Q2 2022 Lundin Mining Corp Earnings Call
Yes.
Good morning, ladies and gentlemen, and welcome to the Lundin mining second quarter 2022 conference call. At this time all lines are in a listen only mode.
Following the presentation, we will conduct a question and answer session, but any time. During this call you require assistance. Please press star zero for the operator.
This call is being recorded on Thursday July 28, 2022 I.
I would now like to turn the conference over to President and CEO Peter Rockdale. Please go ahead.
Thank you operator, and thank you everyone for joining lundin mining second quarter 2022 results call before we get into the formalities of the call. It has profound sadness that I am announcing the passing of our former chairman founder and brand Lucas as lending.
Lucas passed away after a crazy just to you're battling brain cancer.
Lucas founded Lundin mining with his father in the mid nineties kind of as a member of the board and chairman of the company for more than 25 years until he stepped down this past may.
In his role as chairman Lucas Oversold Lundin mining development from an exploration stage company into a global mid tier producer with a strong copper focus and a portfolio of world class assets.
The many successes of lundin mining in the lending group or directly to Lucas as extraordinary strategic foresight.
<unk> is a relentless drive.
His guidance and support for his colleagues will be deeply missed however, as pursuit and vision of creating a world class base metals company lives on.
Lucas would say get the right people empowered the people will have good assets those of us that were closest with Lucas sharing his approach.
And we will continue to build upon his legacy.
Thank you everyone and now I will continue with our quarterly calls.
I will draw your attention to the cautionary statements on slide two as we will be making several forward looking comments throughout the prepared remarks and likely during the Q&A as well.
To assist with the presentation and ask your questions are Ginnie Mcgee, our senior Vice President and Chief Financial Officer, and Peter Richardson, Our senior Vice President and Chief operating Officer.
As you would have seen from our news release last night. This will be the last earnings call for Ginnie and Peter with Lundin mining.
He will be retiring at the end of September and Peter will soon be moving over to the gold space with vertical in Nevada.
I think both Jay and Peter for their dedication and contributions to lend you money.
I'm also excited to also announce the appointment of a new member to lend even mining board of directors for a strong leaders to our executive team.
So that will be joining our board on August one.
Natascha is currently the executive Vice President and Chief operating Officer, leading Agnico Eagle mines operations and project development teams, we look forward to the operational leadership insights and perspectives Natasha will bring to our board.
One of our greatest morale will be joining our management team as our new SVP and Chief operating Officer next week one.
Juan Andres into one mining executive with an exceptional track record over three years, including more recently as the general manager mining operation for Bhp's Escondida.
Prior to that one spent 14 years with aspic asset very senior operational leadership positions, including head of operations at last kilometers. One also worked at Codelco has had a strategy of director of technical services. Once vast open pit South American experience will be a strong and natural fit.
<unk> will be joining as SVP and CFO on September one.
<unk> is coming from lending energy following its acquisition by Aker BP for approximately $14 billion, where he had been CFO . Since 2017, and also has many years of experience in finance and strategy.
Dave did you take care of his joining as SVP of Jose Maria and have overall responsibility for the project. She has over 40 years of mining and <unk> experienced gain in a variety of global projects.
Most recently, David was with Lundin gold, where he oversaw the successful construction of the <unk> project in Ecuador, and before that he was with Freeport Mcmoran project director for the highly successful multibillion Cerro Verde expansion project in Peru.
EBITDA was also general manager project development for South America for extra out of copper.
Lastly, I am happy announced promotion of Justin <unk>, SVP sustainability health and safety.
<unk> successfully led our Eagle mine as managing director for several years prior to being appointed BP environment and social performance.
He joined Lindsay mining in 2013 with the acquisition of the Eagle mine from Rio Tinto and has held senior positions at operations environment, permitting and health and safety.
Very pleased to welcome you successful colleagues to Lundin mining I believe their depth of experience will prove to be invaluable additions to our team as we continue develop lending mining into a world class base metal producer.
Continuing with sustainability and responsible mining on slide four earlier. This month, we published our 2021 sustainability report.
As many of our long term shareholders are aware lundin mining has been reporting on our sustainability performance and a standalone documents since 2010.
Within this year's report we are proud to have announced our new focused on the future long term sustainability and strategy.
Focused on the future is comprised of a promise a purpose and five pillars as described in the image on this slide.
The foundational work incorporates initiatives already underway at lending mining as well as new ones.
It will guide us as we continue to develop meaningful performance indicators to track and measure our sustainability efforts.
Under this framework, we are pleased to have announced an interim scope one scope two THC absolute emissions reduction target of 35% by 2030 compared to our 2019 baseline year.
So we are already a leader within the industry <unk> emission intensity for the base metals, we produce we acknowledge our role on the call for action to reduce emissions commit to low carbon alternatives and develop climate resilience.
The bullet points on the right side of the slide outlines a few of our 2021 safety environment and social performance highlights discussed in this year's report.
I encourage those interested in additional detail and more information of our approach and performance to read this report and as always please reach out with any questions.
I'll now turn the call over to Jan here.
Thank you Peter on slide five second quarter comprehensive production exceeded that of the prior year quarter, while nickel production was in line.
We produced over 120000 tonnes of base metals, and approximately 39000 ounces of gold.
We also sold over 110000 tonnes of base metals, and approximately 32000 ounces of gold on a payable basis generating revenue of $590 million.
Unfortunately second quarter revenue was affected by significant provisional pricing adjustments given the late quarter decline in base metal prices.
We remain predominantly leveraged to copper with the metal generating nearly 60% of the second quarter's revenue after pricing adjustments being contributed 15% an increase over recent quarters in part given increasing.
Zinc production with the ramp up of Nebbish clubs, I think expansion project and nickel contributed 12%.
Slide six presents a summary of our second quarter financial results compared to the same quarter last year.
With the late quarter decline in base metal prices, our second quarter revenue and financial results were significantly impacted by provision of price adjustments.
Prior period adjustments and the Mark to market of current period sales that remained to be settled at the end of the quarter were approximately negative $220 million detailed with pricing adjustments or in our MD&A and financial statements.
Ultimately, we realized copper price of $2.82 per pound, including a negative 96 cents per pound prior period adjustment.
Nickel price.
$7.64 per pound, including a negative $3 40 per pound prior period adjustment.
Second quarter revenue of $590 million with 32% below that of the same quarter last year due to lower realized metal prices net of price adjustments on a year to date basis revenue was comparable to the first half of 2021.
We reported an attributable loss of seven cents per share and adjusted loss of <unk> <unk> per share and details of these adjustments have broken down our MD&A as well.
Despite the earnings loss, we generated adjusted EBITDA of nearly $150 million in cash flow from operations above the $365 million.
Adjusted operating cash flow before changes in noncash working capital was $50 million or six cents per share.
On a cash basis capital expenditures of roughly $215 million in the second quarter or first half year total of approximately $360 million.
Capital expenditures at Eagle never Chicago, and <unk> are tracking well to guidance.
We will be discussing the operations section capital expenditure guidance for January and Japan have been revised given inflationary cost impacts on capitalized stripping and clean diesel and other mining consumables.
We generated over $215 million of free cash flow in the quarter.
At over $170 million in dividends to shareholders and purchased $8 million of shares under our normal course issuer bid in late June .
The balance sheet remains in a very strong position with cash equivalents of approximately $500 million.
And total liquidity of approximately $2 $3 billion at quarter end.
Lastly, our board of directors declared a regular quarterly dividend yesterday of <unk> <unk> per share Canadian.
I will now turn the call over to Peter Richardson to speak to our operation.
Thank you.
Starting with <unk> on slide.
The operation had a strong second quarter.
This is now three quarters in a row of on plan or better performance all kind of malaria.
The operation produced nearly 41000 tons of copper.
At least 23000 ounces gold cash cost of $1 86 per pound.
How does now ore grade and recovery rates were.
Good point.
Production is tracking well to annual guidance.
So all of the open pit ore mining is continuing primarily prophage 10, pushback with oil production called pesos pushback to talk later in the year.
Consistent with many other miners have indicated so far this reporting season and increased cost for energy and mining consumable during the second quarter.
Copper cash costs of $1 six per pound so greater than planned in the prior year quarter due mainly to high cost for energy and consumables, partially offset by favorable foreign exchange effects.
Full year cash cost guidance has been increased to $1 75 per pound copper.
155, two effects the first half actuals and the expected impact of inflationary increases primarily electricity fuel maintenance and contractor cost.
Canada second quarter capital expenditures were approximately $5 million in the first half to roughly 170 million.
As noted on the first quarter call capitalized waste stripping is trending above the annual guidance.
Given the inflationary increases in diesel explosives, and other consumables, Canada full year capital guidance has been revised to 400 million 300.
Primarily reflected increased cost of money.
On the growth and exploration cost initiatives to Debottleneck, the Canada pebble crushing circuit advancing our plan and I expect to see a small capacity starting in 2023.
As we have previously discussed technical study work evaluating the expansion of the north and South sector underground mine on the current 14000 tons per day to 26000 tons has been finalized.
The study indicated that technically and financially.
And we won't be looking to update the royalty taxation assumptions ahead, our decision to advance the project.
Later clarity.
Ultimately a construction decision would require either of.
The 2004 the EIA.
Lastly, we have completed over 14400 meters of drilling that's part of it.
The exploration program muscle.
Most of this work is focusing on growing and updating underground resources that we have demonstrated that in the past.
Of note second quarter drilling has extended mineralization copper also mind, including two whole.
Intersected, 2% copper.
Third 50 meters and three 5% copper over 65 years.
Moving to slide eight.
The difficult operating conditions <unk> experienced in the first quarter, particularly in a significant ramp up.
Knock on impact into the first part of the second quarter.
<unk> produced 10000.
345 tonnes of copper at a 16000 ounces of gold at a cash cost of $2 98.
Sure.
Production was lower than the same quarter last year due to the ore blends tested the plant, which had an impact on the mill throughput and metal recoveries.
However, several daily mill throughput record was achieved in June .
While we are exploring options to increase or reduce the catch up on what was delayed from the first quarter. It proved difficult to secure the necessary additional contract mining equipment personnel achieved an increase in rates required.
As a result, we have revised our full year production guidance to 45050 thousand tons of copper and 62000.
7000 ounces of gold is accurate the original platform services have been pushed back and seasonal.
We continue to expect production to be weighted to the second half of the year almost as a great go pilot seasonal operational conditions.
Second quarter cash flow was greater than the comparable quarters of 2021 attributable to inflationary increase in energy Michael's evolve and contract.
As well as lower production and therefore sales volumes.
Cash cost guidance has been increased to $2.25 per pound of copper from 160 <unk>.
In fact, the first half actuals revised production forecast of expected impact of inflationary increases in energy primarily fuel.
Japan second quarter capital expenditures were approximately $30 million, bringing the first half total to approximately 35%.
<unk> capitalized waste stripping was noted on first of all our quarter calls to be trending above the annual guidance.
Given the continued inflationary cost increase in diesel and.
And other consumable set out our full year capital that has advised on 65.
Mainly reflecting increased capitalized waste stripping inputs.
Despite the slower start with the right. So part of the exploration drilling is ahead of plan with over 34700 leases completed in the first half of the year.
Cellular mineralize their equipment has now increased to approximately 1200 meters by 950 units 1000 meters by 715 as discussed last quarter with assay results received during Q2.
Our system continues to remain open in all directions.
With the sidewall in Berlin potential, we will focus our efforts on drilling and how to best incorporate it in the future expansion scenarios.
We aim to issue a maiden mineral resource estimate for sale early in 'twenty three as part of our companywide mineral R&R.
On slide nine the gold assay results presented have been achieved in the second quarter.
Through the end of June approximately 36000 units have been completed in 99 hole that AUC for six or seven of the holes.
<unk> continued to tap extensive mainly to lower <unk>.
And to the west of discovery.
Slide show the location of completed holes, where assay results are pending as well as platform.
We will continue to be very excited about this is Scott we believe it supports our view that many opportunistic.
You can see the size and the quality of our mineral resource basis.
So the pass on vacation.
High grade system. They have all gone expansion studies are being evaluated.
And this area continues to evolve wholesaler.
Moving to Eagle life.
The operation had a strong quarter.
Producing over 4700 <unk> Nichols.
400 pounds of copper a cash call from 90% of our colony Cove the.
The mill set records for Nicole recovery, including an all time monthly record of 88, 5% in June .
Production of copper and nickel or selling on the high end of guidance with production.
Both to be mostly weighted to the second half of the year on grade profile.
Cash cost.
Higher year quarter due to inflationary increases in operating costs and lower realized copper price impact on.
Byproduct.
However costs are on track to meet annual guidance, which remains unchanged at negative 25 cents per pound of nickel.
Eagle second quarter capital expenditure was approximately $3 million, bringing the first half roughly $7 million full year Capex guidance of cellular also remains unchanged.
We are continuing to work through the <unk> zone into our 2023, LIFO Mysore and subsequent mineral R&R estimate updates or leasing in the first quarter of 2023.
We are aiming to be in development in the <unk> zone in 2020 with initial production in the first half of 2024.
Further extending the life of mine and equivalent production, although later years.
We're also continuing internal study work on the lower fuel costs, which are lower rate than the upper fuel cell is even close to existing infrastructure.
Second quarter drilling has extended release semi massive sulfide mineralization further to the east.
Currently we undergone weeks, having the exploration area roughly indicated about a post minerals admiral shown and or in.
The fourth rig to begin drilling later this month.
Moving to another clinical on slide 11, the operation produced over 7000 tons of copper 20.
And 900000.
Cash costs of $2 39 per pound of copper in the second quarter.
Production increased 40% over the first quarter as the zinc expansion project began its ramp up.
We are reducing production for this year to 90200 telecom.
110 to 120000 tonnes to reflect ramp up progress achieved to date and the re forecasting or when we expect to achieve full underground mining rates from newly developed areas.
The surface facilities continue to wrap up all original works to complete it.
We have targeted at full production rate in August although now expected later in the fourth quarter as we continued to increase.
Mining rates.
With the zinc production is expected to continue to be second half weighted that has ramped up over the.
The remainder of the year.
Copper production guidance unchanged.
Second quarter cash costs of $2 39 per common copper was greater than out of the corresponding quarter last year due to higher cost of consumables, particularly electricity somewhat offset by favorable foreign exchange rate.
Despite the elevated second quarter cash costs remain.
On track to meet full year guidance of $1.
Confidence.
<unk> second quarter, zest, and sustaining capital expenditures were approximately $25 million, bringing the first half total to roughly $6 million.
Also means that in sustaining capital expenditures remains unchanged.
On slide 12, zinc two months continues to perform very well in the.
Second quarter. The operations produced over 21200, 12500 tonnes of copper and 9100 tons of that on a cash cost of 44 SaaS for cognizant.
The operation <unk> to deliver on <unk> zinc and copper production.
Forecast cash costs remains in line with annual guidance with expected inflationary impacts on consumables being largely offset by production volumes and byproducts.
Thank you one second quarter capital expenditures were approximately $16 million.
First half totals were up to 20 months.
What are your sustaining capital guidance of $60 million remains unchanged.
Engineering for the sequential flotation causes as weather improved concentrate grades and recovery rates are underway.
It is a relatively minimal capital expenditure projects on the order of $50 million with a high IRR and quick payback.
Lastly, exploration efforts continue with over 8002 unusual drilling now completed this year as part of that 20.
2022 program.
Our focus remains on increasing mineral resources.
And between <unk> and <unk>.
I will now turn the call back to Peter to discuss the Jose Maria project.
Thank you Peter as I mentioned earlier, we're excited to have David Carey joined as SVP Jose Maria with overall responsibility for the project.
He has significant global experience gained over 40 years has experienced covers all aspects of project management for many types of mining projects ranging from managing pre feasibility studies two large EPC projects. We're looking forward to have Dave join the team.
As Dave joins we're continuing to progress the project through the next stages, including working with authorities in discussions on commercial agreements and securing additional environmental and sectorial permits.
With Fluor engineering work has been progressing in June is estimated to be 20% to 38% complete.
We continue working towards an updated technical report in the fourth quarter of this year. This has to include an update of cost estimates to be reflective of current conditions and evaluation of potential scope changes compared to the plans of the 2020 feasibility study.
As well as new mineral reserve and resource estimates.
Over 31000 meters of drilling have been completed since the last 2020 estimate.
As previously mentioned, we intend to spend approximately $300 million of milestones are advancing the project, including engineering commitments for long lead time items early works and drilling.
Approximately $55 million has been recorded as capex.
Our continued events all aspects of the project in a deliberate and disciplined manner to minimize the risks and towards a construction decision at the appropriate time.
This includes multiple discussions and avenues for project financing, including traditional debt sources joint ventures and off take partnerships.
Moving to a summary of our current guidance on slide 14, we have procurement strategy.
Ladies in place, which are mitigating the impacts associated with global inflation supply chain delivery, though as many of our peers in other industries, we are experiencing continuing risks with these.
We have not seen a significant impact on our operations related to the direct supply chain availability. However, in our forecast, we expect inflationary impacts on diesel electricity and contractor cost to continue to increase operating cost for the remainder of the year.
As discussed in the operational section <unk> production guidance has been revised while we remain on track to achieve the midpoint or greater production at our other assets. We also continue to be on track to meet our original annual copper and nickel guidance.
Cash cost guidance for candle area in Japan have been updated to reflect first half actual and expected inflationary impacts on mining consumables.
<unk> capital expenditure guidance and updated for candle area in Japan, reflecting higher expected open pit capitalization of waste stripping costs due to inflationary impacts on energy and other mining consumables.
The approximately $300 million, we expect to spend advancing towards EMEA project remains unchanged as does exploration expenditure guidance of $45 million.
I'll conclude with slide 15.
So our second quarter financial results were impacted by cost inflation and the linked quarter decline of prices for many base metals, we remain favorably positioned both financially and operationally to address potential macroeconomic challenges and continued to execute our strategy.
Noticeable progress has been achieved at candle area to improve operational predictability. The operation has delivered its third quarter in a row of on plan or better production results.
Unfortunately, we've not been able to accelerate or release at Japan to the extent necessary to make up for the impacts of the significant rainfall earlier in the year.
Our operation got backup to client rates as it exited the rainy season in the second quarter.
Positioned to deliver a strong second half performance.
The <unk> discovery continues to grow.
The zinc expansion project is making progress in its ramp up as demonstrated by the 40% quarter over quarter increase in zinc production with.
Surface facilities continue to ramp up as well.
We had originally targeted full production rates in August that we now expect this to occur later as we continue to ramp up underground mining rates in the newly developed zeff areas.
The operation remains on track to deliver its originally provided copper production and cash cost guidance.
Eagle zinc driven both continue to perform very well on track to achieve annual production cash costs and capital expenditure guidance.
And we continue to make progress advancing the Jose Mayor project in a deliberate and disciplined manner.
Lastly, I am very excited to welcome four experienced leaders to our executive leadership team.
Thank you operator, I would like to open the lines for questions.
Yes.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone, you'll hear three ton prompt acknowledging.
Your request on your questions will be pulled in the order they are received.
This should decline from the polling process. Please press star followed by you and if you're using a speaker phone. Please lift your handset before pressing any keys one moment for your first question.
Your first question comes from Auris Mako Dawn with Scotiabank. Please go ahead.
Hi, good morning.
I wanted to talk about the Jose Maria project, obviously market conditions have changed quite significantly.
Since last quarter.
Im wondering how youre thinking about that project that all in the context of the market.
I realize you're committing to the spending the $300 million. This year, but are you still thinking that assuming you get the approvals you need the stability agreement et cetera that you hope to sanction this project call. It early next year or.
Given the current environment is there a chance that you could wait.
Until things improve and maybe maybe complete more of the detailed engineering before you start.
I'll take thanks ours to Peter Aquino.
Yes.
Obviously highly cognizant of the current market and that certainly factors into our decision.
Decision, making if you will.
Right now we are proceeding with in particular, a lot more detailed engineering floor has been doing a very good job on that front.
As alluded to in the call earlier, we are working with the government.
Trying to finalize a number of the different commercial agreements and sectoral permits et cetera.
And we are looking at the timeline with the project.
And what the call it near term spend would be in light of the current capital markets, but our intention is to keep moving forward at the pace that we'd kind of originally indicated but we're certainly highly cognizant of this market.
We'll take that into consideration as we move forward. The other thing too is in parallel we.
We will continue with the discussions that began last quarter with a number of different counterparties that may.
Be involved with the project on a going forward basis to assist with some of the financing requirements.
Okay.
Thank you.
Follow up if I may just at the Nevis Corvo.
Project, obviously, you cut the guidance for this year.
I guess based on the first half of the year do you see it at this point do you see any knock on impact into the guidance for 'twenty three at does that project or is this strictly at 22 issue.
That's a very fair question.
Respect.
A lot of people that are lined up on the call to questions. We're going to have the same one and maybe theyre going to ask it on more than one asset so.
If I can kind of take a step back and speak to the entire portfolio, if you'll bear with me.
We obviously work we.
We do work hard quite frankly on all of our assets.
Put in extra focus on the last nine months or so at candle area, just given some of the historical challenges and the fact that it is our biggest asset.
As Peter alluded to.
<unk> been very fortunate to have three consecutive quarters as per plan and it's tracking extremely well towards the year end guidance. So that's definitely a positive and then improvement in Eagle were continuing to track well versus our guidance also.
Not trying to cover up for the other areas, where we have challenges at <unk>.
It's positive to see the year over year growth, but we have a lot more work to do quite frankly to achieve that run rate capacity and I think as we move in towards Q3, and Q4, and we get a feeling to where those production levels are there is certainly the possibility if they don't ramp up as per plan or it's quickly capanne that critical.
They're a little bit.
Into 2023.
We've had a number of teething issues as we've started up not.
Uncommon when you start up a new operation we had some pipes that werent built to spec. If you felt that ripped et cetera, but we've actually been able to overcome all of those issues.
Other thing is with.
Starting a little slow starting a fair a bit later than planned we are mining in different areas in the original model.
Planned excuse me so that in itself also presents new challenges so that being said.
We'll get a better idea as we move into Q3 Q4.
With <unk> and whether or not that slips.
Into 2023.
Sure Yeah, we remain very very focused on the successful ramp up of Zap and we've got our entire team focused in on it. So it is a world class ore body zinc.
The zinc price is very very strong so we need to ensure that we maximize it and maybe I'll just mentioned, Japan I'm sure, it's going to come off as well with respect to the challenges that began about two years ago.
When we had our first season about normally high rainfall did impact production, but it seemed like it was a one off and of course that was followed up by even a bigger year. If we go back to arguably three years ago and earlier they were going through drought.
So.
It's very hard to predict what the weather patterns will be but we have to make assumptions that this could be this weather. If you will could be for an extended period of time and we have to do a lot better job with our planning, making the assumption that there could be heavy rainfall. So our new hires in technical services had been down in Japan, just recently and are reviewing a few different scenarios adjust on a.
Likely here that there is further strange weather patterns I'll be down there in a few weeks with our new COO and will be looking over those plans as well so.
Yes, it's a fair question that you ask as we say three of the assets I think we're pretty bulled up coupon than the other two were working hard to make sure that we can give you guys guidance that's reliable.
Thanks, Peter sorry for the long winded answer.
Thank you.
Your next question comes from Jackie price Molesky with BMO. Please go ahead.
Alright. Thank you maybe I'll just start with a quick housekeeping question. It sounds like from the prepared remarks that your annual reserve and resource update is going to be.
In Q1, which is a bit later than you guys normally do it in September so.
How does that affect the <unk>.
Guidance that youre going to give us for 2023 and is that are you still planning to put that out in like November December like you normally do or is that going to be later this year as well.
So.
R&R is going to be presented in sorry. This is Peter Richardson. The R&R is going to be presented in January February of next year and the guidance for the coming years will be presented as per normal course.
End of November .
As we've done previous years.
Thanks, Peter that's helpful.
Maybe a question on.
Provisional pricing certainly this was a rotten quarter four.
For your exposure to copper prices.
It certainly hit your revenue is pretty hard.
I know some companies some of your peers hedge that provisional pricing exposure. So we don't have.
Don't have to forecast that.
Is that something that you have given some thought to because it certainly would help to smooth out these kind of peaks and valleys.
On your revenue side.
Yes, maybe Jackie I'll answer that one.
Not something historically, we've done but we have had a fairly thorough discussion over the last couple of days during a lot of internal board meetings and et cetera.
Something that we're going to look a little quite a bit harder out on a going forward basis.
Probably the biggest advantages to doing it as giving us the analysts et cetera, the ability to.
Better predictability, if you will on the assumed assume prices. So it is something that we will certainly take a closer look on a going forward basis.
Thanks, Peter and maybe if I could sneak in one other question.
I know you gave a pretty thorough answer already too to the question about what's happening in Chicago on the operating side can you maybe talk a little bit about what's happening on the project side as well it looks like Youre still getting some good drill results from the sell by area, but.
How does that how does that feed into ultimate expansion plan and when might we expect to see some detail on that yes.
Yes, I mean, I think it's going to be prudent for us to continue growing pretty hard.
The percentage of successful drilling is incredibly high.
So I think with respect to the market, we're going to have to be patient here as we continue to drill.
It seems like it's opened in every direction and given the grades that we're experiencing or would have a material impact on any expansion scenarios. So we're feeding that information as we speak and into some of the studies and again when I go down in a couple of weeks with a number of our senior leadership team.
We're going to review that information.
I think that's probably all I can say is we're very excited quite frankly as you can see in the presentation. It continues to grow so as I said I think it would be prudent to really understand what the ultimate size of this is and then we can determine how best to move forward.
Thank you.
And maybe I'll just pass on my congratulations to Peter on his new appointment and Ginny on her retirement and that also obviously my condolences on the passing of Lucas.
Alright, I appreciate that it hasnt been the two weeks yes.
Yes.
Your next question comes from Jonathan Barreto with Canaccord. Please go ahead.
Thank you I.
I wanted to start with asking you about Lucas as favorite jurisdiction Argentina.
I'm wondering what the status of the commercial agreement says and whether the recent resignation of the met a finance managed during all of these talks with the IMF, we're going to have anything to do with it.
Thanks, all right.
Right now our communications with.
The various parties, where we have always been aligned continues to be quite positive.
In fact, if anything they're wanting to see the project move forward, even quicker than we are I mean, I should say that we don't wanted to move quicker, but we need to make the prudent decision on timing when we have all the necessary inputs.
So there is still very very very strong support in Argentina.
Again as part of my South American truck coming out with a couple of weeks I will be down there and I will be meeting with a number of the different officials.
Just ensuring that we continue to have that level of support.
Okay, and then you said earlier that youll be cognizant of market conditions, when you Green light Jose Maria.
Any thoughts on maybe accelerating your buyback instead.
So I guess, what I can say on the buyback as after close today will be out of blackout.
And the buyback was in place quite recently.
There is still capacity.
From what we had been approved to continue with our buyback.
So.
That's something that we think makes sense.
<unk>.
I would expect that.
It's a high likelihood that you may see us active in that area.
Okay, Great and maybe one last one from me.
You talked about some of the cost insulators and yet a large part of that is out of your control but.
Given the tailwind you're seeing in some of your local currencies any thoughts on hedging out some of those to protect your thoughts yes.
Ironically.
Again, historically, we don't do.
Due to hedging.
But ironically this is something that we've just had a very very thorough conversation.
And I anticipate on select situations, you may see that occur as well.
Great. Thank you that's all for me.
Your next question comes from Matthew <unk> with Morgan Stanley . Please go ahead.
Hi, there good morning, a couple of questions left from my side the first one.
Similar yes again.
Larger scope changes that you are considering or could you potentially these costs. The order of magnitude because we are talking about in terms of spending.
Is it more on the order of $100 million to $200 million. So what are we looking at something closer to $500 million are higher.
The second question is on the vehicle.
Already touched on the opera <unk> zone, but you could could you perhaps elaborate a bit on the opportunity.
So for mine life extension production rates and unit costs.
Together with the Samsung what it means for the asset thank you.
Alright.
Yes, Hi, this is Peter Richards I'll answer the Eagle so.
Yes.
We said in the during the conference call we are incorporating the upper.
Zone in our life of mine, which will be updated at the end of this year.
<unk>.
We will we won't see any.
Increase.
Increased.
At the asset because we're maxed out on what we can produce.
Mine tonnes of mill tons, but we will see an extension of life of mine more ore that we're feeding.
The plant.
And then just going into your question.
On Jose Maria we did provide a bit of an update last quarter. So nothing has really changed on that.
Scope changes were designed about around increasing the power in this site.
Some capacities and changes to tailings cap size. So it was a similar things that we mentioned last quarter and there's no changes or updates to any of the numbers that we would've mentioned in that last quarter.
Okay. Thanks, very much thank you Bob.
Your next question comes from Greg Barnes with TD Securities. Please go ahead.
Yes, Thanks Peter.
Guidance for 2020 to Japan.
Can't malaria has gone up a lot.
I'll touch that recognize the.
Larry impact, but how sticky are these costs going to be into 2023.
Hi, Greg it's Jim here.
I would say, we're expecting kind of similar levels into 2023.
And as.
As we've said before that currently be the foreign exchange has really been helping in offsetting on the inflationary impacts in those two specific country and Peter had mentioned.
Kind of protecting on the foreign exchange is it's something that we're also looking at so I guess overall I'd say into 2023, we're probably expecting forecasting kind of similar similar pricing.
So as I be thinking of $1 75 cash cost from $2 25, but you've got it in 2023 as well.
Well I would say on the cost side. So when you look at the C. One that takes into account.
Our byproduct.
Credit as well right. So the byproduct also will impact etsy, one, but I think if you look at it on a gross cost basis and that's outlined in our MD&A I think that will is kind of what we're expecting to be continuing into the trend into 2023.
Okay. Okay.
Okay. Thank you that's it from me.
Your next question comes from Matthew Murphy with Barclays. Please go ahead.
Hi, My condolences on Lucas as loans.
You do earnings.
Around the same time.
But just a quick one from me on Jose Maria.
On the percent engineering do you have a target level that you wanted to achieve before the.
The go decision and what do you think that will be and does that influence some of your discussions as well on the financing.
Well I would say the influences our discussions on timing and.
And I can say without putting <unk>.
Line in the sand on this call, but the number is considerably higher than where we are today.
We will make sure that we have the necessary engineering to ensure the accuracy of the project.
And Theres a lot of historical data to show what that number is but.
We're achieving great.
Increases if you will on a weekly basis with Fluor. So we're quite happy with this progress, but we certainly need more progress before we make that decision.
Okay. Thank you.
<unk>.
Ladies and gentlemen, as a reminder, if you do have any questions. Please press star one your next question comes from Lawson.
With Bank of America. Please go ahead.
First my sincere condolences for your loss.
I also say thank you for the update today.
To ask about I noticed corvo.
Electricity costs in Europe .
Which.
I think we all know have risen to truly eye watering levels could you just remind us how the electricity contracts are structured in terms of when they might be reset or has to be renegotiated and what would be the exposure.
Those contracts are renegotiated.
Alright.
Jimmy I'll take a first stab at that.
I'd never Chicago.
Earlier this year, we were fully exposed to the to the energy markets. As we came off some contracts at the end of last year and as we saw the spike we weren't able to lock into a pricing that that we are happy with <unk>.
I will say that in the recent months.
We have been fixing prices and I believe about 50%.
Fixed for the remainder of the year. So it is something that we are continuing to watch and it's come off quite a bit from earlier in the year as well.
<unk>.
I think going forward, we our expectation is that.
That's kind of the level that we're seeing right now and and lower going forward and.
We're also looking at and.
Alternative energy sources as well so looking at the possibility of investing in solar.
And I may add loss in that.
With that possibility of looking at solar.
<unk> been just moving forward may have an impact on our current car.
Contracts with some of the energy providers that we'd like to be involved with that project.
We said go that route so that's quite interesting and it's something that we're working very very hard on it as we speak.
And just a brief thank you again for the year the condolences.
Okay. Thanks for that that's helpful and then.
Just on the.
On your exposure the power Youre getting now is it.
Correct to assume that it would be natural gas generated.
When it comes off the grid and so.
It's hard to break down all the different sources that feed into that we could get that answer for you.
Okay.
I also wanted to just kind of stick with the <unk>.
<unk> costs themes.
If I recall correctly in 2023.
Kendall areas power will transition to a renewable energy contract how is the pricing on those contracts now looking because I think the original expectation was for a pretty material reset lower electricity cost as a result of that.
Yes, yes, absolutely that still continues to be the case and I Should've mentioned that Greg asked the question I think 2023, we are looking at today, we will be entering into the new contract in 2023 and compared to current prices, we are expecting it to be.
More than 60% lowering costs, so that will have a significant impact on <unk>.
On the production cost in 2023 and going forward. So that still remains the case that the other additional benefit on the new contract is that it.
Fixed and just adjustable for CPI.
Okay and.
So what would be your percent of costs, it's made up from electricity today versus where it will go once.
Those contracts reset in 2023.
Yes, right now our electricity accounts for about 20, just over 20% of the <unk>.
Cost and I would say historically, it's probably been it's still quite high as you've probably been maybe 15% of the cost.
Okay, that's super helpful.
Could I just wanted to ask another question.
The reserve update but more in particular Jose Maria.
Just wanted to kind of better understand the materiality of the update that we might expect that Jose Maria so.
Would you expect it to materially change like this shows the shape the depth.
The expected pit.
Or will it add any additional pits.
Well.
What I would say is a lot of the drilling that's been done to date is really just an extension of the previous drilling ended in mineralization and so it's a pretty homogeneous deposit one can assume that the holes that are going deeper or having success.
And I think when we come out.
With the new R&R, you will see an increase there.
We have not done a lot of drilling outside of that area. So with respect to other pits not at this time.
Okay. That's super helpful. If you guys wouldn't mind I'd like to try and sneak in one more question I was just thinking about the debt EP project you provided some detail, but maybe it would be.
Helpful just to get a little bit of a better idea in terms of whats sort of causing the ore availability for example.
Is it just developments falling short or are there issues with.
Ground ground conditions or maybe are you just having issues getting like the necessary skilled labor.
So its theater here so.
We have initiatives in the.
The mind with productivity, primarily on kilometer area, which is.
The main Zane carrier that.
Has been developed and is being developed for that.
Productivity issues that we're working on we're making changes and so that's been.
Issues in the mine.
We've also had some issues with Peter alluded to with the teething issues with the ramp up of the crusher material handling system and some on the on the surface.
We have a number of initiatives to rectify those both of those issues. We had planned down two weeks ago last week.
So a lot of changes and upgrades have been made.
To get over those physicians.
Okay. Thanks, very much for the update today.
Your next question comes from Daniel Major with UBS. Please go ahead.
Hi, yes. Thanks.
Thanks for the questions.
The first one just some clarity on the.
Cash allocation to Jose Maria this year, you've you've allocated 300 million you booked $54 million in Capex.
When we look at the exploration and corporate <unk>.
Project development increased 41 million, which includes Jose Maria how much of that spend was Jose Maria.
What should we expect in the coming quarters is this 300 million split between Capex and this project development line on to the exploration or is that incremental to the 300.
Yes.
On the on the Jose Maria spend we spent about $90 million in total.
Up to June 30th from acquisition, So 55 being in Capex at about 45000 going through.
Opex.
Not capex.
And I would say that includes that again the b b.
The project management.
The I guess, the overhead costs and such and I would say going forward at the $300 million I would say probably a similar allocation to what you. What we are seeing what we saw in Q2 I would expect for the balance of the $300 million.
Sorry to be clear on that.
Is the expense costs on top of the 300 are included in the 300. They are included in the 300.
Right Okay.
So similar run rate $40 million a quarter in expense and then the balance goes through Capex.
Yes, yes, maybe a little bit less on the on the up opex in a little bit more on the Capex as we do make payments and deposits on long lead items.
So I think it was.
About 40 60 this quarter, maybe it will be more like 30, 70 or something going forward I would say, it's slightly higher capex slightly lower expense.
Thanks, Sam Thank you.
Yes.
Next one just to kind of level two questions.
Sure.
Firstly on the outlook for 2020 full so beyond your explicit guidance period I think the last technical report indicated an uplift.
North of 190000 tonnes of copper at 2024, there's obviously been a lot of changes.
Mind since then.
Should we be expecting the 2023 run rate is on a medium term.
Expectation for Candelaria or are you still expecting to get north towards the 300.
Mark in the middle of the 2000 Twenty's. That's the first part of the question and then the second part of the question.
With respect to more capex being allocated to Chile.
Sending bed Anglo American today, I think making up for the explicit referenced.
The shape of the tax changes would mean, it's unlikely that they allocate much more capital towards towards Chile.
What's the.
What's the threshold in the tax outcome, that's obviously still under debate that would mean additional.
Investments in Chile are off the table.
I think implies something close to the high <unk> effective tax rate would that be enough to stop pushing.
Pushing forward with the underground.
First question.
So I can.
Comment on the production of thought to at the moment, we are working on our track life of mine.
Going forward, then we will be finalizing them at the end of the end of this year and that's going to be disclosing.
Our guidance is going forward. We're also looking at updating the technical technical reports. So that's a project that's ongoing with our technical services team.
Those will be also coming out later this year early next year.
Yes.
Answer the question on Chile.
Had the opportunity to meet directly with the president of <unk> last month, and a number of his deputy ministers as well.
I don't think we were surprised by the new proposal if you will.
Call it 45% effective tax rate below 200000 tons.
That part to us wasn't a surprise, but I think we were a little surprised as are a lot of other mining companies.
And the AD valorem tax that he put out after the fact so.
Going to be down meeting with a number of the ministers as part of my trip in a few weeks.
And I think we'll be expressing our views on that one which are very much aligned with everyone else's views.
I think this is going to be quite frankly.
Viewed as a first proposal by the government and its going to require a fair bit more discussion because they are starting to see the pushback by a lot of mining companies.
And whether that whether or not this goes through in the fall of the <unk>.
Questionable so.
There's a lot of it there is a few of the things we still need to be doing quite frankly like the 2040 EIA.
Ted to proceed with the project so we'll see what the tax system comes out as well.
We're lined up with all the other moving parts.
Also Daniel if I may add one thing that we've communicated this before the pebble increase the pebble Debottlenecking project for.
Progressing as planned.
The plan is to have that up and running.
During next year and with that we will see greater throughput in the mill.
So that's going to be a chance positive change.
Okay. Thanks.
One more if I may just slightly.
High level question I mean, we've seen some money executives this reporting season seeming shops with a couple of price fell from $4 50, a pound I mean I'm assuming.
And amongst companies, including yourselves.
Planning on that kind of price environment to move the business forward.
And a 350 is not a bad price.
Is there a threshold level.
Ease of use.
Cut the dividend.
These forward with Sandler O'neill.
Alright, I think.
I think at this current commodity price.
Well, what our current strategy is still solid and I don't see any changes to that.
The first part of your question I spent some time yesterday with our commercial team and they were quite surprised by the drop in the pricing only because the demand that they're seeing for our end products as well.
Bit of a disconnect to what the current prices are and we feel that these and the long run.
Our unsustainable prices youre seeing a lot of projects being challenged you're seeing across the board everyone's cost going up and I think that's going to spill through eventually to also the commodity prices. So I think most ceos were surprised by the drop.
Obviously $3 50 is still a good price we have to take into consideration. Our costs are all have gone up as well. So I think the outlook for the commodity is still as strong as ever has been but it's difficult to predict in the short term.
Okay.
Okay. Thanks, so much.
There are no further questions at this time. Please proceed.
Thank you operator.
Thank you to everyone on the call I mean, obviously the current climate has presented a few new challenges, but I thought I'd like to reinforce that lundin mining is in a very strong position. We've got a great balance sheet right now we've got five solid operating assets and we've got some new people joining our senior leadership team that we're quite excited about.
I think the outlook is strong and some of the current teething issues that we're dealing with we will certainly address it.
Forward to updating everyone in due course, so thank you for the support.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a great day.
Okay.