Q3 2022 Capstone Copper Corp Earnings Call
Good morning, My name is Joanna and I will be your conference operator today.
At this time I would like to welcome everyone to the Capstone copper Q3, 2022 results conference call.
Lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad, if you'd like to withdraw your question. Please press star followed by chip.
Mr. Gerald Anna you May begin your conference.
Good morning, I'd like to welcome everyone to Capstone Koppers Q3, 2022 conference call. Please note that the news release and regulatory filings announcing capstone Copper's 2022 third quarter financial and operational results are available on our website and on SEDAR.
There are logged into the webcast, we will advance the slides of today's presentation, which is also available in the investors section of our website.
Im joined today by our CEO , John Mckenzie, our President and CEO Castle Maher, our Chief Financial Officer, Robin Randhawa, and our senior Vice President risk ESG in General Counsel Wendy King following our brief remarks, there will be an opportunity for questions.
Please note that comments made on the call today will contain forward looking information within the meaning of applicable securities laws.
This information by its nature is subject to risks and uncertainties and actual results may differ materially from the views expressed today.
For further information on the risks and uncertainties pertaining to our business. Please see capstone is most recent filings which are available on our website and on SEDAR and finally I'll. Just note that all amounts we will discuss today are in U S dollars unless otherwise specified now I'll turn the call over to John Mckenzie.
Thank you Gerald and good morning, everyone.
This was our second full quarter as capstone copper in a very.
Are you pleased with the progress of our integration efforts following the closing of the Capstone Memphis transaction earlier this year.
Last week at.
Expense and our board visited both months of EDA, Atlanta's Blancos and we're extremely pleased to see the advancement of the months have added development projects and the progress and potential additional upside at monster bunkers.
In the third quarter, we produced a total of $45 7000 tonnes of copper at consolidated C. One cash costs of $2 76 per pound across our four operations.
Despite lower than planned throughput at months as bankers in.
The mine delivered substantially lower sulfide costs of $2 17 per pound.
This should further improve once alone achieved the target run rates in the fourth quarter.
As for the catalyst business.
Tom Hi, sulfuric acid prices contracted during the second quarter and delivered during the third quarter with the main drive, but they detected costs.
Specifically with monstrous lundquist in months of Ada operations paid over $260 per ton for asset over the quarter.
However, the currently securities significantly lower prices to be delivered during the first half of next year.
With contract pricing in the $1 20 to $140 per ton range.
Overall.
Despite the inflationary pressures I'm pleased that we managed to keep our operating costs in line quarter over quarter with similar production to Q2.
I'll see what cash costs came in lower this quarter.
On the right hand side of the slide we showed the first full komatsu electric rope shovel Citrus Commission did not months have added mine in September .
Transitioning to electric equipments with months of Ed will not only help reduce our environmental footprint.
We also increased the mine's productivity driven by the larger lives. These new shovels can handle the.
Second shovel will be commissioned imminently and the final third before chipotle.
Turning to slide six.
We saw a nine month production and cost guidance between April and December 31st which remains unchanged.
Iterating, our consolidated range copper production of 136000 to a 150000 tonnes.
With C. One cash costs trending towards the upper end of our guided range of $2 55 to $2 70 per pound.
We expect some proof concentrated throughput levels in Q4 at monster Splunk costs as well as the Pennsylvania.
The ramp up at monstrous Lancaster is progressing well.
<unk> operated above the design 20000 ton per day throughput level. The 20 out of 27 planned operating days in October .
With copper recoveries in line with expectations.
Now I'll pass over to Robert for our financial results.
Thank you John .
Now on slide seven.
Our Q3 financial results were meaningfully impacted by the sharp decline in copper prices that began in late Q2 and continued into and through the third quarter, resulting in negative provisional pricing adjustments that have impacted earnings across many of our base metal peers.
Our realized price for the quarter was $3 29 per pad, which was 22 cents per pound lower than the average for Q3 and approximately $1 lower than the <unk> average in Q2 of this year.
Our lower realized price for the quarter was due to $29 7000 tonnes of copper priced at an average of $3 75 per pound at June 30th which final settled at lower average prices during Q3.
By 34, 6000 tonnes of copper provisionally priced at an average price of $3 45 per pound at September 30th which was lower than the average price in the third quarter.
Adjusted EBITDA in Q3 of $34 1 million was impacted by a realized provisional pricing loss of $32 5 million as well as continued inflationary pressures felt across our portfolio.
Particularly with respect to sulfuric acid within our catheter business as John mentioned earlier.
The $32 5 million.
It relates to Q2 provisional pricing, that's excluding that amount EBITDA would have been $66 6 million.
Our adjusted EPS of negative <unk> <unk> per share was also impact by incremental $22 5 million.
And realized provisional pricing losses.
Going forward, we aim to minimize the impact of provisional pricing through our recently implemented QP hedging strategy, which I will describe in more detail in the next slide.
Moving on to slide eight on the left hand side, we summarize your available liquidity, which was $711 million as at September 30th, including $196 million of cash and short term investments $405 million of Undrawn amounts under $500 million corporate revolving credit facility.
As well as $110 million of Undrawn amounts on our 520 million Manto Verde development projects facility.
Further financial flexibility exists within the $100 million accordion.
And the Undrawn balance of our $60 million cost overrun facility with our mental Verde partner Mitsubishi materials Corp.
As at September 30, we had drawn $22 nine on the cost overrun facility, which we are contractually obligated to do so regardless over operating cash balance based on our previously announced capital increase from $785 million to $125 million in Q2, which remains unchanged.
On the right hand side of the page we highlight the proactive steps we took in Q3 to protect downside risk with additional 2023 copper hedges as we approach the final year of construction of mental burden in.
In summary, 85000 tons of copper production next year is hedged at a weighted average price of $3 45 per pound.
As previously.
Previously mentioned in late Q3, we commenced the QP hedging program, which utilizes derivative contracts to offset copper sales.
Objective about fixing revenue at the time of shipment.
Eliminating significant deviations and realized copper prices from the <unk> average.
Our recently implemented QP hedging program also enables better liquidity management, especially in periods of falling copper prices to protect our business.
As those plans going forward and our balance sheet.
We remain well positioned to fund the remaining Capex, an MVP a project that will be transformational to our portfolio. Once it's commissioned in late 2023.
Now I'll hand, it over to cash flow for the operations review.
Thanks, Robin now on slide nine Pinto Valley produced $14 1000 tonnes of copper during Q3 mill throughput averaged approximately 48000 tonnes per day and was impacted by unplanned downtime at the water pumping system at one of our large makeup water sources combined with the stick nerve right.
Julia impacting the ability to run at full rates.
The mill is currently operating at normal throughput levels.
We have reestablished normal operation in these areas.
<unk> cash costs of $2 60 per pound were on the upper end of our nine months guidance range and 22 cents per pound lower than last quarter.
As for PV four we continue to work on engineering detail and network, which has the goal to increase the mine life with additional tonnage from $20 39 to beyond 2015.
Moving to slide 10.
During Q3 close them and achieve good grades and throughput levels, yielding solid copper production of six 4000 tiny at sea one cash cost of $1 20 per pound both in line guidance.
The paste backfill and dry stacked tailings project continues to make good progress and will facilitate the mines planned long term sustainability.
With project completion expected in Q4 and ramp up in the first half of 2023.
Date, we have invested $41 million of the total of $55 million budget for the project.
At <unk> exploration program continues to focus on testing the <unk> main west target from surface and underground.
Testing of other targets along the San Roberta mine commenced in Q3 and the results of the ongoing exploration program will be incorporated into an updated mineral resource estimate in the second half of 2023.
Moving to slide 11.
Throughput is steadily improving atlanta's blancos, averaging above design levels over 70% of the planned operating days in October multiple sampling and testing programs around the new mill eight indicate that it is operating at better than.
We then expected grinding efficiency specifically this new mill is operating at 15% to 20% above design grinding efficiency and drawing 10 megawatts out of the 13.
<unk> of motor power.
Our operations team are actively engaged with the mill vendor to increase the MLC you can draw more power while at the same time, increasing the throughput at the fine crushing plant to take advantage of the higher efficiencies.
We are very pleased with the results and are confident that the front end of the plants can achieve higher than designed throughput.
This is evidenced by October production performance, where the mill averaged above the design throughput levels over 20 out of 27 planned operating days.
<unk> Daily Mill throughput was just under 25000 tons.
In August 2022, we filed for the required environmental permits for phase II, which is an additional 35% expansion over phase one.
The feasibility study for this expansion has moved to the first half of 2023 as we are incorporating recent operating performance and fresh understanding of where bottlenecks lie.
Now on slide 12.
Q3 cathode production at <unk> was up 11.6 thousand tonnes at a <unk> cash costs of $3 87 per pound.
John said earlier this was impacted by record high sulfuric acid costs, which have peaked and we have secured asset supply for delivery in Q1 of 2023 at less than half the prices paid in Q3 of 2022.
Okay.
Last week has that Manto Verde, and I'm very happy with the momentum and progress.
Of our MVP project, which remains on track for construction and completion and wet commissioning in late 2023 as of September 30, we achieved an overall progress of 67% and construction progress of 37%.
Having spent $490 million of the $825 million capital budget for the project.
At this point in the project with most major equipment delivered to site I feel that the areas of possible capital escalation are greatly reduced.
With reference to the next four slides 13 through 16 construction activities are really ramping up currently 40% complete with the principal concrete foundation work near completion as we can see from slide 13, the primary crusher and the concentrate thickener and filter building are well underway.
Slide 14 shows the grinding and flotation areas then on the right side, you can see the ore stockpile and reclaim infrastructure area.
Slide 15 shows the work at the tailings thickener and the trenching and wall construction for the tailings storage facility.
On Slide 16, you can see a photo of a mill shell.
As of now all major components for the wet and dry circuit had been delivered to site. You'll also note. The electric rope shovel. This is number one a four and has been operating on the pre strip for a number of weeks now with the second to be commissioned imminently and.
And the final third and fourth to follow.
Work progressed on all fronts of the mental Verde development project, and we look forward to hosting our Chile tour.
In shifts two weeks time.
Finally on slide 17 work on demand So Verde, Santa Domingo District integration plan continues the plan will outline how we utilize our existing and future planned infrastructure to maximize value creation across the district.
Our goal is to create a world class district capable of producing 200000 tons of copper per year at low cost and with it to get.
Additional benefit of a leading cobalt business, which would be one of the largest outside of the DRC in China.
We continue to mature the overall strategy for the desk strict balancing the potential revenue opportunities with cost savings synergies.
We know that the desalination plant the electrical infrastructure and the operating team and the project delivery team will all benefit Santa Domingo greatly and Conversely, the port and future cobalt plant and the potential additional oxide leach production.
<unk>, Santa Domingo will benefit Monteverdi.
We look forward to discussing this in more detail soon when this plan is released and we can discuss it during our site tours two weeks from now.
Yes.
Now over to Wendy King for the sustainability review.
Thank you Kash. So we're now on slide 18.
We're proud that Monteverdi mental blancos formally became participants at the copper Mark assurance framework in August .
In the 12 months that follow they will complete a self assessment and an independent assessment against the copper Mark criteria.
Our greenhouse gas emissions target setting process continued in Q3, we worked on establishing the business as usual forecast that will become the base case for our de carbonization pathway.
We have also started reviewing scope three emissions at our Chilean sites and will begin to assess broadly across capstone in 2023.
We have set our initial ESG priorities, which are on the right of slide 18, and we are developing and rolling out our goals, including our emissions targets very soon.
Monteverdi inaugurated the first of four electric shovels, which will contribute to reducing the sites scope one greenhouse gas emissions in the expansion phase.
Pinto Valley hosted its annual old Dominion's day event, which is a celebration of the history of mining in the region.
It provides a valuable opportunity for broad stakeholder engagement for members of the surrounding area to take guided tours at the site.
Pinto Valley also completed its peoples com construction project with a liner installation and pump system to support water conservation and reuse.
We are in discussions with some key corporate partners to support community investment projects in Chile, and Mexico to further enhance our social impact in these regions.
<unk> advanced the remediation of the historic <unk> tailings site, securing a final permit for the confinement Sal.
<unk> is an important example, and the industry as it's one of the few historic remediation projects in Mexico.
Finally, <unk> Blancos successfully submitted its environmental impact statement for increasing the concentrator capacity for the phase two expansion.
Now I'll turn it over to John for final remarks.
Thank you Andy.
Finally on slide 19 with.
About nine months production and cost guidance ranges reiterated.
We expect to produce around 185000 tons of copper for the 12 months in 2022.
We remain focused on the execution of our near term growth profile.
Copper production by 40% to approximately 260000 tons by 2020 with the completion of the months of 80 development project, which remains on time and on budget.
Following this we have a fully permitted transformational projects with a text stability agreements in place to advance it tons of Domingo.
Which unlocks an additional 45% of copper production guidance.
380000 tons per year.
Further upside and expansions across our portfolio.
Including an exciting cobalt opportunity at months Veda in Santo Domingo.
With that we're now ready to take questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear three Tom prompt acknowledging your request. If you are using a speaker phone. Please let the handset before pressing any keith.
First question comes from Dalton Barreto at Canaccord. Please go ahead.
Thanks, Good morning, everybody John I'd like to start by asking you for your thoughts on the proposal from the government on the new mining relative achieved last week. Thanks.
Okay.
Hi, yes. Thanks, Thanks for the question.
Maybe just starting off.
Talking about the sort of obviously they've been two processes going on one is the constitutional referendum and the second is the sort of new Ot legislation.
So I think we obviously saw that the.
Draft Constitution was.
Rejected by very significant majority, 62% against 38%.
A few weeks back.
And.
I think.
About a year ago.
80% of Chile voted in favor of changing the constitution. So I think we are.
We believe it's it's.
Most probable that the constitution is going to continue to be adjusted and adapted and changed.
It seems to be heading towards a.
A process that should land up with a far more sort of measure the outcome.
And that process is currently being discussed in parliament.
I think with regards to the royalty proposal.
Certainly the new proposal.
As a very significant stake in the rock direction.
I think the previous proposal was put it would've made Chile sort of an outlier.
And I think this new proposal moves it's very much back.
Closer towards.
Sure.
So there's other jurisdictions tax rates.
I think in our view, it's still work in progress it will slow in its current form act to make Chile.
Less competitive than it would otherwise be and I think so.
We will for the Sydney continue to engage with the government and seek an outcome.
Sure.
Is it a win win for both Chile and full mining companies.
Great. Thanks for that John and then maybe I can switch gears a little bit for my second question. The integration study that's coming out next week.
Can you tell us.
What level of detail, we're going to see.
Yes, I think I think Nelson for that how much is posture across two castle because he's obviously been very close to that steady close to your cash flow.
Yeah, Hi, Dalton.
Yes.
I think I think.
What we what we need to realize is.
Since the integration of the two companies.
What we've seen is a tremendous amount of opportunity.
Sort of uncovering itself at the various operations whether its metals.
<unk> Blancos close manner valley, but specifically to the integration area between the main governmental burden as we dig dig we find more and.
With that.
Knowing that Santa Domingo the last technical report was 2018 and that now it's going to greatly benefit from the infrastructure already installed at mantle. Bernie that there is a considerable amount of engineering work to bring up that quality. So I think what you can do you is that you.
You would get an idea of the scope and the benefits of what the current infrastructure is while we'll probably will lay out we will layout the tie.
<unk> frame for some of the more detailed work and more of the feasibility work, which is what is the cobalt flow sheet.
When do we expect to have oxide.
A linear aided at Santa Domingo.
And those types of things, but we can surely sort of give more detailed color on what the expectations are what the value might be for.
The addition of a port to mantle Verde or the addition of the desalination plant or some of the electrical power infrastructure.
The difficulty really comes with.
You know.
With that technical report being dated and with new information are rising it's not a deduction of what the previous Capex was due to inflationary pressures and some design considerations and optimizations.
So what we hope what we.
Well, what we're going to lay out is this sort of optimize pathway going forward.
And that there are some key.
Infrastructure integrations that materially affects Santa Domingos.
Efficiency going forward.
Thanks, Cassia and maybe I can just squeeze in one more on a PV for as Youre working through it.
Are you just contemplating a mine life extension over the web via production expansion as well.
Fire away casual.
Yes, we're always evaluating the expansion opportunity there are expansion opportunities and right now we have them sort of in a what we would call an evaluation or a trade off our value engineering process.
The base case is a wife expansion, obviously with bringing in the reserves and coming up with suitable tailings.
<unk>, but with that also we are evaluating the opportunity to expand the operation.
So there are several of those trade offs underway.
I would say again the base cases additional reserve mine life, but there is opportunity for some expansion there that is being evaluated.
Ed.
But the jury's out we don't have the scorecard in yet.
Yes.
Perfect Thats all from me guys. Thank you.
Thanks, Jonathan.
Yeah.
Thank you next question comes from Rs <unk> at Scotiabank. Please go ahead.
Hi, Good morning, just following up on dalton's questions.
The Chilean operations I'm, just wondering where the thinking is right now with respect to Santo Domingo just given the uncertain market environment for projects and for the copper market itself whether you.
Still envision the construction of Santo Domingo starting shortly thereafter, the completion no matter verde or or can we anticipate more of a pause and kind of a re a rebuilding of the balance sheet before you would start another big project.
Yeah, great. Thanks, Thanks for that question.
Very good question.
As you know we have sort of stated previously.
Nine intention of running two major projects in parallel and so clearly.
Our first objective is to complete and ramp up the months of a project.
As you noted that's.
That project will be completed in the first of all will be through sort of towards the end of next year.
So to an extent that gives us.
A little bit of time to actually assess the macro environment and with that that gives us sort of.
I would say overall.
We are rather conservative in terms of how we look at sort of our balance sheet management and how we look at also the future commitments.
And so I think the timing of Santo Domingo.
Well clearly sort of take into accounts.
The ramp up of months or better.
Buildup of cash within the business.
The current macro environment and Thats on both the side of.
Copper prices and.
And the inflationary environment.
We are using this time to advance the studies.
The studies forward, so thats sort of.
We remain fixable.
We can pull the trigger on that with what we regard as the.
The optimal time to do so.
And obviously that's that question.
Is sort of.
There's multiple parameters, we need to take into account clearly.
In an ideal world when you'd want to pull the trigger on Santa Domingo.
Sort of doing a pay we'd been perhaps the market is somewhat weaker and capital inflation is somewhat lower.
Rather than sort of wait until copper prices.
Really booming.
I think we will take all those factors into account.
Ultimately it will depend very much on.
Confidence around sort of maintaining a strong balance sheet.
Okay, and thank you for that and just as a follow on then so when I think about sort of your projected startup timeline and then a ramp up for metal Verde.
That would suggest to me that sort of the earliest timeline would be call. It second half of <unk>.
24 for the sanctioning of that project is that the right way to think about it.
I think Thats, a fair comment alright, I think we.
As I say I think I think sort of once we have <unk>.
Completed construction and put through I do think we are certainly.
Daily hopeful lifts the months of a ramp up will proceed fairly smoothly.
Tried and tested design that should go a tried and tested equipment and the team from the Saint <unk> working with us over the past few years ramped up and a very impressive full civil.
Several of these sort of almost identical concentrates as before so I think we.
We are fairly optimistic about the ramp up time line.
Clearly then we wanted to be in a position, where we consider the face sort of cash build in the business.
And the macro environment and then we will take into account sort of works.
What represents the optimal sort of.
Point to pull the trigger on.
On Saturday.
Okay, and then just on Santo Domingo itself.
Before the merger there were two infrastructure transactions that were being contemplated to reduce the upfront capital.
Port rail are those still part of the new plan can you maybe give us an update on.
What's happening with those two proposals.
Yes, certainly I noticed that's I'll pass across to.
Two casual bet.
That says certainly those sort of but.
The detailed investigation.
Study.
Yes.
Yes, so with this combined entity now.
We sort of rather than rushing forward with beef as you've sort of pointed out and John just so eloquently put.
We're sort of waiting for.
The right economic conditions to move Santa Domingo going well not trying to increase our complexity our workload by running two projects at the same time, but we still have a full Santa Domingo.
Office of.
Engineers.
Business people that are evaluating the different options in the integration it becomes more complex. When we started talking about the possibility of cobalts not only from Santo Domingo, but also <unk>.
Yeah.
The possibility of oxide from Santa Domingo over at mental burden to sell some of the unused capacity at the Sx EW at the same time.
We're focused on that other.
Large revenue generator at Senate of angle of course, which the iron ore and really the iron ore is just what is the catalyst to.
Major port consideration, which is part of Santa Domingo bore the idea.
Trade offs still continuing on this idea of trade offs versus.
Slurry and filtering at the port location versus transport by rail.
And those trade offs are still continuing simply because of the integration of the two assets the return water or the quality of water are aware of the pumping stations are what the electrical infrastructure. So they seem very simple on the outset, but when you start getting into the detail. There is the right answer and we're working towards it. So we still keep those partners and though.
Partnerships in.
Engaged in what those trade offs are they keep continuing to evaluate with US what is the best scenario for the shareholders of capstone and and we work with are.
Our joint venture partner at mental Bernie and updating them and incorporating them what is the best option for the mental burden joint venture also and invariably it always turns out to be what is best for capstone copper and.
Senator Mango is also best for mental burden and sharing and all of those optimization. So all of those conversations all of those relationships in all of those evaluations are still part of this value engineering exercise and trade offs.
Process.
So will this become clear with the.
The integrated study that's coming out next week or is that something that we have to wait for the updated feasibility for.
I think I think what it does is said.
The next couple of weeks, what will be able to disclose is what we're working on specifically on what the merits of each hour, but we wont have a final evaluation of that that will come with more detailed engineering and trade offs of those as those mature. So yes, it's about laying out the pathway in the <unk>.
Matt more clearly.
And then those evaluations in time all reveal themselves.
Okay. One more question if I could squeeze it in just on the Manto Verde sulfide project, how much contingency is built into the 825 million capex in <unk>.
And of that how much has been consumed to date.
Yeah.
So I think what's important is just looking at that overall figure what the.
Sort of what it comprises of.
I think.
And sort of casuals presentation, a little bit earlier.
It's really made up of several categories now the one is the.
EPC sort of lump sum turnkey project with the St.
A very large parts of that is.
Is.
He is all fixed price.
And element to it which is.
Which is on the sort of some of the moving on the tailings facility.
<unk>.
That part of it now sort of has.
It's pretty close to being sort of cast in stone.
And then the other major cost elements of the mining equipment now all of that money equipment is actually priced and the vast majority of that is already delivered.
And then the remaining portion of it is the pre strip and obviously the previous incrementally.
We reported was primarily around that.
That was the result of sort of increased.
Diesel and expose the process.
And they can pick their head on the on the pre strip.
So we have I would say sort of.
A small contingency that remains in.
And that's a $25 million number.
That's sort of a handful of million dollars.
Thanks.
At this stage, we think there is sort of relatively limited scope.
For further slippage.
Thank you.
Thank you next question comes from Robert <unk> at eight capital. Please go ahead.
Thanks, operator, good morning, Thanks for taking my questions.
Maybe a couple for Robin if I can robin on the on the <unk> program is the goal to hedge out completely provisional pricing theres still disclosure in the MD&A about open pounds for Q4.
And just wondering how long would you expect the <unk> program to be in place could we see sort of coming off when we get to higher copper prices.
Yes, so the QP hedging program will just it's going to continue to roll. We started the first months of September . So that's why there's some open exposure on the MD&A there for a couple months of Q3, so youll see that kind of flush out here in Q4 now.
And then that should be our last quarter of really having provisional prices essentially.
With the concentrate business, you've got a three month kind of floating price out there what kind of swapping that for a one month kind of near term fixed price so locking in a price closer to it versus having that exposure out there and essentially when you move to this graph. We just stay on it because what we noticed I think we've discussed with you a little bit is when the price falls it falls apart and use.
A lot of money and when it goes up you don't it doesn't move up as fast so.
This essentially allows us to achieve lemme average each quarter, but youll, probably start seeing that in a full quarter in the first quarter Q1.
Okay. Yeah, that's helpful and second question just.
How good is the liquidity and the sulfuric acid market.
<unk> in those Q1, 'twenty three prices sort of into the into into later quarters do.
Do you have a goal in terms of the proportion of sulfuric acid exposure that you're aiming to be hedged on.
Yes, I mean, its a fluid strategy, that's actually discussed at the exco.
Weekly basis, I'd say, but typically fourth quarter is when you can kind of make a pivotal decision on how much do you want a fixed versus float let's call. It for the next year.
So as we talked about we have conservative fixing into Q1 for mental burden.
Where do you really good price of 120.
Based on our market intelligence that we can decide if we want to fix a bit more here in the fourth quarter heading into next year I'll leave a bit more open for spot. So we'll be working through that strategy here in the fourth order.
And that will be baked into our 2023 guidance.
Okay.
Thanks, Ron I appreciate it.
Yes.
Okay.
Thanks Robert.
Next question comes from Stefan you Lino at Quebec Securities. Please go ahead.
Yes, thanks, very much guys just wondering on Pinto valley with the throughput being down in that sort of 48000 tonne a level.
In the last quarter versus sort of PV three I think it was trying to get up to about 58000 tons. A day. It sounds like you spent some money on some water retention and wider infrastructure should we read into that that there is a seasonal issue here or just consideration going forward and like with the new infrastructure do you think we'll actually be able to keep it at 58000 ton a year throughout the throughout entire.
Calendar year or is it kind of be a hammer.
Summertime thing when when went throughput does go down just because it water.
Thanks, Stefan I'll pass that question across too.
The cash flow.
Yes.
There is no doubt.
Is a seasonal nature, it's no mystery.
It's quite hot in Arizona then.
Much of our water our much of our makeup water is actually some brown sources.
It gets affected by our recharge per year. So it's less affected on the immediate growth on the recharge and right and getting that additional makeup water and so the infrastructure items, we indicated with some of the secular issues the rate and some of the water infrastructure was actually up.
The.
Individual breakdowns that limited our ability to gain some of that recharge water, so that sort of on us in our infrastructure management and asset management going forward some limit that exposure.
Okay.
That being said.
Certainly one of the major sources of water also has reclaimed water recycling and reuse of water and that happens within our principally in the <unk> sand our tailings dam.
Or are we.
Take water back and when it's dry we suffer where in the sense that you know.
And that natural reclaim a water from wherever the spare getting us to where the reclaim pumps are it is reduced in those seasonal area. So what we do at a local level.
Is what we do is as we sort of plan out the extra production if you recall.
I recall it was before my time in Q4 of 2022, they had very good production in Pinto Valley and that's because the reclaim was very high and they were able to utilize the installed capacity in the mill to achieve higher than 58000 tonnes per day, so the idea probably going forward.
Two sort of format that but I still think we're looking at and we're going through the detail exactly where it will be with our January guidance, we put out in each year, what is expected out of things of valley, but at an average it will be in the high <unk>.
But.
Seasonally we will have to profile that water dependence on that replay while also having much more confidence in our ability or the freshwater makeup.
With with.
With a greater focus on asset integrity for 2023.
Okay. Okay, no that's very helpful. Thanks very much.
Thank you next question comes from Ben <unk> at <unk> Securities. Please go ahead.
Yeah, Hi, guys. Thanks for taking my questions.
I don't really have much left.
I'll ask one on <unk>.
Premiums were reading about I think in the last couple of weeks there's been several several.
News reports on premiums for European and Asian customers kicking in in 2019.
<unk>.
Above the levels. We've seen today is there something you will.
Payables leverage.
Okay.
Thanks, Thanks for that Ben.
I wanted to parse your close to general too.
As also recently taken taken over marketing responsibilities were drilled across to you.
Yes.
Thanks, Yes, I think you're referring to the cathode premiums.
Yes bandwidth.
Yes.
We haven't we.
We have a third party.
Marketing or our cathodes up and I think it's under contract to the end of 2025.
Right now we don't we don't have exposure to the higher premiums, but post 2025, we will so we're looking forward to that data we can.
Realize the upside to the premiums.
Okay. Thanks, Okay. Thank you.
Thank you.
Thank you next question comes from Craig Hutchison at TD Securities. Please go ahead.
Hey, good morning, guys.
Just one question from me just with respect to the <unk> Branco space to take.
Take it from 7 million times. The 10, there is a note that you guys are you apply for the IAA application.
Yes.
2022 here for the environmental I guess permanent can you just talk about.
Whats involved with permitting phase two how onerous that processes.
Thanks.
Yeah, So certainly I'll have first.
Correct, because thats and then I'll pass to the close to cash flow.
In Chile, there are three different levels of.
Permitting you get whats called the puts and NCI, which is just sort of minor.
<unk> two.
Mitch.
Thats something generally within the plant.
As a D I E which is.
I mean, there's sort of some additional throughput or scale little more material, it's going to go into a tailings dam.
And then there's the EIA, which is the sort of the fully fledged environmental permits.
Our belief is that.
The authorities have accepted is that this expansion is months of it.
In the middle the DAA.
And hence is.
Basically a relatively straightforward process.
It's.
It really just means some additional processing infrastructure within sort of an existing brownfield plants.
And obviously the main reason why it sort of triggers the EIA and not just the puts and NCA.
Because we will be actually growing the.
The amount of reserves that it'll be proceeds.
And we'll go into the tailings facility.
And what we are doing is doing that sort of within.
Sort of tailings facilities that already permitted and.
Which which we believe should be fairly straightforward.
So I think our expectation is that this is a relatively.
Straightforward permitting process.
But obviously, we do need to make sure we should have.
Total the eyes and crossing the t's with it.
Casual do you have anything further to add to that.
No no I think that explains it well John .
Yeah.
Perfect guys. Thank you.
Thank you next question comes from John Tumazos, John Tumazos, very independent research. Please go ahead.
Thank you for taking my question.
Congratulations on the large derivative.
<unk> profit.
Do you have the flexibility.
To collapse.
Derivative positions and just take the profit.
If you do do you want to.
John Thanks for the question I want to pause for you across to two Rahman for that.
Months.
Hey, John Good question, Dave when you look at our Mark to market on our hedge book, it's kind of broken up into two parts.
So some of his corporate hedging that we do up here so yes.
Profitable position that we can potentially close out if we wanted to and then part of the hedge book.
Is tied to the project financing. So it was a requirement of the Manto Berta development project facility. So those hedges are in place.
In relation to that debt.
Structure that we have put in place so that would require a bit more.
Discussions with lender consents, if we ever want to do that run winder.
Do you have.
General philosophy.
About hedging.
Sometimes prices recover.
And.
It turns you guys sure.
Yes.
Go ahead John .
Maybe if I can just give us sort of before passing back to Robin just sort of a high level view is out.
Our philosophy with regard to hedging is really sort of a defensive strategy.
Lee.
At this point we have.
Sure.
Significant sort of capital expenditure on our projects.
Have.
Some high cost production.
And in our view remains that a sensible and prudent to sort of where the where we're locking in on the cost or the revenue side.
To be doing so to to sort of ensure.
Sure so the balance sheet strength through the construction.
I think as we transition to lower cost operations.
I think we will we'll be revisiting at that stage.
So the paging philosophy.
Obviously, there are things like sort of on capital projects, where we have a fairly standard view, which.
When you move across to censor Domingos for example.
If we raise the financing in U S dollars, we will.
For example, hedge out any peso exposure without within that capital.
And and ensure that sort of at the end of the day, we were able to sort of manage the capital expenditure.
I do think sort of good whilst we in this particular phase we are very much focused on.
A strategy to sort of protect margins.
Doing a major construction, sorry, Robyn I'd Miss would you like to add to that.
So I think those well said I mean, essentially our hedging strategy, we look to hedge away input costs, which are FX and interest rate lock those in from a guidance cost perspective in copper as well.
Only viewed in a risk management perspective.
Sure.
John said during the build of MVP typically we have been actually unhedged on copper historically.
And the QP hedging that we mentioned that we've introduced which will be small, but it's very short term kind of looking out.
Do you reject other risk management strategies like selling equity or taking a partner.
I didn't think sort of we certainly don't reject those those strategies, but I think what we do is we look at sort of what are our financing options. We look at our balance sheets, and then than we typically sort of prioritize what are all sort of preferred.
So the modes of finance.
And I think at this stage, we remain comfortable that those steps are not.
So those are.
The desirable necessary.
But that said you know as we.
Move forward when we when we look at the sort of sensitive <unk> project will be.
Obviously looking at it in the context of but the sort of base case project, but also potentially the oxides and the cobalt.
And I think at that stage, we will look to see whether for example.
Sure.
Equity partner in the project makes sense.
I just interject one of my concerns is that we're in a highly inflationary period.
And when you fix your selling price and you don't fix your cost.
You're vulnerable to the unanticipated installations that's all.
Short form of risk.
John .
You're absolutely right and.
Yeah.
We try and take this in a very thoughtful approach to that and.
On one side, we do try and for example, we have a high cost cathode business, we do try and make sure that we all sort of locking in obviously the biggest cost components for example, the asset price.
Tom you sort of locking in copper price.
But that said as well.
Yeah, absolutely Ross.
If copper goes up to $5 a pound you will see cost deflation in a number of other areas and so what we do look to do is make sure that we're not over hedged on copper.
We can be sure that stood at the knick.
Benefits from that higher copper price will outweigh any sort of.
The inflationary increase on any unhedged Pax philosophy the cost inputs.
Thank you for taking my questions.
Thank you.
Yeah.
Thank you there are no further questions I will now turn the call back over to John Mckenzie for closing remarks.
Okay.
Alright.
So as we discussed earlier, we are working hard to deliver the months of it is sensitive district integration plan and to host our Chile to in two weeks.
Look forward very much to seeing those of you who are joining us and showcasing the exciting growth opportunities that we have underway and in front of us.
In January we announced the date for the release of our year end results.
So until then stay safe and feel free to reach out to Joe to Katina. If you have any further questions.
Thank you for your continued support and have a good day.
Thank you ladies and gentlemen, this concludes your call for today, we thank you for participating and we ask that you. Please disconnect your lines.
Yeah.