Q3 2024 Lundin Mining Corp Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the Lundin Mining Third Quarter 2024 Results Conference Call.
At this time, all participants are in a listen-only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session, you will need to press star one one on your telephone You will then hear an automated message advising that your hand is raised
Speaker Change: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jack Lundin, President and CEO of Lundin Mining. Please go ahead.
Speaker Change: Good day, everyone. Welcome to Lundin Mining's third quarter 2024 conference call. Thank you for joining. Yesterday, we reported our operating and financial results for the three-month period ending September 30th. A press release and presentation summarizing the results are available on our website, where a recording of this webcast will also be made available.
All figures presented are in U.S. dollars unless otherwise noted.
Speaker Change: I would like to remind everyone that today's presentation and certain comments on the call include forward-looking information and are subject to risks and uncertainties. For further information, I will turn your attention to the cautionary statements on slide 2 for reference and our latest relevant filings on CDAR.
Speaker Change: On the call with me today, I am pleased to be joined by members of our executive team, including Juan Andres Morel, our Executive Vice President and Chief Operating Officer, and Teitur Poulsen, our Executive Vice President and Chief Financial Officer.
Starting with key highlights in the quarter, it was an active Q3 for the company. In July, we announced the transaction to acquire Filo Mining in partnership with BHP, where we will form a new joint venture to include both the Filo del Sol and Jose Maria projects located within the Vicuña district in Argentina.
Speaker Change: This transaction sets the company on a trajectory to grow our business considerably from where we are today. The deal aligns with our long-term corporate ambitions to become a top-tier copper producer with a best-in-class approach to responsible mining, and we'll provide further details later in this presentation.
Another key highlight in the quarter was increasing our ownership in Caceronas by a further 19% to 70%.
This immediately adds valuable copper tons to the company's attributable production profile.
Casaronis is a long-life asset with favorable cash flow generation and complements Lundin Mining's portfolio given its proximity to Candelaria, our largest copper mining operation just over a hundred kilometers to the northwest, and to the Jose Maria project which is approximately 30 kilometers to the south.
Speaker Change: Highlighting our operational performance, we achieved copper production of approximately 100,000 tons and are on track to come within our annual copper guidance range, which has been updated to 366,000 tons to 389,000 tons.
We have tightened the guidance ranges on several of our operating assets as we head into the end of the year.
Speaker Change: Candelaria had an excellent quarter producing 50,000 tons of copper driven by planned higher head grades in phase 11 of the open pit mine.
Speaker Change: This was one of Candelaria's strongest quarters on record, which contributed to solid revenue performance of over $1 billion USD for the company in the quarter.
Referring to our other metals, we produced 46,600 tons of zinc and 47,000 ounces of gold in the quarter.
Speaker Change: The $1.1 billion in revenue translated to approximately $458 million in adjusted EBIT DA for the period. And lastly, we declared our regular dividend to shareholders for the 31st consecutive quarter.
Speaker Change: Juan Andres, our Chief Operating Officer, will now discuss the performance of our operational assets.
Juan Andres: Thank you, Jack, and good morning, everybody. As previously mentioned, the improvement in grades in Candelaria has put the company in a good position to meet consolidated copper production for the year.
Juan Andres: Copper production for the company was 100,000 tons for the quarter, which is close to a quarterly record for the company.
Juan Andres: During the period, gold production totaled approximately 47,000 ounces, which is very good in a very strong gold price environment. Gold production was primarily driven by stronger grades at Candelaria and Chapada.
Juan Andres: At Candelaria, production was 50,000 tons of copper and 29,000 ounces of coal. As planned, during the quarter, the company mined higher-grade material from phase 11, and copper head grades averaged 0.76% for the period, with several days over 1%. We expect these higher grades to continue throughout most of the fourth quarter.
Juan Andres: As previously announced, in August, the job action at Cacerones, which lasted 14 days, impacted production. During this period, we ran at half capacity.
Juan Andres: We were able to reach an amicable resolution with the union at Cacerones and a safe back-to-work plan and an efficient ramp-up operation was achieved.
Juan Andres: During the quarter, the mine sequence at Cacerones was impacted by the strike along with hydrogeologic conditions in phase 5 of the pit.
Juan Andres: which led to a change in the mine sequence resulting in lower grades and recoveries during the border that also contributed to lower production.
Juan Andres: For the remainder of the year, we'll continue to focus on throughput and recoveries in the mill. In September, we averaged 4,400 tons per hour, which is an improvement of 200 to 300 tons per hour over the historical performances.
Juan Andres: We have updated guidance at several of our assets, including Cacerones, that we will get into later in the presentation.
Production at Chapada was in line with expectations.
Juan Andres: Mill throughput was strong, and we processed 6 million tons in the quarter to produce 11,700 tons of copper, along with 18,000 ounces of gold.
Juan Andres: Higher gold grades were generated from fresh ore from the south and central pits, which replaced plant feed from older low-grade stockpile in order to prioritize gold production in light of elevated gold prices.
Juan Andres: Included in other copper production is Neves Corvo, which produced 6,700 tons, Zinc Ruben, which produced 1,400 tons, and Eagle, that generated 1,000 tons of copper for the quarter.
Juan Andres: Zinc production this quarter was in line with last quarter at 46,600 tons. At Neves Corvo, zinc production was 29,500 tons. Operations continue to focus on ore and plant availability to increase throughput going into the fourth quarter.
Juan Andres: Good progress is being made on the mining method adjustments and the updated cable bolting requirements.
Juan Andres: During the month of August, there was a record in shaft hoisting of 440,000 tons over the month, in addition to a record zinc production of 10,500 tons.
Juan Andres: During the month of September, the daily shaft hoisting of 19,000 tons set a new record for the mine. I just want to congratulate the team at Neves Corvo on a job well done.
Juan Andres: Zinc Ruben produced 17,100 tons of zinc. Production was impacted by lower grades in the month of August caused by a change in sequencing from unplanned maintenance interruptions and challenges with paste delivery and wet ore.
Juan Andres: We expect zinc rates to improve over the remainder of the year.
Juan Andres: Ramp rehabilitation continued at EGLE throughout the quarter, limiting access in the lower EGLE east ore body.
Juan Andres: The mean RAN had reduced capacity during this time. Nickel production was 900 tons for the quarter. RAN rehabilitation has largely been completed, and we expect throughput rates to increase in the fourth quarter.
Juan Andres: EGLE is tracking to the revised guidance of 7,000 to 9,000 tons of nickel for the year.
Juan Andres: As we enter the latter half of the year, we were able to tighten guidance ranges and reiterate consolidated copper guidance for the year, which is now 366,000 to 389,000 tons.
Juan Andres: The higher head grades at Candelaria from Phase 11 are expected to continue throughout most of the fourth quarter, putting us on track to meet the upper end of the original guidance at Candelaria. We have tightened this range and slightly increased it to 165,000 to 173,000 tons.
Juan Andres: At Cacerones, the reduced throughput as a result of the labor action impacted full year guidance and we have adjusted production estimates to 121,000 to 125,000 tons of copper, which is in line with the original guidance from the beginning of the year.
Juan Andres: Guidance at Zinn-Grumman has increased from 79,000 to 83,000 tons of zinc. These increases were offset by adjustments at Neves-Corwood, and overall, consolidated zinc production has been adjusted to 190,000 to 199,000 tons for the full year, from 195,000 to 215,000 tons.
Thank you.
Juan Andres: Annual goal guidance has remained unchanged at 155,000 to 170,000 ounces, which incorporates an increase in guidance at Chapada offset by the slight reduction at Candelaria.
Last quarter, nickel production was adjusted.
Juan Andres: and we expect to be able to meet the revised guidance for the remainder of the year. As mentioned, ramp rehabilitation has been primarily completed and we anticipate throughputs to increase in the fourth quarter back to normal levels.
Juan Andres: Overall, we are in a good position to achieve our consolidated copper guidance range as we outlined at the beginning of the year. The upper end being slightly revised as we enter the fourth quarter and we have a greater visibility to the remainder of the year.
Juan Andres: Throughout the year, we have been discussing some of the asset optimization efforts we have been undertaking at Chapada, Candelaria, and Cacerones. Chapada is the most advanced where we are well into the implementation phase of the optimization.
Juan Andres: In 2023, at Chapada, we started a full optimization exercise to identify savings and improvements.
Juan Andres: Over the last year, we have achieved significant savings and we have been able to reduce our cash costs by approximately 25 to 35 cents per pound.
Juan Andres: when we look at the 2022 actual cash costs of $2.08 per pound. And year-to-date, we're sitting at $1.75 per pound, which is about $20-25 million per year difference in free cash flow.
Juan Andres: Which is a great outcome, and we think we will be able to continue to save costs in certain areas that will help offset some of the cost pressures that we have seen.
Juan Andres: We have been able to improve haulage cycle times, fleet availability, blasting fragmentation, and contracting strategies.
Juan Andres: In conjunction with the optimization efforts, we have redesigned the mine plan, which has reduced annual mining rates by 30 million tons while maintaining the same production profiles as previous.
Juan Andres: This has been achieved through optimizing stockpile feed levels, and we now blend approximately 30%, or 6 to 8 million tons, to our mill feed from the stockpile and reduce annual stripping requirements.
Juan Andres: This has helped lower our average street ratio from 3.4 to 1, from 2.4 to 1, and reduced mining costs per tonne mill from 9.4 to 1, from 2.4 to 1, from 2.4 to 1, from 1.4 to 1.5.
$6.50 per ton in 2022 to $6.50 per ton.
Juan Andres: We continue to work on gold recoveries, and especially on some of the older stockpiles. We have ran various tests with different reagents to improve recovery. A 5% recovery improvement could add over $100 million in NPV over the life of the mine.
This will be a continued focus for us.
Juan Andres: The annual savings identified will be included in our 2025 loan plan and cash cost guidance we will put out in January. An updated technical report for Chapada will be filed next year as well.
Juan Andres: We're running the same asset optimization exercise at Candelaria and Cacerones, focused on productivity, process improvements, and efficiencies to drive down costs.
Okay, thank you, Ponderes, and good morning, everybody.
Juan Andres: So during the quarter, the company generated almost 1.1 billion in revenue, which is in line with the previous two quarters and resulting in a year-to-date revenue of 3.1 billion.
Juan Andres: Our revenue mix remains predominantly leveraged to copper with 75% of the quarter's revenue.
Juan Andres: which is a slight decrease quarter over quarter given higher gold prices and higher gold and zinc volumes sold.
Juan Andres: Zinc and gold each contributed approximately 9% whereas nickel only contributed 1% due to the lower shale nickel volumes given that the Eagle Mine has been running at reduced capacity during the quarter.
Looking up.
Juan Andres: Volume sold and realized pricing for the period. We sold 90,000 tons of copper at an average realized price of $4.29 per pound of copper and 41,000 tons on sink at $1.29 per pound.
Juan Andres: This, coupled with the sale of our other metals, generated revenue of $1,073,000,000.
Juan Andres: and it's the fifth consecutive quarter with revenue generation in the region of a billion dollars.
Juan Andres: It is also worth noting that the level of inventory health of concentrate at quarter-end was higher than normal, particularly at Casa Rona where a plant shipment at quarter-end slipped into October.
Juan Andres: During the quarter, provisional pricing adjustments from prior periods were negligible and at the end of the third quarter there were approximately 90,200 tons of copper that were provisionally priced at $4.44 per pound and remained open for final pricing adjustments.
As did 16,800 tonnes of zinc at $1.39 per pound.
and Nathan Monash. Thank you.
Production costs in the third quarter totaled $581 million.
Juan Andres: This is a slight decrease from previous quarter driven by lower throughputs at Eagle and the reclassification of rehabilitation costs to other income and expenses, as well as by lower sales volume at Casaronis.
Juan Andres: Lower diesel costs, as well as continued favorable effects on the Chilean pesos and Brazilian real, also contributed to lower costs.
Thank you.
Juan Andres: Total costs at Candelaria have been fairly stable over the last few quarters.
Juan Andres: During the third quarter, higher mining rates increased total costs, while higher by-product credits and favorable exchange rates positively impacted cash costs, which were $1.55 per pound of copper for the quarter.
Juan Andres: We also recorded a one-off charge of around $11 million at Candelaria during the quarter relating to costs associated with repairs and maintenance, which previously had been recorded to inventory.
Juan Andres: Input costs such as diesel and electricity reduced marginally at Katarona during the quarter, whereas the renewed agreement with one of the labor unions resulted in a one-off bonus payment of approximately six million.
Juan Andres: A weaker Chilean pesos, as well as lower sold volumes, resulted in a reduction of $40 million in production costs during the quarter, whilst the lower sales volume led to a higher C1 unit cost to $2.96 per pound.
Juan Andres: C1 unit costs at Chapada were recorded at $1.37 per pound copper, which is lower than previous quarters, and favorably impacted by lower electricity costs, higher by-product credits, as well as a weaker Brazilian real.
Juan Andres: Effective from mid-year, Tripathas entered into a new 10-year purchase power agreement with Serena.
Juan Andres: resulting in Chapada's electricity price falling from the high 50s to $38 per megawatt hour.
Juan Andres: Despite various input costs falling at Chapata during the quarter, the absolute production cost increased driven by a higher mill throughput of 6 million tons, as well as higher sales volume leading to more inventory being charged to production costs during the quarter.
Juan Andres: Based on the revised production guidance estimates, we have updated cash cost guidance at several of our sites.
Juan Andres: Chapada cash cost guidance has come down to $1.55 to $1.65 per pound from the previous $1.95 to $2.15 per pound, reflecting a reduction in certain input costs, a higher by-product credit due to higher gold production and gold prices.
Juan Andres: as well as a weaker local currency being assumed for the remainder of 2024.
Sincru and Kashkost have improved to $0.40 to $0.45.
Juan Andres: per pound of zinc, and EEC costs have increased to $3.70 to $3.90 per pound of nickel.
All other cash cost estimates remain unchanged.
Juan Andres: Total sustaining and expansionary capital expenditure for the quarter amounted to 201 million, which was lower than forecast.
Juan Andres: We have lowered sustaining capital expenditure guidance across a number of sites, resulting in reducing to fully consolidated guidance from $795 million to $720 million.
Juan Andres: The capital guidance revision at Casa Rona was lowered by $40 million to $135 million. The change in guidance is the result of a combination of reduced stripping requirements and a delay in capital projects.
Juan Andres: Candelaria's capex was lowered by $25 million to $275 million, primarily the result of savings and the deferral of projects into next year, including equipment deliveries and infrastructure projects.
Juan Andres: At Jose Maria we spent 50 million during the quarter and year-to-date we have spent approximately
under the 93 million. [inaudible]
Juan Andres: A couple of guidance for the full year at Rosemary has been revised by 5 million to 230 million.
Juan Andres: Finally, exploration guidance has been increased by 7 million to 55 million for the year to accelerate exploration efforts at Casa Rona and follow up on building at Cumbre Verde in Argentina after positive results in the first half of the year.
Juan Andres: Slides 18 and 19 highlight our third quarter key financial metrics. We generated adjusted EBITDA of $458 million and adjusted operating cash flow was $305 million during the period, with cash taxes paid during the quarter of $43 million.
Juan Andres: Free cash flow from operations amounted to $2 million during the quarter and was negatively impacted by a working capital build of $166 million as a result of the timing of sales at Candelaria and Chapada.
Adjusted earnings were $73 million for the quarter.
Juan Andres: We ended the third quarter with a net debt position of around 1.5 billion excluding capital leases, with our leverage ratio still remaining below one-time adjusted EBITDA.
Juan Andres: Our liquidity position remains ample, with roughly $1.4 billion in availability on our revolving credit facility at the end of the third quarter.
Juan Andres: The company had certain big-ticket cash flow items during the quarter, and slide 20 presents in greater detail the sources and uses of cash in the quarter.
Juan Andres: Operations generated 305 million of cash flow in the third quarter before working capital of 166 million.
Juan Andres: The company drew down $486 million in debt to fund the Cazorona transaction contingent payments at Chapada, along with the purchase of shares at Filo, which collectively amounted to a total cash payment of $427 million.
Juan Andres: This was the last contingent payment due at Chapada and the first deferred payment to J.X. Nixon for the Casarona acquisition.
Juan Andres: A quarterly dividend payment of $0.09 per share was made during the period amounting to $52 million.
Juan Andres: as well as distribution to non-controlling interests amounting to $63 million.
Juan Andres: At the end of the quarter, the company had $296 million in cash and cash equivalents.
Juan Andres: So, all in all, another solid financial performance from the company for the third quarter, and the company's balance sheet remains very healthy and positions the company well to pursue its growth ambitions in South America.
Speaker Change: I will now turn the call back to Jack to talk about the recent transaction with BHP.
Thank you, Teitur.
Jack Lundin: This page outlines the joint venture structure between the company and BHP.
Speaker Change: At consideration for 50% in the Jose Maria project, which will form part of the new JV, BHP will pay Lundin $690 million U.S., subject to adjustments at closing.
Speaker Change: The transaction will consolidate two key advance projects within the Argentinian Vicuña District and create a leading platform in one of the most geologically prospective regions in the world and establishes us as having one of the leading growth profiles in the copper sector today.
Speaker Change: On this slide, we can see a plan view of the prolific Vicuña District.
Speaker Change: The Filo del Sol deposit is located to the south of Caceronas, over the border, and is to the southwest of the Jose Maria project in the San Juan province of Argentina.
Speaker Change: Given the close proximity, both Filo del Sol and Jose Maria would support an integrated development scenario as Jose Maria is positioned several hundred meters lower in elevation in an area that is favorable to large-scale fixed infrastructure.
Speaker Change: With the proximity of our other assets in the Atacama region, which includes Caceronas, Candelaria, and our Port and Caldera and Desalination Facility, we believe there will be meaningful commercial and development synergies for this integrated project.
Speaker Change: Touching briefly on the Philodel Sol deposit, on this slide we can see a cross-section view looking west. The drill results and the different mineralized zones in this large deposit demonstrate the sheer scale of this asset.
Speaker Change: The Aurora Zone shows abnormally high copper grades as compared to other copper porphyry mineral deposits, as you can see in the center of this image.
Speaker Change: Aurora has grown into one of the world's largest and highest grade copper gold zones and sits within a large mineralized envelope that further demonstrates the uniqueness of a deposit like Celo.
Speaker Change: It was drill hole 41 which intercepted 858 meters of 1.8% copper equivalent, and since then drilling has continued and has hit major intersections of over one kilometer in length containing approximately 1% copper equivalent, outlining a very large scale base and precious metals deposit that is seen as the crown jewel of this giant metal district.
Speaker Change: The assets within this JV, once in production, have the potential to rival the largest mines in the Andean Corridor.
Speaker Change: Over the past several years, the Jose Maria team has been dedicated to moving the project forward and we plan to build on this foundation in collaboration with BHP and with integrating the Filo del Sol project.
Speaker Change: In September, Filo shareholders voted overwhelmingly in favor of the deal, and the plan of arrangement was approved by the courts in October.
Speaker Change: We anticipate the deal to finalize in the first quarter of 2025, where we plan to provide an update on the next steps following closing of the transaction.
Speaker Change: Another significant business development opportunity for the company was in executing the option to increase ownership in Casaronis from 51% to 70%, which adds approximately 20,000 to 25,000 tons of additional attributable copper production to the company's production profile.
Speaker Change: Casaronis is a long-life mine which yields strong cash flow generation and given its geographical location strategically fits well within our asset base.
Speaker Change: We acquired operatorship in 2023 and see meaningful opportunities to improve the mine through our asset optimization programs, as outlined by Juan Andres earlier in the presentation.
Speaker Change: Staying within the Vicuña District but moving to exploration, we are looking here at a panoramic view of the area facing west.
Speaker Change: The company is accelerating exploration efforts at Kasseronis as we now enter the spring season in the Southern Hemisphere.
Speaker Change: Preparations to restart near mine drilling at Angelica were made at the end of the quarter. Additionally, we increased our exploration budget for the remainder of the year to target higher grade copper breccia mineralization with the objective to improve grades at the existing Casaronis resource.
Thanks for watching!
Speaker Change: Just over the border at Jose Maria, preparations are underway to recommence our drilling campaign at Cumbre Verde after positive results in the first half of 2024.
Speaker Change: Cumbre Verde is located in close proximity to both Filo del Sol and the Jose Maria project as outlined on this graphic.
Speaker Change: One can also get a good sense of the topography in this region from this image.
Speaker Change: We summarize this quarter as being characterized by solid copper production, which resulted in over $1 billion in revenue for the company and nearly $460 million in adjusted EBIT debt.
Speaker Change: Candelaria had one of its best quarters on record producing 50,000 tons of copper at a cash cost of around $1.55 per pound.
Speaker Change: We anticipate following up with a solid fourth quarter to finish the year within the copper production guidance ranges for 2024.
Speaker Change: Operationally, our team continues to focus on business improvements and optimizing our assets to capture significant savings, as Juan Andres discussed earlier.
Speaker Change: We were active in the quarter growing value for the company by seeking new business opportunities. Last year, we purchased 51% of Casaronis, which can do in excess of 120,000 tons of copper per annum year over year. And this quarter, we increased our ownership up to 70% as our confidence in the asset has continued to grow.
Speaker Change: The creation of a long-term partnership between Lundin Mining and BHP to jointly develop the Vicuña District in Argentina represents a truly unique opportunity for the business and aligns well with our strategy of becoming a top-tier copper producer, all while continuing to provide significant returns to our shareholders.
Speaker Change: Operator, I would now like to open the call for any questions. Thank you.
Speaker Change: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. One moment while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Ionis Masvoulas with Morgan Stanley. Your line is now open.
Speaker Change: Hello, thank you very much for the presentation. A couple of questions from my side. First on starting off with a potential sale of the European assets. What I'd like to ask here is whether you would consider a piecemeal divestment process?
Speaker Change: or are you more focused on a swift execution with a single buyer that could happen a lot faster? And then within that, would you also potentially consider a stock component in a transaction or would you favor a cash deal? Thank you.
Hi, Jonas. Thank you for the question. So, answering your...
question regarding our European asset sale process.
Speaker Change: to be made for us is if we will divest fully or maintain both assets in the long-term in our portfolio. As we have telegraphed, we are not in a position where we are needing to sell. This is a purely opportunistic approach that we are seeing based on interest that we have received. The process is ongoing and what I can say is that we would likely see ourselves selling.
Speaker Change: in a situation where we would divest fully out of Europe rather than maintaining one of the assets. But, you know, happy to hear your other question now.
Speaker Change: Very clear, thank you very much. And the second question on going back to Candelaria, you flag that access to the high-grade Phase 11 or should continue for most of Q4, should we interpret that as
Thank you.
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Speaker Change: Hi Ionis, this is Juan Andres. Thanks for your question. We were going through a high grade zone in Phase 11, so we expect that these higher grades will end by the end of the fourth quarter, so we don't see these levels of grades into 2025.
That's fair. Thanks very much.
Thank you.
Speaker Change: Our next question comes from the line of Dalton Barreto with Canaccord Genuity. Your line is now open.
Thanks, operator. Good morning, guys.
Speaker Change: I wanted to start by asking about Casa Ronas. The recoveries there seem to be trucking along in sort of the high 70s, low 80s, which seems pretty low to me compared to most other copper mills out there. And I'm just wondering, is there a structural reason for this? Is there upside to it? And how high can you get them? Thanks.
Speaker Change: Hi Dalton, this is Juan Andres. During the the quarter we we faced a challenge with some issues related to mine dewatering of the phase 5, so that is the lower pushback in our pit. So due to that we had to readjust our mine sequence and go back to the phase 6.
Speaker Change: In the Phase VI, we have higher levels of oxidation, so that is what temporarily affected the recoveries. But now that the dewatering system is back in operation, we're back into the Phase V, and recoveries should go back to normal levels.
And so, Juan Andres, what are normal levels?
in the upper 80s.
In the upper 80s. Thank you.
Thank you.
Speaker Change: And then if I can follow up and take a step back there, I think on the last call, you guys mentioned that you would update the market with your full potential initiatives by year end. Is that still your intention? I know Juan Andres touched on Shibata, but maybe if we can get an update on some of the other assets, that'd be great, thanks.
Speaker Change: Yes, as we, as I said before, as we move forward with the design phase and we enter into the implementation and we start seeing savings being captured and improvement being implemented, we will be reporting to the market on those improvements.
Speaker Change: Okay, great. So it's not going to be like a one formal update on all the projects and potential savings.
Speaker Change: Now, I think over time we'll just try and demonstrate through our asset optimization work that we are bringing down costs or that we are improving kind of performance and as we've kind of outlined in this update call with Juan Andres walking us through.
Speaker Change: You know, the Chepada improvements, we are focusing on our larger assets with Casaronis and Candelaria. And, you know, I think over time we'll start to, you know, really demonstrate that the operations are performing better through these improvement initiatives, and we'll try and telegraph that clearly so you understand where the benefits are coming from.
Speaker Change: Got it. Thanks, Jack. And maybe one last one for you if you don't mind. Can you remind us what the mandated timelines under WIEGI are?
Speaker Change: Yeah, so, you know, the Rigi Bill was passed through Congress in July at the federal level in Argentina. And so, essentially, there's a two-year window from July to apply to basically adhere to the fiscal framework that is outlined within the Rigi Bill. So, you know, essentially a two-year window with an option if needed to negotiate an additional year. So, the framework as it's positioned now would have, you know, us getting to July 2026 to apply for adherence to the Rigi Bill.
Speaker Change: And then once approved, are there mandated timelines around kind of shovels on the ground or spending or anything like that?
Speaker Change: Yeah, it's mainly around spending, Dalton, but I think all of that gets outlined clearly when you officially form the fiscal stability with both the province and at the federal level. And so, you know, all of those kind of, all of those triggers are to be kind of negotiated when we're getting our fiscal stability established.
Speaker Change: So, essentially, you know, that two-year window, we want to see a project kind of being ready to be sanctioned with, you know, the capital outlay and the schedule to getting into production and essentially a fully sanctioned project.
Thank you.
Got it. Thanks, Jack.
Thank you.
Speaker Change: Our next question comes from the line of Edward Goldsmith with Deutsche Bank. Your line is now open.
Speaker Change: Hi Geoff and team, thank you for the presentation. The first question is just going back to the potential European asset sales. Can you give any kind of update on the timing of a potential sale in terms of an announcement or completion? And then the second question is just on working capital, how much of an unwind we should expect to see in the final quarter, given that the sales lag this quarter?
Speaker Change: Hi there, yeah, so with respect to our European process, we're definitely, you know, looking to conclude and come to a decision before the end of this year, and I'll hand it over to Teitur to discuss the working capital question. Yeah, hi, good morning, yeah, as we said, we had a fairly sizable working capital built in the third quarter, over 160 million.
Speaker Change: The main driver there was simply, you know, build-off receivables at Candelaria and Chapada in particular. Previous quarter in Q2, we had the reverse. We had a release of over $120 million of working capital release.
Speaker Change: And as usual, you know, this all depends on timing of shipments.
Speaker Change: and also the direction of the copper price in the market, you know, higher copper price normally builds up.
Speaker Change: more receivables and and vice versa so and we also held quite a
Speaker Change: big portion of finished concentrated inventory at the end of the third quarter which will be sold during the the fourth quarter and you know we're we're continuously improving payment terms on our
Speaker Change: Our spot trades that we are doing so we are getting cash in the door quicker now than we did say a year ago
Speaker Change: So all that baked in, I would hope we could unwind a fair chunk of working capital in the fourth quarter.
Thank you. Thank you.
Speaker Change: Our next question is from the line of Lawson Winder with B of A Securities. Your line is now open.
Speaker Change: Thank you very much operator and good morning Lundin team. Thank you for taking my questions.
Speaker Change: Could I ask about the free cash flow outlook? So just considering spot commodity prices, potential commitments from the Vicuña JV and potential investments into the Candelaria Underground and Setúbal at Chapada.
Speaker Change: Would you expect Lundin Mining to generate free cash flow in the coming say two to three years in advance of construction starting at Jose Maria Filo?
Thank you.
Good morning, Lawson. That's a good question.
on Jose Maria as a project, I mean if we...
Speaker Change: If we go on current rates, we should generate, you know, a fairly sizable free cash flow next year where copper prices are now.
Speaker Change: But if we start to ramp up CAPEX on the project next year, which is still to be determined, then obviously that free cash flow profile will reduce. But I think if you take a step back and look big picture over the whole development phase of Jose Maria and Filo.
Speaker Change: Then clearly we are building up net debt over that period. You can't grow the business without incurring debt, I would argue.
Speaker Change: But we are very comfortable where the balance sheet is today. We are conservatively leveraged, so we have a great starting point to embark on this growth ambition. And when we project out in time, you know, with PHP now funding 50% of the development,
Speaker Change: We don't really see a scenario where our leverage goes much about two and a half times and once you're in the production You start to de-lever that Very quickly. So, you know, that's why we are saying on the European sales process. That's not a must for us. It's opportunistically driven
Speaker Change: And if we don't sell Europe, you know, that leverage I talked about is assuming we don't sell it.
I think we're in a good position to...
Speaker Change: to, you know, mold her through this growth phase we're going into.
[inaudible]
Speaker Change: Great caller, thank you very much Teitur. And just to follow up on that, on some capital allocation considerations, when might Lundin Mining make a decision on the Candelaria Underground and or Saúva? And then, and then secondly, when you think about the dividend, is that, is the current level something that can be maintained through the coming years and into the start of construction of José Filho?
Hey Lawson, I can answer that question. Thanks for that.
Speaker Change: In terms of capital allocation, of course, we're looking at an array of projects, near-term and long-term, and we want to make sure that we continue to grow the business.
Speaker Change: You know we've got the Sauva scoping study that we're concluding and it's you know looking promising and something that we definitely want to continue pursuing. The exploration continues there and we continue to see you know meaningful grades and long intercepts so we'll continue looking at the Sauva opportunity as an expansion for Chepada.
Speaker Change: progressing with, you know, optimization work and looking at the opportunity to expand the throughput from the underground, where the grades are significantly higher at Candelaria in the underground. So we're pursuing those in parallel while we look at, you know, progressing once we close the JV transaction. And then on top of that, we want to have a sound and disciplined capital allocation framework where we are returning, you know, providing returns to our shareholders. So, you know, we think that that dividend can remain intact and returns to shareholders can remain intact as we progress on this growth profile that Teitur was outlining.
Okay, fantastic. Thank you all very much.
Thank you.
Speaker Change: Our next question comes from the line of Bryce Adams with CIBC. Your line is now open.
Speaker Change: Good morning all. Thanks for the call. My question is around the gardens updates last night and any read-throughs.
for 2025.
Speaker Change: I think you answered it already for Candelaria. Those grades are not sustainable into next year. But what about Chapada gold grades? Is there some upside to 2025 estimates? And then the opposite for Nevis Corvo. Do the 2024 zinc results put some risk on the 2025 outlook? Thank you very much.
Good morning. Thank you for the question.
Speaker Change: Yeah, the higher gold grades in Chapada was more of an opportunistic approach given the higher gold prices that we're facing. We do not expect those levels of gold grades to extend into 2025.
[inaudible]
Speaker Change: I think, yeah, for Nevis, obviously, we're continuing to work through kind of this sequence, you know, mine plan sequencing changing since we've changed our regimen for ground support. And so all of that's going into our updated mine plan. But, you know, once we come out with our projections for 2025 and our three-year outlook, we'll, you know, we're still kind of refining those numbers and we'll provide that, you know, in about a month's time or a month and a half time. So you'll be able to see more clarity on that. But, you know, indications are that we should be able to, you know, maintain similar to what we've projected in our three-year outlook.
Okay, thanks so much.
Thank you.
Thank you. Thank you.
Speaker Change: Our next question is from the line of Connor McKay with Ventum Financial. Your line is now open.
Hi guys, thanks for taking my question.
Speaker Change: I just wanted to dig in on the exploration programs coming up here, particularly you mentioned that you saw some pretty positive results out of Cumbre Verde.
Speaker Change: earlier this year. Is there going to be some sort of, you know, comprehensive vicuña exploration update where we can get some detail on those results and what you guys are seeing there? In addition to that, I remember earlier this year you discussed potentially testing some further field targets on the Castorones land package.
Speaker Change: such as Jalados Norte or other more greenfields targets. Yeah, just some more details surrounding those efforts.
Speaker Change: Absolutely, yeah. Thanks, Connor, for the question. So I think, you know, a really exciting opportunity for us is, as we've been entering and growing our position in the Vicuña District, has been our exploration campaigns. And we did have some, you know, positive results, but they really were just kind of scout drilling campaigns that we had in the Cumbre Verde target, which is, you know, close to our Jose Maria project. So we're now kind of, the drills are turning as we've entered the spring season in the Southern Hemisphere. And so we'll look to kind of follow up on those traces where we definitely found some high-grade veining mineralization. And as we continue to kind of
Speaker Change: assess that opportunity, then I think we'll continue to look at growing and adding meters and costs to the exploration in that area.
Speaker Change: Casaronis drilling as well. We're really trying to target the deep breccia zones that are part of the existing resource.
Speaker Change: So, we've been drilling throughout the year. I think seven of eight holes have been completed in the Casa Rona's kind of deep resource area. We've been finding some higher-grade breccia zones, and we want to follow up on that, which will essentially help us with a resource model update, and probably in the 2026 Life of Mine Plan, we'd start to look at changing that to go after the better grades that we've been finding. But then, I think in terms of kind of more pure exploration, we are trying to stay targeted and close to where the existing processing facility is. So you've heard of our Angelica deposit. Three of five holes have been completed before pausing in the winter, and now we're kind of going back.
in the subsidy.
Speaker Change: stay targeted so that we can turn this exploration success quickly into, you know, hopefully a resource reserve and eventually into a mine plan. So Angelica and the Casarona's deep breccia zones are
Speaker Change: focused in that drilling campaign, and then the Cumbre Verde follow-up in Jose Maria. And as we continue to get more of an understanding, we'll build on those exploration campaigns.
Speaker Change: That's great, thanks. And then last one for me, just on Eagle East. So I know you mentioned the rehabilitation as more or less complete. Are we expecting, or should we be expecting, unit costs to continue to stay elevated, or should those normalize back to sort of pre-geotechnical issue levels?
Speaker Change: Yes, thanks, Conor. As we, as I said before, once we complete the rehab and we go back to, let's say, nameplate capacity by the end of the fourth quarter, early Q1 next year, we should see production and cost go back to previous levels.
Perfect. Thank you very much guys. That's it for me.
Thank you.
Speaker Change: Our next question comes from the line of Daniel Major with UBS. Your line is now open.
Hi there, can you hear me okay?
Speaker Change: Yes, kind of, yeah. Yeah, great, sorry. Yeah, two questions. Firstly, in terms of the...
Speaker Change: Timeline for more information around Jose Maria Fila, you said you're going to provide some more information once the transaction completes in Q1. What should we be expecting there? Will this be initial capital schedule production or something more preliminary?
and Nathan Monash. Thank you.
Hi, yeah, no, so, so...
Speaker Change: So as mentioned, you know, we're progressing well through the motions of getting the transaction to close and the joint venture established, still targeting kind of the Q1 timeline. At such a time, we would be, you know, outlining kind of a work plan that gets us, you know, further to de-risk both of these assets and bring them together for what would be kind of an integrated project. So after close, you know, we wouldn't be in a position to announce a capex and schedule and development plan. I mean, it's more of a work plan to get to that phase. So you know, still work to be done, but our eyes are really focused on getting the transaction closed and the JV established and then, you know, and then updating after that.
Speaker Change: Okay, thanks. So, just to follow up on that, you're spending about $130 million, $230 million this year, your share in Jose Maria. What should we be thinking about of the run rate of spend into next year in Argentina?
Speaker Change: yeah I mean yeah as we said with the deal construct
Speaker Change: You know, we are running the budget as normal during this year, which is only slightly, $5 million to $230, as you said.
Speaker Change: And then the premise of the deal we've done with BHP is that we start to pay
Speaker Change: heads up 50-50 from 1st of January next year as to the budget for next year It's it's really too early to to say we obviously need to get the alignment with BHP what that budget will will will look like
Speaker Change: Well, as Jack says, we're keen to go after this and, you know, with the Rigi bill out there, it's imperative that we progress this as quickly and responsibly as we can.
Okay, thanks. And then just one final one.
Speaker Change: Just with the RIGI bill, to be clear, you gave some details on the timelines to be applicable. If the project scales up over time, so it's modular, would the subsequent expansion phases, if that's the way it plays out, still be covered by the same fiscal term?
Speaker Change: What we're looking at, as we've mentioned, is an integrated project, which would then theoretically be entitled to the same fiscal stability framework. As we look to build this out, because of its sheer scale, we would need to do so in phases, and Phase 1 still needs to be defined. But as we look to scale up and bring more of this mineralization in, we believe we'd be adhering to the same fiscal stability framework.
Very clear, thanks very much.
Thank you.
Speaker Change: Our next question comes from the line of Ionis Masvelas with Morgan Stanley. Your line is now open.
Speaker Change: Thank you for taking the follow-up question. Just going back to the project sequencing, so with the Rigi bill, have you have a deadline there by July 2026?
Speaker Change: you probably start spending money there sometime in 2027 in terms of development capex but at the same time you're talking about QGIP and Salva being two interesting
Speaker Change: growth options that probably need a bit more time to mature. So how should we think about the sequencing? Does
Speaker Change: Jose Maria come first, and then the other two options at a later stage. Is there potential to develop some of the projects in parallel? Because there's an element of financing, but there is also an element of project execution that you might be tied up in Argentina as compared to the other projects. So I'm interested to hear your perspective here.
Speaker Change: Obviously, the Vicuña, Argentina Phase 1 development is still yet to be defined and therefore the schedule and capital requirement for Lundin Mining is still yet to be fully established. We're running the near-mine, smaller in scale but meaningful growth opportunities in parallel. Of course, in terms of capital allocation, we want to make sure that we can stack growth sequentially for Lundin Mining. With the Candelaria Underground expansion with Sauva, running those in parallel and seeing those is probably more near-term opportunities.
Speaker Change: project with Vicuña Argentina, which will really level up the company in terms of adding a lot of production to our profile. We run all in parallel and believe that we've got a strong balance sheet that will be able to facilitate growth with all of these different levers.
Thanks again. Thank you.
Thank you.
Speaker Change: Our next question comes from the line of Matt Green with Goldman Sachs. Your line is now open.
Matt Green: Hi, good morning everyone. I just have one question, perhaps it's not too material, but...
Speaker Change: You had a busy quarter. I just wanted to ask just about the Casarones labour agreements. We've seen a few of these taking place across other assets in Chile. And I guess the bonus component is Tesla.
Speaker Change: come through as a one-off hit in your accounts. Has this been captured in the September quarter and is it also capturing your unit guidance for the year? And then I guess just into next year, are there any further union labour negotiations coming up across the group?
Speaker Change: Yeah, well, I can take one part of it, and then Juan-Luis can take a second. So yeah, that one of bonus payment, around $6 million, was fully expensed in the third quarter. And in terms of our guidance, we do not...
Speaker Change: include you know potential bonus arrangements in our guidance since it's it's it's hard to predict where we landed all of those so we and also commercially it could compromise us so we leave it completely out of our guidance
Speaker Change: Okay, on your second question, Matt, in Casadonas we have three unions.
Speaker Change: We closed the first negotiation in the first quarter. The second union, as we mentioned before, in August. And right now we're starting the negotiation with the third union, which we expect to close that negotiation before the year-end.
Speaker Change: Okay, that's great, thanks. And the third unit, what percentage of the workforce is that? And I guess just across Candelaria, any negotiations into next year?
Speaker Change: No, this is just Cacerones, this third union, it's a group...
That represents mainly the supervisors, so it's approximately...
250-300 people in that group.
Speaker Change: and in the case of Candelaria, we signed the collective bargain agreement early 2023 and those agreements should last for three years, so we should probably be starting that in 2026.
That's very clear. Thanks very much.
Thank you. Thanks, Matt.
Speaker Change: This concludes the question and answer session. I would now like to turn it back to Jack for closing remarks.
Jack Lundin: As always, thank you everybody for the interest and for the good questions and you know we had a strong quarter in Q3 and we're looking to follow that up in Q4 and really continue on trend to meet our revised guidance here. Both Copper and Zinc we've, you know, got a good line of sight to maintaining and getting to our budget guidelines. Thank you.