid consuming is is obviously higher cost then there's there's low acid consuming and we also have sulfide and all in all three of those will pick up tailings capacity at heap Leach capacity and so the split on what we choose to mine will be an economic decision and so that the split between the high acid.
Low acid is a number that's currently being analyzed right now so for that that hasnt been finalized at this point.
Okay. Thank you maybe switching gears to Manitoba.
And maybe this one's for usual Andre.
We were on the site visit in November there was a lot of talk about kind of a next leg space.
Secondly around moving new Brett.
<unk> tons per day running the whole operation at 5800 tonnes per day and was also to lockup.
Brian moving 19, one forward.
By 12 to 18 months I'm just wondering.
Has there been any progress around that and are you expecting to put out.
I'll report maybe.
Next year that crystallizes.
<unk>.
Sure I've talked on quite a few different points. There. So maybe if I start with the 19 O one and so the the 19 or one that we do have about $5 million and our capital growth budget for this year and we anticipate doing studies concurrent with driving development towards the later in this year.
And the potential for that is to bring first ore ahead up to as much as a one year ahead.
Throughout 2025 ish.
Of the throughput at our Newport, Kenya, we're very very pleased.
We've had year to date, we've achieved the 1500 tons per day, and we see we're seeing days, there, where we exceed that and up to 1700 tonnes per day.
I don't believe we've seen the 2000 quite yet, but it's early days, but.
But there's definitely upward possibility on throughput.
Grid for future opportunities.
Okay. Thank you for that and maybe I can wrap up Peter by asking you a question in your closing remarks.
Talk about evaluating opportunity.
Stringent strategic criteria I think you said.
Can you give us a sense of what that strategic criteria.
Thank you.
Adult and more than anything it has to it has to be accretive whenever we do and so when I talk about opportunities I'm not talking necessarily about a organic or inorganic opportunities that I'm talking about the whole the whole gamut and the key is that they make sense for us and they are accretive to our shareholders. So if you look at.
Inorganic opportunities.
There are very few of those around and so we don't spend a lot of time thinking about it but we are we do spend we do take a look at whatever comes our way just in case.
But our criteria, we have just effectively one single criteria.
We want we want more copper.
And it has to be accretive to our shareholders.
So as I've always said, we are not about to ever do anything stupid.
Thanks, Peter that's all for me.
Thank you Don.
Our next question comes from Greg Barnes.
Please go ahead.
Thank you. This is probably another question for Andre Copperweld, when I look at the map Andre.
The property boundaries and lateral a pitch off a couple of well interference.
Bud up against the property boundaries on the private lines is that gonna constrained in any way when you.
Mining various composites.
Great question, Greg is a I think the short answer is yes. There are constraints, there's many constraints, whether it's around the property boundary and air permitting.
The good news I think as we continue to find more material and we've found a large tonnage on a private land and some of the pit designs.
Do have the opportunity to extend beyond our private land for for later extraction. Our focus right now is looking at what we can extract on our private labs are under a different if you are permitting regime and that material that does extend beyond the private land limits would be a later phase of <unk>.
Meaning that we would we'd look to similar to like Rosemont went to a permanent.
So where do you think he stopped mining when is it fraud heartbeat and bolts out all the other end.
Okay.
That's a complicated question. So so we've gone through probably over the last month and a half a number of iterations.
And it's all about the strip ratio and grade.
And like the <unk>.
Bolton's questions, while previously around the asset generating.
Artists are the acid consuming oxides and prioritizing based on value. So broad top viewed us as a as a wonderful deposit so as bolsa Bolsa also has a very low stripping and very low acid consuming and so so the work that we're doing right. Now is is trying to figure out.
Now with the roads.
How we would travelers to to each of the different deposits and the timing of the filling in the sequence.
It's not as straightforward as ranked brought up because it's that's basically right at the top of the mountain.
That will all be in the P. A.
We'll have the the optimal design and that comes through at least that later on in half two.
The infrastructure like roads and other infrastructure like that have to stay on private land in this.
Oh can you.
Do some of that surface work on.
Let alone.
No you can't do it on federal land. So it's so it's in.
All of our activities are constrained to two private land.
And you know later on once we.
There's always the opportunity to do the same process as Rosemont. Much later, where you go through a federal permitting process, but our main intention is to make sure that all of our activities are all constrained with the limits of our product line.
Peter just for you you mentioned Mason a couple of times in your presentation, you're gonna be trailing that later this year, but are you.
Thinking about pulling that forward I know when we've talked about this in the past. It was always that's next cycle late 2000, Twenty's early 2000, thirteen's, but are you considering.
Some way of pulling that forward or not.
Yeah, that's a fair question and I think that Ah I mean, we'd love to.
In short we loved it. So you know I mentioned in my comments that our we'd be doing some drilling at Mason Valley later on this year.
But do you think in a lot of front end work on the softer side of things said, we can laser.
Lay the groundwork to be able to proceed in a manner that is a much smoother than that which has been experienced by many companies trying to obtain federal level permits in the United States. So the very short answer to your question is yes, you would like to but we are going to be deliberate about how we go about it in our engagement with the various stakeholders too.
Two to smooth the path.
Okay. Thanks, Peter Thanks Andre.
Once again, if you have a question. Please press Star then one.
Our next question comes from Stephen.
Of course <unk> Securities. Please go ahead.
Okay. Thanks, very much guys that just further on the copperweld them. Obviously, you know that the resort is relatively fresh but just wondering are you seeing any sort of low hanging fruit for near term resource additions I'm. Just wondering in terms of the P. A like is that resource envelope that you have sort of defined so far can we should we view that as a sort of a snapshot in time or is that pretty much.
I'll, let low hanging fruit to be had and maybe from a different angle just again looking at those maps haven't exactly we talked about it it's a fairly constrained footprint.
But there are some big pieces of land to the north West that you have on private ground like open spaces with with no pits on them yet.
Should we view that as exploration upside lenders that more land that we should do it.
Structure placement areas and have you didn't have kind of a condemnation drilling to really figure out how youre going to set this altogether.
Okay, Oh, it's a Friday, yet you had a lot of questions. There. So so in terms of the resource. So the resorts that we we did quote in December is a snapshot in time. So we can we continue to explore and expand the resource from bolsa to the Rosemont and continue to see.
Positive indications that it's going to connect all the way through.
In a similar note from Bolsa, two broad thought that area remains to be explored and areas of between copper world than there is a what they call. The Omega mine, which is just to the south of copper will fill out our private land we continue to explore those areas.
So to your first question I'd say that the that the resource was a snapshot and there's further additions on our private land.
We continue to expect to find.
In terms of the constrained footprint.
It's very astute yes. It is it is a it is very constrained and there are.
Parcels of land that are not connected and when we started this process most weren't connected at all.
And so so our processor, where we went through with acquiring lands actually connected most of what we call the health Esher area into a meaningful tailings facility and so those areas. We have done drilling in most of those parcels and part for for hydraulic.
Drilling for future permitting and so they have been condemned so there are future facilities and the like.
And sorry, and my getting when I look at the map that started those big sort of lucky thanks to the northwest.
And the other piece.
Correct correct, Okay, Okay, great great perfect.
Perfect. Thanks, very much guys.
Our next question comes from Pierre.
Court.
Please go ahead.
Hi, Peter.
Just wanted to ask with the growth in cash flow.
You know certainly in the context of a share price that really hasn't done much in the last year or so.
Any thoughts on.
You know what what you can do to to try.
Try it out.
Reward shareholders.
Whether through dividend policy or share buybacks or is the focus uniquely you're going to be okay, I'm going to be on reducing the debt and where do you want to get that down to.
That's the case.
Morning, Ken Thanks would that look.
I think as I mentioned earlier we.
Paying dividends.
Whether they are pick it up or special dividends over the long the medium term. It certainly remains aspirational for us we want to do that.
But you also want to make sure that that we are able to avail ourselves of the organic opportunity set that lies ahead of us because we are we have a real conviction in and around copper, we do believe that.
Copper is headed upwards from here and we want to have as much exposure to it as possible we want to have that exposure for our shareholders.
So it's a balancing act in a sense you know on the one hand do report do we do we look after sort of a some short term rewards at the expense of the longer term Optionality and we asked ourselves that question every day and so far the equation has been that we would like to preserve some of the cash flow is ahead of us in order to avail ourselves of the Opex.
<unk> said in front of us, especially and opportunities such as copper world.
But Steve would use any anything you might add to that not 100%.
Well, a little bit perhaps look we're very deliberate by you reevaluate all options as it relates to our cash and.
When we run out of options in terms of.
It testing it and what we think de risks and and and really does a lot to enhance the security and stability of our cash flow over the long run once we get once we get that level set by virtue of that next phase of development.
We want to absolutely take a hard look at our U S.
Sustainable dividend throughout the course of a cycle.
But in the meantime, we absolutely I couldn't agree more with theater, we see a we see far greater returns in a in a long term a major contributor.
Tribute Copperweld and hopefully eventually at Rosemont.
Versus.
Just sort of trying to engineer.
A shortage or gain for us, but we are we are laser focused on increasing the derisking the company and taking a lot of those projects in our view, it's going to be developed and hope they developed by us.
So what do you think what would you like to.
Get the debt to what what's your what's your objective there.
I look at us today.
Net debt to EBITDA, we're in around two or less.
Depending on pricing.
But we've got term we've got a we've got the ability to now we've done the the revolver I think over the long term a sustainable level of debt for us would probably oscillate somewhere between.
One and two I do believe that has a place in our balance sheet. It does provide higher leveraged returns structure matters and we pay attention to all of those things I think as you would as you would've seen beverages by virtue of US later in the maturities of the way that we did so ultimately I'm not a fan of <unk>.
Our target level would be X.
I'll give you a range just to say between and then it could tick up much higher depending on what it is we're buying but that is with it we'll look to that with a glide path.
To pay it down and once we get the development done. So you know I know I'm kind of being evasive on giving you a hard number but I think it.
It's a number that we look at through the cycle that a number that we look at through our options and someday I aspire to zero net debt because we've made so much money on our investments that are we.
We got cash just looking for the next did.
A dividend payment or looking for the next accretive deal for ourselves.
And just last week so.
On the subject of spending I mean can you can you give any view on.
What what you will do.
Dedicating to to Arizona, I mean, assuming things happen you know.
Could you get a positive too weird.
You've laid out what your expenditures are this year how does that.
Can you just give us some kind of you want.
So.
Beyond 'twenty two.
Is it too early at this point.
Yeah, I think it's a bit early at this point, but what I would say is that you know the expanding that we would envisage.
In the second half of the year would be related to conducting a preliminary.
Preliminary feasibility study we've done a fair amount of infill drilling already it might be a little bit more infill drilling, but it would be the not at extreme levels.
Great Okay.
Our next question is a follow up from Dalton Barreto with Canaccord. Please go ahead.
Dalton Barreto your line is live.
Hi, I'm, sorry, I was on mute there. Thanks for taking the follow up I've got a couple of as it relates to the Arizona assets.
Peter if you get a positive decision on Rosemont, how does that play into.
How do you think you might copperweld.
That's actually a really interesting question because you know the interplay between Rosemont and and couple of is of course very interesting to us, but I think that one is perhaps the most important consideration is is that a positive decision does not simply release us to choose.
Start work on Rosemont, because there are some outstanding issues that have to be decided by the court and one is that you know the the bye bye diversity, a biological opinion needs to be decided on at the ninth circuit as well so until that is done we kind of not free and clear but in the Meanwhile, we are absolutely free and clear to start.
Looking at the synergies between the two projects.
So so if we were to get a decision next week it would still take some time before we could hit the ground on Rosemont and I you know it's difficult for me to say exactly how long it would take but there's other things. We you know we would need to reevaluate the estimate as I've said before we would especially in the context of the price environment that we see.
We'd need to take a incorporate some of the advancements that we've contemplated over the past couple of years in the technology technological and technical side. We would also want to seek a partner as we'd said before and all of those things will take time to as would be a sorting out the a and the other legal issues that remain.
To be completed.
Yeah.
Okay and then the second thing I wanted to ask you on that kind of combination.
If you include the Rosemont.
Scenario for copper were up.
Does that run the risk of attracting the attention of your environment.
And did you want to address that.
Sure sure.
So interesting question. So I think we have the interest of the environmental crowd. So so they're they're they're acutely focused on all of the activities that we're doing.
So.
Your question around integrating or synergies with with Rosemont.
Our main focus with copper world is all about a private land.
Private land plan, which is.
Which is that.
A different framework, if you will or.
For opponents to trade it to.
Attacking.
And so what I would say is is that what we like about the private land plan weather.
It has synergies with rosemont or whether it's all copperweld or some version of whatever it may be.
It's much more straightforward.
The the permitting regime is very much around air limits and water limits.
It's very clear cut and.
So we feel very comfortable about that and feel that regardless of the synergy my view anyway is that that it doesn't make it worse.
I think it's actually better.
Okay, and then maybe one last one for me.
I'll wrap it up there.
It's my understanding that the copper all deposits are also covered under the Wheaton agreement can you guys confirm that that is the case and how that factors into your thinking around the PK.
Yeah.
Eugene you want to respond to Bolton.
Hi Dalton.
That is correct.
On the comparable properties.
Covered by the agreement.
And they are aware of it the written agreement.
Alaska ration really abroad revolves around RP 16, the last at least for the study and we will work with Wheaton as we continue to work on the PCT study to update the agreement.
To reflect what what comparable will be but we've worked with in the past and come to a successful resolution that is beneficial to both parties and we expect that we will do so again.
Got it.
That's great. Thank you guys Thats all from me.
Welcome.
Our next question comes from Lawson Winder with Bank of America Securities. Please go ahead.
Hi, guys. Good morning, guys. Thank you for making the time for for me here.
First on Rosemont.
Sorry to ask about it again, but under the prior administration there seem to be a keen advocate.
Your legal fight with Rosemont.
From the U S government does that same level of support exist with the current administration.
And as.
As the U S government stance as an appellant and Desoto decision changed along the way.
Hum.
Thanks, Thanks for the question and good morning to you as well.
I'll take a kick back in in 100 may wanted to expand on it but.
The position that the department of Justice is taking in that doesn't make any difference because we have all made all oral arguments and those are done those made in February of last year. So there is no interplay between us and the court, it's simply a matter of the core rendering its decision and so regardless of what the buyer.
And the administration May think versus the Trump administration. It has no bearing on the decision ahead of us.
Yes, that's super helpful. I appreciate you pointing that out.
On your copper production profile, obviously, you guys have absolutely fantastic copper production growth through 2024.
I'm curious what are your top options for maintaining our copper production profile into <unk>.
25, so beyond 'twenty four.
I mean, you know obviously, a key element of it will be the outcome of the work that we've done on constancia. Okay.
And with our Oh, how we would access the AR the underground portion of that deposit to the north of of Constancia.
And then there's a lot of recovery and technological improvements that we're looking at but Andrea do you want to comment any further on that.
Philadelphia Theres a multitude of the.
Process improvement projects that are in our pipeline to improve recovery as you say and the the ore sorting that we're looking at there's just no.
We're trying to.
Better understand and remove dilution and prevent copper from going to a lease pile and improve the grid. So theres a lot of things in the pipeline and.
Does it seem to be a steady stream of improvements along the way.
Improving copper recoveries.
Okay. So youre writing those are the options can at least maintain the 22024 level I assume constancia norco would probably be the biggest one there or.
You know it is potentially there is something really big there with the ore sorting and some of the other initiatives.
Those things are going to take one off certainly would be the the a the b have the biggest impact.
Great and then just one final thing great to see the greenhouse gas reduction target.
As an objective for 2022 at this point, where do you see the low hanging fruit for for reductions, particularly over the next sort of like five to 10 years. That's it for me. Thanks.
It wasn't that that's the work that we are engaged on right now. So in fact, what we are what we have done is we have a cost a task force to put together an assembled over here at high Bay to address exactly where the low hanging fruit is said we can establish those targets. This year that will be much much better position later on in the year to comment as we've advanced.
Gone through some of the work that lies ahead of us.
Thanks very much.
This concludes the question and answer session I would like to turn the conference back over to Candace Brule for any closing remarks.
Thank you operator, and thank you everyone for participating please feel free to reach out to our Investor Relations team. If you have any further questions. This concludes our call and you can now disconnect your line.