Q3 2022 Lundin Mining Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the London mining third 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.
If at any time you require a beat of assistance. Please press star zero for the operator also note that this call is being recorded on Wednesday October 26, 2022, and I would like to turn the conference over to President and CEO Peter Watson deal.
Please go ahead Sir.
Thank you operator, and thank you everyone for joining lundin Mining's third quarter 2022 results call.
Before we get into the formalities of the call. It is with great sadness that I address the passing of our board member as Karen pointed check October 11th in Chile.
Well as the tragic loss of a contract or colleague average cobalt in Portugal on September 30th.
Karen was appointed to our board in February of 2021, and brought with her a wealth of wisdom local context, and insight gained theory distinguished career and many contributions to mining in Chile, we extend our heartfelt condolences to parents family and friends.
He will be greatly missed by many.
Also unfortunately, a fatal accident occurred underground at <unk> Corpo in late September .
And this isolated incident employee of the materials handling contractor was fatally injured, while driving a piece of mobile equipment.
We continue to support those impacted and upheld safety stand down through at every operation and at our head office to reflect on the loss and reconfirm our commitment to zero harm.
Thank you.
I'll now draw your attention to the cautionary statements on slide two we will be making several forward looking comments throughout the prepared remarks and likely during the Q&A.
To assist with the presentation to ask your questions are tighter Paulson, our senior Vice President and Chief Financial Officer.
Andreas morale, our senior Vice President and Chief operating Officer.
One Andreas joined Us as SVP and CFO on August 1st one Andreas has an exceptional track record with over 30 years in the industry.
More recently with the general manager of mining operations Bhp's Escondida in Chile currently one of the world's largest copper mines.
From 2005 to 2017.
Progressively senior roles benefit goster, including head of operations at Las <unk> and chief of technical services.
Earlier in his career he spent seven years with Codelco as Chief strategy Officer at the <unk> Division Director corporate operational excellence and Chief of open pit mine planning amongst other roles.
Tighter joined us as SVP and CFO on September one title.
Pedro brings over 20 years of financial experience. Most recently as CFO of <unk> energy, which was acquired by Aker BP for approximately $14 billion earlier this year.
Continuing with the key highlights from the third quarter on slide four overall, we had a strong quarter candle area Yugo MZ group and operations all continued to deliver as per plan.
Chicago rebounded from the weather impacted first half of the year with mill throughput feed grades and metal recovery rates, all improving in the third quarter.
Copper and gold production increased 35% and 50% respectively over Q2.
Ramp up of net <unk> carbon zinc expansion project is progressing.
Quarter over quarter improvements had been seen in ore processed grades and recoveries.
Overall production of all metals is tracking to their annual guidance ranges.
Despite the macroeconomic conditions, we generated adjusted EBITDA of over $200 million and adjusted operating cash flow of over $180 million exceeding Q2 by 35% and 262% respectively.
Our balance sheet remains strong with $1 $9 billion of liquidity at quarter end and is tighter we will speak to we have initiated a foreign exchange hedging program to protect operating costs and business plans.
We continued our balanced and disciplined approach to capital allocation.
And growth focused while at the same time, delivering leading cash returns to our shareholders.
We have paid nearly $225 million in dividends and purchased $10 8 million shares for approximately $50 million year to date.
Current regular dividend yield of 542% is the strongest within our direct peer group.
With Jose Maria mining mining is well positioned to deliver meaningful growth in the coming years.
We are continuing to progress the project and are targeting to complete an updated technical report for publication to the market in the second half of 2023.
And as I will speak to a bit later the high grade copper gold mineralization at <unk> continues to grow and remains open.
Maiden mineral resource estimate price over is targeted for release in early 2023.
I will now turn the call over to tighter to speak to our summary results.
Thank you Peter.
It's great to have joined the mining sector.
Talking to some financial highlights.
This is my inaugural earnings call.
On slide number five we produced over 116.
Base metals and approximately 45000 ounces.
In the third quarter.
In terms of volumes you sold close to 107000 tonnes of base metals.
43000 ounces of gold.
Total copper production was essentially in line with the second quarter of this year.
Below that target.
Last year.
This is primarily due to lower production from <unk>.
Year on year.
In line with investors for.
This quarter.
Total zinc production exceeded the third quarter of last year.
Primarily due to travel using expansion project.
Production was slightly lower quarter over quarter Etsy.
A greater portion of corridor.
In Q3.
In the second quarter.
Am I off schedule.
Similarly, nickel production was greater this quarter than prior year quarter.
The lower in the second quarter on lower feed grades.
Yeah.
Gold production increased over 15% in third quarter compared to the second quarter on improved operations at your partner.
And was flat compared to last year's quarter.
Okay.
Our metal mix remains predominantly leveraged to copper.
Copper generated 16 quarter.
Orders revenue through pricing adjustments.
And Nick will contribute.
Meanwhile, go contributed.
Okay.
Moving to slide six.
Third quarter revenue increased 10% over the second quarter to nearly $650 million.
With the price decline for several of the metals produced over the quarter over quarter.
Revenue was negatively impacted.
5 million.
$1.
Due to prior periods and price adjustments.
So slide six provides a summary of the realized metal prices for the quarter were breaking out in prior period adjustments.
As well as the mark to market at the end.
For the quarter.
Ultimately for the third quarter, we realized prices just overachieve.
Pounds of copper.
One other important gene per se.
Just below nine.
Interesting pricing adjustments.
At the end of the third quarter, approximately 90000 tonnes of copper provisionally priced.
<unk> 46 per pound.
And remained open for final pricing adjustments.
It's over 1000.
At $1 36 per pound.
It's almost a nickel.
Lang colors pieces.
Yes.
Details of these pricing adjustments are.
Actual statements.
Turning to <unk>.
Slide seven.
Option costs totaled just over $2 billion for the first nine months this year.
And have been approximately 20% higher.
Last year.
This increase is largely been a result of higher consumable cost primarily.
And that was given.
And inflationary pressures, particularly in diesel.
During the year.
And partially offset by the effects of favorable foreign exchange.
This figure on this slide presents the.
The key driver.
And corporate costs.
Each operation year to date.
<unk> cash costs remaining consistent with guidance for kind of area.
The NIM is quite robust.
It's trending above considering mainly mainly electricity prices.
Bye bye.
Volumes and pricing.
Eagle forecasting cash cost is also trending above guidance, considering randy forecast by southern copper pricing.
<unk> cash cost is trending favorably foreign exchange impacts.
Yes.
Total capital expenditures are tracking well to guidance.
<unk> expenses amounting to $200 million.
The spend for the first nine months is hoping pile onto that system.
Yes.
And as Peter mentioned, we have initiated some.
Foreign exchange hedges.
Yes.
Although foreign currencies to protect operating cost.
Business plan.
Turning to slide eight.
As you hear the company has entered into a foreign exchange hedges over recent weeks.
<unk> better.
U S solar filing requirements for our future operating cost and capital.
Sure.
Over the period from now too.
Alright.
The company has entered into forward swaps, where U S. Stroller was presented in the zero cost color.
The Chilean pesos and precision.
Coffee is hedged over half a billion dollars worth of Chilean pesos.
And just below half a billion dollars.
Precision.
Europe , respectively.
$234 million.
These hedges cover a certain proportion of the estimated exposure in these respective currencies.
The company will consider you answered departure niches for kind of incentive or potentially also perfect.
<unk>.
And tissue.
<unk>.
Turning to slide nine this is a summary of key financial metrics.
Third quarter revenue was nearly $650 million.
<unk> was 10% greater than.
The second quarter.
Below the same quarter last year, mainly due to lower <unk>.
Prices.
Offsetting higher shapes what views.
We generated adjusted EBITDA of over two 1 million.
Adjusted earnings of over <unk> million.
Operating cash flow.
Asia.
Details of the adjustments are Ruben.
And G&A.
The metal prices enrolls inflationary pressures impacting these metrics.
Higher quarters.
Good morning.
Costs.
Cost for engineering, Julien and other related costs for Hudson.
We're nearly two 5 million.
Well last quarter.
Thank you.
Yes.
We remain in a strong net cash position of nearly $108 million a quarter.
Quarter end, which includes a working capital build during the third quarter.
Hi.
The companys liquidity headroom against third party.
Approximately Walter.
Gosh.
Slide 10 presents greater detail on the sources and uses of cash in third quarter.
Before changes in working capital.
Action title reaches.
Provisional pricing.
Operations generated over $1 18 billion.
Adjusted operating cash flow.
<unk> decreased $5 million makes sense.
Great.
Well as $58 million paid in.
And cash taxes.
Ultimately cash and cash equivalents in Portland for approximately $230 million.
A decrease of proxy $217 million cash flow from operations used Paul.
Couple of investments in our assets that you are part of the acquisition goldcrest contingent payment shareholder dividends $60 million in share buybacks.
Accordingly.
As of October 28.
And that cash balance it has improved to approximately $2 5 million.
And then finally with respect.
I'll now turn.
Turn the call over to Andreas.
To our operations.
Thank you tighter great to be on my first quarterly conference call with Lundin mining.
Starting with Candelaria on slide 11, the operation had a strong third quarter, which is now four quarters in a row of flat or better performance for candelaria the.
Operation produced over 37000 tons of copper and approximately 21000 ounces of gold at a cash cost of 197.
Pumps.
Dollars per pound of copper.
Tom's meal were slightly below target, while ore grades and recoveries were above plan.
Better copper grades from phase 10 of open pit and Candelaria in Santos underground mines, offset the relatively lower grade ore stockpile with alcohol Rosa mine suspended I will speak more to the sink hole that a couple of Rosa in a moment.
The cash cost of 197.
Copper a dollar per pound of copper reflects the year on year inflationary pressure on operating costs, mainly for energy and consumables as well as the dominate impact of slightly lower quarter over quarter copper production.
Copyright expenditure expenditure of roughly $275 million for the first three quarters are trending toward the full year guidance of $400 million.
On the growth and exploration fronts. The prior initiatives. So debottlenecking, the candle area pebble crusher throughput and advancing with some delays due to some supply chain issues and they are expected to increase mill capacity by Q4 2023.
We have completed over 34000 meters of drilling as part of our 2020 to 15 million exploration program.
Much of this work continues to focus on growing and upgrading underground resources or the various mines, where we have demonstrated success in the past.
And lastly, as the company previously discussed technical study work evaluating the expansion of the north and South sector underground mines from their core and 14 tonne per day to 26000 tons have been finalized the study indicates a technically and financially robust project, though.
We are awaiting clarity on potential taxation on royalty changes and required approval approval of the 2040 EIA ahead over decision to advance the project.
If we move now to slide 12 I will.
I'll provide more details on the auto sales suffered all capable of ulcer sinkhole.
There has been no material changes to the size of the same coal seams detection on July 30, and mining operations remain.
We remain suspended.
Candelaria on corporate crisis management teams were formed immediately and have seen shifted to their focus to technical and remediation work streams.
We are continuing to communicate with all stakeholders as we continue to monitor investigate cultural factors and incorporate fully with regulatory authorities, we have been working collaboratively to collect and analyze geophysical geotechnical hydro geological data.
One of the communications channels you can use to stay you for is the website set up at the link below.
W. W Dot <unk> dot CEO .
Based on data collected on an analyzed to date, we believe there were multiple influencing factors, including our mining activities. In early October we completed construction works to seal and isolate the gobby sector to control ingress of water to the mine in the lower levels of a couple also.
Importantly, we are working with the authorities on solutions to minimize the impact on employment in the region.
We're committed and we are committed to the remediation regardless of the causal factors.
I'm happy to answer any questions you may have during the Q&A and we'll turn the call back to Peter to speak to Jakarta, and our drilling so.
Thank you Andreas.
Moving to Japan on Slide 13.
<unk> achieved a significant step up in production and improvement in cash costs as the operation rebounded from the weather impacted first half of the year the.
The operation produced nearly 14000 tonnes of copper and 24000 ounces of gold.
Cash cost of $1 92 per pound of copper in the third quarter.
Production increased 35% for copper and 50% for gold over the second quarter as mill throughput feed grades and metal recoveries all improved.
Year to date production of 34000 tons of copper in 2000 ounces of gold is trading well to annual guidance.
Third quarter cash costs was greater than the comparable quarter of 2021 tripled year on year inflationary increases in energy mine consumables and contractor costs, although benefited from the increased production volumes.
Year to date capital expenditures of approximately $600 million are on track to your full year guidance.
Despite the slower start in the first half of the year chip how does exploration drilling is ahead of plan with over 53000 meters completed to date.
The high grade mineralized area footprint at the start of a system has further increased to approximately 200 meters by 1000 meters.
With assay results received during the third quarter.
Our system continues to remain open in all directions.
With the sizable and growing potential of <unk>, we will continue to focus our efforts on drilling and how to best incorporate it into future expansion scenarios.
Aim to issue a maiden mineral resource estimate.
In early 2023, as part of our companywide mineral reserve and resource update.
Slide 14 presents highlight assays from drilling during the third quarter and it shows where assays for completed or are still pending.
As mentioned the high grade mineralized area footprint has increased to approximately 200 meters below 1000 meters with the assay results received and continues to remain open.
Six rigs continue to test extension, mainly to the north towards Formiga and to the west of Big Discovery area.
We continue to be very excited about this discovery and believe it supports our view that many opportunities exist to increase the size and quality of our mineral resource base at Chicago.
The potential implications as high grade system may have for ongoing expansion study are being evaluated.
And the area continues to evolve with drilling.
I will now turn the call back to one Andreas to speak to Eagle nervous Corvo zinc roofing.
Thank you Peter.
Moving to Eagle on Slide 15, the operation delivered a consistent performance again in the third quarter, producing nearly 4400 tonnes of nickel and 4000 tonnes of copper at a cash cost of 1.0 $5 per pound of nickel year.
Year to date production of approximately 13000 tons of both nickel and copper is trending well to guidance.
Cash cost was higher than the prior year third quarter due to inflationary increases in operating costs and lower realized copper prices impacting the byproduct credit vehicles.
Eagles forecast Nico cash costs trending above guidance considerably mainly electricity on forecast byproduct copper pricing.
We're continuing work to include the <unk> zone in 2023 life of mine plan and the mineral resource and reserve estimate updates for relief in first quarter 2023.
Just to be in development in the upper <unk> in 2023 with initial production in the half in the first half of 2024 further extending the mine life and improving the production profile of the later years. We're also continuing internal study work in the lower <unk> zone to possibly extend mine.
Further dependent on metal prices.
Year to date drove 400 meters of drilling has been completed and three underground rigs continue to focus on further near term life of mine extension opportunities.
We now move to <unk> global on Slide 16.
So our neighbors to the operation produced over 7000 tonnes of copper and over 22500 tonnes of zinc at a cash cost of $269 per pound of copper in the third quarter.
Inc expansion project ramp up.
<unk>.
With a quarter over quarter increase increasingly zinc production on greater throughput and metal recoveries.
Attention and focus are on achieving further operational improvements in new mining areas and material handling infrastructure needed to meet the annual guidance.
23 production profile will be dependent on operating rates, we can achieve on a sustainable basis by the end of this year.
Third quarter cash costs of $2 $69.
Per pound of copper was greater than that of the third quarter of last year due to higher cost of consumables, particularly electricity and somewhat offset by a favorable foreign exchange rate.
With cost pressures persisted in the third quarter and lower than originally forecasted byproduct zinc volumes annual cost is trending above guidance year to date total capital expenditures of nearly $80 million is trending toward the full year guidance of $125 million.
Let's move now to <unk> on slide 17.
Duration continues to deliver strong results in the third quarter. The operation produced over 17800 tons of zinc more than the more than 1700 tons of copper and approximately 7000 tons of lead at a cash cost of $18 per pound of zinc.
Both the mine and mill continues to perform well and in line with expectations and the operation is on track to deliver full year production guidance, while cash cost is trending favorably favourably to guidance, primarily due to the foreign exchange impact on byproduct copper volumes in October we received the Dalby mining.
<unk> permit exploration efforts continue with over 10200 meters of drilling now complete this year as a part of the 20000 meter 22 2022 program.
Primary focus remains on increasing mineral resources at Dolby and between Brooklyn and net.
<unk> ore bodies.
Engineered for the sequential floatation project to further improve concentrate grades on metal recovery rates is progressing for construction in 2023, I will now turn the call back to Peter to discuss the whole semi EDF project.
Thank you want to address.
We are continuing to progress towards you may ask you. The next agents, including working with authorities in discussions on commercial agreements securing additional environmental sectorial permits.
Engineering is estimated to be 33% complete at quarter end.
We continue to work toward an updated technical report, which we now expect to be able to release to the market in the second half of 2023.
This has included an updated cost estimates to be reflective of current conditions and the evaluation of potential scope changes compared to the plans of the 2020 feasibility study as well as a new mineral reserve and resource estimate.
Over 31000 meters of drilling have been completed since the last 2020 estimates.
We intend to spend approximately $300 million reengineering commitments for long lead items preconstruction activities and drilling.
This nearly $200 million has been incurred with a little over 100 million expense and the balance capitalized.
We are continuing to advance all aspects of the project in a deliberate and disciplined manner.
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 offtake partnerships.
I'll conclude with slide 19.
Despite the challenging macroeconomic environment, we continue to have solid operational performance, leading to strong cash flows and a strong balance sheet from which to grow.
We remain well positioned both operationally and financially.
We deliver on our strategy of operating upgrading and growing a base metals portfolio that provides leading returns for our shareholders throughout the cycle.
We look forward to updating you on our continuing efforts in the coming weeks and months.
Thank you operator, and with that I would like to open the lines for questions.
Thank you, ladies and gentlemen, if you would like to ask a question at this time. Please press star followed by one on your Touchtone phone you will then hear a sweet home prompt acknowledging your request and if you would like to withdraw your question from the queue you will need to please press star followed by two.
And if using a speaker phone we do ask that you. Please lift the handset before pressing any keys. Please go ahead and press Star one now if you have any questions.
And your first question will be from Greg Barnes TD. Please go ahead.
Yes. Thank you operator wondering if one Andreas can talk a little bit more about the particular challenges you're facing in this effort.
<unk> zones that you are trying to develop and challenges.
Challenges getting the ore to surface by the sounds of it.
Good morning, Greg Thanks for the question.
It's been of course, a challenge to being the <unk> project into the nameplate capacity.
We have faced some challenges in getting our material handling system to perform as.
As planned.
Right now we're working on several operational improvements.
Adding conveyors and hoppers apron feeders scrape.
Scrapers and the conveyor belts.
Duration dewatering so.
A few items that we need to improve to ensure that we reach the name plate capacity for the <unk> project.
It sounds like a lot.
Yes pretty much everything so is there anything is there a particular bottleneck.
In closing these issues.
The material handling system, so the conveyors underground.
Building convey your underground as Sue said challenging task. So we're working hard on putting that system to to work.
<unk>.
As the engineering specification set.
Okay.
Peter turning to you on Jose Maria obviously delaying that project.
<unk> study I think.
This is probably the right thing to do in this environment.
Can you lay out the pre conditions that you will need to have in place to make us sanction decision when the time is right.
Jose Maria.
Sure.
I don't know if I'd use the word delaying but rather just continuing with all the work we're doing to get it to a level, where we can make that decision. So.
I think I said earlier in the call were progressing through the basic engineering. So we're currently at about 33% clearly we need the number materially higher than that to make to make a decision so dave to carriers.
SVP of Jose Maria is working closely with Fluor.
We anticipate that number will be.
Arguably double that by the second half of next year, and we will be putting out a new technical report at that time, so that'll that'll be a key milestone if you will and theres still some government.
Items and permitting things that we need to get cleared up.
Quite frankly, nothing no big hurdles here, but just a few changes.
And then also we in parallel we have been maintaining conversations with.
A number of different parties that I mentioned earlier in the call just with respect to financing so.
If we could get that whole package together for the second half of next.
Our next year that would be the appropriate time to move forward.
And what level of partner would you like to bring in Peter.
Well I think we have to wait and see.
What the different proposals and that's obviously two different ways you could look at it right you could pick here.
Trading house, which is a common practice.
<unk> like this so we.
We've obviously maintain those conversations but there's also a number of larger global mining companies that are.
Struggling to find projects and I think they recognize that not only this project, but the district is something thats pretty rare.
And so it's gained a lot of interest with some of those people.
Okay.
Okay, I'll leave it there and touchstone thanks a lot.
Thank you next question will be from Bryce Adams at CIBC capital markets. Please go ahead.
Good morning, Peter and team Thanks for taking my questions.
Two of them.
Greg already asked on Jose Maria and the update there.
Mike just follow on with that and I guess, maybe at a higher level.
How much of that this decision to.
Push that feasibility work into the second half of next year, how much of that is engineering and technical versus strategic decision and I think Gregory ASO and up but how much is it to lineup with potential partners.
I think when we talked about engineering and as I said, we're at 33% in order to make a decision moving forward do you need a higher number so that number keeps going up week by week. So thats part of it and also as you get that information you'll have more material to present to those people that you may have been in discussions with so it is.
Kind of.
They are interrelated if you will.
Yes, no that makes sense.
Second question on Japan, so much improved.
The first house rainy period.
Weather impacted do you think that it is a strong set up here into Q4 and that Q4 can be a step higher.
<unk> to Q3, and then can you remind me when the rain returns is that in December on it really gets heavier in January .
No.
Seems like every year. It starts earlier and goes later so it does start in December .
And given that we've had two years back to back of call. It one in 100 year range.
Quite frankly hard to predict.
Q4 until you really know the wider pattern, we've done a lot of things to prepare for the rain.
We've done a lot of dredging put in some piping drainage systems things of that nature.
And we've also changed a little bit of the mine sequencing in case it does have a heavy rain, but the.
The last couple of years Theres, a lot of different companies in Brazil that had been impacted quite heavily by the rainy season. So well just have to wait and see you hopefully its not quite as strong as the last two years.
Okay. Thanks, very much I'll jump back in the queue.
Thank you next question will be from Dalton Barreto of Canaccord. Please go ahead.
Hey, Thanks, good morning, everybody, Peter or want to address I'd like to start by asking you your thoughts on.
The new proposal on taxes and royalties that the Chilean government.
Presented yesterday.
Maybe that we have in killeen on the line I'm, calling in from <unk>. So I can't to look across the table when I addressed you, we'd like to address that one.
Sure of course, Peter Thank you.
Well.
After the referendum.
Early October .
Early September we haven't seen a significant shift in the <unk>.
Priorities from the Chilean government and one of them being the royalty on the tax reform.
Recently, we saw that the government presented a deal to the Senate.
Order too.
Sure.
Get approved a new much more moderate proposal on the on the royalty. So we're optimistic we have seen some significant changes on the proposal one of them being the.
The ad valorem.
<unk>, which is now being flat compared to a more of a scale and proportional.
Hello, Im royalty, so we remain optimistic that.
Eventually by the end of the year, we will have more clarity on the royalty for Julian.
Great. Thank you and then maybe switching gears and going back to Jose Maria just very quickly Peter.
You talked about scope changes wondering if you can comment on what kind of scope changes, we'll see in the update attack.
Yes, we spoke earlier in the.
The year that we were looking at a few different things we made some changes to the tailings designed.
We've changed some of the.
The crushing we increased the power lines and into the area. That's one of the things we're looking at.
And in addition to that we're kind of doing some trade off studies as we speak on grinding and floatation. So.
Those are the main areas.
We want to do whatever we can to optimize the operation, but we are also taking into consideration today's inflationary environment. So.
That would be the bulk of it.
Okay, Great and maybe I can squeeze one last one and it's a similar question on shipboard it looks like the expansion is not going to wait until it's so much more flushed out I'm. Just wondering is that going to have any impact on kind of the scope of the project that was proposed.
Well, we didn't have a specific we were looking at a number of different <unk>.
Projects. So there wasn't one specific lever that we said we were going ahead with but to your point I think several of us probably training even better than we anticipated. So as we speak we've got six rigs on their drilling right now through the whole trend.
I think we mentioned earlier on the call that the mineralized area has increased to roughly 1200 by 1000 meters.
And still remains open so we will have a maiden resource estimate out in the first quarter.
From there we should be able have a better understanding of how <unk> can play into to Japan and one of the things. We're looking at <unk>. In addition to the expansion studies, we are looking at some opportunities for doing debottlenecking and optimization that can increase the production, but at a significantly lower capex.
So we're weighing all those off against one another as we speak.
Great. Thanks, Peter that's all for me.
Thank you next question will be from Chris Walker at Scotia Bank. Please go ahead.
Hi, Good morning, a couple of more questions on Jose Maria.
You're spending I guess 300 million this year.
With the pushback in the technical report to the second half of next year.
I assume that means you're going to be spending less than expected next year on advancing the project, but can you give us any idea on what that number could look like for 2023.
Okay.
Probably a tough one and only because we're working through that as we speak actually we do have our budget meetings in about three weeks.
But.
Now to your point, it's highly likely that number will be lower because it will still be going to the steady phase. So most of the money. That's being spent right now is on the camp on the roads.
Some earth works so it should bring that number down a little bit, but I'm happy to give you an update as soon as we have it later this year.
Okay, and just on the 300 million for this year I think the disclosure talks about $180 million being capitalized does that does that imply then theres only 20 million going to be expensed in Q4.
I don't know if we've given the tighter if you got the breakdown of how.
I can call. It so year to date is $200 million spent but that includes the gains on the blue chip swaps that we had.
I've had so far this year, which is all about 68 million.
Included in <unk> number.
So depending on what we do on Blue chip swaps in the fourth quarter.
We are saying the total spend is $300 million of which 180.
As expected to be capitalized.
Does that imply there is $20 million less for Q4.
It implies sir.
For the full years being.
Being expensed.
It's hard to put a <unk> $55 million.
On the project and $40 million.
In Q2, so that leaves around about.
75% or $2 million, yes.
Okay.
Okay. Thank you very much.
Thank you next.
Next question will be from Lawson Winder at Bank of America. Please go ahead.
Thank you operator, and good morning, and thank you for the update Peter and team.
I wanted to ask about the three year guidance planning process. So.
As you alluded to you'll be having your budgeting meetings in three weeks and shortly after that we should be getting updated three year guidance, just sort of thinking philosophically in terms of how you think about forecasting three years out.
Do you assume the curve.
Inflationary environment.
Environment dissipate or do you do you assume that it continues to be a headwind over the next three year period.
Sort of any thoughts around how you factor that in would be really really helpful. Thank you.
Yes.
Okay.
I'm not sure, which one of us or you should take that one.
Well one of the things I'll say is we're lining up our three year planning, we're changing the cycle. So it's all.
Lines up in Q1, some of it was a bit off sequence, but to your point, yes, we certainly take today's inflationary environment.
Into consideration I would say.
I do think that we see the numbers longer term ratcheting down a little bit.
So that's also probably aligned with our commodity price assumptions as well, which are not that aggressive long term.
Okay.
That's very helpful. Thank you and then.
If I could ask on.
Jose Maria.
When you think about strategic partners in particular in light of the fact that you mentioned big global mining companies as potential partners.
Hi.
Is there a level of comfort with lundin, becoming a minority partner and Jose Maria and sort of turning the operations over to maybe a much bigger better capitalized.
Mining company.
I mean, I think it's premature to make that call right now we're still working through the engineering I think that's where our focus is right now we have a pretty solid relationship with a lot of different counterparties. So it's natural for us to keep those conversations going but you know when we get to that stage, but we'll see what some of the suggestions are up.
Imagine some.
Bigger companies may want to have a control position, but we'll have to address that as we move into 2023.
Okay, No that's totally fair okay. Thanks, very much that's it for me I appreciate you addressing my questions no.
No problem.
Thank you next question will be from Mr. Hecht Debbie.
Credit Suisse. Please go ahead.
Hi, Thanks for taking my question just switching gears to the sinkhole has there been any communication on potential fines that you've received from regulators. There's some numbers ever speculated in the media, but I just want to know from.
From you if you've heard anything.
Okay.
This is Juan Andres ill take the question.
We have been informed by the SMA.
Potential clients.
This is a process that will take some time so our legal team is working on that.
All the information so for now is.
Probably too early to.
Put a number around the potential fines around single.
Okay Fair enough and then on the underground potential underground expansion Ken Deloria.
I know you mentioned that Youre looking for taxation royalty clarity and maybe some of that came yesterday, but.
Are there any.
Turns out potentially from a regulatory perspective or permitting perspective, there could be pushed back given what happened with the sinkhole any color there would be helpful.
We have not seen any <unk>.
Impact.
Between the sinkhole.
2040 EIA.
We keep working with.
Government agencies.
The EIA.
And we remain optimistic that.
Once we finalize the questions. The last questions that we received we will be filing the third.
By early next year and the process will continue and again, we have not seen any impact negative impact on the EIA.
Okay, that's clear and then just maybe.
Maybe finally for tighter.
Just a housekeeping item there was a pretty significant working capital build in Q3 is that expected to release in Q4.
Yes, I mean, we would expect that to reverse.
Overtime.
Potentially during Q4.
Obviously, we have booked about $18 million.
The mark to market adjustments for pricing adjustments, but.
Based on the forward curve.
So depending on the stock.
Prices are doing during Q4 and thank you Elizabeth.
That should reverse over our capital position yes.
Okay, Great. That's it for me thank you very much.
Thank you next question will be from Sandeep <unk> at Morgan Stanley . Please go ahead.
Good morning, gentlemen couple of questions from my side, Firstly on awesome idea.
So you have alluded to the fact that <unk> when you're delaying the technical report, but can you answer.
Maybe provide some guidance is there any delay to the development timelines on the Capex that we should expect.
Leon name is goodwill.
For the company to achieve the lower end of the guidance it needs to increase production by 43%.
How do you list.
Thank you.
Maybe I'll start with Jose question, Yes.
I think initially we were trying to maybe get a technical report out by the end of the year so firm.
Our perspective, unless a man.
Misquoted or there are I don't see it as a one year delay but.
Regardless, if it does get pushed out say six months in order to get the engineering up to the level that we're more comfortable with.
We'll have to wait to see.
What the report delivers so for it you pick the number 65, 70% Engineering then we can figure out what the path forward from there. So you know perhaps it pushes it out by six months, but it's really too early to say until we see the completion of that study.
And one address maybe I'll, let you go for the next corporate question.
Yes.
As I said before.
Bringing the.
Project into the play.
Fleet capacity has been challenging so we are definitely.
Seeing.
Difficulties in achieving the annual guidance for zinc.
Okay.
Peter mentioned before we are working on our 2020 budget and the five year plan.
So when does that processes finalized we will have a better line of sight to the.
Progression on that.
Guidance.
Alright, thank you.
Yeah.
Thank you next question will be from Stefan <unk> at <unk>.
Mark. Please go ahead.
Yes. Thanks for taking my question just further on the Zap.
It sort of sounds like youre going to push the expansion as hard as you can through year end and then wherever youre at at year end that will kind of dictate the run rate going through 2023 does that suggest I guess the question would be.
Would that be sort of the state would you be happy with that steady stay at that point or would you consider allocating additional capital to get it up to its original design nameplate to get it to where you originally wanted it to be.
As I said before there are some items that were adding.
An improvement in <unk>.
Once those items are finalized we should be in a good position to continue our.
Name plate capacity for today.
Okay do you have any idea of what the incremental cost will be to get there then or.
No. We don't have a final number yet worked okay. Okay. Okay. Thanks, very much guys.
Thank you next question will be from Daniel Major UBS. Please go ahead.
Hi can you hear me okay.
Yes, yes, great great. Thanks.
Yeah, a couple of questions just wanted to clarify on the previous question on the Capex. So April .
Expenditure outlook as you move into 2023 is $300 million issue I didn't quite catch is that expected to be lower than the 300 or lower than you previously expected.
How should we think about is how are we yeah, we didn't state a number yet for 2023.
But when we come out with our 2023 guidance, we'll probably give better clarity on what that number will be.
Okay alright. Thanks.
Yeah and then.
And just thinking about the timelines for.
Technical reports and updates on the Chipotle versus Jose Maria I think you'd previously indicated Jose Maria told me become the full at Chipotle.
Seems less.
But how should we be thinking about as you see it now the time line for <unk>.
The update Japan, following what seems to be good drilling results at <unk>.
Yeah.
Yeah, I think in Q Q1, when we have the the new mineral resource estimate out for say whoever will start to get a better grip on the path forward, there and I think I mentioned earlier in the call that one of the items that we are looking at in addition to the expansion studies.
Something that would be more along the lines of just some debottlenecking optimization, which could get they should get the production up.
And then maybe you can tie into so that if we do that it'll be a significantly lower capex number.
And therefore, you could be doing both at the same time.
Okay. This is it.
More like it could be second half of next year, when we get a definitive update on chip hydro expansion is that the right way of thinking about it.
You know it could it could be earlier or quite frankly.
I'm, hoping that it'll be in the first half.
Okay very clear thanks, and then just final one.
Just on the cost progression obviously in his question medium part D unit cost if we look at it.
Yes, it is broad.
Sort of regional basis or company wide basis, what sort of levels.
Kurt.
Currency adjusted inflation are you seeing coming through now and whats your expectations into 2023, alright, just in a broader levels of inflation, you're expecting some of these.
Precious to me.
Maybe I can take that.
I mean, if you look at the total costs for the group for the first nine months is running about $1 $2 billion.
Roughly 20% compared to the same period last year. So that gives you an indication of your rule.
Hey, Shneur pressures you've seen.
Obviously most of that increase came through in the first half of the year.
Looking at numbers now seems certainly to be be flattening out.
Thanks, Steven dropping down a bit in certain jurisdictions.
And really the flip side of this is unfortunate.
And currency across the board the dollar has been strong against all currencies.
As we have disclosed.
Sure.
Entered into certain hedges to.
Really capitalized obviously this is an opportune time.
We've locked in on the forward curve euros, and saying can we Don colors on Chilean peso and Brazilian real in the event that those cars as we can further.
<unk> benefits from that.
And I think Thats a program, we will continue to monitor as we move forward and thank you to do more of these hedges SV.
And look out in time.
Great. Thanks, a lot.
Thank you.
As a reminder, ladies and gentlemen, if you do have a question. Please press star followed by one.
Our next question will be from Ralph proceeding at eight capital. Please go ahead.
Yes.
Thanks, Operator, Peter I wanted to come back to Jose Maria.
Where exactly is this 300 million.
And I guess my concern is.
How are you going to manage potentially some of the preconditions for sanctioning that you talked about earlier.
Running into Q4, Argentina that could get pretty sick.
He can talk to talk.
Greek adjustments ownership changed by about mining Rio Tinto lithium strategy all of these things sort of in that 2020 for 2026 period, just wondering how that's going to be managed from a procurement construction and construction management standpoint.
Well I think we're quite frankly, I'm not to say anything derogatory to other companies I think we're quite a bit ahead of Q on those other assets that you mentioned.
So I don't think we're going to run into the problem from that perspective.
And on the $300 million again, most of it has been spent on <unk>.
Engineering setting up the camps the roads some of the infrastructure or the Earth works a few long lead items, but I do think our process is is ahead of some of these other companies and I you know I do speak to them.
A lot of us at a project in Argentina, we have a pretty good open line of communication. So we know where each other sits.
Okay. Okay.
Thanks, Juan Andres I wanted to ask you about.
The sinkhole can you talk a little bit about the dewatering infrastructure. That's in place could we potentially see more required investment in that which is a separate issue apart from some of those sanctions and finds that potentially we could see them get the schools. When the time is right.
So that's a good point.
No.
We've been working very collaboratively with the authorities.
We are.
Doing all the studies on engineering to conduct a remediation program for the.
Affected by the sinkhole and that.
Dan will definitely.
We involve some dewatering.
Some additional works.
So.
We continue making progress on that.
We'll also know better the permits that will be required to implement that remediation and there will definitely be some capital expenditure involved in that program.
Okay. Yes, that's helpful. Thank you thanks Peter.
No problem.
Thank you next question will be from Lawson Winder at Bank of America. Please go ahead.
Hi, Thank you for taking the follow up I, just I just hadn't heard the question yet, but just on your dividend and return of capital philosophy going forward.
Clearly with $42 million buyback in maintaining the dividend in Q3, I mean, I think that remains very attractive you highlighted the attractive dividend yield and the return of capital yield is even higher but.
And balancing that with the capex needs of Jose Maria potentially Japan going forward.
I mean does does this level of buyback activity in the current dividend remain a core strategy or is that something that you think youll need to remain flexible on.
Yes, I think the base dividend.
Something that we look to keep intact I think it's attractive to investors to see a return to capital.
Throughout the cycle, so we're going to keep the base dividend there and we've always been a kind of opportunistic if you will on the buyback and as we have a better line of sight on our couch or cash outlay for 2023 will determine whether we can continue to be opportunistic on that buyback.
Okay. So youll remain flexible I guess it would be a fair summary, yes.
Yes, we remain flexible, but I definitely think that the base dividends.
Can it remain intact.
Okay perfect. Thanks, very much Peter.
Yeah.
Thank you.
And at this time gentlemen, we have no further questions. Please proceed.
Well, thank you operator, and thank you everyone for joining the call today, it's been a.
Hectic a quarter for us, but I think our sites are doing a fantastic job in light of a lot of the challenges are going on globally and I also just want to thank my two colleagues who've joined.
The call today is their first call. So I wanted to ask and tighter. Thank you and thank you everyone for taking the call from an investor and analyst perspective.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask could you. Please disconnect your lines.
[music].