Q2 2019 Earnings Call
Welcome to the high base second quarter 2019 results conference call.
At this time all participants are in listen only mode. Following the presentation, we will conduct a question and answer session.
To join the question queue, you May press Star one on your telephone keypad.
Should you need assistance during the conference call you May signal, an operator by pressing star zero I would like to remind everyone that this conference call is being recorded today August nine at nine am eastern time.
I will now turn the conference over to Candice relay Director Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to Hudbays 2019 second quarter results Conference call.
Hi, These financial results were issued yesterday and are available on our website at www Dot Hudbay dotcom, a corresponding Powerpoint presentation is also available and we encourage you to refer to it during this call.
Our presenters today are Peter could kill ski Hudbays interim President and Chief Executive Officer, and Cashel Meagher, Our senior Vice President and Chief operating officer accompanying Peter in casual for the Q and a portion of the call will be David Bryson, Our senior Vice President and Chief Financial Officer, and Eugene Lee, Our senior Vice President corporate development and strategy.
Please note that comments made on today's call may contain forward looking information and this information by its nature is subject to risks and uncertainties and as such actual results may differ materially from the views expressed today.
For further information on these risks and uncertainties. Please consult the companys relevant filings on SEDAR and Edgar.
These documents are also available on our website.
As a reminder, all amounts discussed on today's call are in us dollars unless otherwise noted and now I'll pass the call over to Peter could kill ski Peter.
Thank you Candice and good morning, everyone.
I'm pleased to be here today, and I'd like to begin todays call with a brief introduction of myself.
I was most recently president and CEO of Nevsun resources from May 2017 until its acquisition in December 2018.
Prior to that so I held various senior executive roles in the base metals precious metals and bulk materials sectors globally.
In the interim C O would hudbay for months now and my focus has been on getting to know the people and developing a deeper understanding of the assets.
I must say I've been impressed with what I've seen so far and I believe that we have a solid team in place to continue to execute on our growth strategy to create long term value for shareholders.
The search for the permanent CEO is underway and in the meantime, the management team is focused on progressing the value creation opportunities we have in each of our business units.
I would also like to make a few initial remarks about last week's court decision regarding rosemont.
We are obviously deeply disappointed and frustrated by the decision which appears to over two decades of settled mining law in the United States.
We are evaluating all of our options, including appealing the decision.
We are also encouraged by the support we are receiving from the rest of the mining industry. Following the decision.
However, it may take some time for any appeal to be heard and decided upon we believe that one to two years. Its typical in cases like this.
In the meantime, we are assessing other options to advance Rosemont, we have suspended most work on the early works program and now expect total Rosemont project capital spending of $13 million compared to the previous guidance of $122 million. These costs are in addition to $20 million of Rosemont non project costs that are still expected to be incurred in 2019.
Given how recently the decision was received as well as the ongoing legal process. There is not much else. We can share with you at this time regarding either the legal process or our plans for Rosemont. We continue to look at all of our options within the context of this decision and the currency environments.
I will now move on to a review of our results for the quarter together with some comments on the progress of our growth initiatives in Peru and Manitoba.
I will close with an overview of our strategy and the summary of our upcoming catalyst.
Building off a solid first quarter Hudbay delivered strong operating results in the second quarter, including record mine production at Lalor record throughput at the store concentrator and strong production results in Peru, notwithstanding the plant semi annual maintenance activities at the Constancio mill.
Based on these results we are on track to achieve our full 2019 production cost and capital expenditure guidance.
We produced 30000 tons of copper in the quarter.
A decrease compared to the last quarter due to lower grades at triple seven and Constancio, along with reduced throughput at Constancio from the plant six day mill maintenance shutdown.
This was offset by increased oil from Triple seven the law and the exceptional performance from the store mill during the quarter.
Consolidated cash cost per pound of copper produced natural byproduct credits was $1.27 cents, an increase over last quarter, primarily due to lower copper production.
Similarly, all in sustaining cash costs increased to $2.26 driven mainly by the decrease in copper production and increased sustaining capital expenditures.
Earnings and earnings per share in the second quarter were affected by several factors.
The first was the write down of the loan receivable from the previous minority joint venture partners on the Rosemont copper project.
As previously disclosed we completed the acquisition of the minority interest in April consolidating a 100% interest in Rosemont.
The structuring of the acquisition for tax efficiency resulted in the loan receivable being written off for accounting purposes, and noncash transactions that did not also the underlying economic arrangements with the sellers.
This affected earnings per share by 10 cents.
The second factor was noncash deferred tax adjustments, which affected earnings per share by six cents and as disclosed previously we incurred costs related to the recent proxy contest amounting to one cents per share.
Our balance sheet remains strong and we ended the quarter with $490 million in cash and a net debt position of $488 million positioning us well to fund our future growth initiatives.
With our second quarter results. We are pleased to announce the initial resource estimate for the 91 deposit in snow Lake only six months from the initial discovery of the deposits.
Cashel will touch on the 19, though on deposits in more detail shortly.
But not before I stressed the significance of this discovery to the Manitoba business.
Now I'd like to turn to our South America business unit, where Constancio continued to perform well in accordance with our expectations.
During the second quarter of 2019, we were mining in areas with higher strip ratio and lower copper grades in line with the mine plan, which resulted in lower mind and lower grades compared to the first quarter of 2019.
Milled copper grades were also lower than the most recent quarter as a result of the planned lower mine grades.
Mill throughput in the second quarter of 2019 was consistent compared to the same period in 2018, but lower than the first quarter of 2019 due to the regularly scheduled mill maintenance shutdown occurring in the second quarter each year.
However, throughput in the second quarter was in line with the mills designed capacity rate.
Copper recoveries in the second quarter of 2019 were 84.7%, reflecting sustained metallurgical improvements initiated in 2018.
While recoveries vary from quarter to quarter, depending on the complexity and grade of the ore feed we continue to see results from ongoing recovery improvements initiatives.
These initiatives include those targeting flotation operating efficiencies and the integration of an automated advanced process control system in the grinding and bulk flotation circuits.
We are pleased with the copper recovery performance in the mill and are on track to achieve the copper recoveries, we previously forecasted.
During the second quarter Constancio produced 24000 tons of copper 12000 ounces of precious metals and 334 tons of Mali.
In addition to the regular semi annual maintenance work. We continued the installation of new equipment in support of efforts to optimize recoveries at the Constancio mill.
Combined mill combined mine mill and Gionee units operating cost per ton reflects the higher maintenance costs and associated lower tonnage, resulting in higher unit costs compared to the first quarter, but consistent with unit costs in the same quarter last year.
Cash cost per pound of copper produced net of byproduct credits for the second quarter of 2019 was higher than the first quarter due to lower copper production was in line with the same period in 2018.
Sustaining cash cost per pound of copper produced net of byproduct credits for the second quarter was $2.09, reflecting higher sustaining capital expenditures in line with the mine plan.
The maintenance shutdown and the variations in copper grades are consistent with the full year plan for Constancio and we continue to expect production and cost guidance to you met for the full year 2019.
Constancio continues to be one of the lowest cost sulfide copper mines in South America.
We remain focused on adding value at constancio through bringing the pump conscious satellite deposit into production, which will extend the high grade profile.
We continue to make progress on our discussions with local community of chiller ROI to acquire the surface rights at Pampa Concho.
We have recently come to terms on amendments to prior agreements with chiller Roya and are now turning our attention to pump the concho.
Given our strong social license in Peru, we continue to believe our measured approach to community relations will prevail.
As announced last quarter and agreement with Chiller ROI would be subject to completion of the consultative pravia process with the Peruvian government, which typically takes approximately three to six months in Peru.
Given the chiller ROI is an established community with a majority voting process requiring two thirds of community vote to approve agreements. We don't anticipate the consulta privia process to be a significant hurdle for accessing pumper concho.
As mentioned in our press release, we have been affected by the recent protests related to the Tia Maria project, which have involved the road blockade preventing access to the port of Matarani.
We currently have intermittent access to the port and there has been recent progress by the Peruvian government in opening the roads.
While our team in Peru has done an excellent job of mitigating the impact of this we are continuing to monitor the situation closely and would not be surprised to have excess concentrate inventory on hand at the end of September .
Turning to the rest of the Constancio region. We are excited to test the potential of the other nearby satellite deposits, we acquired last year, including the Maria Arena cut, our Utah, and Costayaco targets, which could provide higher grade feed to the Constancio mill after the pump a contra ore body has been mined.
Geophysical characteristics indicate these satellite properties have the potential to be even more perspective than the constancio and pumper concha ore bodies.
We continue to advance permitting community relations and technical activities required to access and conduct drilling activities on these properties and plan to drill one of the properties later this year.
Moving onto Manitoba.
The second quarter results reflect the first full quarter of the Lalor mine, achieving 4500 tonnes per day, and the stall mill achieving record quarterly throughput over 3700 tonnes per day.
The Triple seven mine also had a strong quarter with a 4% increase in all mines compared to the first quarter and a 35% increase over the same quarter last year.
Triple Sevens mining cost per tonne have also been trending lower compared to the same quarter last year.
As a result of the strong performance from the mines total ore mined at the Manitoba operations during the second quarter of 2019 increased by 5% compared to the first quarter.
Similarly, total ore milled increased by 16% from first quarter levels, resulting in a 12% reduction in total concentrated unit cost per tonne.
The store concentrated achieved a record 3700 tonnes per day due to ongoing operational and maintenance improvements.
Ore milled at the Flin Flon concentrates increased by 27% over the first quarter as a result of higher production at Triple seven.
Total combined Manitoba production increased across all metals compared to the first quarter of 2019.
Zinc production increased by 14% to 32000 tons precious metals production increased by 15% to 28000 ounces.
Copper production slightly increased to 6000 tons.
Full year production of all metals is expected to be within the annual guidance ranges.
Manitoba combined combined mine mill and Gionee unit operating costs in the second quarter of 2019 were 8% lower than last quarter due to the lower concentrated unit costs.
Manitoba combined unit costs are expected to be within guidance ranges for the full year 2019.
Cash cost per pound of copper produced net of byproduct credits in the second quarter of 2019 was negative 15 cents.
These costs were lower compared to the first quarter, primarily as a result of higher byproduct revenue.
Sustaining cash cost per pound of copper produced net of byproduct credits in the second quarter was $2.11, which was lower than the first quarter also as a result of higher byproduct credits.
In addition to the strong operating performance in Manitoba, We announced an initial resource estimate at the 91 deposit in Snow Lake only six months after its discovery in February of this year.
In visiting recently with the team at site I have been impressed by the level of excitement around the 91 deposit and the significant upside potential that exists.
I will now have cash will provide more details on the 91 deposit Cashel.
Thanks, Peter we were able to achieve this initial resource estimate in record time due to the focus drove program geological interpretation and resource modeling. The team has conducted over the last few months.
The deposit is located between the former producing chisel North mine and lower mine.
Less than a thousand meters from an active underground ramp at a depth ranging from 550 to 650 meters and within 15 kilometers striking distance of distillate concentrator.
The property is 100% owned by Hudbay free of any royalties or streams.
The mineralization is interpreted as to zinc rich Vms lenses with locally high grade gold and silver content.
And occurs along the hanging wall content of the stratigraphic horizon hosting the chisel north deposit.
Based on the recent drilling results, we have defined an initial resource estimate of 2.1 million tons grading, 9.6% six 7% zinc with the potential to add meaningful gold resources.
We have recently changed the way, we report mineral reserve and resource estimates and Manitoba.
And that exact methodology, which followed on this initial resource estimate for the 91 deposit.
The methodology constrains the resource with the stope optimization envelope that ensures continuity of mineralization with economic potential interminable shapes and therefore most of this resource estimate is expected to convert to mineral reserves.
The deposit remains open in several directions.
And exploration targets for new discreet lenses also exist in the immediate vicinity of Nineteena one.
We continue to test the limits of the deposit with two drills actively exploring in the area. We are also advancing feasibility studies to develop the 19, one deposit with a focus on optimizing the net present value of the Manitoba business unit.
In addition to the COVID-19, one resource estimate we have also identified several high grade gold and copper gold zones at the deposit.
But drilling density is not yet at a level to establish a mineral resource estimate.
Highlights of the drill hole intersections occurring in the footwall of zinc rich lenses include one drill hole, which is a 29.8 grams per tonne gold and 401.8 grams per tonne silver over seven and a half meters.
And another which is a 3.2 grams per ton gold and 19.9 grams per ton silver and 2.83% copper.
Over nine meters.
Several other high grade copper and gold intersections of less than three meters occur throughout the footwall zone in altered fell sick units.
As drilling progress is to an infill stage to convert the inferred zinc rich resource estimates to an indicated category. The company also expects to establish the continuity of gold and copper gold rich mineralization.
And report and mineral resource estimate for this portion of the mineralization.
The gold and copper gold rich mineralization is likely to constitute a suitable feed for the new Brittania Gold mill. After its refurbishment is completed in 2022 and could further enhance the gold production profile from the Snow Lake camp.
To help put the size of the 19, one deposit into perspective based on the initial inferred resource estimate the deposit already ranks in the top 10 largest deposits in the Flin Flon and snow Lake regions.
Given our past history of successful mine life extension in Manitoba.
And the potential to grow through new lenses and the inclusion of the high grade gold material. The Nineteena one deposit is expected to become an important part of value creation in Manitoba.
In addition to the active exploration program at the 19, one deposit we have also continued in mine exploration activities at the Lawlers mine.
And progressed engineering studies for our other 100% owned deposits in the snow Lake area, including when Penn and New Brittania.
Drilling and studies will continue throughout the year and are expected to be incorporated in the annual mineral reserve and resource estimate in early 2020.
With that I'll pass the discussion back to Peter.
Thanks Cashel.
Looking forward to the second half of the year and into 2020 .
While we have already achieved several significant catalysts year to date, we believe we still have meaningful near term catalysts within our pipeline.
In the Snow Lake region, we will continue to explore our large land package to provide potential additional feed to our store and new Brittania mills.
Lalor has several upcoming catalysts such as upgrading the inferred resources into reserves additional all or in mine exploration and ultimately achieving first gold production out of new brittania by 2020 two.
We will continue studies on when Penn and new Brittania zones to upgrade them to reserve classification, while advancing feasibility work on the 91 deposit along with the continued exploration that 91 and incorporation of the gold mineralization.
Additionally, we expect to be drilling at one of the satellite targets near Constancio later, this year and continue to make progress on discussions to reach a community agreements on pampacancha.
We continue to believe that Rosemont is one of the world's best undeveloped copper projects delivering a 15.5% after tax unlevered IR are at a copper price of $3 per pound.
Based on the 2017 technical report.
We are continuing to evaluate the options to move Rosemont forward and expect to provide more information on our plans later this year.
And lastly, we have plans to drill high grade targets at end Mason with a focus on enhancing project economics, along with advancing exploration activities on our other prospective grassroots exploration properties in Chile, Peru and Canada.
I'd like to conclude with a recap of Hudbays investment rationale.
We have continued to execute on our consistent long term growth strategy and developing our world class asset base.
We have a proven track record of successful project development through best in class construction and ramp up of Constancia and Lalor.
Our flagship mines are among the lowest cost in their respective regions confirming our operational excellence and we continue to add value through successful exploration at our mines.
Although we are never satisfied we're pleased with our operating results and financial performance as we continued to generate strong cash flow from unhedged copper and zinc production positioning us well for our future capital allocation plans.
We have a robust pipeline of near term catalysts, we have the team in place to deliver on these catalysts and we look forward to continuing to deliver on our objectives to safe and responsible practices.
That concludes my presentation portion of the call and we are pleased to take your questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
To join the question queue, you May press Star one on your telephone keypad, you will hear a tone acknowledging your request. If you are using a speakerphone. Please pick up your handset before pressing any key to withdraw your question. Please press star two we will pause for a moment as callers join the queue.
Our first question comes from Orest Wowkodaw with Scotia Bank. Please go ahead.
Hi, good morning.
Peter you mentioned earlier that you're evaluating kind of other options with respect to Rosemont.
Can you elaborate what you're referring to there I mean, what other options are there besides appealing the core process.
Good morning, Lawrence and thanks for the question because our initial plans to launch the process in conjunction with the early works program. So at this point, we are looking at all of our options and developing relationships.
It's a little bit difficult to say exactly what the options are that are available to US right. Now we think there are serious issues in the courts decision and we believe that decision will be overturned.
We believe in the work that the agency did we'll know more with time, but to comment on on the options available to us now would be premature.
Okay, and as a follow up to that I mean, given the setback here on Rosemont.
Does this perhaps change any of the strategic directives as a company in terms of where growth may come from like this.
Is there a chance you may look for different growth vehicle given rosemont is now more long dated.
So it's I think it's premature to get into to say that we will look at alternatives right. Now we remain very very committed to Rosemont I think that if you look at rose bonds in the holistic context all of the Companys strategy, we're continuing to prosecute that strategy with vigor. We always look at at options that may arise, it's sort of part of our capital allocation process and we'll continue to do that but you know just the one week into the pre period off. This decision is very difficult to say exactly what that might be.
Okay, and then finally, Peter just as as a new CEO coming in have you had a chance to evaluate the hudbay asset base that I'm I'm curious, whether you see an opportunity for any strategic change of direction with the assets.
Oh, Thank you for that question.
Look I visited a the Manitoba sites I've missed visited the Arizona sites and I'm hitting to Peru next week.
So far I'm really pleased to see the bench strength that we have across the company, including at the operations. There is a vibrant atmosphere in the head office overall.
This the soup a bunch of people and when you put good people in front of challenges you get creative things happening.
I think that the is enormous opportunity ahead of this company and I think that having an interim CEO I'm in the seat at their own Doesnt change anything I believe that the company strategy is pretty straightforward.
Great people good assets and I think the outlook is pretty positive.
Okay. Thank you very much.
Welcome.
Our next question is from Ralph Profiti with eight capital. Please go ahead.
Hi, good morning, Thanks for taking my questions.
Peter or cash I'd like to talk a little bit about the gold potential at 19, a one a and just wondering how you're seeing the similarities with lore and and is there a scenario where you potentially can be looking at opportunities for modifications of new Britt.
Or should we be thinking about the gold potential there as sort of great enhancement and things like mine life extension.
Ralph Cashel here, Yeah, I think I think it is there is an analogy for 91 as we sort of stated in the script. It's early days, but there are intersections in adults and footwall units and we see that seen gold associated with Linzess 10, and 20 in Waller, where we called it previously conformable gold zones, and we mine them together, sometimes with the base metals zones.
And that really that those gold zones provided the foundation for the business case for the refurbishment of new Brittania to move the stall gold recoveries from 55 to be able to get closer to 90 or mid ninetys on gold recovery at new Brittania.
So this fits perfectly in with that strategy.
And with respect to 19 one itself.
It is higher grade zinc than what we're currently mining at Waller and what the future reserve at Lawler is so we see the potential for it to baby replace some of the feed that Lawlers currently providing.
Oh sooner into the stole complex and the base metals and then therefore, extending the life of the Snow Lake camp.
So I think you know given time you know over the next several months, we'll be able to put this story together for the most optimum plan to deliver the best value for our shareholders out of the Manitoba business unit.
Got it got it okay yeah.
If I can switch gears and maybe ask a question on the port issues at Matarani, just swing, where do you think the big biggest risks are things like you know concentrate storage come to mind for me.
But is it possible that we could be looking at more risks in the supply chain consumables.
Area and procurement being being potentially a bigger issue can you touch on that please.
They're up look I think that.
Obviously, it all depends on how long close a loss and I'd note also to that that we have had intimates and access to the port and that.
But to be clear, we certainly it has impacted our ability to bring some consumables and you're aware I believe that we've stopped Molly production in the Meanwhile, because of lack of availability of sodium hydrosulfide, but at the same time. We're ahead on Mali production for the year in any case or the team has done an excellent job at managing the situation in minimizing the impact of the disruptions depends on how long they lost and they fit because this for a while we'll provide an update later dates on the expected impact on hudbay, but I have to say the team has done a tremendous job of being able to stockpile material in the interim and you actually.
Fuel and stuff that we need on site.
Okay, all right. Thanks.
Appreciate it thanks Cashel Thanks Peter.
Our next question is from Matthew fields with Bank of America Merrill Lynch. Please go ahead.
Hi, everyone and and welcome and congratulations Peter.
Thank you understanding that you're obviously its early days in the Rosemont appeal process, and you're sort of going on with other options as well.
Just want to know.
Obviously, you have your March a lot of cash on the balance sheet for eventual Rosemont development.
What.
What does the balance sheet look like.
If rosemont can go forward and sort of what's what's plan b for that sort of cash.
Well.
Thanks, Phil Thanks, Matthew as you know, we had $490 million of cash on the balance sheet do admit that a $480 million.
We've got liquidity all $911 million right now.
As far as what happens if we don't have to spend money in the near term that's not such a bad thing.
But why don't I, let David speak more specifically to your question.
Yeah, I think you know it is seen as we've said before with respect to Rosemont. It's early days a you know we've got a really exciting opportunities with the refurbishment of the new Brittania mill. The 19, no one's own a you know we're sort of looking forward to moving forward with the public conscious. So we think that there's a number of organic growth opportunities inside the business already that have some capital requirements associated with it and so I think you know sort of you know it's way too premature to be a sort of thinking about a any capital structure Ah or a you know sort of a liability management a implications of any of this and certainly not on our minds at this time.
I I guess, the sort of natural extension as if if rosemont can't go far or do you envision.
The lower level of absolute debt for your balance sheet going forward.
I think we'd have to assess that if we actually found ourselves in that scenario.
Okay. Thanks very much.
Our next question is from Jackie Pres last Lau ski with BMO capital markets. Please go ahead.
Thanks, very much I guess my first question just following up on the Rosemont seem okay can you give us an idea a assuming that the the appeal continues through 2020 or do you have any spending plans capital spending plans at Rosemont in 2020, and maybe just related to that can you maybe talk a little bit about what you expect the the timeline for the appeal process might look like.
Yeah. Thanks Jackie.
As Weve said Reid.
If you approach it can be expected to take anything from 12 to 24 months, we don't know how long it will take a in the Meanwhile, we have guided towards what we expect our expenditures to be in the near term certainly this year, we talked about a $30 million.
And of which a a fair amount you spend but a small amount will be spent on continuing to hone in on some of the work that needs to be done such as water management such as a further further a engineering associated with tailings management that sort of thing. So it's normal course stuff that will add value in any case, but but also our capital spending of course will be at a much lower level.
I guess I saw in the release you mentioned that your de mobilizing a lot of a lot of those activities that you were doing this year like the engineering. So just wondering if there was.
Significant amount that was maybe going to continue.
Ah after that demobilization happened.
No the engineers basically being Demobilised, we're just keeping the cost off on hand to do the work that needs to be done to progress the worker on tailings management of water management that sort of thing got it okay. Thanks and.
Maybe just a separate topic congratulations on the appointment by the way and look forward to working with you again can you talk a little bit about what the plan is at the board level or as far as you're aware for a for the CEO position and a and what.
I mean, maybe maybe you could speak to like if if it's something that you're interested in doing longer term is a permanent position and if if if you have any idea of what the timing or would be on when a permanent appointment would be made.
Of course, and thank you for that.
Look the first the first appointment that will be made is the appointment of a chair we expect that that search is well underway right now we anticipate that the chair certainly will be appointed in advance of the end of the year.
The process for the search process for a CEO has been kicked off internal candidates will be considered I am one of those candidates.
And I think that the board will have a pretty good slate of people from whom to make a really informed decisions. So you can expect the chair to be appointed later this year following that the CEO will be appointed.
Great well best of luck with everything and and and what's the new role thanks very much.
Thank you.
Our next question is from Greg Barnes with TD Securities. Please go ahead.
Yes. Thank you I guess a question so David Bryson It certainly mdna that in Arizona, you had 200 million of committed capex of which 87 of them off million couldn't be terminated.
Oh, just under one understand that better.
Sure Greg the sort of the 200 million relates to a sort of a cancelable a usone hundred 20 odd million of Cancelable orders, which obviously, a weve gone and canceled in light of a winding down now most of the early works program of the 80 million much of that relates to some equipment purchase orders that actually had been in place prior to our acquisition of Augusta and Ah you know sort of have remained in place, but there is no real deadline for those equipment purchase orders to be carried out. There are you know they've been around for a long time, but.
You know sort of they remain in our Recommitment schedule, just kind of given the technical legal issues, there, but it's not something that we anticipate being a.
Sort of a.
Hit to Capex or liquidity.
In the foreseeable future. So while we are going to wind down some of the non cancelable contracts. Some pipe orders some de bubble mobilization costs on the engineering.
And Thats incorporated into the $30 million that we guided to for project spending for the balance of the year.
And what do you think carrying costs will be then rosemont over the next two years on an annual basis.
Hey, you know, we sort of had non project sort of carrying costs. If you will at the start of this year of $20 million before we got the four four per minute, we're going to go through our budget process, but I think you know sort of the spending levels for rosemont are going to be informed by our assessment of the options are that are available to us alongside a.
Appeal of the.
District Court decision. So it's it's really too early for us to be.
Guessing on what the spending level at Rosemont is going to be in 2020 or beyond until we have a little bit more clarity on what the business plans going to be.
Okay. That's good thank you on.
Kind of a catch and I understand you you've cleared up some issues with local community wanted to deal with with access to existing agreements.
How can you move this process forward now it's been going on an awfully long time.
I think everyone wants to see some kind of closure on this.
So Greg what I would say that.
As you saw we sort of laid to raise some of the issues that.
Coming to move to the Royal wants it addressed before negotiating on some concept.
So even though moving forward into that negotiation, we expect that those negotiations.
We'll go reasonably smoothly.
And then of course, there's the Consultive privia proceeds to be undertaken with the government that process typically takes three to six months.
And then once that process is over then we can expect to start doing some of the pre development work. So.
You know I mean, obviously, we can't promise you a timeline, but we do believe that things are going pretty.
Pretty well as planned at the moment.
And do you anticipate getting into discussions with the community on Pumpkins are very shortly.
Are there any specific issues surrounding the access to potential that the community has an issue with that.
You can address is it simply money.
No not not have not on which I'm aware.
And I understand that doesn't require very many.
You placements or re settlements.
No.
No.
So is it basically money that we're talking about then.
Typically always is mining in these negotiations.
Okay. Thank you.
You're welcome.
Our next question is from George topping with Industrial Alliance. Please go ahead.
Great. Thank you Hello, everyone like Peter said, Peter a any consideration been given for share buybacks.
Hi, Good morning, George.
The company will always take a look at a capital allocation mechanisms ahead of it.
And that that's something that the company does regularly in any case. So so all we considering share buybacks as a consequence of a decision on rosemont absolutely not it's just something that we would just considering the normal course of things as part of our capital allocation processes.
Okay, and then just secondly, with the casual on the 19, one deposit see the access is really is a a that the dip. Unfortunately is flawed done but do you have the average weather.
Oh, the mineralization the deposit.
HM.
It varies from between sort of three metres to 15 meters and in some places up in the north and we've actually had some pretty thick intersections, where they could be amenable to long hole stoping. So you know again with the amount of drill holes, we have a it's a bit premature to.
To say, what the mining method will be but if you took an overall average it's eight to 10 meters.
Right.
Good thank you.
Our next question is from Stefan Yovanno with Cormark Securities. Please go ahead.
Great. Thanks, very much guys, just maybe the way back to Rob's question, just on the sort of some of the issues you know stemming from the whole port issue it in Peru.
I remember back in the early days they can stand yeah. There was some you know the conscience straight storage onsite got pretty full are you anywhere near that sort of level. Yet are you all right I guess, the shut anywhere near being full and you're storing concentrate outside again or is there still some buffer there.
Yes, Evan Oh, we eat yeah. It's certainly we've experienced this before logistical interruptions in Peru seem to be common place and we've sort of established a mitigation plan that we re initiate whenever these things happen.
And so we are we have a we have a.
Since that other than that last time, we built new concentrate or storage facilities on site for this.
Event, and we still have room to accommodate a more production.
Okay. Okay, Great and then just maybe just then that's just not to belabor Rosemont, but just you mentioned you can be doing some drilling at N. Mason does this this or the rosemont uncertainty sort of prompt or maybe potentially a slower sort of schedule in terms of you know exploring and moving forward on M&A synergies inmates and sort of still status quo going forward.
Oh, there's no relationship between the two and anything you would.
Do the opposite.
Okay. Okay. Thanks, very much guys.
Once again, if you have a question please press star one.
Our next question comes from Lawson Winder with Bank of America Merrill Lynch. Please go ahead.
Hi, Peter Cashel, David. Thank you all for your comments today, they've all been very helpful. Just.
Hi, just a few questions for me on a on Constantin pump a contra access so.
One one thing I would be really helpful to understand is sort of what your understanding is of the Ilo onesixty nine a consultation process with the government in just in terms of a sort of <unk>, the steps and and whether or not there is any court approvals required before that's actually finalize thanks.
Yeah, the consultant <unk> process is really.
Just a prior consultation process that is undertaken in order to ensure a proper processes have been followed there's no courts are hearing or anything like that there's a fair amount of a precedent or both in the mining and the oil and gas industries with respect to how these processes are being conducted they've taken anywhere from two months to five months. So we don't anticipate any any complexity around it.
Okay. That's helpful. And then also to what extent.
Does hudbay sort of get consulted in that process or do you guys just sort of stand on the sidelines and.
And what the government handle it all.
It is a process that's handled by the between the government and the community.
Okay. That's that's very helpful.
And then one other thing that mean kind of spoken at your team's kind of spoken about it on past calls but.
I mean.
The original thought Presque process was get access to Panera Concha, and then that'll set a precedent for getting access to Maria.
Brain, Yeah, Kabi Ito <unk>, 'cause jarkko and some of these other very perspective deposits, but I'm. Just curious is there a possibility sort of flip that logic and and and go for access to those others given the delays in pump a contract.
I mean, the one the one that is too and not necessarily interrelated.
I I would say that certainly will be pragmatic, but to be more specific to your question rests on the castle along yet so.
They are the two communities that are the principal communities till early energy character or the ones, we dealt with with Constancio when we.
Originally got the land acquisition and what we've been moving both of them in parallel actually and Ah. What we've recently done is renegotiated some nets that the communities had with the original agreements those are put to bed now and we've made a part and parcel that for those to be actions that we need to have progress on top I got you and the exploration properties to the north and the communities have agreed to that and so now we're meeting with those communities in parallel and independently and they both know that we're doing it together with them. So.
We're we're very we're very optimistic that we are moving forward and and that we will get access to pampacancha and to the exploration properties.
Okay, but the exploration properties that I mean, if I'm understanding what you just said and then there is sort of a pass dependency and that it's one or all.
Hello.
There's actually there's actually several communities we have access to one I will not rolling there by the end of the year were going through the permitting process to the E. I S permitting process with the Peruvian government right now I will be drilling there by the end of the year and we have about five or six targets were pursuing a there are about three other communities were dealing with but the most prospective community as the Utica, one which is the one I was kinda Ito and the Murray arena drill intersections that already exist.
Okay. That's very helpful. Thank you casual.
And just just one final question from me on a on Manitoba with the higher production I would have thought that the unit costs would have dropped a little bit.
What was it that was keeping those little bit higher thanks.
Yeah. So I think the way to look at it is a to be able to achieve and to get the 4500 tonnes. A day, we did see drop in our unit rate cost in the mills because of the additional tonnage going through.
But in as specifically in the mines in Lawler, we've had to really change the concept to maintain 4500 tonnes a day to a fly in fly out operations. So two thirds of the workforce would be fly in fly out and with that it's changed the cost structure, a little bit although we still lie within the guidance ranges, it's maybe a little bit a variance to what was in the technical report.
Great. Thanks casual that's all from me.
Our next question is from Mark <unk> with Credit Suisse. Please go ahead.
Hi, Thank you for taking my questions just two questions on Rosemont.
For the joint venture partner search would you say that that would be put on pause until after the appeals period is done.
Mark.
Thanks for the question look our initial plans to launch the process in conjunction with the early works program.
And the idea really was that we would start to build relationships. It wasn't something that was sort of a that o'clock was taking on so we'll continue to work on those relationships to ship and build those relationships sort of unhampered by any pocket the mom and so we will continue with that.
Okay and similar to delay payments you have with we ended with really into the APA cancer deposit can you remind me again on like how that works with Rosemont. If there are any.
Sorry could you repeat the question people also similar to the delay payments you have what we in precious metals really it's the Papa catch a deposit can you discuss any delay payments you might have with Rosemont. If there are any.
So David David will take that question, Oh, a with respect to rosemont or there are none.
All right. Thank you.
Our next question comes from Orest Wowkodaw with Scotia Bank. Please go ahead.
Hi, Thanks for the follow up just a quick accounting question noticed that depreciation moved up in the quarter, despite being kind of a low low point on volumes is there is that a one off or is that should we read anything into that moving forward.
For us, it's probably going to be a little bit higher going forward, it's partly a function of getting lawler up to 4500 tonnes per day, and the sort of the depreciation on the production there.
And on Peru, it's a sort of a function of the throughput, but also sort of the fairly solid sales. So that we had on the copper side in the second quarter and so you know if we sort of draw down a little bit of inventory then you see a depreciation tick up but I'd say on balance that these depreciation rates are probably indicative of what would be a normal going forward.
Okay, great. Thanks very much.
Our next question is from Dalton Barretto with Canaccord Genuity. Please go ahead.
Hey, good morning, guys. Most of my questions have been answered, but maybe if I could just ask one on Rosemont I think ahead to your probability of success of the appeals process.
Other projects or mines, you can point us to in the U.S.
That had been approved in I guess direct opposition to the crux of the U.S. court ruling on Rosemont.
I think it would be Oh, sorry, good morning, Dalton I think it would be fair to say that.
Almost every if not every permit that's been issued a and turned down by a court has actually been reversed on appeal.
I'm not aware of any that happens.
I see so so there is precedent for this.
Any example is comes from the line.
Yes.
Indeed.
Yes, I mean, we had a one and I think it was an air permit overturned by judge at one level a few years ago and then that was subsequently reversed on appeal.
Okay, and then maybe just another one on one of the strategy side of things that you know Peter.
Are you comfortable right now, making bigger more permanent strategic decisions with the interim title or do we need to wait until.
The chairs in place on the permanency.
You know once dose I think that's a that's a great question.
I know the company, having established strategy I think that there are substantial opportunities that lie ahead of us we spoke to exploration potential in both Manitoba and Peru.
We talked about the opportunities associated with 1919, though one mineralization and the gold side of that we've got a solid good bunch of people and like I said, a little bit earlier and then good people a challenge they get creative so so no we're not going to be held back by making strategic or with respect to making strategic decisions. We have a strong board with some new membership in that board to the board is rearing to go a with the support of that board, we will make strategic decisions if they need to be made and while at the same time being cognizant that there will be somebody potentially somebody else in the seat, but we are not going to sit idly by and waiting for that to happen not by any stretch of the imagination.
Okay, Great. That's all for me and good luck Peter.
Thank you.
This concludes the question and answer session I would like to turn the conference back over to Candice for Lee for any closing remarks.
Thank you operator, and thank you everyone for.
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