Hudbay Minerals Inc. Q1 2023 Earnings Call
Good morning, ladies and gentlemen, thank you for standing by welcome to the Hebei Minerals, Inc. First quarter 2023 results conference call. At this time, all participants are in listen only mode.
Following the presentation, we will conduct a question and answer session to join the question queue. You May Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing Star then zero.
I would like to remind everyone that this conference call is being recorded today may nine 2023 at 830, a M eastern time.
I will now turn the conference over to Candace Brule, Vice President Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to a high base 2023 first quarter results conference call.
<unk> financial results were issued yesterday and are available on our website at www Dot Hardbake dotcom, a corresponding Powerpoint presentation is available in the investors events section of our website and we encourage you to refer to it during this call.
Our presenter today is Peter can kill ski had based president and Chief Executive Officer accompanying Peter for the Q&A portion of the call will be Eugene Lee, Our Chief Financial Officer, and Andre <unk>, Our Chief operating officer.
Please note that comments made on today's call may contain forward looking information and this information by its nature is subject to risks and uncertainties and as such actual results may differ materially from the views expressed today for further information on these risks and uncertainties. Please consult the company's relevant filings on SEDAR and Edgar These docs.
Humans are also available on our website as a reminder, all amounts discussed on today's call are in U S dollars, unless otherwise noted and now I'll pass the call over to Peter could tell skis.
Thank you Candice good morning, everyone and thank you for joining us in today's presentation.
Indentations I'll discuss our first quarter results touch on the operating and financial performance of the business and provide some insight into recent strategic initiatives and corporate achievements.
And I've said before.
Truly believed one of HUD based greatest strengths is our disproportionately talented team for a company of our size.
To complement this team we brought in Warren Flannery as Vice President business planning and reclamation. His experience will be a welcome addition to our organization to enhance our capital planning and operation strategy as well as reclamation and management of non producing facilities.
In the quarter, we promoted Javier del Rio to senior Vice President South America in the USA and Olivier tough change into senior Vice President exploration and technical services.
These team members will be instrumental in continuing to drive our strategic initiatives.
In the first quarter, we took some meaningful steps to position the business to deliver sustainable cash flow through disciplined capital allocation and to expand our copper production profile.
We continue to focus on our commitment to maintain a strong culture of safety and commitment to our local communities, while improving our low carbon footprint.
The team successfully navigated the recent Peru logistical interruptions to achieve a very strong start towards meeting our full year operating and cost guidance at Constancia.
And we are executing debottlenecking initiatives to increase the output from our La <unk> mine in Snow Lake.
It took several prudent measures this quarter to improve our free cash flow for 2023, and we remain focused on being disciplined with capital allocation as we continue to de risk our copperweld project in Arizona.
We also see as an opportunity to diversify our operating portfolio and expand our copper production scale with the recently announced agreements to combine with copper mountain in British Columbia, which is expected to close in late June we are well positioned to deliver sustainable cash flow from our operating portfolio as well as to drive organic growth.
Through advancing our leading organic coffee pipeline.
Moving to the first quarter results on slide three.
First quarter consolidated production was in line with our expectations and is on track for stronger production levels in the second half of 2023.
Consequently, we are reaffirming our 2023 production guidance for all metals.
Consolidated copper production was 23000 tons, a decrease compared to the fourth quarter, primarily due to lower copper grades in Peru as planned consol.
Consolidated gold production was 47000 ounces, a decrease primarily due to lower gold grades in Peru, partially offset by higher throughput and gold recoveries in snow Lake.
Consolidated zinc production was approximately 10000 tons higher than the fourth quarter, primarily due to improved zinc grades and throughput in snow Lake.
Consolidated copper cash cost improved to 85 per pound from $1.08 in the prior quarter, primarily as a result of lower mining and freight costs and higher byproduct credits, partially offset by lower copper production.
Similarly, copper sustaining cash cost declined to $1.83 per pound a decrease from the fourth quarter due to lower sustaining capital expenditures and capitalized exploration.
Both measures are anticipated to continue to decline in future quarters with higher production and precious metals byproducts and we reaffirm our 2023 consolidated cash costs and sustaining cash cost guidance.
First quarter operating cash flow before changes in non working capital was $86 million and adjusted EBITA was $102 million.
This was a decline from the fourth quarter as a result of lower copper and zinc sales volumes, partially offset by higher realized prices.
With a focus on generating positive cash flow and strong returns on invested capital in 2023, we are committed to deleveraging and disciplined capital allocation. This is demonstrated through several prudent measures. We took this quarter to improve cash flow.
First copper routine reduced concentrate inventory levels at site well ahead of schedule, which helped to improve operating cash flow during the quarter.
Second in an effort to ensure we received full exposure to the strong gold prices, we amended our gold forward sale and prepaid agreements to defer eight months of deliveries starting with February 2023 into 2024.
This is expected to increase our 2023 cash position by approximately $53 million to support our continued focus on reducing net debt.
Third as an additional prudent measure to ensure free cash flow generation and financial discipline, we extended our existing quotation period hedging program for approximately 8000 tonnes of contained copper in the previously unsold concentrate inventory in Peru to lock in prevailing copper prices. We also entered into a zero cost collar.
The program in April for approximately 10% of copper production expected in the second half of 2023.
The program establishes a floor price of $3 95 per pound and upside to $4 28 per pound.
And lastly, we are on track to deliver our discretionary spending reduction targets by reducing growth capital and exploration spending by $65 million in 2023 compared to 2022.
At the end of the first quarter, our liquidity included $256 million in cash and $355 million in undrawn availability under our revolving credit facilities.
Moving to slide four to summarize our Peru operating results.
During the first quarter Constancia produced 21000 tons of copper 11000 ounces of gold and 552000 ounces of silver.
Production levels were lower than in the fourth quarter of 2022 due to lower grades from the processing of stockpiles.
This was anticipated as part of our mitigation efforts during a period of logistical interruptions from Peru civil unrest in early 2023.
I'm very pleased with and proud of the team's efforts to successfully navigate the complex environment in Peru.
In the face of supply chain disruptions to team has done a tremendous job to ensure that constancia maintain steady operations and strong cost control during the first quarter.
The teams continue to operate safely and with the support from our local communities.
Rotation logistics have normalized since mid February and we have significantly reduced concentrate inventory buildup at the mine.
All mine from pump a country in the first quarter was 897000 tons at record high grades of 49% copper and five two grams per tonne gold.
Despite this achievement total ore mined in the first quarter was lower than the prior quarter due to processing of stockpiles in order to conserve fuel during the civil unrest period.
<unk> risk mitigation plans implemented during the first quarter together with strong continued support from our local communities enabled our clients to continue to operate uninterrupted at full capacity supplemented with approximately $3 9 million tonnes of stockpile ore.
Recoveries of all metals during the first quarter were lower than the fourth quarter due to higher levels of impurities in stockpile ore.
Coal mining activities resumed in the pump <unk> in February and the planned period of highest stripping from March to June is progressing well with mining of higher grade ore now expected to commence late in the second quarter slightly ahead of the original schedule.
We are on track to achieve full year 2023 reproduction guidance with expected production to be higher in the second half of the year. Following a period of higher stripping activities in the pub culture pit in the second quarter.
Unit operating costs in the first quarter was 16% lower than the fourth quarter, primarily due to lower mining costs.
<unk> cash costs for the first quarter were relatively unchanged from the prior quarter at $1 36 per pound cash cost are expected to decline to be within the 2023 guidance range with higher expected copper production and contributions from precious metal byproduct credits later this year.
Sustaining cash costs were also relatively in line with the fourth quarter at $2.12 per pound as lower mining costs and capitalized exploration were offset by lower copper production.
Moving to the next slide on Manitoba production at our Snow Lake operations included 36000 ounces of gold roughly 10000 tons of zinc 2000 tonnes of copper and 151000 ounces of silver.
Production of gold zinc and silver were higher than in the fourth quarter with higher throughput and higher grades.
Copper production was lower than the prior quarter due to lower head grades.
The completion of a number of key initiatives aimed to support higher production levels at Lalor improved metal recoveries at the mills and prioritization of mining higher gold grade zones at Laurel throughput throughput per year.
Full year, Manitoba production of all metals remains on track to achieve guidance ranges for 2023.
All minded Laura was slightly higher than the prior quarter, despite being impacted by stock market fragmentation issues that created delays at the rock breakers and low scoop availability in March.
We implemented changes to improve stope fragmentation in scoop availability, which together with the many production optimization initiatives underway at Lalor resulted in lalor, achieving higher production levels of 4800 tonnes per day later in the first quarter and throughout April .
The Manitoba team continues to advance key initiatives to support higher production levels and improved metal recoveries and have made significant progress in building long haul inventory optimizing the development drift size and focusing on shaft availability improvements, while minimizing inefficient trucking via the ramp.
The first phase of the stall mill recovery project, consisting of new cyclone packs state of the art Amazon sells in the copper and zinc circuits and process control improvements is on track for commissioning in may with ramp up to higher metal recoveries by mid 2023.
Stall mill processed 19% more ore in the first quarter compared to last quarter.
The new Britannia mill continued to achieve consistent production above its nameplate capacity, averaging approximately one 590 tons per day.
We continue to advance new Britannia improvements focused on reducing reagent and grinding media consumption. These.
These initiatives entail minimal capital outlays, while further improving overall metal recoveries and copper concentrate grades.
Combined unit operating costs in the first quarter decreased by 10% compared to the fourth quarter as a result of higher throughput arising from a production efficiency initiatives.
Yes.
Manitoba gold cash costs were $938 per ounce slightly higher than in the fourth quarter due to lower byproduct credits and higher G&A, partly offset by higher gold production.
Full year cash costs are expected to decline to be within the 2023 guidance range with increase in gold production throughout the year from higher grades and output at Lalor and the planned completion of the stall recovery project in the second quarter.
Bold sustaining cash costs were $1 $336 per ounce lower than the fourth quarter, primarily due to lower sustaining capital expenditures.
On April 13th we entered into an agreement to acquire all of the issued and outstanding common shares of copper Mountain mining Corporation to create a premier Americas focused copper mining company.
The combined company will have annual copper production of 150000 tons per year from three long life mines, and we will have a world class pipeline of organic copper growth projects there.
Combined company will represent the third largest copper producer in Canada based on 2023 estimated copper production. The transaction is expected to close by late June .
This combination is on strategy and an office several strategic benefits as shown on slide six.
First copper mountain enhances the scale of our business with a total of six key operating and development assets and one of the largest copper mineral resource bases among our peer group.
Second it geographically balances our portfolio in top tier jurisdictions on a pro forma basis. The combined net asset value is estimated to be 55% from North America, and 45% from South America on a street consensus basis.
Third it increases our exposure to copper with expected 2023 copper production of more than 150000 tons.
This is complemented by meaningful gold production that helps maintain a strong position on the copper cost curve.
Fourth we have a great opportunity to unlock value with the copper mountain mine using our high efficiency framework from our Constancia mine given the similarities between the two mines.
The combination provides incremental cash flows, which further strengthens the balance sheet and accelerates our deleveraging initiatives and.
And lastly, the combination will allow us to unlock value from our larger organic growth pipeline by more efficiently allocating capital to projects that yield the highest risk adjusted returns.
The combined company is well positioned to deliver sustainable cash flows with compelling organic growth as well as valuation re rate as a larger more diversified copper producer with enhanced liquidity.
The transaction meets our stringent financial and strategic acquisition criteria for pursuing value accretive opportunities and the incremental diversified cash flows will further strengthen our balance sheet and support both our deleveraging and growth initiatives.
Turning to slide seven we think there's substantial opportunity to unlock value at copper mountain for the benefit of all shareholders.
One of our core competencies at high Bay is operating efficiency as demonstrated by Constancia is leading cost position amongst copper mines in South America.
Due to the similarity between copper mountain and Constancia, we see a tremendous opportunity to apply our team's core technical and operating capabilities and our high efficiency framework to the copper Mountain mine, we estimate around $30 million of annual efficiencies and synergies. This includes $10 million of annual corporate shared synergies and tax.
Tributes and we expect to achieve an estimated $20 million per year in operating cost improvements over time through the application of our framework, improving productivity, reducing costs and achieving consistent and stable operations at the copper Mountain mine.
This further builds on the great work done by the team at site and recent positive momentum experienced at the mine.
Combined with Cotton mountains, leading technological at ESG practices, the operation will be positioned as an industry leader. We also believe we will benefit from sharing services across our Canadian assets.
We've been pleased with the positive feedback we've received from shareholders of <unk> and copper mountain as this transaction offers significant value for both sets of shareholders.
Now moving to slide eight we will have a strong presence across tier one jurisdictions in the Americas with operating and development assets in Canada, the United States and Peru.
We will also have one of the best organic growth pipelines, among our peer group consisting of brownfield expansions and Greenfield development and exploration opportunities.
Our improved leverage profile and expanded operations as a result of the copper mountain combination will allow us to more efficiently allocate capital across our business to the highest risk adjusted return projects to develop a steady stream of ongoing expansion opportunities.
As we think about the combined portfolio, we expect to immediately pursue high return and short payback initiatives such as the completion of the first phase of the stall mill recovery improvement program in Manitoba.
We will be able to pursue low risk minimal capital brownfield expansions such as throughput optimization at the copper Mountain mine and further stall recovery improvement programs.
Looking at our brownfield expansion opportunities, we're particularly excited about the deposits near Constancia. The first Maria Reyna sits on a line that joins us <unk> tire and has a radiometric footprint that is not dissimilar to these mines and scale valve.
<unk> drilled 11, holding the property over a decade ago, which all intersected copper mineralization, starting at surface, including 160 meters of over 1% copper equivalent the second the Cabo Utah mine previously operated by Mitsui until the early 19 nineties has samples, indicating the presence of high grade copper.
There is also a waste rock pile that is believed to have economic mineralization given that the historical mines cutoff grade was more than one 5% copper.
Enhancing our Brian field expansions will position the core business for future of transformational initiatives, such as our Copperweld project and better positions us for the next wave of value, creating consolidation in the copper space.
Pre feasibility activities for the private land phase one of the Copperweld project are well advanced in the pre feasibility study is expected to be released in mid 2023.
Clearing and grading work to prepare for the future development of Copperweld continues at site, including the construction of roads and other facilities.
We commenced the permitting process for copper world with the approval of our mind land reclamation plan back in May 2022.
This approval by the Arizona State mining sector was challenged in state court, but the challenge was dismissed in May 'twenty through 'twenty three is having no basis we.
We continue to expect to receive the two outstanding state permits in 2023 the.
The aquifer protection permit and an air quality permit and we are encouraged by the continued positive permitting outcomes for a couple of project.
Upon receipt of these state level permits we will evaluate our bulk sample program to continue to Derisk. The project by testing, great continuity variable cutoff effectiveness and metallurgical strategies.
We also intend to initiate a minority joint venture partner process. Following receipt of permits which will allow a potential joint venture partner to participate in the funding of definitive feasibility study activities in 2024 as well as in the final project designed for copper World.
The Mason project is a large greenfield copper deposit located in the historic Harrington District of Nevada, and is one of the largest undeveloped copper porphyry deposits in North America.
We completed a PPA in 2021, which demonstrated robust project economics from a 27 year mine life operation.
We acquired nearby properties hosting several historical underground copper mines that were in production in the early 19 hundreds.
There is an opportunity to further enhance the project economics through exploration for higher grade satellite deposits on a prospective land package near Mason, We expect test. These high grade targets with an initial drill program planned for late 2023.
Turning to slide nine for an update on our 2023 exploration initiatives.
Peru exploration activities recommenced with a focus on drill permitting for our highly prospective satellite properties, while evaluating the potential for reserve expansion at Constancia and pump concepts with future mining phases.
We complete we are completing a limited drill program and technical evaluations at the Constancia deposits to confirm the economic viability of adding an additional mining phase of the current mine plan that will convert a portion of the mineral resources to mineral reserves.
We're also completing a drill program at the pump country deposit to test mineral reserve extension potential.
The results from the drill programs in technical and economic evaluations are expected to be incorporated in our next annual mineral reserve and resource update.
As mentioned earlier, the past producing Cabo <unk> property and the highly prospective Maria Reyna property are located in close proximity to the Constancia processing facility.
We commenced early exploration activities at these sites after completing a surface rights exploration agreement with the community last year.
Surface investigation activities, together with baseline environmental and archaeological activities necessary to support drill permit applications have been completed.
Drill permit applications are expected to be submitted in the coming months.
And in Manitoba are snow Lake exploration activities are prioritizing step out drilling for new discoveries to support future growth in annual production and mine life extension at.
<unk> 2023 winter exploration program intersected many occurrences of disseminated copper sulfides over two kilometers down plunge, indicating the proximity of copper gold feeder zones similar to the deeper lenses at lalor.
The program included four drill rigs testing the down plunge gold and copper extensions of the Lalor deposit in the first step out drilling in the deeper zones at Lalor since the initial discovery in 2009.
While assays are still pending we will continue to analyze these results and perform additional geophysics to refine the next phase of drilling in 2024.
One additional drill rig in snow Lake is testing a geophysical anomalies located within 400 meters of the existing Lawler our underground infrastructure.
Four drill holes were completed during the winter drill program and assay results from the base metal in copper gold mineralized intercepts identified from core logging are pending.
Close off I would like to reiterate our commitment to operating in a manner that demonstrates our focus on the environment and we are proud of our already low carbon footprint as you know.
On slide 10.
<unk> change initiatives include committing to achieve net zero greenhouse gas emissions by 2050 with an interim target of a 50% reduction in scope, one and scope two emissions by 2030.
We've identified multiple opportunities through our emissions reduction roadmap to achieve further reductions across the business.
In the first quarter of 2023, we completed two initiatives that will lead to further carbon footprint reductions.
First we signed a new 10 year power purchase agreement with Engie, Peru for access to 100% renewable energy supply for our Constancia operation starting in January 2026.
Move to this new provider is expected to reduce total current companywide scope, one and scope two greenhouse gas emissions by 40% during the life of the contract positioning the company well to achieve our 2030 climate change target of 50% emission reductions.
The second will be to integrate copper mountain, leading climate change initiatives into high based framework to further improve our carbon footprint.
Copper Mountain mine has the potential to be the lowest emitting open pit copper mine in the world by 2035 through the implementation of several net zero carbon initiatives.
This includes the recent successful commissioning of electric trolley assist haulage.
We're also actively testing and researching renewable diesel hydrogen battery and fuel cell technology for haulage.
We'll have the ability to apply cough mountain expertise and carbon reduction initiatives to the Constancia mine and the copper gold project.
I'll conclude the presentation on slide 11, we believe that copper has the best long term supply demand fundamentals in the sector as global cut mine supply will be unable to meet demand from global Decarbonization initiatives High Bay is uniquely positioned to benefit from our strong outlook for copper with attractive copper production growth and Cigna.
<unk> long term optionality for investors through our leading organic growth pipeline.
With the addition of the copper Mountain mine, we will be well positioned to re rate towards our larger base metal peers with enhanced production trading liquidity and scale.
<unk> offers investors the highest near term free cash flow yields coupled with significant long term upside through our leading copper mineral resource base and with that we're pleased to take your questions.
Thank you ladies and gentlemen, we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad Youll hear a tone acknowledging your request.
If you are using a speakerphone. Please pick up your handset before pressing any keys to withdraw. Your question. Please press Star then Q, we will pause for a moment as callers join the queue.
Our first question comes from RF Codell with Scotiabank. Please go ahead.
Hi, Good morning, Peter I'm curious on your earlier comments about diluting the exposure to Peru through the copper Mountain acquisition I think you mentioned the number of.
Your non career exposure now would be about 55% of NAV.
When I think forward here in terms of the next couple of years, certainly probably the biggest upside to our NAV estimates could be the exploration potential around constancia with Maria Reyna Cabot Ito.
That actually sort of reverse the copper mountain.
Advantage and I'm just curious if you if you have a target in mind in terms of where you'd like to get that career exposure, knowing that youre going to have a potential upside with the exploration in Peru.
Morning Dara.
For that portable question.
So you're absolutely right. So we have we are reducing exposure through increasing exposure in North America.
Does it mean that we like Peru any less.
Frankly.
I think you've heard me say many many times before that I believe I believe I believed in Peru for the last two and a half decades.
For retailers to go through these ups and downs in cycles.
Social unrest or whatever you want to call it but.
I'm convinced that Peru is a good place to be Constancia has I believe one of the best operating Workforces in a copper mine in the world and its something that we need to lever going forward now.
Correct once we.
Establish exactly what it is that we have at Maria Reyna in cabin heater. It certainly does have the potential.
To change that distribution, but also remember that at some point, we will develop the copperweld project, which sort of tends to adjust that further.
Kind of we're not targeting any residual distribution, we just think that that the current.
Initiative with copper world raises the company to a better place, but I'm convinced that <unk> and Maria Reyna will be operations in the near term that will significantly improve high base access to copper and production profile.
Since you've asked the question I, probably take the opportunity to say that we've been really happy.
With turn of events in Peru, It looks like President <unk> is doing a really good job of stabilizing the environment.
It looks like she has appointed a qualified cabinet and it looks like we are enjoying a period of.
Yes.
I would say relative.
Quiet and I expect this to proceed for some time, we certainly are having no issues with proceeding with the bureaucracy with our initiatives towards.
Getting our exploration permits for Kavita and.
And Murray Arena so so.
Quick answer is yes, we are readjusting, our distribution geographically in the short term, but over the long term together with.
Maria Reyna, Kavita as well as copperweld, we sort of expect to maintain roughly the same distribution.
Thanks, Peter as a quick follow up do you see more opportunities like copper mountain out there that potentially.
Potentially they could take advantage of it.
We always continue to look for those opportunities and we've always said that they are hard to come by because of our.
Pretty pretty firm and disciplined approach to acquisitions. If there is something out there, we certainly would be interested in it but focused one.
Priority number one right now.
Is too.
Combined copperweld into the portfolio and then you'll start seeing im sorry, copper mountain into the portfolio and then we'll think about what might be next.
Thank you very much.
Once again, if you have a question. Please press Star then one our next question comes from Ralph <unk> of eight capital. Please go ahead.
Thanks, operator, thanks for taking my question, Peter I wanted to come back to the.
The move to 100% renewables at Constancia and just wondering what exactly are those renewable sources. Starting in 2026 is this capacity currently installed and maybe give us a little bit of flavor on how much power currently accounts for the constancia cost structure, and whether or not we can see some potential savings there.
Good morning, Ralph Thanks for that question so.
As far as the <unk>.
Exactly how.
<unk>.
Energy assets are configured.
I don't know the answer to that off hand, it certainly I mean, we negotiated this agreement over a long period of time being a highly competitive bidding process.
And the team in Peru assures me that this is that we will have a 100% renewable.
The source of electricity, but my understanding is that it is almost all hydro.
And wind.
Okay.
Got it.
If I could add we get.
Yes.
Green certificates for the synergies.
The contract starts in January 2026.
728 gigawatt hours a year.
These are renewable energy credits.
That.
We consume about 710, so slightly and access.
What the contract is for and it begins in 2026.
Okay, Great. Yes, that's helpful for context I appreciate that.
If I could ask a follow up Peter it's been a while since we've heard about the tailings reprocessing opportunity and I understand that youre looking at.
Some metallurgical testing can you talk a little bit about the differing metallurgical techniques and technologies that youre looking at and sort of where does that stand on sort of bringing that forward and perhaps seeing some value there.
As you sort of thinking about prioritizing, perhaps other bigger larger scale projects.
So I'll have the first kick at the answer that Ralph and then I'll ask Andre to maybe provide a little bit more color, but we do we continue to conduct metallurgical test programs and you evaluate metallurgical technologies to assist the processing viability of the tails.
Of course, if positive will lead to a future mineral resource estimate.
But that said we've also identified the opportunity to reprice the Anderson tailings in snow Lake given the significant amount of gold that's been deposited there over many many decades and also given the close proximity to existing producing infrastructure at stall and new Britannia and the fact that production from snow Lake is on streamed.
So we may also consider tailings reprocessing opportunity in snow Lake as future phases of our storm recovery projects permit.
With respect to exactly what you asked with respect to <unk>.
Technologies in.
In <unk>, perhaps Andre can provide a little bit of color there.
Sure sure. Thanks, Rod so I'll start with the easier one and less complicated slowly. So we're looking at it as well in the snow Lake operations.
And the technology that we're looking at is.
Very similar to what we what we have.
At new Britannia with some slight modifications to be able to to deal with some base metals that are in the in the tails.
Our historical tailings and slowly have a mixture of copper zinc and gold.
Lower recoveries that we would have we would like today.
So what we've done in snow Lake was.
<unk> put in place a cyanide process and the process that we would have to do to treat details would be managing.
With something similar to what a colleague of Merrill Crowe circuit, managing the base metal source before.
<unk> strengthened go in.
<unk>, it's a little different.
And.
It has both similar copper.
And in zinc and gold zinc as much finer grind.
And the process that we're looking at right. Now is is how do we how to extract the.
The elemental sulfur.
From.
From the tales and Theres, a variety of metallurgical technologies.
<unk>.
We're testing right now and it's still very early days.
Yeah.
Understood. Thanks for those answers I appreciate it thank you.
You're welcome.
Our next question comes from Farooq Ahmed of Raymond James. Please go ahead.
Hi, good morning.
Don't forget a couple of the corporate actions that you've taken in the quarter.
Specifically pushing back your gold prepay.
And then the hedging some of your copper in the second half of the year.
And then so it looks like you're protecting your cash flows in the second half of the year and I was just wondering if you could give some insight at.
As to why you are taking these extraordinary measures tighter protector Marshall your cash in the back half of the year is there is there something in the plan for the back half of the year that maybe is not as well understood.
Hi, Eric It's Adrian here, Thanks for the question.
They are really measures taken to ensure that we have strong free cash flow generation throughout the year and maybe the first measure was the deferral of the gold prepay and we started to get that in.
In February we deferred eight monthly payments is a goal announced in a period where.
There were some prove uncertainty.
As Peter highlighted and we want to ensure that we got access to that.
Monthly cash flow basis.
Obviously, having the gold price move up since we've made that.
<unk> has helped the cost of that the cost of it was roughly 3%.
Which is a lot cheaper than we'll call it a normalized cost of capital and with the gold price increase that we've experienced the cost of that deferrals actually causes.
At the moment, so I think it was a sort of effective way of.
Capital management for the year.
As we indicated with our guidance.
The production of copper for Peru is backend weighted that's about 60% in the second half and so as we look forward to this year much of that production is going to be in the second half and given the volatility in the markets.
We've seen your data already we want to make sure that.
But we could be up against opportunistic too to ensure that we were.
We're going to get that free cash flow at the end of the year. So I think youll see a floor of 395 and a ceiling of four.
Looked at 2008 or 10% of that production is done on a monthly basis and so that just ensure some smoothing.
Prices.
Box and some uncertainty I think that 390 floor is probably the highest florida, but youll see them in the cost of colors that appear.
So I think just the opportunity for us.
To manage through what we expect to be a strong cash flow generation period with the company. So that we meet our deleveraging targets that we outlined earlier this year.
So thanks for that Eugene I guess I'm, just wondering I mean like you said the back half of the year supposed to be stronger.
You're supposed to have kind of better operating performance back half of the year. So you think you would naturally have better cash flows.
To begin with I don't think that Theres any major capital program in the back half of the year that I can think of I'm, just trying to understand why or why you're wanting to protect those cash flows is there in.
Most operators when they're just operating normally they won't put in a hedge program like that and so I'm just trying to understand like what specifically was the reason that you've identified the back half of the year is something that you wanted to protect the cash flow.
It wasn't there wasn't any capital program that we.
Embark on and I think as you resolve the guidance annual guidance were.
Reducing discretionary spending this year at Cotai generate free cash flow and I think it's with those targets to make sure that we come out on the back of the year with lower net debt to EBITDA and a stronger cash balance as we go into 2024.
Decisions that we have to make.
In fact, the copper world in 'twenty, five and beyond so just ensuring that debt.
That we get that so instead of maybe the back half of the year prices are weaker that we lose out on that cash flow generation, so just laying a little bit.
Of a protection for us to ensure strong free cash flow generation.
No spending.
Significant.
The increase that we had an unplanned.
Okay. Thanks, that's helpful.
Once again, if you have a question. Please press Star then one.
This concludes the question and answer session I would like to turn the conference back over to Candace Brule for any closing remarks.
Thank you operator, and thank you everyone for joining us today. If you have any further questions. Please feel free to reach out to our Investor Relations team. Thank you and have a great day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.