Ero Copper Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2023

There are 11 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the Yarrow Copper Third Quarter 2023 Financial and Operating Results Conference Call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

Operator

Should you need assistance during the conference call. I would now like to turn the conference over to Curt Ninoos, Senior Vice President, Corporate Development and Investor Relations for opening remarks. Please go ahead.

Speaker 1

Thank you, operator. Good morning, and welcome to Arrow Copper's 3rd quarter 2023 earnings call. Our operating and financial results were released yesterday afternoon and are available on our website as are our financial statements and the MD and A for the 3 9 Months Ended September 30, 2023. On the call with me today are David Strang, Arrow's Co Founder and Chief Executive Officer Marco DiFilippo, President and Chief Operating Officer and Wayne Dreyer, Chief Financial Officer. We will be making forward looking statements that involve risks and uncertainties from which actual results may differ materially.

Speaker 1

We would refer you to our most recent annual information form available on our website, SEDAR and EDGAR for a discussion of the risk factors of our business and their potential impact on future performance. As a reminder and unless otherwise noted, all amounts are in U. S. Dollars. I will now pass the call over to David Strang.

Speaker 2

Thank you, Courtney, and thank you, everyone, for joining us today. We are speaking to you today from our offices in Sao Paulo, Brazil at the end of a week long tour with our Board, during which we visited each of our operations. I'm happy to share that everyone is buoyed from the visit, especially seeing the great progress our team in Brazil has made in each of our major growth initiatives. Our 3rd quarter financial results reflect our team's exceptional strategic execution and operating performance amid challenging market conditions. Despite the macroeconomic headwinds that led to weaker metal prices and a stronger Brazilian reais against the U.

Speaker 2

S. Dollar. We remained focused on executing and broadening our growth strategy, Positioning Yero for long term value creation as a global energy transition gains momentum. During the quarter, our near term growth projects achieved several critical milestones. The Tucumab project, as announced last month, reached over 70% physical completion.

Speaker 2

Furthermore, a significant achievement was realized at the Giardantino operations, where we successfully initiated production from the Matinia vein, resulting in record gold production and operating margins. Meanwhile, and prepared to commence main sinking at the new external shaft. In parallel, we continue to bolster our medium and longer term growth pipeline through ongoing regional copper and nickel exploration programs at the Cariba operations as well as through the execution of a binding term sheet to earn a 60% interest in Vale Base Metals' financed copper project, which we announced earlier this week. Before I hand over the call to Michael to provide more detail on the execution of our growth projects, I will summarize our Q3 operating and financial performance. At the Caribouba operations, copper production was in line with our forecast at 10,766 tons of copper in concentrate.

Speaker 2

While our C1 cash costs for the quarter were also in line with our forecast in BRL terms when converted to U. S. Dollars At the average Q3 exchange rate of 4.88 BRL per U. S. Dollar, our copper C1 cash costs in U.

Speaker 2

S. Dollar terms remained elevated at $1.82 per pound of copper produced. Copper production is expected to be strongest in the Q4 due to higher anticipated mined and processed copper grades. As a result, We are reaffirming our 2023 copper production guidance of 44,000 to 47,000 tons. Due to higher expected copper rates.

Speaker 2

And with the current quarter to date exchange rate averaging over 5.05 per U. S. Dollar, We also expect to deliver lower C1 cash costs in the 4th quarter. For the full year, our copper C1 cash cost guidance range, based on the original assumed foreign exchange rate of 5.30 BRL per U. S.

Speaker 2

Dollar remains 1.40 $1.60 per pound of copper produced. Yet, given the continued strength of the BRL against the U. S. Dollar, We are also providing a sensitivity range of $1.50 to $1.70 per pound of copper produced should the BRL to U. S.

Speaker 2

Dollar exchange rate remain at current levels for the remainder of the year. At our Argentina operations, as I mentioned earlier, We successfully initiated production from the continued vein during the quarter, which contributed to a quarter on quarter increase of over 40% in both processed gold grades and gold production. As a result, we produced a record 17,579 ounces of gold at C1 cash costs of $3.71 per ounce. Due to our strong year to date operating performance at the JAVANTINA operations, we are increasing our 2023 gold production guidance range from 50,000 to 53,000 ounces to 55,000 to 59,000 ounces. We are also reducing our full year C1 cash cost guidance from $4.75 to $5.75 to $3.75 to $4.75 per ounce of gold produced and lowering our all in sustaining cost guidance range from $1,000 to $1100 to $900 to $1,000 per ounce of gold produced.

Speaker 2

Our financial results for the period reflect the combination of strong continued operating performance as well as the metal price weakness and BRL strength that I mentioned earlier. As a result, adjusted EBITDA for the 3rd quarter was $42,900,000 and adjusted net income attributable to the owners of the company was $17,300,000 or $0.18 per share on a diluted basis. As planned, our capital expenditures remained elevated at just over $120,000,000 during the Q3, largely due to the strong progress being made at our Connect project. In an effort to maintain the momentum we have carried forward from the 2nd and third quarters, We have elected to accelerate select work streams originally slated for the Q1 of 2024 to the Q4 of this year. As a result, we have adjusted 2023 capital expenditure guidance for the Tucumã project to include estimated increase of approximately $15,000,000 to $20,000,000 due to the expected shift in timing of associated payments.

Speaker 2

We have also provided foreign exchange rate sensitivities across our capital expenditures to guidance ranges to reflect the potential impact of the BRL to U. S. Dollar exchange rate remaining at current levels through the end of the year. I will now pass the call to Mako to discuss the highlights around our Q3 project execution, after which Wayne will discuss our financial results for the quarter.

Speaker 3

Thank you, Dave, and good morning, everyone. With respect to progress on our strategic initiatives, I am incredibly proud of our operational teams and we are able to continue execution through the Q3 after an excellent first half of the year. Before discussing each of our projects in detail, I would like congratulate all of our employees and contractors at the Tucumã project, currently totaling over 1700 people on-site on achieving over 2,000,000 hours without a lost time injury. In terms of progress at Tucumab, We achieved a major construction milestone of over 70% physical completion as you would have seen in our project update from October. Noteworthy achievements on-site include the completion of earthworks, completion of all major civil concrete cores, major advancements and Steel Fabrication and erection as well as installation of several key pieces of process equipment, including our primary crusher, ball mill and tertiary pressures.

Speaker 3

As evidenced in our updated site photos, we are making excellent progress in flotation cell installation and site wide plate work and piping. In parallel, our main substation and power line installations are both tracking ahead of schedule and we expect to tie into the National Grid at the end of this month. As a result, mechanical completion testing and the first commissioning phases of installed equipment are expected to commence prior to year end. With the progress made on procurement, manufacturing, equipment deliveries and construction to date. Our primary focus on the project has transitioned to piping, cabling, instrumentation installations, as well as our operational readiness planning, all of which is progressing on schedule.

Speaker 3

As Dave mentioned, given the excellent performance and momentum we have been able to achieve this year. In particular, on the pre stripping and electrical power installation fronts, we expect to accelerate select work streams related to both mining and plant commissioning from the Q1 of 2024 to the Q4 of this year, which has been reflected in our updated guidance. While our expected project delivery date remains unchanged, we believe the acceleration of these work streams We'll continue to derisk our overall commissioning and ramp up schedule. Our total direct project capital estimate for the completion of the Tucumã project remains unchanged at approximately $305,000,000 It is worth noting that a Q2 redesign of our haulage route combined with decreased emulsion costs, below budget earthworks, tailings and waste dump construction costs and reductions in duties on imported equipment versus our budget have largely offset the impacts of a stronger than anticipated foreign exchange rate and increases in forecast electromechanical erection costs through project completion. At our Carriva operations, We continue to advance the new external shaft of the Pilar mine and the expansion of our Carriva mill, both part of our Pilar 3.0 initiative.

Speaker 3

During the Q3, we finalized the installation of the headframe for the new external shaft, concluded installations and are currently commissioning both the stage and personnel winders. We remain fully on track to and Maintenance Mining activities prior to year end. With respect to supporting infrastructure underground at the Palore mine, We are in the final commissioning stages on our underground batch plant, are reaming the waste and ore silos for our ore flow system and are preparing for the 2nd phase excavation of our crusher chamber. I am pleased to report that all of our underground development requirements remain on schedule for shaft handover to operations in Q4 of 2026. Back on surface at the Cariba Mill, installation of our new ball mill, Jameson Cell and associated electrical installations were nearly completed during the Q3.

Speaker 3

We anticipate an on schedule physical completion of the expansion project prior to year end. Last but certainly not least, at Shavanchina, we successfully developed into and commenced mining of the Matinia vein during the quarter, a fundamental component of our NX-sixty initiative. During the quarter, we mined ore from 3 different production levels within the Matinha vein. Our record production results this quarter and revised full year guidance ranges for the Javanchina operations speak to the positive impact from this Initiative. As Dave noted, we are expecting a strong 4th quarter at each of our operations and continued execution across our project portfolio.

Speaker 3

I will now turn the call over to Wayne to discuss our financial results.

Speaker 4

Thank you, Mako. As Dave mentioned earlier, our 3rd quarter financial performance reflected record gold production and operating margins, which partially offset a decrease in copper production as well as continued copper price weakness and a stronger BRL, which averaged $4.88 against the U. S. Dollar for the period. This drove operating cash flows of $41,900,000 that helped to fund capital expenditures of $121,400,000 which were primarily directed towards the ongoing execution of our organic growth initiatives.

Speaker 4

We ended the quarter with a strong liquidity position of approximately $238,000,000 This includes cash and cash equivalents of $45,000,000 short term investments of $43,000,000 and $150,000,000 of undrawn availability under our senior secured revolving credit facility. Regarding our BRL to U. S. Dollar exchange rate hedge program, We reported realized gains of $3,500,000 for the quarter. Consistent with our conservative strategy and in response to a favorable move in exchange rates towards the end of the quarter that extended into October, we opportunistically expanded foreign exchange rate hedge program to cover the majority of projected operating costs and capital expenditures through the end of 2024.

Speaker 4

These hedges have a weighted average floor and ceiling of $504,000,000 $5.43 per U. S. Dollar and includes approximately $145,000,000 designated for major project capital expenditures with a weighted average Floor and ceiling of $510,000,000 and $5.23 per U. S. Dollar respectively.

Speaker 4

It's also worth noting that we remain hedged on 75% of our copper production for the remainder of the year through the 0 cost collar hedge program we initiated in January. These copper hedge contracts provide a floor price of $3.50 per pound on 3,000 tons of copper per month through the end of December 2023. With that, I'll now hand the call back to David to share some final remarks.

Speaker 2

Thank you, Wayne, and thanks again to everybody who's been on the call. I think the theme for the quarter has been us operating extremely well as a team, both operationally and on the capital projects in a dynamic macro environment dealing with exchange rate and metal price volatility on the copper side of things. I cannot thank our team enough both in Vancouver and here in Brazil for the strong efforts they have done in terms of continuing to move our projects forward and continuing to operate our operations. And While we don't want to single out any particular operation versus others, the exceptional performance of our team at the JAVANTINA operations. And with that, Operator, I will turn it over to you for question period.

Operator

Thank you. We will now begin the question and answer session. Your first question comes from Dalton Baretto of Canaccord. Please go

Speaker 5

ahead. Good morning, guys. Dave, I actually wanted to kick off by talking about this new furnace project that you didn't actually mention on the call. And I'm wondering, can you talk a little bit about the project itself, the rationale for the deal? Maybe why Vale didn't run with it and how this thing will compete for dollars versus your existing portfolio?

Speaker 2

Thanks Dalton. I think we did mention it Beginning of the call. But with respect to furnace, I think there is a couple of things we'd like to be able to point out. Number 1, we've always said and we always want to continue to grow our business here in Brazil. And when we look on the longer term basis of the future of this company.

Speaker 2

When the opportunity came to us with respect to Furnace and Vale's approach to us, if we would be interested in looking at it. It was something that for us is extremely dynamic And I'm being somewhat hesitant here because with respect to the rules under 40three-1 101 and what we can and cannot say with Back to the project. But what I can say with regards to it is, as you know, Mike and the team and from the geology side of things, have a great understanding with regards to a lot of projects here in Brazil. The work that Vale has put into this project, drilling over 90,000 meters and over 240 drill holes, the opportunity to be able to work with Vale and this is a bigger relationship that's starting to be established. The context between ourselves and Vale was based upon Vale's viewpoint of a partnership that could help look at something that they've looked at historically from, let's say, an open pit perspective and our opportunities in terms of how we operate underground in Brazil.

Speaker 2

Our strong focus on ESG was something that gave Vale comfort We are a company that they feel comfortable that they would enter a relationship like this. That's the generalities I can say right now. As we continue to move forward, as we continue to work on the project, so I think it will become a lot more self evident to the world with respect to the opportunity that's available to us with Back to Furnace. Furnace is a long term growth opportunity for Aerocopper. We will be working on it.

Speaker 2

As I said, ideally, we'd like to be able to accelerate it faster than the program that we have, but it will be we'll be working on that project for the next 5 years. Within that, the competition for exploration dollars does not exist between what we are doing in the Curacao Valley and our nickel projects there and what is happening around Furnas. We have I'm extremely comfortable with the budgets that Mike and the team have put together with regards to the work we need to do at Furnace. And remember, with over 240 holes already drilled on the project. The work that Mike and the team there are doing is a lot of compliance related work with regards to 40three-1 101 and bringing that project into the ability to discuss the resource with the marketplace Under 40three-1 101.

Speaker 2

So, it is a great, great growth initiative for this company. Yes, We will be talking a lot more about it over the course of the next 12 to 18 months. And I think In the fruit of time, I think the market will come to understand the great opportunity we have here and also the great relationship that we're starting to with one of the biggest mining companies in the world and working with them. And I think that should be taken into consideration as well with regards to this. Brazil and Vale have been synonymous and the opportunity to work with the biggest mining company here in Brazil is a great opportunity for Aerocopper in the future.

Speaker 5

Great. Thanks for that Dave. And then maybe switching gears to Tucuman. Just so you're still guiding to first production in H2 2024, but The mine is almost there for the sulfides. You're going to kick off plant commissioning by year end.

Speaker 5

Is there any upside to your guidance and what are some of the key risks between now and then?

Speaker 3

Yes, this is Mokka. Great question, Hilton. Yes, look, I think, Obviously, things are going really well. We've continued to build on the momentum from the first half of the year, obviously seeing the big jump in fiscal completion relative to last quarter. I think in terms of starting the first commissioning phases and having and power the site early.

Speaker 3

Obviously, it's going to help us derisk our commissioning ramp up schedule. With respect to project completion, We are working as hard and fast as possible to get ahead. I think the risk is always the same and that's the rainy And how much progress we can make, we have planned for that in our current start up schedule. And I think that's Part of the reason that we're moving capital from Q1 next year into Q4 and also continue to maintain our current plan, which is half of next year. So while there is some opportunity there, I think given the uncertainties involved, We're going to stick to our second half guidance for now.

Speaker 2

Yes, Dalton, just to reaffirm that, we're taking a conservative approach with regards to what we're doing. Yes, the project is moving forward very, very well, but we are not In a position nor do we feel comfortable right now to change any guidance with regards to when commissioning and commercial production comes into play. Maybe we have a conversation with the marketplace in the first half of next year with regards to that, but we're not changing guidance right now.

Speaker 5

Thanks guys. I'll jump back in queue.

Operator

The next question comes from Orest Wowkodaw of Scotiabank. Please go ahead.

Speaker 6

Hi, good morning. Mako, did I hear you say earlier that the impacts of the FX have been largely offset life savings elsewhere on Tukuma and that's why the total project CapEx of $305,000,000 is unchanged?

Speaker 3

Yes, that's exactly right, Orest. So, obviously there was an impact stronger this quarter or in Q3 relative to where we're at.

Speaker 4

If you look

Speaker 3

at the big offsets there, it's going to be on the redesign of the mine haulage route, So both in terms of pre strip and also when we're starting to get into building our run of mine stockpiles. Q2 redesign was able to shorten that haul route fairly significantly. We've also seen savings on emotion costs And then primarily in some of the as well as import duties on some of the equipment that's arriving on-site. That's all flowing through our forecast. Obviously, as we look ahead, we're seeing a couple of things moving in the opposite direction, including increased electromechanical erection cost completion.

Speaker 3

So I think as we continue to build this project out both in Q4 and through the first half of next year to Project Andover. We're going to continue to see positive adjustments and negative adjustments. Fortunately to date, those have largely offset each other. And we are continuing to anticipate cost of completion of $305,000,000 But again, those are that's our best estimate. Things are going up and down on a regular basis.

Speaker 6

Okay. And just as a follow-up, I mean given there's a lot of moving parts You're bringing forward some CapEx. You've got some currency changes. And now you're also introducing some spending for furnace. What does CapEx look like for 2024 on it, we think company wide?

Speaker 3

Yes, look, Forrest, we are as I think all companies are from discussions I have had with my counterparts at various companies, we are all in the process of budget season right now. So I think it would be premature to talk about company wide capital in advance of our budget. With respect to Tucumal, I can say is that we're anticipating the cost of completion of that project to be at the time of handover to be $305,000,000 subject to the variations we talked about. But in terms of company wide CapEx, We're in that process right now.

Speaker 5

Okay. Thank you.

Operator

Next question comes from Stefan Ioannou of Cormark Securities. Please go ahead.

Speaker 7

Thanks very much guys. Just wondering, is there can you provide any Any more color just on the exploration at

Speaker 2

Carabajua, whether copper or nickel even? Yes, Stefan. The program remains ongoing. We would elect to have had a and I had spoken in previous quarters of Having a more fruitful discussion with the marketplace with respect to advancement of the nickel opportunities. Unfortunately, the A and M, which is the government organization that manages the management of mineral licenses and exploration licenses in Brazil went on strike in the middle part of the year and that strike now ended has had an effect with respect to our ability to both close some transactions that we have been working on as well as some auctions that the government was going to run.

Speaker 2

That has resulted in us having to delay the discussion with the market with regards to what we are starting to uncover with respect to the nickel exploration. However, Mike and the team are continuing to explore on the areas that we have been able to explore. We have expanded the exploration program into 2 to 3 other areas. And The fact that Mike and the team are still at drill rigs turning is the best I can tell you with regards to the success rate that we are having there right now. But it is our hope that sometime we are going to be super careful about giving a timeline with regard When we can talk more fruitfully about our nickel program, I would love it to be the Q1 of next year.

Speaker 2

I doubt it will be. It will probably be somewhere in the Q2 that we can However, as exploration program continues and we have anything material that we feel we'd like to discuss with the market on that nickel results, we will do so in a timely manner.

Speaker 7

Okay, great. That's very helpful. So I guess, you know, timing aside, obviously what's going on, so just stay tuned then.

Speaker 2

Yes. I mean, like everything else, We'd love to put out the quarterly exploration results. I mean, we're having success in some programs that we're doing both In the Palar mine itself, again, we've had success in some work that we've been doing at Vermeos in terms of some exploration there and some extension work there. We have done some work on some copper in the Vermeijs district, some very preliminary interesting results there. Our exploration program at Argentina has gone incredibly well and the team have done a lot of Great work there, particularly around extensions to the San Antonio vein system.

Speaker 2

So lots of good work that the team are doing and a number of different areas within our exploration program and we hope to be able to continue, as I said, to be able to talk more fruitfully about things in the New Year.

Speaker 7

Okay, great. That's very helpful. And then just wondering whether there's one other question, just with shifting back to sort of Tucumã area and I guess furnace. There was previously there was sort of high level sort of talking of thinking about Tucumah and sort of in the greater context of the hub and spoke model. Furnace is kind of in the same area, but maybe a bit too Far away to be hub and spoke, if I read between the lines.

Speaker 7

Is there still other opportunities that you're seeing there as well to feed into that strategy over time? Or is furnace kind

Operator

of the next step for, call it the Carajas and Aero Copper.

Speaker 2

Well, no, I think whether Finesse was in the Carajas where the Finesse was somewhere else in Brazil, Finesse in and of itself is a great opportunity for our company. With regards to Tucumã, it is a foundational asset in the Western Carrias. And as such, we Mike and the team are broadening their work on regional exploration in and around Tucumã and the area there. There are some opportunities potentially that other people have looked at. We are evaluating these.

Speaker 2

They were a little bit earlier stage, but we certainly feel we are starting to get our feet wet in terms of the foundation that we have built in the Western Carrias and and the opportunities to potentially grow our business there. I think it's very much a stay tuned thing right now with So what's happening in the Western carriers?

Speaker 7

Okay, great. Great. Well, thanks very much. Appreciate it.

Operator

The next question comes from Craig Hutchison of TD Securities. Please go ahead.

Speaker 8

Hi, good morning guys. Just with regards to Tecuma, the $305,000,000 can you just provide some clarity in terms of how much that $305,000,000 is left to spend, just the kind of cash component.

Speaker 3

Yes, sure. So, right, and this is Mako again. So, Right now physical completion last at the end of September physical completion breached 70% as you know. Our physical spend is tracking just behind that. So we're about 60% complete on direct project expenditures through the end of September.

Speaker 3

Great. And

Speaker 7

then just in terms

Speaker 8

of liquidity, I recognize you guys have a fairly strong liquidity position now, but as the copper prices sort of languish here for

Speaker 3

the next few

Speaker 8

quarters, Are you concerned at all about your liquidity position and any kind of thoughts in terms of bolstering that through an upsize, your credit facility or some other means, non dilutive needs between now and mid next year when the project is complete.

Speaker 2

Yes. Thanks for that, Craig. Like any company that has Major capital programs. We are constantly working with respect to scenario analysis on various metal prices with regards to, as you've seen, exchange rates and anything we can do with regards to mitigating that. At current metal price levels, we're generally pretty comfortable, but you can't run a company on that basis.

Speaker 2

You have to look at risk and managed risk around that in various scenarios and doing your scenario planning with respect to that. We're in the process of doing that. We do it constantly. And we're looking at all the levers that we have with regards to making sure that the company is protected in such a way that we can deliver Tucumab on time and be able to bring that great operation into production. So, all I can tell you with regards to that is we're continually and constantly looking at scenario analysis with regards to that.

Speaker 2

I will tell you, we will not risk this company with regards to anything. And if we feel it's prudent to pull out the levers, we will do so. At this time, we're still in the works with regards to evaluating various scenarios that we have.

Operator

The next question comes from Alex Tarantino of Stifel. Please go ahead.

Speaker 9

Hi, good morning guys. A couple of questions for me. First, the 17 minutee grades in the quarter are really impressive. The metina vein is obviously a good contributor to that. Were they higher than expected?

Speaker 9

And if so, any potential read through to 2024.

Speaker 2

So, yes, we got into Matinhos early And we did find some areas which grade was significantly higher than what we anticipated And that has been a positive benefit with respect to that. It's too early to say right now where we will continue to go with regards to Matinia. There's Some really interesting things that we're seeing. I don't think any of us are going to change guidance with respect to What we're thinking with regards to Matinja right now, it's a great start. We're pretty excited.

Speaker 2

Our team is excited about What we've encountered, it has had a positive correlation. We continue to see higher grades than we anticipated, But we're not going to change anything with regards to guidance nor thinking on it right now with respect to Matinia. Okay, good. That's a

Speaker 3

good start anyways.

Speaker 9

Second question, at Furnace, you said greater than 240 holes drilled so far. That's a lot of holes. So Can I read into that then? I mean, do you think you have enough information available already to put a 40 three-1 101 compliant resource together? Is that something we could expect over the next few months?

Speaker 2

So let's talk about our work at Furnace. We have signed a binding letter of intent. We now move into negotiating a definitive agreement. Both ourselves and Vale, in terms of the team each team's work going into this letter of intent, spent a lot of time. We have been in conversations with Vale for the last 18 months with regards to this.

Speaker 2

You can read that Both companies are motivated with regards to getting the definitive agreement signed. That's going to take a few months. At the same time, we are doing a baseline study and initiating a baseline study for our environmental baseline study for the basis of our work that we will then be adding to the project. Thereafter, Mike and the team, Working with the Vale team, we'll start our drilling programs. We have a clear idea of what we would want to do with regards to the Drilling that will be supportive of the work that Vale has done in and of themselves.

Speaker 2

Vale has been working on this project for a long time. Rules have changed with regards to QAQC and there's a certain portion of the Vale database that needs to be updated and that work will also be done. Hence, the reasons we're taking a conservative approach with regards to discussing project right now until such time as we can get everything the i's dotted, t's crossed with regards to it being compliant with 40 three-1 101. We will be working on this project over the course of the next 12 months with regards to getting it there. I can't tell you when the 40 three-1 101 will be completed.

Speaker 2

With regards to a resource, we have to work with our partner, Mali Termina. What you have seen in the definitive agreement This is an 18 month program that will be completed initially to generate a PEA on the project. And that's what we will be working towards. If there is opportunity and we feel along with our partner Vale There is an opportunity to put out a 40 three-1 101 earlier. We will do that.

Speaker 2

But we are going to be doing and working in partnership with Vale and moving this project forward.

Operator

The next question comes from Jackie Zavlowski of BMO Capital Markets. Please go ahead.

Speaker 10

Thanks very much. A couple of questions for you and maybe one that's on a slightly different subject. Can you give us an update on the PMA smelter and how much of your material you're selling domestically versus internationally right now?

Speaker 2

Thanks Jackie. With respect to PMA, we did not make any sales during the quarter to PMA. PMA has had maintenance issues with regards to the smelter, So I'd be working through that. Eduardo de Como, as you know, our CEO here in Brazil has been working with PMA and the PMA have been very open with regards to working with us on potential solutions down the road. There has been interest with regards to various things.

Speaker 2

It's not our role to get involved in this towards PMA coming back on stream and a stronger, healthier position. And we remain because we are an interested party sitting on the sidelines and talking to various entities. There may be an opportunity to send some material to them this quarter, But we're not relying upon it with regards to any of our projections that we will be selling anything to them in the 4th quarter.

Speaker 10

Okay. No, that's helpful. And that's consistent with the guidance you gave earlier. I just wanted to see if that was changed at all. I appreciate that.

Speaker 10

If I could ask One other question on, I guess it's really related to the start up of Tucumã, but just in general for the company. As we see Tucumab moving into production, can you talk a little bit about your working capital needs and How that may add to the amount of inventory and just sort of working capital that the company is going to need in general next year?

Speaker 3

Yes, Jackie, great question. So both myself and Wayne have had this discussion numerous times over the past several months. We have In terms of working capital draw for 1st production at Tucuman sales, we have a number of levers that we're exploring to absorb that working capital impact. So we don't anticipate a huge change with respect to working capital drawdown given some of the levers that we're exploring at this stage.

Speaker 10

Thanks a lot, Michael.

Speaker 4

Yes, I mean, Jack, it's Wayne here. Obviously, We've had initial indications on the concentrate coming out of Chikomir is pretty desirable spec. We're in advanced discussions with various cost takers to enter into 1st year contracts And obviously there's opportunity in those to manage our working capital needs.

Operator

The next question comes from Gordon Lawson of Paradigm Capital. Please go ahead.

Speaker 3

Hi, good morning. My first question was just stolen, so I'll roll over here. Can you clarify the key components of the 3.0 project in terms of timing? And I've got the mill ramping up to 4.2 in 2024, but what does what and when does the second shaft add to the mining rate? Yes, good question, Gordon.

Speaker 3

So yes, that's you're spot on the mill expansion. Obviously, we're completing the installations and commissioning phase in Q4. Obviously involves as I like to say, we're 40 meters complete on the precinct and about 14.60 meters to go on the shaft. So that progress will start here at the end of the year in parallel with our underground infrastructure. We're forecasting an on time delivery of the shaft project in Q4 of 2026.

Speaker 3

So it will be fully operational in 2027. Okay. And do you have an idea of what that would be to the mining rate? The overall mining rate from the Palore mine will be 3,000,000 tonnes. That's the objective.

Speaker 6

Okay. Okay. Thank you very much.

Operator

This concludes the question and answer session. I would like to turn the conference back over to David Strang for any closing remarks.

Speaker 2

Thank you, operator, and thank you again everybody for coming on the call. I really appreciate the questions that we have that we received. And we look forward to talking to you at the well, I guess it's going to be February with Respect to the next call on the annual results. Hopefully, we get to see a lot of you in between that and continue to have discussions. We're always available to answer anybody's questions with regards to how our operations are doing.

Speaker 2

And again, I just need to thank the team, our overall team for the great work they continue to do in terms of delivering both operationally and on our project spaces and getting to the goals that we're looking to achieve. So thanks to everybody and thanks again to everybody on the call. Thank you, operator.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a blessed day.

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Earnings Conference Call
Ero Copper Q3 2023
00:00 / 00:00
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