MP Materials Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 10 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Lundin Mining Third Quarter 2024 Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your first speaker today, Jack Lundin, President and CEO of Lundin Mining. Please go ahead.

Speaker 1

Good day, everyone. Welcome to Lundin Mining's Q3 2024 conference call. Thank you for joining. Yesterday, we reported our operating and financial results for the 3 month period ending September 30. A press release and presentation summarizing the results are available on our website, where a recording of this webcast will also be made available.

Speaker 1

All figures presented are in U. S. Dollars unless otherwise noted. I would like to remind everyone that today's presentation and certain comments on the call include forward looking information and are subject to risks and uncertainties. For further information, I will turn your attention to the cautionary statements on Slide 2 for reference and our latest relevant filings on SEDAR.

Speaker 1

On the call with me today, I am pleased to be joined by members of our executive team, including Juan Andres Morel, our Executive Vice President and Chief Operating Officer and Tyler Paulson, our Executive Vice President and Chief Financial Officer. Starting with key highlights in the quarter, it was an active Q3 for the company. In July, we announced the transaction to acquire Filo Mining in partnership with BHP, where we will form a new joint venture to include both the Filo del Sol and Jose Maria projects located within the Vicuna district in Argentina. This transaction sets the company on a trajectory to grow our business considerably from where we are today. The deal aligns with our long term corporate ambitions to become a top tier copper producer with a best in class approach to responsible mining and we'll provide further details later in this presentation.

Speaker 1

Another key highlight in the quarter was increasing our ownership in Casaronis by a further 19% to 70%. This immediately adds valuable copper tonnes to the company's attributable production profile. Casaronis is a long life asset with favorable cash flow generation and complements Lundin Mining's portfolio given its proximity to Candelaria, our largest copper mining operation just over 100 kilometers to the northwest and to the Jose Maria project, which is approximately 30 kilometers to the south. Highlighting our operational performance, we achieved copper production of approximately 100,000 tonnes and are on track to come within our annual copper guidance range, which has been updated to 366,000 tonnes to 389,000 tonnes. We have tightened the guidance ranges on several of our operating assets as we head into the end of the year.

Speaker 1

Candelaria had an excellent quarter producing 50,000 tonnes of copper driven by planned higher head grades in Phase 11 of the open pit mine. This was one of Candelaria's strongest quarters on record, which contributed to solid revenue performance of over $1,000,000,000 for the company in the quarter. Referring to our other metals, we produced 46,600 tons of zinc and 47,000 ounces of gold in the quarter. The $1,100,000,000 in revenue translated to approximately $458,000,000 in adjusted EBITDA for the period. And lastly, we declared our regular dividend to shareholders for the 31st consecutive quarter.

Speaker 1

Juan Andres, our Chief Operating Officer will now discuss the performance of our operational assets.

Speaker 2

Thank you, Jack, and good morning, everybody. As previously mentioned, the improvement in grades in Candelaria has put the company in a good position to meet consolidated copper production for the year. Copper production for the company was 100,000 tonnes for the quarter, which is close to a quarterly record for the company. During the period, gold production totaled approximately 47,000 ounces, which is very good in a very strong gold price environment. Gold production was primarily driven by stronger grades at Candelaria and Chapada.

Speaker 2

At Candelaria, production was 50,000 tonnes of copper and 29,000 ounces of coal. As planned during the quarter, the company mined higher grade material from Phase 11 and copper head grades averaged 0.76% for the period with several days over 1%. We expect these higher grades to continue throughout most of the Q4. As previously announced, in August, the job action at Caserones, which lasted 14 days impacted production. During this period, we ran at half capacity.

Speaker 2

We were able to reach an amicable solution with a union at Caserones and a safe back to work plan and an efficient ramp up operation was achieved. During the quarter, the mine sequence at Caserones was impacted by the strike along with hydrogeologic conditions in Phase 5 of the pit, which led to a change in the mine sequence resulting in lower grades and recoveries during the quarter that also contributed to lower production. For the remainder of the year, we'll continue to focus on throughput and recoveries in the mill. In September, we averaged 4,400 tons per hour, which is an improvement of 200 to 300 tons per hour over the historical performances. We have updated guidance at several of our assets, including Caserones that we will get into later in the presentation.

Speaker 2

Production at Chaparral was in line with expectations. Mill throughput was strong and we processed 6,000,000 tonnes in the quarter to produce 11,700 tonnes of copper along with 18,000 ounces of gold. Higher gold grades were generated from fresh ore from the south and central pits, which replaced planned feed from older low grade stockpile in order to prioritize coal production in light of elevated coal prices. Included in other copper production is Neves Corvo, which produced 6,700 tonnes, Zincgruvan, which produced 1400 tonnes and Eagle that generated 1,000 tonnes of copper for the quarter. Zinc production this quarter was in line with last quarter at 46,600 tons.

Speaker 2

At Neves Corvo, zinc production was 29,500 tons. Operations continue to focus on ore and planned availability to increase throughput going into the Q4. Good progress is being made on the mining method adjustments and the updated cable bolting requirements. During the month of August, there was a record in shaft hoisting of 440,000 tons over the month, in addition to a record zinc production of 10,500 tons. During the month of September, the daily shaft hoisting of 19,000 tonnes set a new record for the mine.

Speaker 2

I just want to congratulate the team at Neves Corvo on a job well done. Zinc Groupon produced 17,100 tons of zinc. Production was impacted by lower grades in the month of August caused by a change in sequencing from unplanned maintenance interruptions and challenges with pace delivery and wet ore. We expect zinc rates to improve over the remainder of the year. Ramp rehabilitation continued at Eagle throughout the quarter, limiting access in the lower Eagle East ore body.

Speaker 2

The mean ran at reduced capacity during this time. Nickel production was 900 tons for the quarter. RAM rehabilitation has largely been completed and we expect throughput rates to increase in the Q4. Eagle is tracking to the revised guidance of 7,000 to 9,000 tons of nickel for the year. As we enter the latter half of the year, we were able to tighten guidance ranges and reiterate consolidated copper guidance for the year, which is now 366,000 to 389,000 tons.

Speaker 2

The higher head grades at Candelaria from Phase 11 are expected to continue throughout most of the 4th quarter, putting us on track to meet the upper end of the original guidance at Candelaria. We have tightened this range and slightly increased it to 165,000 to 173,000 tons. At Casa Lones, the reduced throughput as a result of the labor action impacted full year guidance and we have adjusted production estimates to 121,000 to 125,000 tons of copper, which is in line with the original guidance from the beginning of the year. Guidance at Zinkgruvan has increased from 79,000 to 83,000 tonnes of zinc. These increases were offset by adjustments at Neves Corvo and overall consolidated zinc production has been adjusted to 190,000 to 199,000 tons for the full year from 195 1,000 tons to 215,000 tons.

Speaker 2

Annual goal guidance has remained unchanged at 155,000 to 170,000 ounces, which incorporates an increase in guidance at Chapada offset by the slight reduction at Candelario. Last quarter, nickel production was adjusted and we expect to be able to meet the revised guidance for the remainder of the year. As mentioned, ramp rehabilitation has been primarily completed and we anticipate throughputs to increase in the 4th quarter back to normal levels. Overall, we are in a good position to achieve our consolidated cover guidance range as we outlined at the beginning of the year. The upper end being slightly revised as we enter the Q4 and we have a greater visibility to the remainder of the year.

Speaker 2

Throughout the year, we have been discussing some of the asset optimization efforts we have been undertaking at Chapada, Candelaria and Casa Dones. Chapada is the most advanced where we are well into the implementation phase of the optimization. In 2023, at Chapada, we started a full optimization exercise to identify savings and improvements. Over the last year, we have achieved significant savings, and we have been able to reduce our cash cost by approximately $0.25 to $0.35 per pound. When we look at the 20 22 actual cash cost of $2.08 per pound and year to date, we're sitting at $1.75 per pound, which is about $20,000,000 to $25,000,000 per year difference in free cash flow, which is a great outcome and we think we will be able to continue to save costs in certain areas that will help offset some of the cost pressures that we have seen.

Speaker 2

We have been able to improve haulage cycle times, fleet availability, blasting fragmentation and contracting strategy. In conjunction with the optimization efforts, we have redesigned the mine plan, which has reduced annual mining rates by 30,000,000 tons while maintaining the same production profiles as previous. This has been achieved through optimizing stockpile feed levels and we now blend approximately 30% or 6000000 to 8000000 tons to our mill feed from the stockpile and reduced annual stripping requirements. This has helped lower our average strip ratio from 3.4:one from 2.4:one and reduced mining cost per tonne mill from $9.50 per tonne in 2022 to $6.50 per tonne. We continue to work on gold recoveries and especially on some of the older stockpiles.

Speaker 2

We have ran various tests with different reagents to improve recovery. A 5% recovery improvement could add over $100,000,000 in NPV over the life of the mine. This will be a continued focus for us. The annual savings identified will be included in our 2025 loan plan and cash cost guidance we will put out in January. An updated technical report for Chapada will be filed next year as well.

Speaker 2

We're running the same asset optimization exercise at Candelaria and Caserones focused on productivity, process improvements and efficiencies to drive down costs. We are currently in the design and early implementation stage of this process and will provide more updates as we advance in this initiative.

Speaker 3

I will now turn the call over to Teitur to provide a summary on financial results. Okay. Thank you, Panjreus, and good morning, everybody. So during the quarter, the company generated almost $1,100,000,000 in revenue, which is in line with the previous two quarters and resulting in a year to date revenue of $3,100,000,000 Our revenue mix remains predominantly leveraged to copper with 75% of the quarter's revenue, which is a slight decrease quarter over quarter given higher gold prices and higher gold and zinc volumes sold. Zinc and gold each contributed approximately 9%, whereas nickel only contributed 1% due to the lower sold nickel volumes given that the Eagle Mine has been running as reduced capacity during the quarter.

Speaker 3

Looking at volumes sold and realized pricing for the period, we sold 90,000 tonnes of copper at an average realized price of $4.29 per pound of copper and 41,000 tonnes of zinc at $1.29 per pound. This coupled with the sale of our other metals generated revenue of $1,773,000,000 and is the 5th consecutive quarter with revenue generation in the region of $1,000,000,000 It is also worth noting that the level of inventory held of concentrate at quarter end was higher than normal, particularly at Casa Ronne, where our plant shipment at quarter end slipped into October. During the quarter, provisional pricing adjustments from prior periods were negligible and at the end of the 3rd quarter, there were approximately 90,200 tonnes of copper that were provisionally priced at 4.44 dollars per pound and remain open for final pricing adjustments, as did 16,800 tons of zinc at $1.39 per pound. Production costs in the Q3 totaled $581,000,000 This is a slight decrease from previous quarter driven by lower throughputs at Eagle and the reclassification of rehabilitation costs to other income and expenses as well as by lower sales volume at Casa Rones. Lower diesel costs as well as continued favorable FX on the Chilean pesos and Brazilian real also contributed to lower costs.

Speaker 3

Total costs at Candelaria have been fairly stable over the last few quarters. During the Q3, higher mining rates increased total costs, while higher byproduct credits and favorable exchange rates positively impacted cash costs, which were $1.55 per pound of copper for the quarter. We also recorded a one off charge of around $11,000,000 at Candelaria during the quarter relating to costs associated with repairs and maintenance, which previously have been recorded to inventory. Input costs such as diesel and electricity reduced marginally at Katarone during the quarter, whereas the renewed agreement with one of the labor unions resulted in a one off bonus payment of approximately $6,000,000 A weaker Chilean pesos as well as lower sold volumes resulted in a reduction of $40,000,000 in production costs during the quarter, whilst the lower sales volume led to a higher C1 unit costs to $2.96 per pound. C1 unit costs at Chapada were recorded at $1.37 per pound copper, which is lower than previous quarters and favorably impacted by lower electricity costs, higher byproduct credits as well as a weaker Brazilian real.

Speaker 3

Effective from mid year, Chapada has entered into a new 10 year purchase power agreement with Sirena, resulting in Chapada's electricity price falling from the high 50s to $38 per megawatt hour. Despite various input costs falling at Chapada during the quarter, the absolute production cost increased driven by a higher mill throughput of 6,000,000 tonnes as well as higher sales volume leading to more inventory being charged to production costs during the quarter. Based on the revised production guidance estimates, we have updated cash cost guidance at several of our sites. Chapada cash cost guidance has come down to $1.55 to $1.65 per pound from the previous $1.95 to $2.15 per pound, reflecting a reduction in certain input costs, a higher byproduct credits due to higher gold production and gold prices, as well as a weaker local currency being assumed for the remainder of 2024. Sincro and cash costs have improved to CAD 0.40 to CAD 0.45 per pound of zinc and EBIT costs have increased to $3.70 to $3.90 per pound of nickel.

Speaker 3

All other cost cash cost estimates remain unchanged. Total sustaining and expansionary capital expenditure for the quarter amounted to $201,000,000 which was lower than forecast. We have lowered sustaining capital expenditure guidance across a number of sites resulting in reducing the full year consolidated guidance from $795,000,000 to $720,000,000 The capital guidance revision at Casa Roni was lowered by $40,000,000 to $135,000,000 The change in guidance is the result of a combination of reduced stripping requirements and a delay in capital projects. Candelaria's CapEx was lowered by $25,000,000 to $275,000,000 primarily the result of savings and the deferral of projects into next year, including equipment deliveries and infrastructure projects. At Hosmeria, we spent €50,000,000 during the quarter and year to date we have spent approximately 193,000,000 Capital guidance for the full year at Hosmery has been revised by SEK 5,000,000 to SEK 230,000,000.

Speaker 3

Finally, exploration guidance has been increased by SEK 7,000,000 to SEK 55,000,000 for the year to accelerate exploration efforts at Casa Rona and follow-up on drilling at Cumb Riverde in Argentina after positive results in the first half of the year. Slides 18 19 highlight our Q3 key financial metrics. We generated adjusted EBITDA of $458,000,000 and adjusted operating cash flow was $305,000,000 during the period with cash taxes paid during the quarter of 43,000,000 dollars Free cash flow from operations amounted to $2,000,000 during the quarter and was negatively impacted by a working capital build of $166,000,000 as a result of the timing of sales at Candelaria and Chapada. Adjusted earnings were $73,000,000 for the quarter. We ended the 3rd quarter with a net debt position of around $1,500,000,000 excluding capital leases with our leverage ratio still remaining below one time adjusted EBITDA.

Speaker 3

Our liquidity position remains ample with roughly $1,400,000,000 in availability on our revolving credit facility at the end of the current quarter. The company had certain big ticket cash flow items during the quarter and Slide 20 presents in greater detail the sources and uses of cash in the quarter. Operations generated $305,000,000 of cash flow in the 3rd quarter before working capital of $166,000,000 The company drew down $486,000,000 in debt to fund the Casrona transaction contingent payments at Chapada along with the purchase of shares at Filo, which collectively amounted to a total cash payment of 427,000,000 This was the last contingent payment due at Chapada and the 1st deferred payment to J. X. Knickman for the Casa Rona acquisition.

Speaker 3

A quarterly dividend payment of SEK 0.09 per share was made during the period amounting to SEK 52,000,000 dollars as well as distribution to non controlling interest amounting to 63,000,000 dollars At the end of the quarter, the company had 296,000,000 in cash and cash equivalents. So all in all, another solid financial performance from the company for the Q3 and the company's balance sheet remains very healthy and positions the company well to pursue its growth ambitions in South America. I will now turn the call back to Jack to talk about the recent transaction with BHP.

Speaker 1

Thank you, Teitur. This page outlines the joint venture structure between the company and BHP. As consideration for 50% in the Jose Maria project, which will form part of the new JV, BHP will pay Lundin Mining $690,000,000 subject to adjustments at closing. The transaction will consolidate 2 key advanced projects within the Argentinian Vicuna District and create a leading platform in one of the most geologically prospective regions in the world and establishes us as having one of the leading growth profiles in the copper sector today. On this slide, we can see a planned view of the prolific Vicuna district.

Speaker 1

The Filo del Sol deposit is located to the south of Casarones over the border and is to the southwest of the Jose Maria project in the San Juan province of Argentina. Given the close proximity, both Filo del Sol and Jose Maria would support an integrated development scenario as Jose Maria is positioned several 100 meters lower in elevation in an area that is favorable to large scale fixed infrastructure. With the proximity of our other assets in the Atacama region, which includes Casarones, Candelaria and our port in Caldera and desalination facility, we believe there will be meaningful commercial and development synergies for this integrated project. Touching briefly on the Filo Del Sol deposit. On this slide, we can see a cross section view looking west.

Speaker 1

The drill results and the different mineralized zones in this large deposit demonstrate the sheer scale of this asset. The Aurora zone shows abnormally high copper grades as compared to other copper porphyry mineral deposits as you can see in the center of this image. Aurora has grown into one of the world's largest and highest grade copper gold zones and sits within a large mineralized envelope that further demonstrates the uniqueness of a deposit like Filo. It was drill hole 41 which intercepted 8 58 meters of 1.8 percent copper equivalent And since then drilling has continued and has hit major intersections of over 1 kilometer in length containing approximately 1% copper equivalent, outlining a very large scale base and precious metals deposit that is seen as the crown jewel of this giant metal district. The assets within this JV once in production have the potential to rival the largest mines in the Andean corridor.

Speaker 1

Over the past several years, the Jose Maria team has been dedicated to moving the project forward and we plan to build on this foundation in collaboration with BHP and with integrating the Filo del Sol project. In September, Filo shareholders voted overwhelmingly in favor of the deal and the plan of arrangement was approved by the courts in October. We anticipate the deal to finalize in the Q1 of 2025 where we plan to provide an update on the next steps following closing of the transaction. Another significant business development opportunity for the company was in executing the option to increase ownership in Casa Ronis from 51% to 70%, which adds approximately 20,000 to 25,000 tons of additional attributable copper production to the company's production profile. Casaronis is a long life mine, which yields strong cash flow generation and given its geographical location strategically fits well within our asset base.

Speaker 1

We acquired operatorship in 2023 and see meaningful opportunities to improve the mine through our asset optimization programs as outlined by Juan Andres earlier in the presentation. Staying within the Vicuna district, but moving to exploration, we are looking here at a panoramic view of the area facing West. The company is accelerating exploration efforts at Casaronis as we now enter the spring season in the Southern Hemisphere. Preparations to restart near mine drilling at Angelica were made at the end of the quarter. Additionally, we increased our exploration budget for the remainder of the year to target higher grade copper breccia mineralization with the objective to improve grades at the existing Casaronis resource.

Speaker 1

Just over the border at Jose Maria, preparations are underway to recommence our drilling campaign at Cumbre Verde after positive results in the first half of twenty twenty four. Cumbra Verde is located in close proximity to both Filo del Sol and the Jose Maria project as outlined on this graphic. One can also get a good sense of the topography in this region from this image. We summarized this quarter as being characterized by solid copper production, which resulted in over $1,000,000,000 in revenue for the company and nearly $460,000,000 in adjusted EBITDA. Candelaria had one of its best quarters on record producing 50,000 tonnes of copper at a cash cost of around $1.55 per pound.

Speaker 1

We anticipate following up with a solid 4th quarter to finish the year within the copper production guidance ranges for 2024. Operationally, our team continues to focus on business improvements and optimizing our assets to capture significant savings as Juan Andres discussed earlier. We were active in the quarter growing value for the company by seeking new business opportunities. Last year, we purchased 51 percent of Casa Ronis, which can do in excess of 120,000 tonnes of copper per annum year over year. And this quarter, we increased our ownership up to 70% as our confidence in the asset has continued to grow.

Speaker 1

The creation of a long term partnership between Lundin Mining and BHP to jointly develop the Vicuna District in Argentina represents a truly unique opportunity for the business and aligns well with our strategy of becoming a top tier copper producer, all while continuing to provide significant returns to our shareholders. Operator, I would now like to open the call for any questions. Thank you.

Operator

Thank you. At this time, we will conduct the question and answer session. Our first question comes from the line of Ionis Masvoulas with Morgan Stanley. Your line is now open.

Speaker 4

Yes, hello. Thank you very much for the presentation. A couple of questions from my side. First on starting off with the potential sale of the European assets. What I'd like to ask here is whether you would consider a piecemeal divestment process?

Speaker 4

Or are you more focused on a swift execution with a single buyer that could happen a lot faster? And then within that, would you also potentially consider a stock component in a transaction? Or would you favor a cash deal? Thank you.

Speaker 1

Hey, Jonas. Thank you for the question. So answering your question regarding our European asset sale process, we are progressing. I would say what's the decision to be made for us is if we will divest fully or maintain both assets in the long term in our portfolio. As we've telegraphed, we're not in a position where we're needing to sell.

Speaker 1

This is a purely opportunistic approach that we're seeing based on interest that we've received. And so the process is ongoing. And what I can say is we'd likely see ourselves in a situation where we would divest fully out of Europe rather than maintaining 1 of the assets. But happy to hear your other question now.

Speaker 4

Very clear. Thank you very much. And the second question on going back to Candelaria. You flagged that access to the high grade Phase 11 or should continue for most of Q4. Should we interpret that as grade staying high for October, November and potentially exit the year at a more normalized level as we go into 2025?

Speaker 4

Or is it a scenario where higher grades persist into next year? Thank you.

Speaker 2

Ionis, this is Juan Andres. Thanks for your question. We were going through a high grade zone in Phase 11. So we expect that these higher grades will end by the end of Q4. So we don't see these levels of grades into 2025.

Speaker 4

That's fair. Thanks very much.

Operator

Thank you. Our next question comes from the line of Dalton Baretto with Canaccord Genuity. Your line is now open.

Speaker 5

Thanks, operator. Good morning, guys. I wanted to start by asking about Casa Ronas. The recoveries there seem to be trucking along in sort of the high 70s, low 80s, which seems pretty low to me compared to most other copper mills out there. And I'm just wondering, is there a structural reason for this?

Speaker 5

Is there upside to it? And how far how high can you get them? Thanks.

Speaker 2

Hi, Dalton. This is Juan Andres. During the quarter, we faced a challenge with some issues related to mine dewatering of the Phase 5. So that is the lower pushback in our peak. So due to that, we had to readjust our mine sequence and go back to the Phase 6.

Speaker 2

In the Phase 6, we have higher levels of oxidation. So that is what temporarily affected the recoveries. But now that the dewatering system is back in operation, we're back into the Phase 5 and recoveries should go back to normal levels.

Speaker 5

And so Juan Andres, what are normal levels?

Speaker 1

In the upper 80s.

Speaker 5

In the upper 80s. Thank you. And then if I can follow-up and take a step back there. I think on the last call, you guys mentioned that you would update the market with your full potential initiatives by year end. Is that still your intention?

Speaker 5

I know Juan Andreas touched on Chapada, but maybe if we can get

Speaker 6

an update on some of

Speaker 5

the other assets, that would be great. Thanks.

Speaker 2

Yes. As we as I said in before, as we move forward with the design phase and we enter into the implementation and we start seeing savings being captured and improvement being implemented, we will be reporting to the market on those improvements.

Speaker 5

Okay, great. So it's not going to be like a one formal update on all the projects and potential savings?

Speaker 1

No, I think over time, we'll just try and demonstrate through our asset optimization work that we are bringing down costs or that we are improving kind of performance. And as we've kind of outlined, in this update call with Juan Andres walking us through the Chapada improvements, we are focusing on our larger assets with Casaronez and Candelaria. And I think over time, we'll start to really demonstrate that the operations are performing better through these improvement initiatives and we'll try and telegraph that clearly so you understand where the benefits are coming from.

Speaker 5

Got it. Thanks, Jack. And maybe one last one for you, if you don't mind. Can you remind us what the mandated timelines under WICI are?

Speaker 1

Yes. So the RIGI bill was passed through Congress in July at the federal level in Argentina. And so essentially there's a 2 year window from July to apply into apply to basically adhere to the fiscal framework that is outlined within the RIGI bill. So essentially a 2 year window with an option if needed to negotiate an additional year. So the framework as its position now would have us getting to July 2026 to apply for adherence to the Riggy bill.

Speaker 5

And then once approved, are there mandated timelines around kind of shovels on the ground or spending or anything like that?

Speaker 1

Yes, it's mainly around spending, Dalton, but I think all of that gets outlined clearly when you officially form the fiscal stability with both the province and at the federal level. And so, all of those triggers are to be kind of negotiated when we're getting our fiscal stability established. So essentially, that 2 year window, we want to see a project kind of being ready to be sanctioned with the capital outlay and the schedule to getting into production, and essentially a fully sanctioned project.

Speaker 5

Got it. Thanks, Jack.

Operator

Thank you. Our next question comes from the line of Edward Goldsmith with Deutsche Bank. Your line is now open.

Speaker 6

Hi Jack and team. Thank you for the presentation. The first question was just going back to the European potential European asset sales. Can you give any kind of update on the timing of potential sale in terms of an announcement or completion? And then the second question is just on working capital, how much of an unwind we should expect to see in the final quarter given the sales lag this quarter?

Speaker 1

Hi, there. Yes. So with respect to our European process, we're definitely looking to conclude and come to a decision before the end of this year. And I'll hand it over to Teitur to discuss the working capital question.

Speaker 3

Yes. Hi, good morning. As we said, we had a fairly sizable working capital built in the Q3, over $160,000,000 and main driver there was simply build of receivables at Candelaria and Chapada in particular. Previous quarter in Q2, we had the reverse. We had a release of over 120,000,000 dollars of working capital release.

Speaker 3

And as usual, this all depends on timing of shipments and also the direction of the copper price in the markets. Higher copper price normally builds up more receivables and vice versa. So and we also held quite a big portion of finished concentrate in inventory at the end of the Q3, which will be sold during the Q4. And we are continuously improving payment terms on our spot trades that we are doing. So we are getting cash in the door quicker now than we did, say, a year ago.

Speaker 3

So all that baked in, I would hope we could unwind a fair chunk of working capital in the 4th quarter.

Speaker 1

Great. Thank you.

Operator

Thank you. Our next question is from the line of Lawson Winder with BofA Securities. Your line is now open.

Speaker 7

Thank you very much, operator, and good morning Lundy and team. Thank you for taking my questions. Can I ask about the free cash flow outlook? So just considering spot commodity prices, potential commitments from the Vicuna JV and potential investments into the Candelaria underground and Sahuwah at Chapada, Would you expect Lundin Mining to generate free cash flow in the coming say 2 to 3 years in advance of construction starting at Jose Maria Filo?

Speaker 3

Yes. Good morning, Lawson. Yes, that's a good question. I guess it all depends on quite a number of factors. Obviously, copper prices is a key driver and then also how fast we ramp up expenditure on Rosa Maria as a project.

Speaker 3

I mean, if we go on current rates, we should generate a fairly sizable free cash flow next year where copper prices are now. But if we start to ramp up CapEx on the project next year, which is still to be determined, then obviously that free cash flow profile will reduce. But I think if you take a step back and look big picture over the whole development phase of Jose Maria and Filo, then clearly, we are building up net debt over that period. You can't grow the business without incurring debt, I would argue. So but we are very comfortable where the balance sheet is today.

Speaker 3

We are conservatively leveraged, so we have a great starting point to embark on this growth ambition. And when we project out in time with BHP now funding 50% of the development, we don't really see a scenario where our leverage goes much above 2.5x. And once you're into production, you start to delever that very quickly. So that's why we are saying on the European sales process, that's not a must for us. It's opportunistically driven.

Speaker 3

And if we don't sell Europe, that leverage I talked about is assuming we don't sell it. I think we're in a good position to molder through this growth phase we're going into.

Speaker 7

Great color. Thank you very much, Taylor. And just to follow-up on that on some capital allocation considerations. When might Lundin Mining make a decision on the Candelaria underground and or Sa Uva? And then secondly, when you think about the dividend, is that is the current level something that can be maintained through the coming years and into the start of construction of Jose Filo?

Speaker 1

Lawson, I can answer that question. Thanks for that. In terms of capital allocation, of course, we're looking at an array of projects near term and long term, and we want to make sure that we continue to grow the business. And so we've got the Sahuva scoping study that we're concluding, and it's looking promising and something that we definitely want to continue pursuing. The exploration continues there, and we continue to see meaningful grades and long intercepts.

Speaker 1

So we'll continue looking at the Saova opportunity as an expansion for Chapada. With the Candelaria underground expansion, we're also progressing with optimization work and looking at the opportunity to expand the throughput from the underground where the grades are significantly higher at Candelaria in the underground. So we're pursuing those in parallel while we look at progressing once we close the JV transaction. And then on top of that, we want to have a sound and disciplined capital allocation framework where we are returning to providing returns to our shareholders. So we think that that dividend can remain intact and returns to shareholders can remain intact as we progress on this growth profile that Tiger was outlining.

Speaker 7

Okay, fantastic. Thank you all very much.

Operator

Thank you. Our next question comes from the line of Bryce Adams with CIBC. Your line is now open.

Speaker 5

Good morning all. Thanks for the call. My question is around the guidance update last night and any read throughs for 2025. I think you answered it already for Candelaria, those grades are not sustainable into next year. But what about Chapada gold grade?

Speaker 5

Is there some upside to 2025 estimates? And then the opposite for Neves Corvo, do the 2024 zinc results put some risk on the 2025 outlook? Thank you very much.

Speaker 2

Good morning. Thank you for the question. Yes, the higher gold grades in Chapada was more of an opportunistic approach given the higher gold prices that we're facing. We do not expect those levels of gold grades extending to 2025.

Speaker 5

And then for Neves?

Speaker 1

I think, yes, for Neves, obviously, we're continuing to work through kind of this sequence mine plan sequencing changing since we've changed our regimen for ground support. And so all of that's going into our updated mine plan. But once we come out with our projections for 2025 and our 3 year outlook, we're still kind of refining those numbers and we'll provide that in about a month's time or a month and a half time. So you'll be able to see more clarity on that. But indications are that we should be able to maintain similar to what we've projected in our 3 year outlook.

Speaker 5

Okay. Thanks so much.

Operator

Thank you. Our next question is from the line of Connor MacKay with Ventum Financial. Your line is now open.

Speaker 8

Hi guys. Thanks for taking my question. I just wanted to dig in on the exploration programs coming up here. Particularly, you mentioned that you saw some pretty positive results out of Cumbra Verde earlier this year. Is there going to be some sort of comprehensive Vicuna exploration update where we can get some detail on those results and what you guys are seeing there.

Speaker 8

In addition to that, I remember earlier this year, you discussed potentially testing some further field targets on the Castrone's land package, such as Helados Norte or other more greenfields targets? Yes, just more details surrounding those efforts.

Speaker 1

Absolutely. Yes. Thanks, Connor, for the question. So I think a really exciting opportunity for us is as we've been entering and growing our position in the Vicuna district has been our exploration campaigns. And we did have some positive results, but they really were just kind of scout drilling campaigns that we had in the Cumbre Verde target, which is close to our Jose Maria project.

Speaker 1

So we're now kind of the drills are turning as we've entered the spring season in the Southern Hemisphere. And so we'll look to kind of follow-up on those traces where we definitely found some high grade veining mineralization. And as we continue to kind of assess that opportunity, then I think we'll continue to look at growing and adding meters and cost to the exploration in that area. Casaronis drilling as well. We're really trying to target the deep breccia zones that are part of the existing resource.

Speaker 1

So we've been drilling throughout the year. I think 7 of 8 holes have been completed in the Casarones kind of deep resource area. We've been finding some higher grade breccia zones and we want to follow-up on that, which will essentially help us with the resource model update and probably in the 2026 life of mine plan, we'd start to look at changing that to go after the better grades that we've been finding. But then I think in terms of kind of more pure exploration, we are trying to stay targeted and close to where the existing processing facility is. So you've heard of our Angelica deposit.

Speaker 1

3 of 5 holes have been completed before pausing in the winter. And now we're kind of going back in there and looking to drill, which is an area that has both oxides on near surface and then a deeper sulfide breccia zone, which could be a new porphyry system that we're looking at testing. And so there is a lot of prospectivity around the region that we want to tap into, but we need to kind of stay targeted so that we can turn this exploration success quickly into hopefully a resource reserve and eventually into a mine plan. So Angelica and the Casarones deep breccia zones are focused in that drilling campaign and then the Cumbre Verde follow-up in Jose Maria. And as we continue to get more of an understanding, we'll build on those exploration campaigns.

Speaker 8

That's great. Thanks. And then last one for me, just on Eagle East. So I know you mentioned the rehabilitation as more or less complete. Are we expecting or should we be expecting unit costs to continue to stay elevated?

Speaker 8

Or should those normalize back to sort of pre geotechnical issue levels?

Speaker 2

Yes. Thanks, Conor. As we as I said before, once we complete the rehab and we go back to, let's say, nameplate capacity by the end of the Q4, early Q1 next year, we should see production and cost go back to previous levels.

Speaker 8

Perfect. Thank you very much guys. That's it for me.

Operator

Thank you. Our next question comes from the line of Daniel Major with UBS. Your line is now open.

Speaker 6

Hi there. Can you hear me okay?

Speaker 1

Appreciate it. Yes, kind of, yes.

Speaker 6

Yes, great. Sorry. Yes, two questions. Firstly, in terms of the time line for more information around Jose Maria Fina, you said you're going to provide some more information once the transaction completes in Q1. What should we be expecting there?

Speaker 6

Will this be initial sort of capital schedule production or something more preliminary?

Speaker 3

Line? Yes.

Speaker 1

So as mentioned, we're progressing well through the motions of getting the transaction to close and the joint venture established still targeting kind of the Q1 timeline. At such a time, we would be outlining kind of a work plan that gets us further to de risk both of these assets and bring them together for what would be kind of an integrated project. So after close, we wouldn't be in a position to announce a CapEx and schedule and development plan. I mean, it's more of a work plan to get to that phase. So, still work to be done, but our eyes are really focused on getting the transaction closed and the JV established and then updating after that.

Speaker 6

Okay. Thanks. So just to follow-up on that, you're spending about $130,000,000 sorry, dollars 230,000,000 this year, your share in Jose Maria. What should we be thinking about of the run rate of spend into next year in Argentina?

Speaker 3

Yes. I mean, yes, as you said, with the deal construct, we are running the budget as normal during this year, which is only slightly $5,000,000 to $2.30 as you said. And then the premise of the deal we have done with BHP is that we start to pay heads up fifty-fifty from 1st January next year. As to the budget for next year, it's really too early to say. We obviously need to get alignment with BHP what that budget will look like.

Speaker 3

But as Jack says, we are keen to go after this. And with the Regi bill out there, it's imperative that we progress this as quickly and responsibly as we can.

Speaker 6

Okay. And then just one final one. Just with the Riqui build, to be clear, you gave some details on the sort of time lines to be applicable. If the project scales up over time, so it's modular, would the subsequent expansion phases, if that's the way it plays out, still be covered by the same fiscal term?

Speaker 1

Yes, definitely. So what we're looking at as we've mentioned is an integrated project, which would then theoretically be entitled to the same fiscal stability framework. So as we look to build this out because of its sheer scale, we would need to do so in phases and Phase 1 still needs to be defined. But as we look to scale up and bring more of this mineralization in, then we would we believe we'd be adhering to the same fiscal stability framework.

Speaker 6

Okay. Thanks so much.

Operator

Thank you. Our next question comes from the line of Ionis Masybulas with Morgan Stanley. Your line is now open.

Speaker 4

Yes. Thank you for taking the follow-up question. Just going back to the project sequencing. So with the Rigi bill, have you had a deadline there by July 2026? You probably start spending money there sometime in 2027 in terms of development CapEx.

Speaker 4

But at the same time, you're talking about QJIP and Salva being 2 interesting growth options that probably need a bit more time to mature. So how should we think about the sequencing? Does Jose Maria come first and then the other two options at a later stage? Is there potential to develop some of the projects in parallel? Because there's an element of financing, but there is also an element of project execution that you might be tied up in Argentina as compared to the other projects.

Speaker 4

So interested to hear your perspective here.

Speaker 1

Yes. Thanks, Ayanna. So obviously, the Vicuna, Argentina Phase 1 development is still yet to be defined and therefore kind of the schedule and capital requirement for Lundin Mining will still yet to be fully kind of established. So we're running the near mine, smaller in scale, but meaningful growth opportunities in parallel. And of course, in terms of capital allocation, we want to make sure that we can stack growth sequentially for Lundin Mining.

Speaker 1

So with the Candelaria underground expansion with Sauba, running those in parallel and seeing those is probably more near term opportunities. And then the bigger project with Vicuna, Argentina, which will really level up the company in terms of adding a lot of production to our profile. So we run all in parallel and believe that we've got a strong balance sheet that we'll be able to facilitate growth with all of these different levers.

Speaker 4

Thanks again. Thank you.

Operator

Thank you. Our next question comes from the line of Matt Green with Goldman Sachs. Your line is now open.

Speaker 9

Hi, good morning, everyone. I just have one question, perhaps it's not too material, but you had a busy quarter. I just wanted to ask just about the Casarones labor agreements. We've seen a few of these taking place across other assets in Chile. And I guess the bonus component tends to come through as a one off hit in your accounts.

Speaker 9

Is this has this been captured in the September quarter? And is it also captured in your unit guidance for the year? And then I guess just into next year, are there any further union labor negotiations coming up across the group?

Speaker 3

Yes. Well, I can take one part of it and then Juan Rios can take the second. So yes, that's one off bonus payment around $6,000,000 was fully expensed in the Q3. And in terms of our guidance, we do not include potential bonus arrangements in our guidance since it's hard to predict where we landed all of those. So we and also commercially, it could compromise us.

Speaker 3

So we leave it completely out of our guidance.

Speaker 2

Okay. On your second question, Matt, in Casa Dones, we have 3 unions. We closed the 1st negotiation in the Q1. The 2nd union, as we mentioned before, in August. And right now, we're starting the negotiation with the 3rd union, which we expect to close that negotiation before the year end.

Speaker 9

Okay. That's great. Thanks. And the 3rd union, what percentage of the workforce is that? And then I guess just across Candelaria, any negotiations into next year?

Speaker 2

No, this is just Casa Rones. This 3rd union, it's a group that represents mainly the supervisors. So it's approximately 250, 300 people in that group. And in the case of Candelaria, we signed the collective bargain agreement early 2023 and those agreements should last for 3 years. So we should probably be starting that in 2026.

Speaker 9

That's very clear. Thanks very much.

Operator

Thank you.

Speaker 3

Thanks, Matt.

Operator

This concludes the question and answer session. I would now like to turn it back to Jack for closing remarks.

Speaker 1

Hi, Lois. Thank you, everybody, for the interest and for the good questions. And we had a strong quarter in Q3, and we're looking to follow that up in Q4 and really continue on trend to meet our revised guidance here, both copper and zinc. We've got a good line of sight to maintaining and getting to our budget guidelines. Thank you.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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Earnings Conference Call
MP Materials Q3 2024
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