Capstone Copper Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2023

There are 12 speakers on the call.

Operator

Day, ladies and gentlemen, and welcome to the KapStone Copper Q2 2023 Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, August 2, 2023. I would now like to turn the conference over to Gerald Annette, please go ahead.

Speaker 1

Good morning. I'd like to welcome everyone to Capstone Copper's Q2 2023 conference call. Please note that the news release and regulatory filings announcing Capstone Copper's 2023 Second Quarter Financial And operational results are available on our website and on SEDAR. If you are logged into the webcast, we will advance the slides of today's presentation, which is also available in the Investors section of our website. I'm joined today by our CEO, John McKenzie Our President and COO, Kassel Marr our Chief Financial Officer, Raman Randhawa and our Senior Vice President, Risk, ESG and General Counsel, Wendy King.

Speaker 1

Following our brief remarks, there will be an opportunity for questions. Please note that the comments made on the call today will contain forward looking information within the meaning of applicable securities laws. This information by its nature is subject to risks and uncertainties and actual results may differ materially from the views expressed today. For further information on the risks and uncertainties pertaining to our business, please see Capstone's most recent filings, which unless otherwise specified. Now, I'll turn the call over to John McKenzie.

Speaker 2

Thanks, Gerald, and good morning, everyone. We're pleased to present our Q2 2023 results and achievements. Turning to Slide 5. We're pleased to report that construction at our transformational Monteverde Development Projects, or MVDP, remains on time and on budget. We have over 4,000,000 tons of sulfide ore stockpile to date at an average copper grade of 0.63%, Ready for our ramp up that will commence by the end of this year.

Speaker 2

Photon's slide provides an overall view of the new sulfide concentrator, Showing the primary crusher in the back left, the covered core source stockpile dome in the middle and the grinding, flotation and filtration in the center. This year is pivotal Capstone as we expect to complete the MVDP construction by year end, Setting the stage for doubling of consolidated cash flow and positioning us well for our organic growth pipeline. Turning to Slide 6. From an operational standpoint, we experienced a challenging quarter in Q2, Marked by unplanned downtime at our Pinto Valley mine in Arizona and continued debottlenecking at Montes Blancos in Chile. As a result, we produced a total of 59,300 tons of copper at consolidated C1 cash costs of $3.01 The payable pound copper produced.

Speaker 2

In addition to these challenges at Pinto Valley and Montes Blancos, Production at Ponceverde was impacted by a planned plant shutdown for an electrical tie in of the MVDP. On a positive note, Cozerman had an excellent quarter as the mine has now ramped up to full production levels with the new cut and fill mining method. Although our costs were elevated in Q2, a large portion of this is a reflection of our weaker production levels rather than underlying cost pressures. We're encouraged by some of our input costs that are trending lower, which we'll discuss in more detail in a few slides. Turning to Slide 7.

Speaker 2

We provided H2 2023 guidance to provide more clarity on our operations Following the slow start to the year. At Pinta Valley, we expect higher grades and no scheduled major maintenance in H2 to drive stronger production levels and lower costs. At Cozamin, we anticipate a continued strong performance in the back half of the year. At Montes Blancos, we have moderated our expectations, but we expect reduced downtime to lead to more consistently higher throughputs in H2. And lastly, at Monteverde, we anticipate higher oxide production in H2 as a result of higher irrigation rates With the expanded desalination plant for the MVDP, we have reiterated our previous 2023 capital guidance.

Speaker 2

Now I'll pass over to Robin for our financial results.

Speaker 3

Thank you, John. We are now on Slide 8. In Q2, we recorded copper sales of 40,800 tonnes, which includes a sales catch up on the prior quarter Due to the timing of shipments in Chile, LME copper prices during Q2 averaged $3.84 per pound, down 5% compared to $405 in Q1 2023. Our realized copper price of $3.71 per pound was Slightly below the LME quarterly average due to timing of QP hedges, which provides month after shipment average prices. Based on current offtake contract structure, this mechanism works best for us.

Speaker 3

As a result, we recognized revenues in the quarter of 334,000,000 Realized copper prices, including the impact of copper hedges, results in a copper price of $3.61 a pound. Our elevated costs on a per pound basis in Q2 were denominator driven, as John mentioned. We have seen relief on some of our key inputs including sulfuric acid, diesel and power costs, which are cold indexed in Chile. The largest input cost sulfuric acid, which peaked in 2022 at over $2.50 a tonne averaged $158 a tonne in the first half 2023. Moving forward, we expect to release $20 a tonne lower in H2 And this lower trend is continuing into early 2024, where we have been we have secured contracts at sub $100 a tonne.

Speaker 3

With Mantoverde sulfides ramping up in 2024, our oxide production and hence acid consumption will be a lower overall portion of our cost base. The lower spot sulfuric acid prices should still bode well for our business. Ocean freight for copper concentrates from West Coast Mexico to Asia have declined from a peak of over $80 a tonne in 20.22 just under $40 a tonne in June. Additionally, slot diesel prices in the U. S.

Speaker 3

Have declined from slot prices of over $5 a gallon last year, The mid $3 per gallon range. Furthermore, we have labor agreements in place at all of our operations for the next 3 years providing additional Cost certainty. Turning to adjusted EBITDA. In Q2 of $43,400,000 was impacted by lower production The difference between LME of $3.84 per pound and our realized price including hedges of $3.61 per pound translates into approximately $15,000,000 impact after tax or $0.02 per adjusted EPS. Moving on to Slide 9.

Speaker 3

On the left hand side, we summarize our available liquidity, which as at June 30th was approximately 420,000,000 which includes $118,000,000 of cash and short term investments and $302,000,000 of undrawn amounts on our 600,000,000 We ended Q2 with a consolidated net debt of $760,000,000 and an attributable net debt Balance of $609,000,000 Our balance sheet is in excellent shape and is well positioned to complete the construction of the project by year end. With Manto Verde spent to date of $706,000,000 the remaining balance is approximately 120,000,000 The chart on the right hand side of the page illustrates our EBITDA sensitivity at various copper prices. You can see that 2023 is overshadowed The EBITDA generation with mantle verde sulfides at full run rate production. At $4 copper, we expect to generate approximately 3 $30,000,000 of EBITDA in 2023 and over $1,000,000,000 of annual EBITDA when Manto Verde development project is online. Although the Santo Domingo project is currently unsanctioned, the project has potential to further increase our EBITDA generation to above $2,000,000,000 per annum The EBITDA generation associated with Mantoverde will enable Accelerate the opportunity to delever our balance sheet and be below 1x net leverage of copper prices between $3.50 $4 per pound, which provides additional liquidity to advance our future growth pipeline.

Speaker 3

Turning to Slide 10. During recent months, we have received some level of clarity with respect to the new tax regime in Chile. The new mining royalty bill was by the constitutional court of Chile in July and we expect it to be enacted in Q3 2023 and effective starting Jan 1, 2024. The overall effective tax rate is capped at 46.5 percent of adjusted mining operational income, not net income. However, we expect to be well below this level in the near term driven by 3 main factors.

Speaker 3

Firstly, We do not expect to incur the 8% cash withholding tax for the next several years as we reinvest in Chile in our growth pipeline that includes Santo Domingo and expansions at both Amanto Verde and Amanto's Buencos. Secondly, historic tax Loss pools and accelerated depreciation allowance on our project capital spend and future spend will significantly shield taxable income. As a result of these two items, we expect our tax rate to be below 20% over the next 3 to 4 years in Chile. Lastly, we are protected by DL 600 tax stability agreement at our fully permanent and shovel ready Santo Domingo project. Now I'll hand it over to Kassel for the operations review.

Speaker 4

Thanks, Raman. We're now on Slide 11. Pinto Valley produced 12,600 tons of copper at a C1 cash cost of $2.98 per payable pound during Q2, Which was below our expectations, largely due to unplanned downtime in the primary crushing circuit, resulting in an approximately 12 lost days of production. The operation restarted in mid June and has been performing well through the end of July. Over the second half of the year, We anticipate higher copper grades with no significant maintenance schedule to drive a meaningful increase in copper production and a decrease in costs.

Speaker 4

Furthermore, we are placing an emphasis on operational discipline driven key performance indicators. We are conducting component and asset assessments based on downtime priority and we are implementing During the quarter, our efforts remain focused on identifying opportunities to transform the district. Moving to Slide 12. Hosemann mine had an exceptional quarter producing 6,700 tons of copper at a C1 Cost of $1.63 per payable pound. The mine has successfully ramped up mining rates using the new cut and fill mining method.

Speaker 4

Over the remainder of the year, we expect a continued strong performance for Cosimel. Our Mantos Blancos asset is highlighted on Slide 13. Total sulfide and cathode production yielded 11,700 tons of copper at a blended C1 cash cost of $3.15 per payable pound. This was below our expectations, driven by preventative mill maintenance downtime and debottlenecking. While the major components, including the crushing, grinding and flotation circuits remain more than capable of throughput rates in excess of 20,000 tonnes per day.

Speaker 4

Linkages between these systems, including pumps and pipes have exhibited bottlenecks. Our H2 production guidance at Mantos Blancos includes a plan to address the plant stability, including improved maintenance and optimization of the concentrator. We expect to be delivering more consistently high operating rates within the 4th quarter. Now on to Manta Verde on Slide 14. Q2 2023 oxide production was 8,300 tons of copper in cathode at an elevated C1 cash cost of $3.92 per payable pound.

Speaker 4

As previously mentioned, production and costs were impacted by the plant shutdown for the electrical tie in of the Manta Verde development project. In the second half of the year, we expect oxide production to benefit from higher irrigation levels from the expanded desalination plant, And we expect costs to decrease with higher production levels and lower sulfuric acid input prices. Most important, significant progress was achieved at the NVDE during Q2. Project Progress now stands at 88% with $706,000,000 spent as of June 30. With many of the classical major escalator risks behind us and or materially diminishing, The total expenditure for the project remains at $825,000,000 and on schedule for wet commissioning by the end of the year.

Speaker 4

The Manto Verde development project will deliver blended C1 cost below $2 a pound And produce approximately 120,000 tons of combined cathode and copper in concentrate with over 30,000 ounces of gold per year. Slides 15 through 20 show construction progress at several key areas of the NBDP. Slide 15 shows the primary crusher with the retaining wall and the conveyances advancing well. Slide 16 shows the ore stockpile dome, which is now fully enclosed and provides capacity for approximately 2 days of coarse ore Mill Feed. Slide 17 outlines the processing flow sheet on the bottom left from a bird's eye view.

Speaker 4

All major components are procured and on-site are now in the final tie in stages. During the quarter, the Tag Mill's internal rubber lining and the ball mill's liners were installed. Slide 18 Shows the new truck shop, which is largely complete and will be able to support the expanded mining fleet for the project. On Slide 19, we highlight the tailings storage facility. Dredging work is largely complete and we are now in the final stages of liner installation.

Speaker 4

And lastly, on Slide 20, you will find the desalination plant. It has now been expanded to 380 liters 2nd to support the MVDP, and we are currently ramping up flow rates to that capacity. Turning to Slide 21. We outlined a case study on previous ramp ups performed by Asenco for similar copper concentrators. Recall that MVDP is off the shelf and features a conventional flow sheet.

Speaker 4

It is also a brand new plant With no pre existing components, in the 4 most recent of SENCO projects highlighted, the ramp up to 100 Steve, was achieved within 6 months. We look forward to completing construction by year end and commencing the ramp up. Now over to Wendy King for the sustainability review.

Speaker 5

Thank you, Kashel. We're now on Slide 20 2 with a review of our sustainability highlights from Q2. At mantos blanco Cemento Verde, We have completed the independent assessment phase for the copper mark assurance process, and we expect the award of the copper mark for both sites shortly. At Cozamin, we have completed the GAAP assessment phase. Cozamin and Pinto Valley are developing project plans to address identified gaps to participate in the Coppermark Process.

Speaker 5

This quarter, we established a working group to support our sustainable development strategy implementation, which we outlined in Q1. We've identified pillar leads and have executive accountability assigned. Our inaugural sustainability report for the combined Capstone Copper Company comprising our Pinto Valley, Cozamin, Mantos Blancos, Manto Verde and Santo Domingo sites is planned to be published in Q3. This report Titled Growing Responsibly will build on our sustainable development strategy, including our specific greenhouse gas emissions targets. We are very pleased that the paste fill and dry stack tailings facility at Cozamin reached its design capacity during Q2.

Speaker 5

This is an important improvement to the sustainability of Cozamin mine. We are now capable of diverting tailings to fill underground voids And provide greater stability to the mine, and we can recover more water from the dry stack tailings deposition process, Reducing our overall makeup freshwater production requirements. The addition of this facility reduces the space required And proudly, at Pinto Valley, we have started a Women in Mining chapter Promote the employment and advancement of women. We have also had women in mining logos placed on 5 new trucks. Women are underrepresented in mining and we must foster an inclusive and diverse environment to retain and attract a more diverse workforce.

Speaker 5

And with that, I'd like to pass it back to John.

Speaker 2

Thanks. Thanks, Wendy. Turning to Slide 23. We've outlined our sector leading growth plans and some of the additional upside within our portfolio. As can be seen, we expect MVDP at its run rate production level to bring us to a consolidated level Around 260,000 tons of copper at significantly lower costs.

Speaker 2

From there, We have a clear pathway to over 400,000 tonnes of copper production. We have brownfield expansions at both Monteverde and Montes Blancos With attractive capital intensity, and our portfolio includes a fully permitted and shovel ready Santo Domingo project. Further upside exists with Oxides at Santo Domingo, utilizing our SX EW plant at Monteverde. Monteverde Phase 2, growth in our Pinto Valley District and Cobalt's optionality in our Monteverde Santo Domingo District. On Slide 24, we've outlined a potential development time line for our portfolio.

Speaker 2

Nonetheless, we're fortunate to have significant flexibility in this regard, and we intend to progress our pipeline in a prudent manner. Furthermore, our capital allocation decisions will be influenced by the eventual results of the studies we are working through with respect to each of these projects. However, this time line does represent a feasible opportunity for us and would allow our project team to transition from MVDP To our brownfield optimization projects, followed by Santo Domingo, we are focused on execution to realize the value embedded within our portfolio. On Slide 25, we highlight the timelines for the aforementioned studies and catalysts we have over the next 2 years that supports our growth plans with further upside beyond this across our portfolio. We've continued to build a talented technical team and are working with strong engineering firms to execute on these studies.

Speaker 2

Before concluding, I'd like to announce some key management additions effective August 1. Jim Whittaker He's joining Capstone Copper as our SVP, Head of Chile. Jim has over 30 years of experience, most recently with BHP Chile As President of the Escondida copper mine, I would also like to thank Giancarlo Bruno, our former Head of Chile, who is retiring in mid August And he was instrumental in the development projects at Montos Blancos in Monteverde. Meanwhile, we've added to our operational and technical bench strength Hayden Helstaedt joining our team as Vice President, Mining and Maintenance. Hayden also has over 30 years of experience in Mining and Civil Construction Industries, primarily in South America.

Speaker 2

And lastly, Edgar Rocha is joining us as the Project Director for Santo Domingo. Edgar joins at an exciting time as we're progressing the feasibility study ahead of a potential project sanctioning decision late next year. In conclusion, we reiterate that we're in the midst of a transformational year for KapStone. I'm very excited that we're on track for wet commissioning at MVDP by year end that will lead to a step change to 260,000 tons of copper per year at significantly lower costs. With that, we're now ready to take questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. The first question comes from Orest Wowkodaw of Scotiabank, please go ahead.

Speaker 1

Hi, good morning. Nice to see the solid progress on the MVDP. I did want to get some more color though on the existing operations. We've seen a couple of quarters in a row now of what I would call challenging at both Pinto Valley and Montes Blancos. I realize there's no more planned downtime, but Kashif, can you give us some color on sort of why we're seeing so much unplanned downtime?

Speaker 1

And What measures maybe need to be put in place to try to minimize that going forward?

Speaker 4

Yes. Hello, Orest. Yes, certainly the first half of the year has been a challenge at Mancoes Blancos During the ramp up, I think the elevator pitch is that the major components were put in And some of the linkages between them for maintainability and operability weren't thought through really well. That was one issue we were addressing. The other issue we were addressing was probably intensity An application of resources, after when initially we achieved commercial production, We got maybe a false sense that the systems and linkages were working properly between the major components.

Speaker 4

And we didn't resource enough, a crew to address outstanding issues versus a crew to address preventative maintenance issues. So we've since divided the crews where one looks after preventative maintenance, making sure that our major components are being Addressed and maintained properly, while addressing the weaknesses in the design between the linkages. So this is underway. We've also Taken on more resources, more experienced management to address these particular issues. So we're focusing separately on implementation of preventative maintenance and reliability from addressing The interlinkage component issues we had.

Speaker 4

Maybe for just a little bit of color, I'll give you one example. One example is our hydrocyclone classification units were lined with rubber in the initial phases of the project And early on that worked really well. But Mantos Blanco has very coarse material and that material wear was In excess of what the design the rubber could take. So we've since relined those hydrocyclones with ceramic liners. So that's an example of where now the maintenance period between needing to change those liners has increased and therefore less downtime.

Speaker 4

So when you build many of those upon each other, you create less downtime and that is the key to Mantos Blank Coast ramp up and that is where we're working towards.

Speaker 3

The comment on the Pinto Valley? Sorry, Pinto Valley.

Speaker 4

Yes. So in the Q1, as we sort of spoke about last Time in Pinto Valley, there was heavy rainfall and some of our ore distribution circuit was Not used to heavy rainfall and we were suffering from what we call sticky muck within the crushing plants. So that was a bit of a challenge. And then in the second quarter, what we've now experienced Again, in sort of the crushing circuit, we had some failures for some key structural pieces And some for motor alignments on some conveyances. And those were the biggest issues.

Speaker 4

These are one off failures on an aged infrastructure. This has prompted us to relook at what our view is of asset integrity and it's one of the focuses now We've redesigned also our maintenance focus to look at electrical, structural And non destructive testing in addition to our normal preventative maintenance processes, And we believe we've addressed the biggest issues at Pinto Valley. So with what's been happening over the last month, we feel fairly very confident That we'll be able to deliver on average about 54,000 tons a day going through to the end of the year and we also have no major scheduled maintenance Shutdowns. So it's a refocus again on asset integrity and major components, non destructive testing.

Speaker 1

Thanks, Kashal. And just one more if I could. Just on Slide 24, which talks about your organic Development pipeline. Am I reading this correct that you're planning to do the Meadow Verde optimization project And the Montos Blancos Phase 2 and Start Santo Domingo all at the same time overlapping in 2025?

Speaker 2

Yes. Orest, what that shows is an idealized Program for each of those projects. And the way we look at Santo Domingo is very similar to sort of Monteverde development project Phase 1, which is a major capital project. We already have a very strong Owners project team, together with the Osenco team that we would intend to see coming across to Santo Domingo. The MVDP optimized in the Manus Bunkers Phase 2 are what could be described as more debottlenecking projects Of existing processes.

Speaker 2

So those obviously have relatively straightforward implementation. For example, in the case of both, a major proportion of them is actually just additional mine fleet in terms of expanding the mine. So we do believe that we can commence each of those 2 projects With the, what I would call, the mine project teams that we have Independently from our decision making around the commencement of Santo Domingo. I think we've also sort of said before, Santo Domingo, We will look at a full notice to proceed once we are sort of confident of, I would say sort of a number of different factors. I think the first is the completed and successful ramp up of Monteverde And seeing the sort of cash flow coming in from Monteverde and the deleveraging of our balance sheet.

Speaker 2

I think secondly, we would also be looking to Sort of look at the macro environment and be comfortable that we sort of where we are in terms of Capital escalation, we were in terms of order lead times and copper pricing, what makes the most sense in terms of the point at which We pull the trigger on Santo Domingo. At this stage, we don't see any reason why that shouldn't be around the end of next year. But with each of these projects, we retain total flexibility on when we actually commence these projects. So we will sort of look at the conditions at the time and see whether it's prudent to commence that particular project At a point in time, whether there's any justification to pause for a while And make sure we're comfortable that whether it's our balance sheet or the macro environment is in the right condition to advance.

Speaker 4

Thank you.

Operator

Thank you. The next question comes from Dalton Barreto of Canaccord, please go ahead.

Speaker 6

Thanks. Good morning, John and team. I want to start by asking about MVDP. You're in the home stretch now. Looking ahead to the actual ramp up, can you talk to some of the key risks you're looking at and how you're managing them?

Speaker 2

Yes. Thanks, Dalton. And look, I will be turning this across to Cassel to talk in a bit more detail. But Just sort of from a starting point, this is a project that's we haven't used any So the new technology, these are established sort of concentrated flow sheets. A lot of the de risking takes place in the sort of early stages of project preparation.

Speaker 2

And just by way of example, it obviously starts sort of with the ore body. And for the sulfides ore body for the Munsoverde project, We have for the full life of the mine 70% of the reserves in the proven category and 30% in the probable category. That's a high level of geological confidence than most mines have actually for just the next couple of years, never mind for the full life of the mine. We've done very, very extensive metallurgical test work and designed the process plants accordingly. And I think you probably saw, so we've actually our contract with Osenco includes the commissioning and the ramp up process.

Speaker 2

And With pretty much identical plants to the ones that Sanko are building for us, they've achieved Well better than industry average ramp up rates in the previous 4 copper concentrators That they have built. I think the next part to sort of derisking obviously comes around operational readiness. And I would before handing cost to cash, I'll just say, we had a very detailed operational readiness plan. Right now, we are ahead of schedule in terms of the implementation of that plan. The mine itself is It's operating at full capacity.

Speaker 2

We're already producing sulfide ore. So the trucks are there, the shovels are there, the operators are all there, it's all operating. It's really a question of getting the processing plants, operating procedures, processes and team in place. That's very much the case. We're busy ramping up very quickly, the team that we've got.

Speaker 2

And I think in terms of sort of all aspects of progress, whether it's critical spares, whether it's sort of service contracts, Supplies, consumables, all of that is now very well advanced. But maybe just with that, if I can pass first to cash flow just for any Additional color?

Speaker 4

Sure. Yes, there are a few key components near the end of any projects. And one is project completion is actually Outfitting things, like any project, some areas fall behind and we address that with Extra resourcing. So we've put on a night shift in the last month, which we hadn't had to do before. And that's to help with pulling electrical cables, small bore piping and termination of cabling.

Speaker 4

That allows less People in the same amount of space, which allows for better inspection and in a 24 hour period, obviously Further production. And in fact, the productivity has been really good. They've been pulling over 2,000 meters of cable a day. So it's going quite well, that portion. And so that was one mitigating factor where we stay on schedule.

Speaker 4

Another one is in our Tailings facility, we have 2 contractors and split the accountabilities on the earthmoving and the liner placement. And so that has really sped up the productivity within the tailings facility. And again, that was addressing. We saw a couple of months ago that the Productivity in the tailings facility was falling off a little, so that's something you addressed. So those are the things you addressed to meet your completion date.

Speaker 4

And then John is absolutely correct that the next thing is operational readiness. Our team has hired more than half the complement of people that are there over Next month, we'll be up to finishing that off to a total of 126 new employees, including supervisors, managers, etcetera. So That is going extremely well as well as the implementation and population of the maintenance program in our SAP program And the various procedures and operating processes. The other thing that's unique about this particular contract that we have with They're actually staying on through the ramp up. Typically, they stay on through the commissioning phases and then the operational readiness crew takes over, which is Ostensibly, the operating crew.

Speaker 4

And so in this particular contract that was negotiated with Asanko To achieve these as per our presentation, some of the outstanding better than Industry benchmark ramp ups they had in their last four copper concentrators, and we want to assure ourselves that we have a chance of doing that too. They're staying right on through commercial production in this with their A team for the operational readiness. And in fact, their team for commissioning is already there Working on that and preparing for it. We feel really confident with it. And I'd just add what John said it is key that we have 4,000,000 tons of stockpile there.

Speaker 4

It is key that the mine is already ramped up. 3 of the 4 shovels are fully operational. The better part of 80% of the fleet is operating. We're just adding to future incremental stripping that is required in the plan later in January when the ore shovel arrives. So of all the projects I've been with, this one is extremely well organized and looks To that operational period with a lot of forethought.

Speaker 4

And so that's why we're very confident in where we stand today.

Speaker 6

Thank you for that detailed answer. And then just maybe looking forward a little bit, what's the latest On your thinking around the MBDP optimization?

Speaker 2

Yes. Obviously, we're actually super excited about The MVDP Optimization, it's just a sort of quick summary as to what it's about is We have designed the MVDP to do 32,000 tons of ore processed today. However, We have somewhat over designed the primary crusher and the grinding system that we believe can do sort of in the range of 40,000 to 45,000 tons a day. And so The MV Optimize is really a study that's and it's a detailed engineering that's currently underway to debottleneck Back end of the plant to also be able to process that 45,000 tons a day. So that's work in progress.

Speaker 2

We'll pretty shortly be submitting the permit for that, which is it's a DIA, which is relatively straightforward permit. And our current estimates as to the capital cost of this project is probably in the region of $150,000,000 That should produce around an extra 25,000 tons or so of copper a year. And if you just look at that in terms of Capital intensity, that's around $6,000 per annualized ton of copper production, which that's about half of what's MVDP itself is. And MVDP itself in turn is around half of what the industry capital intensity figures are. So It's a super attractive project.

Speaker 2

We believe it's a pretty straightforward project. It's really just sort of in the kind of flotation and There's some additional equipment will be required. But we do believe it will be Really, really good sort of returning project and one which I think sort of continues to sort of along With our other catalysts kind of really provide another exciting year in the year to come. At the end of this year, we begin the sort of commissioning and ramp up of Monteverde. We then we also complete the feasibility study for Santo Domingo.

Speaker 2

And then during the course of the first half of next year, we'll complete this sort of optimization study It's Monteverde and obviously complete the sort of the ramp up. So In parallel with that, we continue to look at in Monteverde Phase 2, which would then be a sort of full second line at Monteverde. The resource base Is large enough to support sort of another 45,000 ton a day line. And that's a study which we should be bringing out sort of during The first part of next year as well. So a lot of different Catalysts that sort of continue this, what I would call sort of low risk growth profile Moving forward.

Speaker 2

Kash, is there anything you'd like to add to that?

Speaker 4

Yes. I think one of the unique things and it was asked The previous question too, we have the opportunity to overlap MB2, MB2 or optimized MB And Santadomingo. But I think one of the unique things about Manto Verde Optimize And the increase from 32,000 tonnes a day to what we believe will be closer to 45,000 tonnes a day. And in the past that these Asenco designed plants have achieved this. And so I had the fortune of working on one of their previous Plants, which was designed for 76,000 tons a day.

Speaker 4

And ultimately, although it wasn't called an optimized process, ended up Being capable of producing consistently at 90,000 tonnes a day. So we know the overall engineering design is there and Asenco has validated this with us. That is why this is based on this engineering study that will come out in the Q1 and we have great confidence And the ability of the major components of the grinding circuit and the tailing circuit to be able to handle this tonnage. And it's something that I've experienced before and certainly, Sanco has experienced before. And so we have great confidence in this being a very simple To us, in house expansion of the Banco Verde development project to get to 45,000.

Speaker 4

So this is a complicated addition. I'd also add that as John had mentioned, Monteverde development project has great Project metrics per capital intensity and this is even better we believe. So we really look forward to ahead putting out this study in the Q1 next

Speaker 6

Thanks guys. Maybe I can just squeeze one last one in. Just on Pinto Valley, just wondering where the conversations stand between BHP and Freeport. And how you come up with that 80,000 tons of copper per annum number in your presentation? Thank you.

Speaker 2

Yes. Thanks, Dalton. We've been quite enthused by the engagement that we've had in that district with the players in that district and Those conversations are continuing. We're obviously sort of doing a lot of work behind the scenes in terms of Looking at what an optimal district could look like, I would say it's still early stage. We've got there's a lot of work to be done, both in sort of District discussions, but also in terms of our own work to figure out the optimized Configuration for that district, what we do know is it's a district with very, very large Very, very large resource base, a lot of infrastructure already in place and the capacity to support very, very large So when we sort of look at Sort of where that could take us to.

Speaker 2

Today, we have the sort of Capability of doing around sort of 60,000 tons a day at Pinsa Valley. With the sort of district resource base that is there, One could certainly see that being sort of potentially tripled in terms of Processing sort of throughput rates. And just looking at kind of average resource grades in the area, that's how we That calculates to the kind of numbers that you're referring to. And that's obviously in addition to what we're currently producing At Pinsa Valley. So that's as I say, it's early stage work.

Speaker 2

There's a lot of work to be done. I think that works well for us. We have When we look at our pipeline, we need to complete Monteverde development project. The next phase will be Santo Domingo after that. Obviously, we have sort of in parallel potentially sort of Montebello optimized and Montebello's Phase 2.

Speaker 2

And I think That gives us the time to really work through what is the optimal approach to developing this as a world class district.

Speaker 6

Thanks for that, John. I'll jump back in queue.

Speaker 7

Thanks, Shankh.

Operator

Thank you. The next question comes from Ralph Eddie of 8 Capital, please go ahead.

Speaker 8

Thanks, operator. Good morning, everyone. I just want to come back to some of John and Cashel's commentary. And Cashel, you talked about this comprehensive component and infrastructure assessment at Pinto Valley And this testing that's going to be going on. And just wondering how that plays into sort of the district growth plan that was just addressed, Because that in of itself has investments in mill expansion required.

Speaker 8

And just wondering if you're going to be stress testing some of those scenarios In the study that will give us a line of sight into that.

Speaker 4

Sure, Ralph. What we're doing with the study and it's a joint task force and we do work with the partner Property owners in the region, principally BHP, is understanding what is available to us And simply we're in trade off studies now, whereby we're evaluating what are the end members of what is possible. So one of the end members, for example, we would be stress testing is what is currently capable of expansion At the Pinto Valley processing facility itself with obviously the ongoing maintenance focus And upgrading. And the idea would be is if you were to optimize the resources available to you within the district As far as Old Dominion, including Copper Cities, is there a way to high grade the district to increase The grades going through our current facility and what incrementally could we increase our current facility's production rate per day To accommodate that. So that's one end member.

Speaker 4

John described, I thought quite well, the other end member, which is maybe What if we added processing facilities in strategic locations to where those resources are To increase the district product per day and it could be as much as 150,000 ton a day with the sum of all 2 processing facilities and then utilizing all the resource in an optimized mine fashion To be able to determine what the output is. So that's the exercise underway. That exercise is key to determining what kind of partnership We would arrive at and that's sort of the work that our technical services team jointly With the likes of BHP are working on to understand what is in the art of the possible, Knowing that the resource is there, we validated the resource at Copper Cities. We know there are key underground We're really excited about this being the next leg of growth for Capstone Copper after Santadomingo.

Speaker 8

Okay. That's helpful. Thanks, Cashel. I wanted to ask a second question and more as a follow-up To the Asenco and specifically the slide that dealt with the case studies. And just as a point of clarification, Is Asanko sort of benchmark on the industry standard or are they giving you sort of a more of aggressive timeline based on their precedent, Right.

Speaker 8

And because you sound pretty confident that the proper incentives are in place regarding execution, which would put commissioning sometime in and around Q3 of 2024?

Speaker 4

Yes. Like I am pretty confident. This is They have a their Chief Technical Officer is a guy named Greg Lane and he's well known in the industry for copper flotation circuits and he's proven it up. He's the proof is in the pudding. They ramp up better than what industry standards are.

Speaker 4

We all know and we all hear about other ramp ups That take considerable time and considerable pains. And Asanko is one of the engineers that have found a niche And their niche and their expertise is in copper plant ramp ups. And so it gives me confidence. What I will tell you is, is Budgeting purpose wise, we've assumed industry standard. Ambitiously And confidently, I think we'll exceed that standard.

Speaker 8

Thanks, Kasher. Very helpful.

Operator

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

Speaker 9

Hi, good morning everyone. A couple of quick questions for me. Johnny, you gave good clarity in terms of the capital costs for the MBDP Optimized expansion of $150,000,000 Anybody can kind of give us a sort of broad sense of what the cost will be for the Montos Blancos Phase 2 optimization?

Speaker 2

Yes. Thanks, Craig. It's work in progress. And I think sort of the approach To how we're going to deal with the, Manus Blanca's Phase 2, I think is also evolving. I would say sort of the quick answer to your question is probably sort of in the sort of sub $100,000,000 range To get us up to 27,000 tonnes per day.

Speaker 2

I think the approach that we're looking at, We are taking a lot of learnings from the current sort of commissioning and ramp up of the plant. And I think one of those learnings is that rather than sort of do a project that steps us up from 20,000 up to 27,000, we might well look at Doing it in steps, sort of a progressive debottlenecking through each item of the plant, it will move us in steps up to that 27 1,000 tons a day. That capital number which I mentioned, there's not actually that much that's needed within the plant. I would say at least half of that amount is actually additional mine equipment to provide the sort of additional throughput. So It's really more a question of tweaking what is there already to get us up to that throughput rate.

Speaker 2

There's work in progress on that. We have, for example, a number of the sort of smaller older mills that are available That can be utilized to get us to the 27,000 tonnes a day. However, what we are seeing is just with the current 2 mills that we're running for the current Project. Those may have the potential actually to get us all the way to that tonnage without even needing those smaller mills. So this is really where we're looking at sort of what is the most efficient sort of project configuration To get us up to that throughput rate.

Speaker 2

And that throughput rate really sort of represents the optimal kind of pillar value Throughput rates for the current resource base as we know it.

Speaker 9

Okay, great. Thanks for that. And just one other question, just with regard to the decision to sanction Santo Domingo, you said it's obviously contingent on a few things, the macro environment. They also mentioned the ability to deleverage your balance sheet. What kind of financial metrics are you guys sort of comfortable with in order to go ahead and sanction that project?

Speaker 2

I'll pass that one across to our CFO to Raman.

Speaker 3

Yes. I mean, Craig, we always say we want to be Below 2 times net debt to EBITDA, and then we'll kind of lever up during the build phase. So like making sure the numbers South of that would be a good proxy. But look, when you look at MVDP, it quickly starts bringing our net debt closer to one time. So I think Somewhere between that 1 to 2 before we layer it back on, but we view that as back end of 2024.

Speaker 9

All right. Great. Thanks, guys.

Operator

Thank you. The next question comes from Stefan Ioannou of Cormark Securities. Please go ahead.

Speaker 9

Yes, great.

Speaker 10

Thanks very much for all the detailed answers guys. Just kind of curious, I mean, it's obviously great to see the transition at Mantos Blancos and Manto Verde from Oxides to sulfides. Just kind of curious, given we're looking at a compelling sort of copper macro going forward, Are there any sort of plans maybe in the background to nevertheless look to augment those mines with additional oxide output

Speaker 4

Going forward?

Speaker 2

Yes. Thanks for the question, Stefan. Again, the short answer to that is yes. We're looking at lots of different ideas. As you know, sort of it's both the SX EW plants, Monteverde and Montes Blancos, Have a capacity of 60,000 to 65,000 tons of cathode per year each.

Speaker 2

At Montes Blancos, We're producing in the region of sort of 15,000 tons or so. A year at Monteverde going forward for the next 15 years or so, it's in the region of sort of 30,000, so about half the capacity. So we have between half and three quarters of that S-XEW plant capacity that's available. So starting with Monteverde, We've got a lot of different options. We know there's 90,000,000 tons of oxide ore at Santo Domingo, which was never part of the project.

Speaker 2

They couldn't justify with that tonnage building their own S60W. So today, it clearly makes more sense to sort of Leach that material and utilize sort of pipe the PLS to Monteverde and utilize that capacity. So that's Because that was never included in the previous project, there's some drilling work and some met work that's needed before we can kind of confidently include that. But That work is underway and we're very positive about it. I would say at both operations, there's obviously The possibilities of sulfide leaching, we have low grade sulfides at both Montes Blancos and Monteverde, which Certainly could be used for kind of additional feed into the SX EW plant.

Speaker 2

One of the things we're looking at, at Montos Blancos is we've got it's an old mine. It goes back to the sort of late 50s, early 60s. And so we've got very, very large kind of sort of what you'd call sort of coarse tailings That are quite high grade in terms of oxide grade. And we are looking at The possibility of leaching some of that material, and that could provide a fairly significant feed into our SX EW plant. On our property, we have some sort of known Areas where there are sort of showings of oxides and we will be sort of moving on to investigating Whether those sort of warrant developments.

Speaker 2

And then obviously, we sort of always look at kind of district opportunities That could sort of also feed into sort of either of those SX EW plants. To us, it's any unused capacity is sort of A potential dollar wasted. So we are looking very, very hard at how we over time Make absolute sort of best use of that infrastructure.

Speaker 9

Great, great. Got it.

Speaker 10

Well, thanks very much for that.

Operator

Thank you. The next question comes from Alex Trento of Stifel. Please go ahead.

Speaker 11

Hi, guys. Good morning. So two quick questions for me. First, I just want to go back to Mento Verde. 2024, when you guys start this mine up, One of the key benefits you've reiterated many times here is the expectation for cost to drop.

Speaker 11

Can you just give me an idea of those costs? Based I'm assuming that's based on obviously past studies and stuff, but have those costs been updated due to reflect the Current cost environment, so in other words, I'm guessing or I'm asking is, is that sub-two dollars cost still something that you are pretty confident in achieving? So I'll leave it there for my first one. I'll ask my second one after.

Speaker 3

Yes, Alex. We're just going through our annual budgeting process But those are not old tech report numbers like we refresh them annually and we've seen one of the biggest drivers is going to be energy price. It's going to move away from being coal indexed. So that's going to be some significant savings when we turn the plant on. So yes, they're fairly recent, but we're just going to go through the annual budgeting process a reflection, but a lot of the input cost, one of the major ones is power will be falling off that cold index.

Speaker 11

Okay, perfect. And my second question relates to the surety bond at Minto Mine. I have to admit, I'm not particularly familiar with the accounting treatment of such bonds. But so in simple terms, the $54,000,000 liability, Is this a cash liability that KapStone is expected to pay over the next few years? Just any clarity on that would be appreciated.

Speaker 3

Yes. So we were indemnified the surety bond for Minto when we sold it. So it was Canadian 72 or 54 U. S. And So from an accounting perspective, we recorded the US54 dollars as a liability on our balance sheet.

Speaker 3

And that means, like you mentioned, it will be paid out over time as reclamation is spent on the mine And cash.

Speaker 11

Okay. And kind of assuming over the next 5, 10 years or so?

Speaker 3

Yes, it's probably front loaded, right? So over the a large chunk of it probably over the next 5 years.

Speaker 11

Okay. That's it for me. Thank you.

Operator

Thank you. The next question comes from Benoit Biddings from Clarkson Securities. Please go ahead.

Speaker 7

Thank you. Just looking at the second half guidance for Matos Bankos, it's quite a bit Stronger than so far this year. I'm not a geologist. So how much of a gradual process is turning up that If you could just in terms of timing through the second half? And also what's the potential for the sulfide operations at At Mantos Bankus, in 2024, if the concentrator optimization is successful?

Speaker 4

Yes. So for Mento Verde, we see ourselves through the WACC commissioning by the end of the year. And the worst case scenario, I believe, is by late H1, we'd be fully ramped up at Monteverde development project. But as We've sort of been indicating in the presentation and also the presentation, we're quite confident in Beating industry standards and our setup is going well. So we're optimistic that it will be more in Q1 that will be fully ramped up For Mentor Verde.

Speaker 4

Mentor's plantos. Sorry, go

Speaker 7

ahead. No, sorry. I was more thinking about the amount of Spakos optimization of the concentrator.

Speaker 4

Yes. So we believe by the end of the year, we'll be fully ramped up to design capacity.

Speaker 8

Okay. Thank you.

Operator

Thank you. There are no further questions. I will turn the call over to John McKenzie for closing remarks.

Speaker 2

Thank you. We look forward to updating you again in November with our Q3 results. And until then, Keep well and feel free to reach out to Gerald or Daniel if you have any further questions. Thank you for your continued support and have a good day.

Operator

Ladies and gentlemen, this does conclude the conference call for

Powered by Quartr
Earnings Conference Call
Capstone Copper Q2 2023
00:00 / 00:00