Q2 2023 Capstone Copper Corp Earnings Call
Good day, ladies and gentlemen, and welcome to the Capstone copper Q2, 2023 results conference call.
At this time all lines are in a listen only mode.
The presentation, we will conduct a question and answer session.
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This call is being recorded on Wednesday August <unk> 2023.
I would now like to turn the conference over to Gerald Annette Please.
Please go ahead.
Good morning, I'd like to welcome everyone to Capstone Koppers Q2, 2023 conference call.
Please note that the news release and regulatory filings announcing capstone Copper's 2023 second quarter financial and operational results are available on our website and on SEDAR.
If you 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.
I'm joined today by our CEO , John Mckenzie, our President and C O O Castle Maher.
Our Chief Financial Officer, Robin <unk>, and our senior Vice President risk ESG in General Counsel when do you think.
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 <unk>. Most recent filings which are available on our website and on SEDAR.
And finally I'll just note that all amounts will we will discuss today are in U S dollars unless otherwise specified now I'll turn the call over to John Mckenzie.
Thanks, Gerald and good morning, everyone.
We are pleased to present, our second quarter 2023 results and achievements.
Turning to slide five.
We are pleased to report the construction at our transformational months have added development projects or MVP remains on time and on budget.
Over 4 million tons of sulphide ore stockpile to date at an average copper grade of <unk> six 3% ready for a ramp up that will commence by the end of this year.
The photo on the slide provides an overall view of the new sulfide concentrator during the primary crusher in the back lift the covered coarse ore stockpile during the middle and the grinding floatation and filtration in the center.
This year is pivotal kept sick.
As we expect to complete the MVP construction by year and setting the stage for a doubling of consolidated cash flow and positioning us well for our organic growth pipeline.
Turning to slide six.
From an operational standpoint, we experienced a challenging quarter in Q2.
Unplanned downtime at our Pennsylvania mine in Arizona and continued Debottlenecking at months bunkers in Chile.
As a result, we produced a total of $59 3000 tonnes of copper at consolidated C. One cash costs of $3.01 per payable pound of copper produced.
In addition to these challenges at principally in months of Splunk US production with Pennsylvania was impacted by planned plant shutdown for an electrical tie in of the MVP.
On a positive note cozman had an excellent quarter as the mine has now ramped up to full production levels with the new castle full mining method.
Although our costs were elevated in Q2, a large portion of this is a reflection of a weaker production levels rather than underlying cost pressures.
We are encouraged by some of our input costs that are trending lower which we'll discuss in more detail in a few slides.
Okay.
Turning to slide seven.
We've provided age to 2023 guidance to provide more clarity on operations following a slow start to the year.
In Pennsylvania, we expect higher grades and no scheduled major maintenance in <unk> to drive stronger production levels and lower costs.
At <unk>, we anticipate the continued strong performance in the back half of the year.
At months of Splunk as well.
We've moderated our expectations, which we expect reduced downtime and more consistently higher throughput in H two.
And lastly, eight months of <unk>.
Anticipating higher oxide production in <unk> as a result of higher irrigation rates with expanded desalination plants to the MVP.
We have reiterated our previous 2023 capital guidance.
Now I'll pass over to Robin for our financial results.
Thank you John we are now on slide eight.
In Q2, we recorded copper sales up 48000 tons, which includes the sales catch up on the prior quarter due to the timing of shipments in Chile.
Now, let me copper prices during Q2 averaged 384 per pound down 5% compared to four or five in Q1 2023.
Our realized copper price of $3 71 per pound was slightly below the quarterly average due to the timing of <unk> hedges.
Which provides months after shipment average prices.
Based on current offtake contract structure. This mechanism works best for Us.
As a result, we recognize revenues in the quarter of $334 million.
Realized copper prices, including the impact of copper hedges resulted in a copper price of $3 61.
Our elevated costs on a per pound basis in Q2, where denominator driven as John mentioned, we have seen relief on some of our key inputs, including sulfuric acid.
Diesel and power costs, which are called indexed in Chile.
Largest input cost sulfuric acid, which peaked in 2022 at over $250 a ton averaged $158 a ton in the first half of 2023.
Moving forward, we expect to release $20 a ton lower than <unk>.
In this lower trend is continuing into early 2024, where we have been we have secured contracts at sub $100 a ton.
With Nacho Verde sulfides ramping up in 2024, our oxide production enhanced asset consumption will be at lower overall portion of our cost base.
The lowest.
Spot sulfuric acid prices should still bode well for our business.
Ocean freight for copper concentrates from West Coast, Mexico to Asia have declined from a peak of over $80 at 102022 to just under $40 a ton in June .
Additionally slot diesel prices in the U S have declined from spot prices of over $5 a gallon last year in the mid $3 per gallon range.
Okay.
Furthermore, we have labor agreements in place at all of our operations for the next three years, providing additional cost certainty.
Turning to adjusted EBITDA in Q2 of $43 4 million was impacted by lower production and higher maintenance costs incurred as a result of unplanned downtime Pinto valley and rentals Blancos.
The difference between <unk> of 384 per pound and our realized price, including hedges of $3 61 per pound translates into approximately $15 million impact after tax or <unk> <unk> per adjusted EPS.
Moving on to slide nine.
On the left hand side, we summarize our available liquidity, which is that which as at June 30 was approximately $420 million, which includes $118 million of cash and short term investments.
And $302 million of Undrawn amounts on our 600 million corporate revolving credit facility.
We ended Q2 with a consolidated net debt of $760 million and attributable net debt balance of $609 million.
Our balance sheet is in excellent shape and is well positioned to complete the construction of the mental Verde development project by year end with mental Verde spent to date of $706 million, the Romanian balances of approximately $120 million.
The chart on the right hand side of the page illustrates our EBITDA sensitivity at various copper prices you can see that 2023 gets overshadowed by the EBITDA generation with mental Verde sulfides at full run rate production.
At $4 copper, we expect to generate approximately $330 million of EBITDA in 2023 and over $1 billion of annual EBITDA When Manto Verde development project is online.
Although the Santo Domingo project is currently and sanctioned the project has potential to further increase our EBITDA generation to above $2 billion per annum for the metal prices at current levels.
The EBITDA generation associated with mental Verde will enable accelerated opportunity to delever, our balance sheet and be below one times that leverage our copper prices between $3 50 and $4 per pound.
Which provides additional liquidity to advance our future growth pipeline.
Okay.
Turning to slide 10 during recent months, we have received some level of clarity with respect to the new tax regime in Chile.
For new mining royalty Bill was approved by the Constitutional Court of Chile in July and we expect it to be enacted in Q3, 2023 and effective starting Jan one 2024.
The overall effective tax rate is capped at 46, 5% of adjusted mining operational income not net income.
However, we expect to be well below this level in the near term driven by three main factors.
Firstly, we do not expect to incur the 8% cash withholding tax for the next several years as we reinvest in Chile, and our growth pipeline that includes Santo Domingo and expansions at both the Manto Verde <unk> Blancos.
Secondly, historic tax loss pools, and accelerated the depreciation allowance on our project capital spend and future spend will significantly shield taxable income as a result of these two items, we expect our tax rate to be below 20% over the next three to four years in Chile.
Lastly, we are protected by <unk> 600 tax stability agreement at our fully permitted and shovel ready Santo Domingo project.
Now I'll hand, it over to casual for the operations review.
Thanks, Robyn bird now on slide 11.
Pinto Valley produced $12 6000 tonnes of copper at <unk> cash costs of $2 98 per payable pound during Q2, which was below our expectations.
Largely due to unplanned downtime in the primary crushing circuit, resulting in an approximately 12 lost days of production.
The operation restarted in mid June and has been performing wells through the end of July .
Over the second half of the year, we anticipate higher copper grades.
With no significant maintenance schedule.
To drive a meaningful increase in copper production and a decrease in costs further.
Furthermore, we are placing an emphasis on operational discipline driven key performance indicators, we are conducting component and asset assessments based on downtime priority and we are implementing condition monitoring order to improve our performance.
In terms of our growth had Pinto valley, we continue to engage with the local stakeholders during the quarter.
Our efforts remain focused on identifying opportunities to transform the district.
Moving to slide 12.
Cozman mine had an exceptional quarter, producing 6700 tonnes of copper at a cost of $1 63 per payable pound.
<unk> has successfully ramped up mining rates using the new cut and fill mining method.
Over the remainder of the year, we expect a continued strong performance for customers.
Our mental supplying close asset as highlighted on slide 13.
Total sulfide and cathode production yielded 11 7000 ton Isa copper at a blended cone cash costs of $3 15 per payable pound.
This was below our expectations driven by preventative mill maintenance downtime and Debottlenecking.
While the major components, including the crushing right.
<unk> and flotation circuits remained more than capable of throughput rates in excess of 20000 tonnes per day linkages between these systems, including pumps and pipes have exhibited bottlenecks.
Our H two production guidance at <unk> Blancos includes a plan to address the plant stability, including improved maintenance and optimization of the concentrator.
We expect to be delivering more consistently high operating rates within the fourth quarter.
Now on Samantha Verde on slide 14.
Q2, 2023 oxide production was $8 3000 ton Isa copper cathodes at an elevated cone cash costs of $3 92 per cent per payable pound.
As previously mentioned production and costs were impacted by the plant shutdown for the electrical tie in of the mental burden a development project.
In the second half of the year, we expect oxide production to benefit from higher irrigation levels from the expanded desalination plants.
And we expect costs to decrease with higher production levels and lower sulfuric acid input prices.
Most important and significant progress was achieved at the <unk> during Q2s project progress now stands at 88% was $706 million spent as of June 30.
With many of the classical major escalator risk behind us and or materially diminishing.
The total expenditure for the project remains at $825 million and on schedule for wet commissioning by the end of the year.
The Manto Birdie development project will deliver blended <unk> cost below $2 a pound.
And produce approximately 120000 ton Isa combined cathode and copper in concentrate with over 30000 ounces of gold per year.
Slides 15 through 20 show construction progress at several key areas at the MVP slot.
Slide 15 shows the primary crusher with the retaining wall and the conveyance is advancing well.
Slide 16 shows the ore stockpiled dome, which is now fully enclosed and provides capacity for approximately two days of course for mill feed.
Slide 17.
Outlines the processing flow sheet on the bottom left from a bird's eye view all major components are procured and onsite are now in the final tie in stages.
During the quarter, the Sag mills internal rubber lining and the ball mills liners were installed.
Okay.
Slide 18.
Shows the new truck shop, which is largely complete and will be able to support the expanded mining fleet for the project.
On slide 19, we highlight the tailing storage facility dredging work is largely complete and we are now in the final stages of liner installation.
And lastly on slide 20, you will find the desalination plant. It has now been expanded to 380 liters a second to support the MVP and we are currently ramping up flow rates to that capacity.
Turning to slide 21.
We outline a case study on previous ramp ups performed by our Cinco for similar copper concentrator.
Recall that MVP is off the shelf and features a conventional flow sheet.
It is also a brand new plant.
With no pre existing components.
In the four most recent syncarp projects highlighted the ramp up to 100% of design capacity was achieved within six months, we look forward to completing construction by year end and commencing the ramp.
Now, we will move to Wendy King for the sustainability review.
Thank you Cassia.
We're now on slide 22, with a review of our sustainability highlights from Q2.
<unk> Blanco Submental Bear day, we have completed the independent assessment phase for the copper Mark assurance process and we expect the award at the copper market for both sites shortly.
At closing we have completed the GAAP assessment phase closing and Pinta Valley are developing project plans to address identified gap to participate in the copper market process.
This quarter, we established a working group to support our sustainable development strategy implementation.
Which we outlined in Q1, we've identified pillar leads and have executive accountability assigned.
Our inaugural sustainability report for the combined Capstone copper company, comprising our into valley pose them in Mantas Blancos Manto Bear day, and Santo Domingo site.
Is planned to be published in Q3.
This report titled growing Responsibly, we will build on our sustainable development strategy, including our specific greenhouse gas emissions targets.
Yeah.
We are very pleased that the paste fill and dry stack tailings facility at Cozman reached design capacity during Q2.
This is an important improvement to the sustainability of close them in mind.
We are now capable of diverting tailings to fill underground voids and provide greater stability to the mine and.
And we can recover more water from the dry stack tailings deposition process, reducing our overall makeup freshwater production requirement.
The addition of this facility reduces the space required that conventional tailings with typically require.
And proudly at Pinto Valley, we have started a women and mining chapter to promote the employment and advancement of women.
We have also had women in mining logos placed on five new trucks.
Women are underrepresented in mining and we must foster an inclusive and diverse environment to retain and attract a more diverse workforce.
And with that I'd like to pass it back to John .
Thanks Randy.
Turning to slide 23.
We've outlined our sector, leading growth plans and some of the additional upside within our portfolio.
As can be seen we expect MVP that is run rate production levels.
To bring us to a consolidated level of around 260000 tonnes of copper at significantly lower costs.
From there we are.
A clear pathway to over 400000 tons of copper production.
We have brownfield expansions at both months of EDA amongst bankers with attractive capital intensity.
And our portfolio includes a fully permitted and shovel ready Santo Domingo projects.
Further upside exists with oxides that sensor Domingo utilizing our sx EW plants with months of Ed.
<unk> phase III.
Growth in our Pennsylvania sticks.
Cobalt optionality months have added sensor Domingo district.
On slide 24, we've outlined the potential development timeline for our portfolio.
Nonetheless, we are fortunate to have significant flexibility in this regard and we intend to progress our pipeline in a prudent manner.
Furthermore, our capital allocation decisions will be influenced by the eventual results of the studies, we are working through with respect to each of these projects.
Alright, but this timeline does represent a feasible opportunity for us.
And would allow our project team to transition from MVP to our brownfield optimization projects followed by sensor Domingo.
We are focused on execution to realize the value embedded within our portfolio.
On slide 25, we highlight the timelines for the aforementioned studies and catalysts, we have over the next two years that supports our growth plans with further upside beyond this across our portfolio.
We've continued to build a talented technical team team and.
And are working with strong engineering firms to execute on these studies.
Before concluding I'd like to announce some key management additions effective August 1st.
Jim Whitaker is joining capstone copper as our SVP of Chile.
Jim has over 30 years of experience most recently with BHP, Chile as president of the Escondida copper mine.
I would also like to thank Giancarlo Bruner, a former head of Chile, who is retiring in mid August and was instrumental in the development projects at months of Splunk question lots of Endesa.
Meanwhile, we've added to our operational and technical bench strength with Hayden <unk>, joining our team as vice president mining and maintenance.
<unk> also has over 30 years of experience in mining and civil construction industries, primarily in South America.
And lastly, <unk> is joining us as the project director for sensor Domingo.
Edgar joins is an exciting time as we are progressing the feasibility study ahead of a potential project sanctioning decision late next year.
In conclusion.
We reiterate that we are in the midst of a transformational year for capstone.
I am very excited that we're on track for wet commissioning at MVP by year end with <unk>.
Lead to a step change to 260000 tons of copper per year.
At significantly lower costs.
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 star one.
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One moment. Please for your first question.
The first question comes from <unk> <unk> of Scotiabank. Please go ahead.
Hi, good morning.
To see the solid progress on the <unk>.
I just want to get some more.
Color, though on the existing operations, we've seen a couple of quarters in a row now of what I would call challenging performance at both Pinto Valley in modules along coast.
I realize there is no more planned downtime, but.
Cash flow can you give us some color on sort of why we're seeing so much unplanned downtime.
And.
What measures maybe need to put in place to try to minimize that going forward.
Yes, Hello Horst.
Yes, certainly the first half of the year has been a challenge at Memphis Blancos during the ramp up.
I think the elevator pitch is that.
The major components were put in and some of the linkages between them.
Or maintain ability and operability.
<unk> thought through really well.
So that was one issue.
We were.
Addressing the other issue we were addressing was probably intensity and application of resources.
After when initially we achieved commercial production.
We got a maybe a false sense that the systems and linkages were working properly between the major components and we didnt resource enough.
A crew to address outstanding issues versus accrue to address preventative maintenance issues.
So we've divided.
Divided the crews where one looks after preventative maintenance, making sure that our major components are being.
Address and maintained properly while addressing the weaknesses in the design between the linkages. So this is underway. We've also taken on more resources more experienced management to address these particular issues. So we're focusing separately on implementation.
The preventative maintenance and reliability from addressing the inter linkage component issues we.
<unk>, maybe for just a little bit of color I'll give you. One example, one example is our hydro cyclone classification units were aligned with rubber in the initial phases of the project and early on that worked really well.
But mentals blancos has very coarse material and that material where was.
In excess of what the design the rubber could take so we've since re lines those hydro cyclones with ceramic liners. So that's an example of where now the maintenance periods.
Tween needing to change those liners this increase and therefore less downtime. So when you build many of those upon each other.
Create less downtime and that is the key to Mantas blancos ramp up and that is where we're working towards.
Okay, sorry, yes.
Sally.
Yes so.
In the first quarter as we spoke about last time and Pinto Valley, there was heavy rainfall and some of our.
Or distribution circuit was not use the heavy rainfall and we were suffering from what we call sticky mark within the crushing plants.
Yeah.
So that was a bit of a challenge than in the second quarter. What we've now experience again in sort of the crushing circuit, we had some failures for some key structural pieces and some for motor alignments on some conveyances and those are the biggest issues. These are one off.
Failures on an aged infrastructure. This has prompted us to re look at what our.
Our view is of asset integrity, and it's one of the focuses now where you've redesigned also our maintenance focus too.
Look at electrical structural.
And non destructive testing in addition to our normal preventative maintenance processes and we believe we've addressed the biggest issues at Pinto Valley.
So with what's been happening over the last months, we feel fairly very confidence that we will be able to deliver on average about 54000 tonnes a day going through to the end of the here and we also have no major scheduled maintenance shutdowns. So it is a refocus again on asset integrity and major.
Components.
Non destructive testing.
Okay. Thanks, casual and with just one more if I could just on slide 24, which talks about your organic development pipeline.
Am I reading this correctly that your you are planning to do the Meadow Verde optimization project.
The mottos belonged coast phase two and start Santo Domingo all at the same time overlapping in 2025.
Yes.
Yes.
What that shows is an idealized.
Graham who each of those those projects.
And.
The way, we look at Santa Domingo is very similar to sort of months have added development project phase, one which is a major capital project, we already have a very strong one.
<unk> project team.
Together with with Cinco team that we would we would intend to see coming close to sensor Domingo.
The MVP optimized in the months of spunk with phase two.
Sure.
What what could be described as more debottlenecking projects of existing processes.
So those obviously have relatively straightforward implementation for example.
In the case of both a major proportion of them is actually just additional mining fleet.
In terms of expanding the mine.
So we do believe that we can.
Commenced each of those two projects.
With the what I would call. The main project teams that we have.
Independently from our decision, making around the commencement of sensor Domingo.
I think we've also said before with sensor Domingo.
You look at a full notice to proceed.
<unk> sort of confidence of.
I would say sort of a number of different factors I think the first is the.
This completed and successful ramp up of months of EDA.
And seeing that sort of cash flow coming in from months of Ed and the deleveraging of our balance sheet.
I think secondly, we would we would also be looking to.
Sort of look at the macro environment.
Tyrants.
And be comfortable.
<unk>.
Sort of way we are in terms of capital escalation, we will in terms of order lead times and copper pricing.
What makes the most sense in terms of the appointed which we we pull the trigger on sensitive at this stage. We don't see any reason why that shouldnt be around the end of next year.
But with each of these projects, we retain total flexibility on when we actually commence these projects.
We will sort of.
Look at the conditions at the time and see whether its prudent to commence that particular projects.
At a point in time, whether there is any justification too.
To pause for a while and make sure we are comfortable with our balance sheets or the macro environment is and the rock condition to to advance.
Thank you.
Thank you. The next question comes from Dalton Barreto of Canaccord. Please go ahead.
Thanks, Good morning, John and team I wanted to start by asking about <unk>.
In the Homestretch now looking ahead to the actual ramp up can you talk to some of the key rescue or looking at and how you are managing them.
Sure.
Yeah. Thanks Nelson.
I will be turning this across to cash let's talk in a bit more detail.
Just sort of from a starting point this is a project thats.
We havent used any.
So the new technology. It's these are established.
Concentrates of flow sheets.
A lot of the Derisking takes place in the early stages of project preparation.
And just by way of example.
It obviously starts with the ore body.
And for the Sulphides ore body for the months of active projects, we have for the full life of the mine, 70% of the reserves and the proven category and 30% in the probable category.
It's a high level of geological confidence in most months have actually for just the next couple of years and every month for the full loss of the mine.
We've done very very extensive metallurgical test work.
And design the process plants accordingly.
And I think you probably saw so we've actually.
Our contract with <unk> includes the commissioning and the ramp up process.
With with pretty much identical plants to the ones that Cinco building for us.
They have achieved.
So well better than sort of industry average ramp up rates.
In the previous full copper concentrates is that they have that they have booths.
I think the.
The next part two so derisking, obviously comes around operational readiness and I would beforehand and cost of cash will just say we have a very detailed operational reason to spend.
Right now we are ahead of schedule in terms of the implementation of that plan.
The mine itself is.
Operating at full capacity already producing sulfide so.
The trucks a day the shovels are the operators are all there and it's all operating so it's really a question of getting the the processing plants operating procedures processes and team in place that's.
That's very much the case with the Z renting up pretty quickly.
<unk> that we've got.
And.
Okay.
In terms of sort of all aspects of progress with its critical space.
So.
Service contracts supplies consumables.
All of that is now very well advanced.
But maybe just with that if I can post close to cash flow just for any sort of additional color sure. Yes. There are a few key components near the end of any projects in <unk>.
Project completion is actually outfitting things like any project.
Some areas fall behind and we addressed that with.
Extra resourcing. So we've put on a night shift in the last months, which we hadn't had to do before and that's to help with pulling electrical cable small bore piping and termination of cabling.
That allows.
Less people in the same amount of space, which allows for better inspection.
In a 24 hour period other obviously.
Further production and in fact.
The productivity has been really good they've been pulling over 2000 meters of cable the day, so it's going quite well that portion and so that was one mitigating factor where we stay on schedule.
Another one is an IRA tailings facility, we have two contractors and split the accountabilities on the earthmoving and the liner placement and so that has really sped up the productivity within the tailings facility and again that's was addressing we saw a couple of months ago that the.
Productivity in the tailings facility was falling off a little so that's something you addressed so those are the things you addressed meet your completion date.
And then John's absolutely correct that the.
Next thing is operational readiness, our team has hired more than half the complement of people that are there over the next months will be up to finishing that off to a total of 126, new employees, including supervisors managers et cetera. So.
That is going extremely well as well as the implementation and.
Population of the maintenance program in our SaaS program and the various procedures and operating processes. So the other thing Thats unique about this particular contract that we have with the <unk>. They are actually staying on through the ramp up typically they stay on through the commissioning phases and then the operational readiness crew takes over.
As.
Stenseth leaves the operating crew and so.
In this particular contract that was negotiated with the St. Joe to achieve these these as per our presentation some of the outstanding.
Better than industry benchmark ramp ups. They had in their last for copper concentrator and we want to assure ourselves that we have a chance of doing that too. They are staying right on through commercial production in this with their <unk> team for the operational readiness and in fact their team for commissioning is already there.
Looking on that.
And preparing.
For it.
So we feel really confident with it.
I'd just add what John said it is key that we have 4 million tons of stockpile. There. It is key that the minus already ramped up three of the four shovels are fully operational.
Better part of 80% of the fleet is operating we're just adding to future incremental stripping that is required in the mine plan later in January when before shovel arise.
So of all the projects have been with this one is extremely well organized and looks to that operational period with a lot of forethought and so that's why we're very confident in where we stand today.
Yes.
Thank you for that detailed answer.
And then just maybe looking forward a little bit what's the latest.
On your thinking around the <unk> optimization.
Yeah.
Yeah.
So we actually are super excited about the the MVP optimization.
Just as a quick summary as to what it's what it's about is.
We have designed the MVP to do 32000 tonnes of ore process today. However.
We have somewhat over designed the primary crusher and the grinding system that we believe can do sort of in the range of 40% to 45000 tons a day and so.
The NV optimize is really a study.
It's a detailed engineering thats currently underway to Debottleneck the backend of the plant to also be able to process that 45000 tonnes a day.
So that's work in progress.
We were pretty shortly be submitting the.
The permit for that which is <unk>, which is a relatively straightforward permits.
Our current estimates as to the capital cost of this project is probably in the region of $150 million.
That should produce around an extra 25000 tons of copper a year.
And if you just look at that in terms of capital intensity that is around $6000.
So annualized tons of copper production, which.
That's about half of whats MVP itself as an MVP itself and third is around half of what the industry.
Capital intensity figures off so it's a super attractive project.
We believe it's a pretty straightforward project.
Yes.
It's really just sort of in the kind of flotation and flotation area.
Some additional equivalent will be required.
But we do believe that it'll be a.
Really really good sort of returning project and one which.
I think sort of continues to sort of along with with with our other Catherine. This is kind of really provide another exciting year in the year to come in at the end of this year.
We begin the sort of commissioning and ramp up of month of EDA.
We then.
We also complete the feasibility study for <unk>.
And then during the course of the first half of next year, we will complete this sort of optimization study.
The X.
Months of Ed.
And obviously complete the sort of the ramp ups.
In parallel with that we continue to look at.
<unk> phase II, which would then be a sort of full second line that contemplated the resource space.
Is large enough to support sort of another 45000 ton a day line.
And Thats, a study, which we should be bringing out to the June .
The first part of next year as well.
So.
A lot of difference.
Catalysts.
Sort of continue this.
What I would call sort of low risk growth profile moving moving forward.
Was anything you'd like to add to that yes.
One of the unique things and it was asked in the previous question too we had.
The opportunity to overlap <unk>.
Optimized NB.
And.
In Santo Domingo.
But I think one of the unique things about mental Verde optimize and.
The increase from 32000 tons of data, what we believe will be closer to 45000 tonnes a day that in the past that these cinco designed plants.
<unk> achieved this and so I had the fortune of working on one of their previous plants, which was designed for 76000 tons a day and ultimately although it wasn't called an optimized process ended up being capable of producing consistently at 90000 tons. A day. So we know the overall engineering design.
Is there an a cinco has validated this with us and that is why this is based on.
This engineering study that will come out in the first quarter and we have great confidence in the ability of the major components of the grinding circuit.
And the tailings circuit to be able to handle this tonnage and it's something that I've experienced before and certainly <unk> has experienced before and so we have great confidence in this being a very simple.
To us in house expansion of mental burden a development project to get to 45000. So this is a complicated addition, I'd also add that as John had mentioned Manta Verde development project has great project metrics per capital intensity and this is even.
Better we believe so we really look forward to putting out this study in the first quarter next year.
Thanks, guys, maybe I can just squeeze one last one and just not petrol valley, just wondering where that conversation stands between BH.
BHP in May of Freeport, and how you come up with that 88000 tons of copper per annum number and your presentation. Thank you.
Yeah.
Thanks Dalton.
Yes.
We've been quite enthused by the engagement that we've had in that district with the players in that district.
Those conversations are continuing.
We were obviously sort of doing a lot of work behind the scenes in terms of looking at what's an optimal district could look like I would say, it's still early stage. We've got there's a lot of work to be done.
Both instead of district discussions, but also in terms of our own.
Work to figure out the the optimized.
Kind of configuration for that district, what we do know is its a district with very very low.
Large.
<unk>.
Very very large resource space.
A lot of infrastructure already in place and the capacity to support very very large throughput rates at what we believe could be highly competitive costs.
So.
When we sort of look at.
So.
Where that could take us too.
Today, we have the capability of doing around sort of 60000 tonnes a day had been severely.
With the sort of districts resource space that is there an consistently see that.
Being.
Sort of potentially tripled.
Terms of.
Processing.
Throughput rates.
And just looking at kind of average resource grades at the area. That's how we sort of back calculate to.
But the kind of the kind of numbers its.
That you're referring to and that's obviously in addition to what we're currently producing at been severely.
So.
As I say, it's early stage work, there's a lot of work to be done I think that works well for us we have.
When we look at our pipeline, we need to complete Pennsylvania development project.
The next phase will be Sunset Domingo after that.
Obviously, we have sort of in parallel potentially sort of months a very optimized.
<unk> phase II.
And I think that gives us the time to really work through what is the optimal approach to developing this as a world class District.
Thanks for that John I will jump back in queue.
Excellent.
Thank you. The next question comes from Ralph <unk>.
<unk> of eight capital. Please go ahead.
Thanks, operator.
Good morning, everyone I, just wanted to come back to some of our John and Casuals commentary on cash flow you talked about this.
This comprehensive component and infrastructure assessment at pencil Valley.
And this testing thats going to be going on in and just wondering how that plays into sort of the district growth plan that was just addressed.
Because that in of itself has investments in mill expansion required and just wondering if you're going to be stress testing some of those scenarios in the study that will give us a line of sight into that.
Sure Ralph.
Well, what we're doing with this study.
It's a joint task force and we do work with.
Partner property owners in the region.
Principally BHP.
He is understanding what is available to us and simply were in trade off studies now whereby we are evaluating.
What are the end members of what is possible. So one of the end members. For example, we would be stress testing is is what is currently capable of expansion.
At the Pinto Valley processing facility itself.
Obviously, the ongoing maintenance focus and upgrading.
And the idea would be is if you work to optimize the resources available to you within the district as.
As far as old Dominion, including copper cities.
Is there a way to high grade the district to increase the grade going through our current facility and what incrementally could we increase our current bill facilities production rate per day to accommodate that so thats, one and remember John described I thought quite well the the other end member which is maybe.
What if we added processing facilities.
In strategic locations to where those resources are to increase the district product per day and it could be as much as 150000 ton a day with the sum of all two two.
Processing facilities.
And then utilizing all of the resource soon and optimized mine fashion to be able to determine what the output is so that's the exercise underway that exercise, it's key to determining what kind of partnership would arrive at and that's sort of the work that our technical services team.
Lee.
With.
The likes of BHP are working on to understand what is in the art of the possible knowing that the resources there we validated the resource of copper cities.
No there are key underground deposits within the region that all also offer high grade.
<unk> for sweeteners to the feed so we're really excited about this of being the next leg of growth for capstone copper.
After Santo Domingo.
Okay.
Okay. That's helpful. Thanks, Thanks casual.
I wanted to ask a second question and more of a follow up too.
The <unk> and the specifically the slide that dealt with the case studies and just as a point of clarification.
As a single sort of benchmark on the industry standard or are they giving you sort of a more of a aggressive timeline based on their precedence right and because you sound pretty confident that the proper incentives are in place regarding execution, which would put commissioning sometime in and around Q3 of 2024.
Yeah.
I think I am pretty confident this is.
They have a.
Theyre Chief Technical Officer is a guy named break Lane and he is well known in the industry for copper flotation circuits and he's proven it up easily.
The proof is in the pudding.
They ramp up better than what industry standards are we all know and we all hear about other ramp ups that take considerable time.
And considerable pains and.
I think it was one of the engineers have found a niche and their niche and their expertise is in copper.
Ramp ups and so it gives me confidence what I will tell you is is budgeting purpose wise, we've assumed industry standard.
Gotcha, Ambitiously and confidently I think we'll exceed that standard.
Thanks casual very helpful.
Thank you. The next question comes from Craig Hutchinson of TD Securities. Please go ahead.
Hi, good morning, everyone.
Couple of quick questions for me.
Johnny gave good clarity in terms of the capital cost for the MB DB optimize expansion of $150 million, you can kind of give us a sort of broad sense of what the cost will be for the.
Our motto sparkles phase to optimization.
Yeah. Thanks, Craig.
It's work in progress and I think sort of the approach to how we're going to deal with.
Months of Splunk as phase II I think is also it will say boldly I would say so the quick answer to your question is probably sort of you know in this sort of sub $100 million.
Range to get us up to 27000 tons per day.
I think the approach that were looking at.
We are taking a lot of learnings from the current.
<unk>.
Commissioning and ramp up of the plant.
And I think one of those loadings is that rather than sort of do a project that steps us up from 20000 up to 27000, we will look at.
Doing it in steps.
Progressive debottlenecking through each of the plants.
It will move us in steps up to that 27.
1000 tonnes a day.
That capital number, which I mentioned, there is not actually that much that's needed within the plants.
I would say at least half of that amount is actually additional mining equipment.
To provide.
Additional throughput.
So it's really more a question of of tweaking what is there already.
To get us up to that.
The throughput rates.
There's work in progress on that.
We have for example.
Number of the sort of smaller older moves that are available that can.
To utilize to get us to the 27000 tons a day.
However, what we are seeing is just with the current two mills that we're running for the current project.
Those may have the potential to get us all the way to that tonnage without even meeting those smaller moves.
So this is really where we're looking at sort of what is the.
The most efficient.
Sort of project configuration to get us up to that.
That throughput rates and that throughput rate really represents the optimal kind of till the value.
Throughput rates.
The current resource space as we know it.
Okay, great. Thanks for that and then just one other question just with regard to the decision to sanction Center Domingo you said, it's obviously contingent on a few things the macro environment.
Also mentioned the ability to take on leverage.
Leverage your balance sheet, what kind of financial metrics. So you guys are comfortable with in order to go ahead and sanction that project.
I'll pass that across to our CFO to Robyn.
Yes, I mean, Craig we always say we want to be.
Hello, two times net debt to EBITDA.
And then we'll kind of lever up during the build phase so like.
Making sure of the numbers.
South of that would be a good proxy.
Look when you look at MVP quickly starts, bringing our net debt closer to one times, so I think.
Somewhere between a one or two before we layer it back on but we view that as you know.
Back end of 2024.
Alright, great. Thanks, guys.
Okay.
Thank you. The next question comes from Stefan <unk> of Cormack Securities. Please go ahead.
Okay, great. Thanks, very much for all the detailed answers guys just kind of curious I mean, it's obviously great to see the transition at <unk> Blanco cement Verde from oxide sulfides, just kind of curious given we're looking at a compelling sort of copper copper macro going forward.
Are there any sort of plans maybe in the background to nevertheless.
Look to augment those mines with additional oxide output.
<unk>.
Going forward.
Yeah. Thanks, Thanks for the question Stephane again, the short answer to that is yes.
We're looking at lots of different ideas as you know sort of it.
Both of the Sx EW plants months and months flankers.
The capacity of 60% to 65000 tons of cafe per year each.
At months of Splunk, because we are producing in the region of sort of 15000 tons or so.
Yes, it's months have added going forward for the next 15 years at sites in the region that sort of 30000, so about half the capacity so.
So we have between half and three quarters of that.
Sx EW plant capacity.
That's available.
So starting with months of Ed.
We've got a lot of different options, we we know there's 90 million tonnes of oxide ore.
At Sunset Domingo, which was never part of the project.
They couldnt justify with that tonnage building their own Asics W.
So today, it clearly makes more sense to leach that material and utilize sort of.
After the Pls two months of EDA and utilize that capacity.
So thats.
Because that was never included in the previous project, there's some drilling work and some mixed with its needed before we can kind of constantly in Q.
Works underway and we're very positive about it.
I would say at both operations.
There's obviously the <unk>.
Possibilities of of.
Sulfide leaching we have.
Low grade Sulphides at both months spunk within months of Veda, which.
Certainly could be could be used.
Oh.
Kind of additional feed into the Sx EW plant.
One of the things we're looking at it month with <unk>, It's an old mine. It goes back to the sort of late <unk> early <unk> and so we've got very very large kind of.
Sort of.
Closer of course tailings.
Thats quite high grade in terms of oxide grade.
And we are looking at the possibility of of leaching some of that material.
And that could provide a fairly significant feed into our sx EW plants.
On a property we have we have some sort of known.
Areas with sort of showings of oxides and.
We will be sort of moving onto investigating whether there.
Sort of warrant developments.
And then obviously, we sort of always looked at as kind of a district opportunities that could sort of also feed into.
Sort of either of those Sx EW plants.
For us it's Ernie.
Any unused capacity as it is.
The potential dollar wasted.
So we are looking very very hard at how we over time make absolute sort of best use of that infrastructure.
Okay got it well thanks very much for that.
Thank you. The next question comes from Alex <unk> of Stifel. Please go ahead.
Hi, guys. Good morning. So two quick questions from me first I just want to go back to <unk>.
2024, when you guys start this mine up.
You're one of the key benefits you've reiterated many times series the expectation for cost to drop.
Can you just give me an idea of those costs.
Assuming thats based on obviously past studies and stuff, but those costs and updated due to reflect the current cost environment. So in other words Im guessing im asking is is that sub $2 cost.
Still something that you are pretty confident in achieving.
So I'll leave it there for my first one I'll ask my second one after.
Yes, Alex.
We're just going through our annual budgeting process now, but those are those are not old Tech report numbers like we refresh some annually and we've seen one of the biggest driver there is going to be energy prices kind of move away from being coal index.
So thats going to be some significant savings when we turned the plant on so yes. There are fairly recent but we're just going to go through the annual budgeting process to refresh them, but a lot of the input cost of one of the bigger ones as power will be following up that call the index.
Okay perfect.
And my second question.
The surety bond mentor of mine.
I have to admit I'm, not particularly familiar with the accounting treatment of such bonds, but so.
In terms of the $54 million liability is this a cash liability that capstone is expected to pay over the next years.
Just any clarity on that would be I appreciate it.
Yes, so we were a indemnify the surety bond for mental when we sold it so as Canadian 72% or 54 U S and so from accounting perspective, we recorded a 54 U S. As a liability on our balance sheet and that means like you mentioned it will be paid out over time as reclamation is spent on the mine.
And cash.
Okay.
Assuming over the next 510 years or so.
Yes, it's probably frontloaded rate.
So over the or.
A large chunk of it probably over the next five years.
Okay. That's it for me thank you.
Thank you.
Once again, ladies and gentlemen, if you do have a question. Please press star one at this time. The next question comes from.
Then <expletive>.
<unk>.
Clarksons Securities. Please go ahead.
Thank you.
Just looking at the second half guidance for San Jose.
Quite a bit stronger than so far this year.
Sure.
I'm not a <unk>.
So how much of a gradual process.
Just in terms of timing to the second half.
And also the potential for.
The sulfide operation.
In 2024.
The concentrate.
Concentrate to optimization is constant.
Successful.
Yes.
So for mental Verde.
See yourselves through the wet commissioning by the end of the year and the worst case scenario I believe its bye.
Late H, one to be fully ramped up at mental Verde development project, but as we've sort of been indicating in the presentation.
Also the.
Presentation, we're quite confident in beating industry standards and their setup is going well. So we're optimistic that it'll be more in Q1 that will be fully ramped up for.
<unk>.
Okay.
Mental splaine titles, yes.
Sorry go ahead.
No sorry, I was more.
More thinking about the amount of <unk>.
Optimization of the concentrator.
Yes, so we believe by the end of the year will be fully fully ramped up to design capacity.
Yes.
Okay. Thank you.
Thank you.
There are no further questions I will turn the call over to John Mckenzie for closing remarks.
Thank you.
So we look forward to updating you again in November with our Q3 results and until then keep well and feel free to reach out to general Daniel If you have any further questions.
Thank you for your continued support and have a good day.
Ladies and gentlemen, this does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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Thanks.
Okay.
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