Hudbay Minerals Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 12 speakers on the call.

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals Inc. 2nd Quarter 2023 Results Conference Call. At this time, all participants are in listen only mode.

Operator

Following the presentation, we will conduct a question and answer session. I would like to remind everyone that this conference call is being recorded today, August 9, 2023 at 8:30 am Eastern Time. I will now turn the conference over to Candace Brule, Vice President, Investor Relations. Please go ahead.

Speaker 1

Thank you, operator. Good morning, and welcome to Hudbay's 2023 2nd quarter conference call. Hudbay's financial results were issued yesterday and are available on our website at www.hudbay.com. A corresponding PowerPoint presentation is available in the Investor Events section of our website, and we encourage you to refer to it during this call. Our presenter today is Peter Kekylski, Hudbay's President and Chief Executive Officer.

Speaker 1

Accompanying Peter for the Q and A portion of the call will be Eugene Lee, our Chief Financial Officer and Andre Lauzon, our Chief Operating Officer. 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 as such, actual results may differ materially from the views expressed today. For further information on these risks And uncertainties, please consult the company's 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 U.

Speaker 1

S. Dollars unless otherwise noted. And now I'll pass the call over to Peter Kekalski.

Speaker 2

Thank you, Candice, and good morning, everyone. Thank you for joining us. In today's presentation, I'll discuss our 2nd quarter results, touch on the operating and financial performance of the business and provide insight into recent strategic initiatives and corporate achievements. The 2nd quarter was one of transition and expansion for Hudbay. We took many meaningful steps across the business to enhance our operating platform, deliver production and cash flow growth and create opportunities for potential mine life extension.

Speaker 2

The integration of our newly acquired Copper Mountain Mine in British Columbia has transformed our organization into a premier Americas focused copper mining company With 3 long life mines in Tier 1 jurisdictions, steady 150,000 tonnes per year copper production levels and a world class pipeline of organic copper growth The combined company makes Hudbay the 3rd largest copper producer in Canada. In Peru, operations performed in line with our expectations as we completed the planned higher stripping period at Pampacancha to allow us to access higher grades starting in the Q3 of 2023. And we have achieved those higher grades in July With 1,600,000 tons of ore mined from Pampacancha at impressive grades of 0.63% copper and 0.31 grams per ton of gold. In Manitoba, we completed the implementation of the first phase of the Stall Recovery Improvement Program to deliver higher copper and gold recoveries at We discovered new mineralized zones near Lalor and expanded our long term growth opportunities Through the consolidation of highly prospective land in the Snow Lake region. We also entered into a framework for a potential exploration to explore priority targets on our mineral properties within close proximity to our idled flinflon processing infrastructure.

Speaker 2

We remain on track to meet our 2023 guidance levels as we completed many transitional activities in the 2nd quarter that position us for Strong production, improved costs and higher free cash flow generation in the second half of twenty twenty three. With our now larger and more resilient operating We are well positioned to deliver diversified cash flows to prudently advance our leading organic pipeline of brownfield expansion And greenfield exploration and development opportunities across our portfolio. Now jumping into our second quarter results on Slide 4, Consolidated copper production was 22,000 tonnes, a slight decrease compared to the Q1 As we completed the planned high stripping program at Pampacancha and the scheduled mill maintenance program at Constancia. This was partially offset by a 10 day stub period of production from the newly acquired Copper Mountain Mine. Consolidated gold production was 49,000 ounces, a 4% increase due to slightly higher gold grades and higher gold recoveries in Peru.

Speaker 2

Consolidated zinc production was 9,000 tons, an 11% decline due to lower throughput and zinc head grades at Stalls. Consolidated copper cash costs were $1.60 per pound compared to $0.85 in the prior quarter. This increase was mainly the result of higher mining, milling and treatment and refining costs and lower copper production. The cash costs for the 1st 6 months of the year came in above 2023 guidance ranges, but remained in line with quarterly cadence expectations. We reaffirm our consolidated cash cost guidance as we expect cash costs to significantly decline in the second half of twenty twenty three.

Speaker 2

Similarly, copper sustaining cash costs increased to $2.73 per pound, primarily due to the same reasons affecting cash costs. 2nd quarter operating cash flow before changes in non cash working capital was $56,000,000 And adjusted EBITDA was $81,000,000 both impacted by higher operating costs in Peru associated with the scheduled mill maintenance program And higher planned stripping activities at Pampacancha, which offset higher revenue from an increase in sales volumes. At the end of the Q2, our liquidity included $180,000,000 in cash and $184,000,000 in undrawn availability Finance the redemption of a portion of Copper Mountain's Nordic bonds, which reduced the aggregate amount of the bonds outstanding to $60,000,000 This also improves our ability to deleverage and repay debt sooner than the 2026 bond maturity. Based on the expected free cash flow generation in the second half of this year, we continue to expect to make progress on our deleveraging targets as outlined in our 3P plan for sanctioning Copper World. We are on track to deliver annual discretionary spending reduction targets for 2023 with lower growth capital and exploration expenditures compared to 2022.

Speaker 2

As a result of a continued focus on discretionary spending reductions, Total capital expenses for 2023 are expected to be approximately $15,000,000 lower than guidance levels, representing approximately 5% of our total CapEx guidance for 2023. There are no major capital expenditures expected in the second Half of 2023, which together with the expected increase in production across the business will significantly improve our free cash flow generation in the second half. With the completion of the Copper Mountain acquisition on June 20 and the first shipment of copper concentrate under Our ownership on July 23, our 2nd quarter results were not materially affected by Copper Mountain's operations with no revenues or corresponding cost of sales recorded during the 10 day period in the second quarter. Moving to Slide 5, as I mentioned earlier, our Peru operations performed in line with our expectations this quarter. Constancia produced 18,000 tons of copper, 13,000 ounces of gold, 420,000 ounces of silver and 414 tons of molybdenum.

Speaker 2

With a period of higher planned stripping activities in the Pampacancha pit completed in June and the achievement of significantly higher grade ore mined from Pampacancha in July, the company is on track to achieve the higher expected production in the second half of the year, in line with the full year production guidance ranges. Total ore mined increased by 41% compared to the Q1 as mining activities returned to normal after we reduced mining activities to conserve fuel in response to logistical constraints caused by civil unrest in the Q1. Ore milled was 6% lower than the Q1 due to a scheduled plant maintenance shutdown. Copper grades were slightly lower than last quarter With the continued processing of lower grade ore from stockpiles as we completed the higher planned stripping activities at Pampacancha in June. Recoveries of copper in the 2nd quarter remained at low levels as expected due to higher levels of impurities in the stockpiled ore.

Speaker 2

Recoveries for gold and silver were higher due to higher gold grades and lower zinc content on impurities in ore processed. 2nd quarter combined units operating costs were 23% higher than the Q1, primarily due to higher costs associated with the scheduled shutdown and lower milled ore throughput. Peru's cash costs were $2.14 per pound in the second quarter. However, cash costs are expected to decline meaningfully in the second half of twenty twenty three and the full year cash cost is expected to remain within the 2023 guidance range. Sustaining cash costs were $3.06 per pound, higher than in the Q1 due to the same factors affecting cash costs.

Speaker 2

Looking at Slide 6, our Manitoba operations produced 35,000 ounces of gold, roughly 9,000 tons of zinc, 3,000 tons of copper and 181,000 ounces of silver. Production of copper and silver was higher than the Q1 due to higher grades and recoveries. Production of gold and zinc was lower due to lower recoveries and lower zinc grades, partially offset by higher gold grades. We completed a number of key initiatives aimed to continue to support higher production levels at Lalor, improve metal recoveries at the mills and prioritize the mining of Higher gold grade zones at Lalor in the second half of twenty twenty three as planned. As such, full year production of in Manitoba remains on track to achieve guidance ranges.

Speaker 2

However, with a slower ramp up of gold recoveries associated with Stall Phase 1 recovery improvement project in the Q2, gold production is trending towards the lower end of 2023 guidance range For Manitoba, while zinc and copper production is trending towards the higher end of the production guidance ranges. On the Stall Recovery Improvement Program, the first phase of the project was completed during the Q2. Commissioning of the circuits quickly achieved targeted copper and zinc And we expect to achieve higher gold recoveries in the second half of twenty twenty three. Significant progress has been made at the Lalor mine in optimizing the development drift size, Improving shaft availability and implementing changes to achieve better stope muck fragmentation, which eliminated inefficient trucking of water surface Detailing capacity and defer incremental dam construction activities to future years. We completed planned maintenance at Lalor during the Q2.

Speaker 2

Despite this planned maintenance program, all mined from Lalor increased by 11% from the prior quarter, averaging over 4,500 tonnes per day. Lalo continues to implement improvements to reduce costs and target higher production levels with a focus on equipment fleet availability and building of long haul inventory. Grades in the 2nd quarter were consistent with the mine plan with gold, copper and silver grades increasing by 3%, 42% 28%, respectively, and zinc grades decreasing by 5%. The Stall Mill processed similar levels of ore compared to the first Quarter used downtime to complete the Phase 1 recovery improvement project and the commissioning of new Jameson cells. As a result, there was a buildup of approximately 30,000 tons of stockpiled base metal ore above normal levels at the end of the second quarter that will be milled during the second half of twenty twenty three.

Speaker 2

The New Britannia mill continued to achieve consistent production, Averaging approximately 15.60 tonnes per day. There was a buildup of 15,000 tonnes of gold ore stockpiles, which will be milled during the second half of twenty twenty three. We continue to advance improvement initiatives at New Britannia requiring minimal capital outlays with a focus on reducing reagent and grinding media consumption while further improving overall metal recoveries and copper concentrate grades. Combined unit operating costs in the 2nd quarter slightly increased, reflecting lower mill throughput and the surface ore stockpile buildup. Manitoba's gold cash costs were $10.97 per ounce, higher than the Q1 driven by higher mining costs, treatment and refining charges and low gold production.

Speaker 2

Gold cash costs are expected to decline in the second half of twenty twenty three And the full year cash cost is expected to remain within the 2023 guidance range. Gold sustaining cash costs were $15.21 per ounce in the 2nd quarter. Now turning to Slide 7. The Copper Mountain integration activities are progressing in line with our expectations and over 50% of the targeted annualized corporate and tax synergies have already been achieved to date. Moving forward, we will continue to advance our plans to stabilize the operations, including up the mine by adding additional mining phases and remobilizing idle haul trucks, optimizing the ore feed to the plant and implementing plant improvement initiatives.

Speaker 2

We will provide further plans in the technical report, including an updated mine plan, revised mineral reserve and resource estimates, and updated annual production and cost estimates for Copper Mountain in the 4th quarter. Turning to Slide 8. In July, we announced positive results from our 2023 winter drill program in Snow Lake, Manitoba. The program included the testing of a geophysical anomaly located northwest of Lalor within 500 meters of our existing underground infrastructure. All holes intersected in alteration zone that is known to host the Laurel mineralization with certain holes intersecting several sulfide horizons with zinc And copper, gold, silver mineralization.

Speaker 2

1 of the holes intersected a high grade zone with 3.5 meters of 3.81 percent copper, 3.75 grams per ton of gold and 104.5 grams per ton of silver. The drilling program also included testing of the down plunge copper gold extensions of the Lalor deposit, the first drilling in the deeper zones at Lalor since the initial discovery. This initial campaign consisted of 8 widely spaced drill holes over 2 kilometers and all holes The zone of strong alteration known to host the Lalor mineralization and have shown the potential of higher grade copper gold feeder zones. These initial results are a very encouraging indication that the rocks hosting the rich copper gold mineralization are consistent with Lalor. This quarter, we entered into agreements to significantly consolidate our land holdings in Snow Lake through several transactions, Increasing our holdings by more than 2 50 percent in the region.

Speaker 2

We intend to explore these claims with the aim of finding a new anchor deposit to maximize and extend the life of Hudbay Snow Lake operations beyond 2,030 8. We completed the The acquisition of the Cook Lake properties from Glencore in late June and as shown on Slide 9, Cook Lake properties are located within 10 kilometers of the Lalor mine and The properties include the Cook Lake North and South properties, which are within 30 kilometers of our Stall and New Britannia Mills. We received data regarding approximately 60,000 meters of historical drilling that was completed over 10 years ago at a fraction of Lalo's current known debt. The mineralization indicates that there is the Potential for new deposits in the same favorable mineralized horizons as many known deposits in the area, including the Lalor, 190 1 and Chisel deposits. The Cook Lake properties are untested by modern deep geophysics, which was the discovery method for the Lalor mine.

Speaker 2

In June, we also announced an agreement to acquire Rockcliffe Metals Corp. The enterprise value to Hudbay net of Rockcliffe's Cash is approximately $13,000,000 As shown on Slide 10, the acquisition would add more than 1800 Square kilometers to our land holdings across the Snow Lake area. It would consolidate our ownership of the Talbot deposit And add prospective land adjacent to our PENN2 deposit in addition to other exploration properties in the vicinity of the Stall and New Britannia Mills. Completion of the RockCliff transaction is contingent upon court approval and RockCliff shareholder approval. The transaction is expected to close in the Q3.

Speaker 2

Moving on to Slide 11, we continue to work towards de risking the Copperworld project and we expect to receive our 2 In May, we received a favorable ruling from the U. S. Court of Appeals for the 9th Circuit that refers to the U. S. Fish and Wildlife Services designation of the area near Copperworld and the former Rosemont project as Jaguar Critical Habitat.

Speaker 2

While this ruling doesn't impact the state permitting process for Phase 1 of CopperWorld, it is expected to simplify the federal permitting process for Phase 2 of the CopperWorld project. Furthermore, we are encouraged by the U. S. Department of Energy's recent addition of copper to the critical minerals list. Pre feasibility activities for Phase 1 are well advanced and the pre feasibility study is expected to be released in the Q3 of 2023.

Speaker 2

We intend to initiate the process of establishing a minority joint venture partner prior to commencing a definitive feasibility study, which will allow the potential joint venture partner to participate in the funding of the definitive feasibility study activities in 2024, as well as in the final project design for CopperWorld. During the Q2, we were proud to have launched our company's purpose statement, which is shown on Slide 12. Our company enjoys a rich history that grounds us and a purpose that leads to a bright future. Our purpose, We care about our people, our communities and our planet, embodies how we plan to provide the metals the world needs, work sustainably, transform lives and create better futures for communities. We are committed to finding and producing copper and other The environmental footprint, ensuring our activities benefit the communities near our operations and delivering dependable value for our stakeholders.

Speaker 2

I will conclude the conference call presentation on Slides 13 and 14, which detail our enhanced copper production platform of 3 operating mines in Tier 1 jurisdictions providing near term production growth and free cash flow generation along with leading organic growth. After completing a transitional Q2 with the Copper Mountain Mine acquisition, a successful Pampacancha stripping period and completion of the Stall Recovery Improvement Project, We are well positioned to deliver strong production growth and significant free cash flow generation in the second half of twenty twenty three. Of note, Copper Mountain integration and mine stabilization are progressing as planned and Constancia has already delivered higher copper and gold grades in July, in line With our production and cash flow cadence as projected for 2023. This medium term production growth and diversified free Cash flow generation will enable us to pursue a longer term investment opportunities in our leading organic growth pipeline at Copperworld for Constancia Satellite Properties as well as potential mine life extensions in Snow Lake and Copper Mountain, which provide unparalleled copper and gold optionality for investors. We continue to believe that copper has the best long term supply demand fundamentals with the growing demands from global Hudbay is uniquely positioned to benefit from the strong outlook for copper with an attractive copper production growth profile.

Speaker 2

Hudbay offers investors the highest near term free cash flow yields coupled with significant long term upside through our leading copper mineral resource base. And with that, we're pleased to take your questions.

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. We will pause for a moment as callers join the queue. Our first question comes from Orest Wowkza of Scotiabank. Please go ahead.

Speaker 3

Hi, good morning. I wanted to talk about the balance sheet and some of the strategic directions of the company. I was surprised to see the net debt increase As much as it did quarter over quarter, I think about $265,000,000 largely from the Copper Mountain transaction. But I'm curious, given the optionality that you have at Copper Mountain with, I guess, for stabilizing that asset and then potentially growing it, can you just remind us, Have the criteria changed at all for the development of Copper World? And I believe one of the previous criteria was a minimum cash balance of 6 I'm just wondering if any of these metrics have changed given Copper Mountain is now within the portfolio?

Speaker 4

Hi, Orest. It's Eugene Lee here. Good morning. No, the criteria has not changed. In fact, As Peter mentioned in his remarks, the addition of Copper Mountain enhances our ability to unlock the pipeline, including Copper World.

Speaker 4

So Yes, the net debt did increase during the quarter. We assumed $145,000,000 Of the Nordic bonds with Copper Mountain, that's a short term increase and There were some transaction costs related to it. So we are on track to meet our deleveraging target progress Toward that 3P plan, so this would be the high point in our net debt and our net debt to EBITDA ratio and we expect To actually make meaningful progress toward that 1.2x leverage ratio even this year. So and beyond that this year, obviously, Copper Mountain will provide a stable platform of copper production and free cash flow through to the end of the decade and that would enhance our ability to

Speaker 3

Okay, Eugene. But just as a follow-up, does this push out the potential Development timeline for Copper World, just given it's going to take you longer to reach those debt metrics?

Speaker 4

No, It does not push out timelines for Copper World. It actually enhances our ability to do so. So we expect to get to the 1.2x net debt to EBITDA And the $600,000,000 minimum cash amount in the timelines that we outlined and we think this is a stronger platform during the build period for Copper World.

Speaker 3

Okay. And then just shifting gears quickly, Peter, can you remind us when we could start To see some exploration results coming out of the satellite deposits near Constancia?

Speaker 2

Yes, certainly, Orest. I think that I mean, I think the first comment that I would make is the process in the turning process in Peru It is fairly complex and it's difficult to put a timeline onto it. So we have completed all the technical activities that are required to submit the application For the exploration permit, and we're effectively now in the hands of the government. But It could take up to a year to get those to get the permit. It could also take much less.

Speaker 3

Sorry, Peter, did you say it could take up to a year to get the permits?

Speaker 2

It will take up to a year to get permits. That's correct.

Operator

Our next question comes from Ralph Profiti of 8 Capital. Please go ahead.

Speaker 5

Thanks, operator. Good morning, Peter. I want to come back to this Marubeni agreement and just wondering What allows Hudbay to execute its strategy with Marubeni that you could not have done yourselves? And just sort of can you kind of show us and give us a path to kind of like the strategic rationale there on why a joint venture is the best Way forward for this particular strategy if an agreement were to come through?

Speaker 2

Hi, Ralph. Yes, and thanks for the question. Look, I think a couple of things. One is that I actually my personal experience with joint venture It's been very good and I like working with partners who are motivated to get results. In this specific case, Marubeni is pretty excited about the FlinFlon area And Marubeni is prepared to fund the activities associated with the initial exploration program.

Speaker 2

So rather than us Dishing out cash during a period when you really are trying to increase our cash balance And move towards the targets that Eugene just outlined, somebody else gets to spend the money at this point. And we have very, very close alignment with these And they would of course be potential partners for us in other initiatives.

Speaker 5

Okay. Yes, fair. The original agreement did outline a $10,000,000 to $15,000,000 investment or up to that for exploration. I'm just wondering is that an annual figure and could we infer anything that when you proportionalize that against Sort of the Manitoba $15,000,000 of exploration that HUD's base spending on a standalone basis, that's something like a fifty-fifty is sort of in the range of what

Speaker 2

Yes, I think it's early days. So the commitment that they're indicating is a one time commitment. And I guess depending on the results, we'll take it from there. Okay.

Speaker 5

Thanks, Peter. That's it for me.

Speaker 2

Welcome. Thank you.

Operator

Our next question comes from Lawson Winder of Bank of America. Please go ahead.

Speaker 6

Thank you, operator. Hi, good morning, Peter, Eugene and Andre. Thanks to hear from you guys. I just wanted to touch base on Copper Mountain. So you did not You mentioned the guidance from the prior owners, but did mention that you'd update that in Q4.

Speaker 6

I'm just wondering if you can give us an early look on what you're thinking around that guidance and whether or not The production is achievable for 2023, particularly with respect to comment you've made prior that The owners previously were high grading that mine. Thanks.

Speaker 2

Hi, Lawson. Look, I think we expect Copper Mountain to Better in the second half of the year versus the first half, with stronger expected throughput levels. But the mine may not have met the previous guidance issued by Copper Mountain Mining Company. I would say that we're still finalizing our detailed plans, which will be in our Technical report in the Q4 of the year and we expect to provide 2023 guidance for the Copper Mountain Mine with our 3rd quarter results.

Speaker 6

That's fine. And then I wanted to ask about balance sheet strength and whether or not I mean you've entered into some copper Hedges, you've deferred some additional CapEx this quarter in addition to some From prior quarters. I'm just curious, are there any other things you're sort of considering to help sort of conserve cash and accelerate that Balance sheet strengthening process.

Speaker 4

Hi, Lawson. It's Eugene here again. The expected free cash flow in the second half of this year is very strong. So if you look at our production profile, we're expecting copper production to be in the second half to be pretty much double what our copper production was in the first half. And Given the margins in Peru and particularly the high grade, the free cash flow generation is going to be significantly back end weighted.

Speaker 4

So As I mentioned to Orest, we expect the second half of this year to be a very strong in production and free cash flow. We did do some hedges in the Q1 for the second half of this year. With that in mind that there was back end weighted and want to make sure that we protected some of Cash flow and those hedges still exist, the color between $395,000,000 and $428,000,000 And as well as some forwards that we got that we put in for the Copper Mountain Mine with our JV partner, again, to ensure That we realized strong cash flow. So we expect to be in a very in a stronger cash position by the end of the year. We expect to have meaningfully made progress on the net debt to EBITDA ratio with the inclusion of Copper Mountain in the second half of the year.

Speaker 4

And so we're pretty pleased with sort of this point, the starting point. And As Peter mentioned, this is really the very significant inflection point in our production and free cash flow generation.

Speaker 6

Okay, great. And just maybe one final question for me on Copper World with the study anticipated quite soon. So I mean, But my sense from your comments is that the PFS will feature either an elimination of the sulfide leach Or a consideration for delaying the sulfide leach. And my guess is that $400,000,000 to $500,000,000 So the question is, I mean is that accurate? I mean could you is that kind of the Scope of CapEx reduction we'll be talking about if you could eliminate the sulfide leach and then what is your thinking on that versus on elimination versus deferral?

Speaker 2

Listen, I would say, in general, you're right. That's certainly what we are contemplating. The question that we really so the technical work has been completed for the PFS. Really what we're considering at this point Is what sulfide leaching looks like in terms of timeline. I would say that Copper's inclusion by the Department of Energy in their critical minerals list also may influence the timing associated with When we would build a sulfide or a concentrate leaching facility.

Speaker 2

But we haven't taken It's not fully baked yet, but you can expect it to be fully baked by the time we release the PFS. Andre, would you add anything to that? No, I think. Okay.

Operator

Our next question comes from Greg Barnes of TD Securities. Please go ahead.

Speaker 7

Yes, thank you. Just sticking with the copper world, noted the state permits have slipped into early 2024 now when do you expect to get them from, I think mid-twenty 23, just some background behind what's going on there.

Speaker 2

Hi, Greg. Thanks for that. Look, you could also it's I view it in marginally positive light in a sense. So As you know, the state permits are technically driven permits. And we've been working very closely with Arizona Department of Environmental Quality to ensure that they have all So based on several productive interactions with the ADEQ, the review process is progressing well.

Speaker 2

Both parties are focused on ensuring that the permits are robust and defendable. But in that respect, Arizona, the ADEQ asked for additional geotechnical data, Which actually required us to do some additional drilling. So the process is expected to stretch out a little bit longer, but it doesn't impact our timelines as We won't be able to be in a position to sanction the project until 2025 at the earliest in any case based on our 3P plan for sanctioning CopperWorld. But I would say it is It's not a negative reflection by any stretch of the imagination. I would say it is more positive because of the continued Close collaboration with ADEQ.

Speaker 7

Thanks, Peter. And Eugene, On these Nordic bonds, the Copper Mountain bonds, is the plan to pay off the balance, the basically $60,000,000 in the second half of the year with the free cash flow that you will generate? And then The amount that you put on to your own credit facility, would you pay that back to in the second half of the year?

Speaker 4

Thanks for that question. Yes. We took on the bonds as part of the transaction. They had a change of control put that was exercisable Within 20 days of the transaction, that's why these were classified as a current liability. Since that date, we've taken $86,000,000 of that redeem that and put that on our revolver, which really increases our financial flexibility to pay those off Before the 2026 maturity.

Speaker 4

So this gets to our deleveraging targets. And so with the free cash flow generation that we expect In the second half of this year, I think we would be in a position to certainly do that well before 2026. With respect to the remaining bonds that are not on a revolver, The $59,000,000 we'll take our time. The call price is $104 starting in October. So we'll be patient with that and redeem those at the appropriate time, but no decisions been made on those ones yet.

Speaker 4

I think we'll deal with the 90 that we take on the short term to be to sort of deleverage and reduce that cash Balance or they reduced that debt balance certainly sooner than the maturity date.

Speaker 7

Great. Thanks Eugene.

Operator

Our next question comes from Bryce Adams of CIBC. Please go ahead.

Speaker 8

Good morning all. Thanks for the call. I wanted to go back to Copper Mountain. Eugene, you mentioned the small Ford sales there. Sorry if I missed it, but Why were those added?

Speaker 8

And given that it's only 2,000 tons, does the volume go higher in the near term?

Speaker 4

Yes, it represents approximately 10% of the production In the second half of the year as originally projected, it's a you may recall that Copper Mountain previously had collars. I think it was 360 floors in the collar. And so given the production In the second half of this year with our partner, there was a joint decision to ensure that there was strong free cash flow generation while we stabilized the mine. $3.86 is the average price and it's done the 2,000 tonnes are in equal amounts From August till December on a monthly basis.

Speaker 8

Okay. So you don't expect to add any more there?

Speaker 4

Opportunistically, we could look at that, but the plan at the moment is that it's just a bit of insurance again to Ensure that we have stable cash flows while we stabilize the mine.

Speaker 8

Okay. And then maybe for Andre, For the expansion potential at Copper Mountain, prior management had looked at 65,000 tonnes per day that looked at other trade offs up to 100,000 tonnes a day. How are you guys thinking about the expansion scenarios there?

Speaker 9

Good question. So In the short term, like Eugene had mentioned, our plan is to stabilize the operation and get it to The established infrastructure at site, which is around the 45,000 tonnes per day. And we'll look at there's lots of optionality To increase production, the current permit is up to 50,000 tonnes per day and so we'll look to For opportunities with improvements to increase to that, any further expansions which are possible, They would have to compete for capital in our pipeline across the overall business. And so not ruling it out at the moment, But we see stabilizing, getting it to the 45, potentially getting it to the target of the permit current permit limit As the sort of the near midterm focus for us at the time.

Speaker 8

Okay. So it sounds like Expansions above the current permit level for Copper Mountain would be on the other side of Copper World.

Speaker 9

Lots of things can happen, right. So with the project, it gives us all kinds of optionality within our portfolio as things Change, it could be accelerated or it could be after. But right now, the main focus Just to make it a strong cash flow generator that could help enhance the 3P pallet plan that Eugene and Peter mentioned in their remarks.

Speaker 8

Okay. That's it for me. Thanks to everyone.

Operator

Our next question comes from Alex Taranto of Stifel. Please go ahead.

Speaker 10

Hey, good morning, everyone. I just wanted first question just to circle back on earlier question about Drilling exploration drilling in Peru. I just wanted to clarify, have the permits for drilling at Maria Reyna And, Kevin, had they been submitted now? I just want to get some clarity on the up to a year timeline. So I just so that's the first question.

Speaker 2

Hi, Alex. So the short answer is the permit applications have not been submitted yet. They are ready to be submitted. The technical work underpinning those permit applications has been submitted. But we are working with the community to optimize the timeline associated with submission of them because we want to make sure That we have full community support as we move into that process.

Speaker 2

And I'm not suggesting we don't have Community support, but we recently had a community election. And there's a new leader in the community. We want to make sure that Everybody is on-site. So I would say that submission is imminent, but it has not formally been made yet.

Speaker 10

Okay. Okay, great. Thank you. And my second question, on operating costs, both Peru and Manitoba cost per tonne were higher than I And you guys have noted some reasons there. So, but I'm just wondering, can you walk us through how you see cost per tonne evolving over the rest 2023, obviously, expect them to come down a little bit as you guys have made some comments here, but just So a little bit more color on that would be appreciated.

Speaker 10

Thank you.

Speaker 9

Sure. It's Andre. The big driver particularly Is around Peru. And as you recall, from early on in the year when we were on a, call it, a restricted operation and Conserving fuel, we have deferred a little bit of the Papa Conscious Strip. And to get to the high grade where we are now, Over the last quarter, we've had to strip very heavily at Pampacancha and less at Constancia.

Speaker 9

And so Constancia stripping is generally capitalized. It's much longer term where Pampacancha is not as it is short term in nature. And so what you're seeing is less Capitalized stripping against our unit cost per tonne as we went into this heavy phase and now That will start winding down a bit as well on a cost per pound basis. The metal units are going to increase drastically as Eugene said as we go into the second half of the year. We've already seen it.

Speaker 9

In Manitoba, not quite the same story is We're ramping up and so we've seen an increase in production quarter over quarter from Waller Mine and we expect that to grow. The mines We've been debottlenecking a number of processes. We've been successful at the operation around the elimination of hoisting, I mean trucking rock and ore to surface. And so that was around 600 tons a day before. Now with the increased tonnage that we've been producing, All of that's going up the shaft.

Speaker 9

And so we're seeing benefits on that that will improve over time.

Speaker 10

Okay, that's helpful. Thank you.

Operator

Our next question comes from Jackie Przybylski of BMO Capital Markets. Please go ahead.

Speaker 11

Thank you very much for taking my questions. I just have a few quick ones, if you don't mind. First one, if you can maybe give us some color on Where you see stripping of Papa Cartagena going from here? I think this last stripping that we saw through Q1 and Q2 kind of Maybe at least took me off guard, caught me off guard. Are we expecting any more periods of major stripping in the next, well, I guess over the life of Pampacancha?

Speaker 9

There will be continued stripping, but what you saw in the last quarter was us catching up, Right. So when we were in fuel conservation mode, we were not stripping at all and we were just Heavily focused on using all of our fuel to feed the grab from the stockpile and feed the mills. And so this was a bit of an unusual Peak. And so it should stabilize in the coming quarters.

Speaker 11

Okay. That's great. And Staying improved. Maybe just another quick question. I was just looking through some old notes of mine that said that the Collective bargaining agreement with the union in Constancia expires later this year.

Speaker 11

I think I've got November written down. Is that still the case? And have you guys started negotiations

Speaker 9

Yes. So the teams are actively working With our employees and negotiating with also the community agreements as well and they're all on track. There's nothing unusual to note at the moment.

Speaker 11

Okay. And maybe just one last one on Manitoba. I know Peter mentioned at the beginning of the call the Marubeni Agreement in FlinFlon and the RockCliffs transaction at Snow Lake. Can you guys talk a little bit about where you see Throughput through, I guess, specifically the Snow Lake Mills in the future. I know your plans now are To use the shaft at Lalor and not the ramps.

Speaker 11

But do you see opportunity for those mills to get pushed a little harder With external feed, whether it's those properties that I mentioned or other properties that you guys have in your portfolio? Or should we expect that the shaft capacity at Lalor is basically the throughput constraints for the medium term? Thanks.

Speaker 9

That's a good question, Jackie. So like the history of Hudbay in Manitoba has been mining a lot of these Satellite deposits, which we just recently acquired through RockClip. I think we've had 4 very large, call them anchor, we call Anchor deposits, main mine, 777 Trout and Lalor and those were the really big ones. But Of the 28 or 29 minutees that we've mined in our history, the remaining were all of less than 3,000,000 tonnes. And so with the acquisition Of RockCliff and the Cook Lake properties, it brings 5 or so of these smaller deposits that have the Potential to be supplemental feed to Stall Mill.

Speaker 9

There's about 1,000 tonnes a day of capacity at Stall today. The Marubeni, before Before I jump to the Mare of any, that whole Cook Lake area is really, really attractive. It's an exciting there's many more deposits All around the area from Penn to the Balmer zone to the Cook, there's a Cook Click deposit at Rainbow 1. There's mineralization everywhere in this And a range of copper, zinc and gold mineralization, so it's perfect for our mills. And so there's so much to explore in the Snow Lake area, it just makes sense Like with the Marubeni deal in the Flin Flon area, those properties are more focused to the potential reactivation of the Flin Flon Mill, which is on And so there's 6,000 tonnes a day capacity there.

Speaker 9

And so the goal is to try to put together

Operator

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

Speaker 1

Thank you, operator, and thank you everyone for joining today. If you have any further questions, please feel free to reach out to our Investor Relations team. Thank you.

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Earnings Conference Call
Hudbay Minerals Q2 2023
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